Despite the massive economic gains Cambodia has made since being accepted into the World Trade Organization (WTO) in 2004, which granted it preferential trade status with major consumer markets, the government has not championed many positive reforms over the past six years.
According to the WTO’s second official Trade Policy Review of the Kingdom, which wrapped up last week in Geneva, the government has failed to significantly improve its export procedures, to strengthen rule of law and good governance, to promote transparency and to tackle infrastructure bottlenecks like high energy costs since last being reviewed in 2011.
While the trade review lauded Cambodia’s strengthening GDP, which since 2011 has grown an average of 7 percent annually, as playing a key role in promoting investment and alleviating poverty, it encouraged the Kingdom to formalise much of its economy.
“The informal nature of a large portion of the Cambodian economy, which is largely based on services followed by agriculture, implies that GDP is significantly underestimated, and that it undermines the effectiveness of government policy,” an executive summary from the WTO said.
The WTO also noted that Cambodia still faces several structural constraints and vulnerabilities which affect economic growth and render the economy and financial system vulnerable to shocks. These include a narrow economic base largely dependent on the garment sector, a high cost of doing business and a highly dollarised economy with underdeveloped financial markets.
While the review mentioned some regulatory gains, citing a slew of draft laws which at least made it to the floor of the National Assembly, the WTO added that “a common theme that pervades most aspects of Cambodia’s economy is the delay in drafting and implementing new legislation.”
The WTO said Cambodia needs to quickly improve business confidence and create an environment more conducive to investment by adopting reforms that address diversification and competiveness.
“These reforms would help Cambodia attain its economic and welfare policy objectives and further integrate into the world trading system,” the WTO said.
Another sore spot on Cambodia’s scorecard was a lack of investment into infrastructure and persistently high logistics costs.
“Cambodia remains characterised by low road and water connectivity as its transport industry continues to face challenges including high merchandise transportation costs – in particular, shipping – and inadequate infrastructure despite an increase in ports capacity,” the review said. “Railway transport remained of limited availability and performance due to slow progress in rehabilitation projects.”
Minister of Commerce Pan Sorasak, who led Cambodia’s delegation to Geneva, said the WTO review would help Cambodia strengthen its trade-related policies by identifying its weaknesses. He added that the review process also provides the country an opportunity to undertake a comprehensive analysis of the economy and identify objectives where it should seek outside technical assistance.
“This review provided us an opportunity to listen to the WTO’s comments and concerns on our trade related policy,” he said. “This review helped us to identify clearly what kind of assistance is necessary to develop a better trade and investment regime in our country.”
However, David Van, executive director of Deewee Management, said that the Cambodian government has little excuse for its performance in the latest review seeing that it has had since 2004 to enact proper policies in line with WTO guidelines.
“Cambodia has fallen way behind on its commitments, especially when it comes to legislation it has been drafting over the last 13 years,” he said. “We are none the wiser as to when exactly [these laws] will sail through parliament, considering nothing will be achieved until after next year’s elections.”
He added that the recent government mandate which promised numerous positive reforms has been over-hyped and lacked meaningful results.
“What would be in store for the next mandate is anyone’s wild guess,” he said, adding that it was unclear if the government had the political will to implement long overdue critical reforms.