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Rule of Law

Rule of Law

T HE on-going debate in the American Congress on Most Favored Nation trading

status will have a tremendous impact on the growth of the Cambodia economy. Many

however have only a vague concept of how MFN might affect this country. The

ruminations of American politicians half way across the world are considered

irrelevant to their day-to-day lives in the Kingdom. For the Cambodian

government, looking to attract ever increasing foreign investment, and for those

Cambodian businesses now exporting goods to the United States, nothing could be

further from the truth.

Briefly, the concept of MFN trading status is the

first of two basic principles which serve to reduce barriers to international

trade. A country which grants MFN status to another must apply the lowest

generally applicable tariff rate to goods imported from that country. If,

subsequent to the grant of MFN, the granting nation negotiates a lower tariff

rate with a third country, the lower tariff rate will apply to the MFN country

as well. If Cambodia were to be granted MFN by the United States, therefore,

Cambodian goods exported to the United States would benefit from the lower

tariff rates negotiated between that country and any other MFN recipient. In

practical terms it has been estimated that this would lower the import duties

now imposed on most Cambodian products shipped to the United States by up to 40

percent.

The second basic principle operating to reduce trade barriers is

that of National Treatment. National Treatment essentially says that once

imported goods clear customs and enter a country, they must be treated in

exactly the same way as domestic goods. If, for example, Cambodia were to

require that imported machine parts, in addition to being subject to a tariff on

import, would have to meet more stringent safety standards than those imposed on

locally manufactured parts to qualify for sale in the domestic market, the

principle of national treatment would be violated.

Under the rules of the

General Agreement on Tariffs and Trade (GATT) and now the world trade

organization (WTO), all members are required to grant both MFN status and

National Treatment to all other members. The practice among GATT members,

however, has been to allow a wide variety of exceptions. The United States

position on MFN has varied significantly from that intended by the drafters of

GATT. For some time the United States has hesitated to grant MFN status to

non-market economies, notably those controlled by Communist governments. Areas

of Indochina under Communist control, including significant portions of

Cambodia, were denied MFN under theTrade Agreements Extension Act of 1951 and

the 1974 Trade Act. Cambodia as a whole was denied MFN in 1975 by Executive

action and its trading status was confirmed by Congress in the1988 Trade

Act.

The unusual history of the American denial of MFN status for

Cambodia has resulted in a situation where there is now no clear legal authority

for restoring MFN to this country. It is not possible for the Executive order of

1975 to simply be reversed by the President, as Cambodia's non-MFN trading

status was made law by the 1988 Trade Act. Nor can the mechanisms for restoring

MFN status that were set out in the 1974 Trade Act be employed, as only part of

Cambodia was covered by its provisions at the time. As United States Senator

John McCain explained to the Senate in January of this year, "the President

wants to grant MFN to Cambodia, but lacks the authority to do so."

In an

effort to correct this legal impasse, legislation has been introduced in both

the House of Representatives and the Senate which would rettroactively bring the

entire nation of Cambodia under the restoration procedure of the 1974 Trade Act.

The Senate bill has been referred to the Finance Committee where, to date, no

further action has been taken or scheduled. The House bill was introduced more

recently, on April 6, 1995 and has been referred to the committee on Ways and

Means. The sponsors of these bills are congressmen John McCain and Dana

Rohrabacher in the Senate and House of Representatives respectively. Both of

these gentlemen were in Phnom Penh in April and there is no doubt that

Cambodia's MFN status was a major topic of discussion between them and the

government.

If MFN status is to be restored, Cambodia will have to reach

a bilateral trade agreement with the United States and have its status approved

by Congress. A bilateral agreement has already been signed by Cambodia, and the

current debates in Congress will determine whether the United States will sign

and grant formal approval of MFN for Cambodia. The most controversial issue at

the moment, appears to be that of compliance with the Jackson-Vanik amendment.

On paper, the Jackson-Vanik amendment to the 1974 trade Act requires only that a

country to be granted MFN status allow free emigration. In practice however, the

Jackson-Vanik amendment has come to mean a policy decision far beyond the

original concern for emigration. It is now the basis on which MFN for Cambodia

is being opposed by parties seeking evidence of a greater Cambodian commitment

to issues such as democratic reform, human rights, freedom of the press and

intellectual property rights. Politically, this matter need not deteriorate into

a congressional debate on the progress of Cambodian democracy. Should the

proposed legislation pass, the President will be empowered to make a

recommendation to Congress that MFN status be granted to Cambodia, waiving the

requirements of Jackson-Vanik. MFN status could then immediately be extended to

Cambodia in much the same way as the People's Republic of China had its status

renewed in the early 1990s, even in the face of congressional

opposition.

There is no permanent lobbyist for Cambodia in Washington

attempting to shape the form of the legislation to be enacted. The bills being

put forward in the House of Representatives and the Senate have important

differences (with the House bill being said to be more favorable to the

interests of Cambodia) and the Clinton administration has not yet decided which

version it will support.

While to some this entire debate in Wahington

may seem removed and remote, its resolution will be significant for Cambodia.

Foreign investment is vital to the continued development of this country. MFN

status with the United States will make Cambodia more attractive to foreign

investors, in particular those manufacturers who are looking at exports to the

American market. Increased investment will bring the infrastructure, revenues

and training that Cambodia so desperately need. MFN status, if granted, will

thus affect the lives of thousands of Cambodians. It should be

supported.

Michael Popkin is a lawyer with the Phnom Penh office of

Dirksen Flipse Doran & Le.

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