MINISTER of Commerce Cham Prasidh is due to sign a bilateral trade agreement with

the United States acting Trade Representative Charlene Barshefsky in Washington DC

today, officially granting Most Favored Nation (MFN) status to Cambodia which will

lower tariffs to levels enjoyed by most other countries.

The signing, following US President Bill Clinton's approval of the MFN legislation

on September 25, caps off several days of celebration in Phnom Penh, enhanced by

the presence of a high-level US trade delegation.

"MFN with the United States heralds a new era in US-Cambodian relations,"

said Joseph Damond, Southeast Asia Director of the US Trade Representative, who led

the three-member delegation to Vietnam and Cambodia.

During the inauguration of Pursat Bridge, Prime Minister Prince Ranariddh read a

letter from the Cambodian Ambassador to the United States which announced the presidential

signing on the afternoon of September 25. The Ministry of Commerce immediately invited

over 100 guests to a gala celebration. US Ambassador Quinn hosted another celebration

Sept 27 at his residence.

MFN will legally go into effect when the signing of the bilateral trade agreement

is entered into the US Federal Register. This should be "shortly" after

the signing, said Damond.

Sentiment on both sides of the Pacific appears to be nearly unanimous that MFN will

strengthen the Cambodian economy. "MFN means jobs, more investment, and a stronger

economy," said an Embassy official. Cham Prasidh expects investment in the canned

food, foodstuffs, garments, and light manufacturing sectors.

Kong Triv, President of KT Pacific Group Ltd and Vice Chairman of the Cambodian Chamber

of Commerce ticked off names of companies that have contacted him about opportunities

in Cambodia: Mitsubishi, which is thinking of setting up a processed pineapple plant

as well as fan and air-conditioning assembly plants; Sumitomo, a paper factory; ITN,

a $120 million telecommunications plant.

The garment industry will likely be the primary beneficiary of MFN. According to

Van Sou Ieng, Chairman of the Garment Manufactures Association in Cambodia, garment

manufacturers will see their tariffs drop to 20 precent, down from 50-80 percent

without MFN. He predicted that garment exports will reach $500 million over the next

two years, up from an expected $58 million for 1996.

Sou Ieng also predicted that investment in the garment industry will total $200 million

in two years, up from $70 million currently. He foresees that by 1998, garment exports

will constitute 60 percent of Cambodia's total exports, compared to an expected 40

percent this year. The industry will directly and indirectly employ over 100,000

people, according to Sou Ieng.

Indeed, MFN is inducing existing investors to increase their garment production and

is already attracting potential investors to the sector. Representatives from 39

Taiwanese garment and textile companies are currently visiting the Kingdom, and representatives

from 20 Hong Kong garment companies will explore opportunities next week. Singaporean

and Malaysian investors have also shown an interest in the sector, said Sou Ieng.

Investors from Southeast Asian countries are attracted to Cambodia's garment sector

because most of them have reached the quota of garments they can export to the United

States. Under the Multi-Fiber Arrangement, the US sets a quota of specific type of

garment a country can export to the US. Since Cambodia does not yet have a quota,

other Southeast Asian countries can circumvent limits on their exports by exporting

garments made in Cambodia.

According to Sou Ieng, garment manufacturers in the Kingdom will export garments

to the US until American firms complain to the government that they are disrupting

the domestic market - at that time, Cambodia and the US will likely negotiate a quota.

While MFN will likely boost Cambodia's economy by lowering tariffs, the Generalized

System of Preferences (GSP) promises even a sharper growth. GSP eliminates tariffs

on selected exports to the US.

For instance, with MFN, tariffs on garment exports are about 20 percent, according

to Sou Ieng. Since GSP eliminates tariffs on many products, he expects an added $300

million in exports.

Cambodian and American officials expect GSP to be signed "quickly", within

three months according to the delegation. GSP requires a presidential signing, at

the recommendation of the US Trade Representative office; MFN involves an act of

Congress.

To qualify for GSP, however, Cambodia must guarantee that it respects intellectual

property and labor rights. Some observers have argued that the absence of these laws

may delay the signing of GSP, but the delegation was more optimistic.

"We have been assured that the government will move quickly to pass trademark

and patent agreements," said Peter Fowler of the Patent and Trademark Office

of the US Department of Commerce who was part of the delegation. "We are satisfied

with the good faith of the government . . . Other than the Sheraton Hotel and Pizza

Hot, we saw no obvious copyright infringements in Cambodia."

Fowler explained that Cambodia must have a trademark law in place within 18 months.

Although reluctant to specify possible penalties or sanctions if the law has not

passed, he said that it's conceivable the US would use Super 301, which sanctions

countries for violating trade agreements.

Ministry of Labor officials assured the delegation that the National Assembly will

pass the labor law within one month, according to Fowler.

This means that the Cambodian government will be obliged to file suit against copyright

violators, such as Pizza Hot, if the holder of the copyright - in this case, Pizza

Hut - files suit. In addition, once the trademark law is in place, the government

must recognize well-known labels and refuse to grant business licenses to violators

of these labels.