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Asean entry poses economic quandry

Asean entry poses economic quandry

CAMBODIA'S anticipated June entry into Asean could undermine the country's already

weak industrial base, according to senior Finance Ministry officials.

The move, the officials said, could also severely reduce the government's income

unless accompanied by drastic reforms to the country's tax collection procedures.

Finance Minister Keat Chhon and senior advisor Aun Porn Moniroth said Cambodia faces

a huge economic challenge as a result of its decision to join Asean.

They said a precondition to membership of the regional grouping is to participate

in the Asean Free Trade Area (AFTA) and to implement tariff reductions through the

Agreement on Common Effective Preferential Tariffs (CEPT).

"We think AFTA may impact on our balance of payments. [Already] we have a huge

trade deficit and if we reduce tariffs, imports are likely to increase," Moniroth

said during the recent launch of a discussion paper outlining the issues of AFTA

participation.

"So we will need more foreign currency and if we don't have a solid production

base, we will not have the goods for foreign exchange.

"We will have to borrow the money or sell our natural resources which are already

diminishing," Moniroth said.

AFTA was set up in 1992 to enhance the competitiveness of Asean economies in the

face of increasingly globalised trade and the creation of trading blocks such as

the European Union.

Joining AFTA is dependent on participants agreeing to implement CEPT which demands

a reduction in tariffs to between zero and five percent by the year 2000.

It also requires that non tariff barriers to trade such as quotas and licenses be

abolished within five years of obtaining concessions under CEPT.

Moniroth - co-author of the discussion paper with Keat Chhon - said adopting CEPT

would likely catch Cambodia's fledgling market economy in a pincer movement.

"If you look at the structure of our revenue [raising], you will see it depends

heavily on foreign trade. About 70 percent of [government] revenue comes from customs

[duties], " Moniroth said.

He added tariff reduction would also likely result in a flood of cheap goods from

Asean countries, undermining the incentive to develop Cambodia's production base.

Keat Chhon said, however, his ministry was working hard to restructure the source

of government funds. He said revenue from duties should be around 40 percent by the

year 2000 and that new tax legislation was now about 90 percent drafted.

The ministry is also re-examining foreign investment regulations in order to help

counter the risk threatening to stall growth in Cambodia's small manufacturing sector.

"Whether we want to or not, we have to go with this [AFTA] ... we need more

time, but I think we should adopt a strategy of progress under pressure," Moniroth

said.

"Cambodia should not rush into joining AFTA because we are not sure yet about

the [total] impact. There is an understanding that we have a ten year time frame

with a schedule of gradual introduction.

"But maybe by joining AFTA sooner it will push us to work harder, to prepare

ourselves better, and to open up our country and our economy faster," he said

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