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Mexican wave: WTO set to welcome Cambodia

Mexican wave: WTO set to welcome Cambodia


Sok Siphana, Cambodia's chief negotiator on WTO entry: 'These are the efforts that have paid off for me. I believe it's the right thing to do. In the last ten years of openness we've gone from ox-carts to Mercedes.'

C ambodia is set to become the first Least Developed Country (LDC) to enter the World Trade Organization at its meeting in Cancun, Mexico in September. The Post spoke to Sok Siphana, Secretary of State at the Ministry of Commerce, and one of the key architects of the country's rapid entry, about the possibilities and the pitfalls of joining the world trade club.

How would you characterize WTO entry-would you say this is a political goal for Cambodia or an economic one?

I think largely it's an economic goal [but] of course political dimensions always arise and it's hard to delineate the political from the economic dimension. I think in this political climate you try to integrate into the region, you try to bring back the country from so many difficult years-I think that there's a political tone behind that.

The other political tone is that there are a lot of reforms coming as part of this accession process. So, if you are tackling legal and judicial reform to build a better environment, that has a political tone, but it is more an economic survival issue driving us to the WTO.

It's no different from the ASEAN role-we find that being [in the] ASEAN Four is no fun because you're dealing with your neighbors in the ASEAN Six who are much more prepared, advanced, equipped and capable than you. So you have to work much harder and more aggressively in the area of competitiveness so you can catch up.

You say it's difficult dealing with the ASEAN Six-won't it be even more difficult dealing with the super-economies in the WTO?

In fact it is not necessarily the case. In ASEAN at the government level we are less developed than them, but in the global arena we are looking for the market access that may not necessarily be available in the ASEAN region.

We are more competitors in the ASEAN region but, if we look in a large regional basis, China is a good source of market, India is a good source of market. In the global arena Europe, the US, Japan, Canada will always be markets that we can eventually build a trade relationship with.

So ASEAN is a good political arena but market-access-wise we are competing with our ASEAN partners for market access. So in this sense the sooner we are technically qualified in terms of standard, in terms of better environment for FDI [foreign direct investment], the sooner we can play a larger role in global trade outside of ASEAN.

What are the goods or commodities that Cambodia will be exporting to these markets?

We will continue exporting what we have existing now. Garments and footwear will continue to be the basis of our sustainability for a while. We are conscious that 2005 is a serious issue for us with the end of the multi-fiber arrangement when the world will be quota free.

Having said that, it's better to be in the WTO when the quota is lifted than outside the WTO and still subject to quota. The case of Vietnam is one where their garment industry is very shaky now and the private sector doesn't know how they're going to deal with this quota imposition when the rest of the world is not subject to quota.

Footwear is the next logical industry to push and we are developing a 40 hectare export processing zone in Sihanoukville. We're hoping this will be a good model so later we can go for the three export processing zones that we have on the border with Thailand.

The long term source of industrial growth will be in the border area because here we are going for the comparative and competitive edge that Thailand and Cambodia have together.

Thailand graduated from the GSP [Generalized System of Preferences] scheme two years ago, so hundreds of factories who've been selling to the US and EU find that the clients they've been servicing for 15 or 20 years will not buy from them if they have to pay 17 percent more for the tariff.

We can use our trade preference as an LDC, combined with our labor and hopefully our raw material, and Thailand bringing their machinery and their packaging but foremost their clients. Its a win-win situation.

How will the majority of Cambodians who live in rural areas farming small lots be integrated into the system of trade?

Our trade strategy is a pro-poor trade strategy. We were mindful from the get-go that if you don't get your policy right, then the benefits will be distorted and the benefits of growth will not be evenly distributed.

So our focus now is to develop products that have labor-intensive components. The development zone is geared to using a lot of labor and a lot of raw materials as well.

So for example many Japanese car manufacturers are in Thailand. In the short term we would not be able to attract them, but we can bring in sub-components manufacturing like windshield wipers that would actually be made from the raw materials here.

Mercedes use a lot of coconut fiber fused with rubber in their car seats. We have tons of coconuts and a lot of rubber so we need to go about harnessing these products that are labor intensive.

Will you be putting together industry assistance to develop these products?

Budgetary-wise we would not have the means like Thailand so we count a lot on the Integrated Framework for trade related technical assistance. This is a scheme that the rich WTO members and the six agencies, the World Bank, UNDP etcetera have. It's a scheme where they want to help a country like Cambodia take advantage of the opportunities of globalization.

Now we're just going over the 'early harvest' with China. China gave us 297 agricultural products that we can export to them quota free and duty free. So we're looking at the list and saying, 'Hey, we've got cashew nuts'. With 297 it's more than likely that we've got it.

The Indians are working on the same scheme. Our approach is proactive, but market development, product development takes time. But if we didn't have the WTO it would be a much longer wait because you have to knock on one door at a time.

Were there a lot of concessions that Cambodia had to give to gain such a fast entry to the WTO?

Quite to the contrary. The WTO is business driven, the officials are only the spokesmen for the industry. It's the industry which sells the product. So we accommodate some things but not others, say in agriculture. I feel that it might sound tough and it sounds like Cambodia is giving a lot but in reality Cambodia is giving nothing.

Realistically we would not have the means to use subsidies anyway. Under the WTO there are so many measures that governments can do to help their farmers but are still in compliance.

So it looks terrible from the precedent standpoint, so other LDCs say, 'Oh Cambodia, why do you do that?' So that's why in the speech of the minister we make it clear: we do not negotiate on behalf of LDCs, we don't want to have that burden.

Whether you want it or not isn't that in fact the role Cambodia has taken?

The burden is there whether you like it or not. It's a dilemma to be the first LDC. So we have to explain to LDCs that we have an economy to run and we have to have WTO accession because the fate of 220,000 workers is at stake if we don't enter.

As a small country we would not have the means to attract FDI without guaranteeing access to third-country markets. Vietnam doesn't have that headache because they can sell to people in Vietnam.

But we have to invite them over, give them reasons to invest in Cambodia and then give them access to a third-country market.

Is there a timeframe in which the FDI situation in Cambodia will turn around? There's been this slide over the last few years-when will it head in the opposite direction ?

I think the WTO will give us the impetus. That's why it's so crucial that the new government is formed as soon as we can. So as it stands now with the election behind us, the issue now is economic development.

The new government, no matter what the shape, their criterion for re-election in 2008 will be solely on one factor: can you create enough employment, can you create enough growth. The last administration had a lot of side criteria, the Khmer Rouge etcetera, etcetera. But now it's the economy.

Do you think judicial reform will get a lot of attention when the new government is formed?

The past year or so that we've been negotiating WTO accession it is clear that we have raised the stakes of the legal and judicial dimension. The fact that the Prime Minister appointed me to be a member of the legal and judicial reform council is a sign that the economic performance, the ability to attract FDI also depends on our ability to work with our counterparts to provide the [legal] framework.

So we have been given a lot of so-called technical help. For example with the commercial court, we are now in full swing. I just circulated to all the stakeholders two weeks ago the draft of the commercial court.

So we have influenced change. So I'm very optimistic that the momentum will continue. See, under the WTO we have committed that we will deliver on the commercial court and various things. After I return from Cancun I will have the pleasure to go around with the accession package to explain to the public, the stakeholders, to the private sector and say, 'OK guys, this is what we have negotiated here, now let's understand what we are committing and let's do it'.

What are the penalties if Cambodia doesn't manage to meet its commitments?

Bad image to start with. Our WTO accession has had so much limelight, the side effect is the same, so we have no reason to lose this image. We've managed to get such good, positive coverage so this is an aspect that if I continue to stay in this job I will pursue.

A lot of people are critical of the WTO as a rich countries club. What do you think are the risks for Cambodia?

I think that the case of Cambodia is a unique case in the accession process. Cambodia happens to have the label of LDC, but the reality of our country, the reality of our economy having gone through the genocide makes it so much different.

That's why when I negotiated I realized that I could not go with a template. I had to customize to the reality of Cambodia, and funnily enough the private sector in this country is so aggressive, and the last ten years we've been so open, that as a policymaker I'm following behind the market forces.

Our state-owned enterprises have been privatized a long time now. That's one of the templates-you have to privatize this, this and this. We don't have to worry about that. Liberalization: well the last ten years we've been so open already, our policy has always been to attract FDI and therefore that is the de facto equivalent to liberalization.

For example higher education: you look around, even Kao Kim Hourn has his own university now. And I said to him, 'Brother, you know the Ministry of Education doesn't have yet a clear higher education policy in terms of accreditation, so do you think you're going a little fast?' He said, 'Brother, if the demand is there, I've got to provide the supply'.

To me it's a case that we don't have the problems of other LDCs where their societies and systems are so closed already. So the trick for us is to consolidate this open market.

I tell my colleagues in higher education that with the commitment to the WTO I'm just locking in what you've already allowed with these private universities to grow. So I'm just locking that in so that the different ministries will have to use it as the basis of their policy agenda so for the next couple of years.

So in the education example, since we've committed we must put the emphasis on working on the accreditation policy. It doesn't matter who will be the new minister. It has to be at the top of the agenda.

In tourism we've committed to allow foreign investment in only three-star and up hotels. When you want to protect your own industry you ask what would be the impact on your own country. So we ask, 'How many Cambodians would have a million dollars or up to open a hotel?' Not many. So since we're not in a position to compete, let's open up.

But how many would have $20,000 to start a guesthouse? A lot, so we're not going to open that. We protect the local, but do not close the door to foreign investment.

In one sense there's a hidden regulation in the Cambodian economy. The mobile phone market may technically be open but we've seen a problematic relationship between one of the companies and the minister-will the WTO be able to address that kind of hidden regulation?

Yes, because the WTO is about transparency as one of the three main principles. In the service sector we have a set of principles of transparency and we commit upon accession that Cambodia will respect these principles.

So if you apply for a license, we are obliged to follow the principle. It's a very objective criteria. It is not discretionary and if it's not followed the company can take the matter or the country can take the matter to the dispute panel and Cambodia doesn't want that.

Every constraint should be tackled. I don't see anything but hard work. There's no magic, we just have to roll up our sleeves. Getting our stakeholders to come along will be a major challenge. When we get back from Cancun I see a major drive.

But I'm happy because the other two parties did not make a case out of this during the election. Meaning that deep down they believe it is the right thing to do also. I think it's important because we need their vote to ratify the accession package. We need their blessing when we push so many laws.

We'll have in the next two or three years maybe 40 pieces of legislation. So I find that it's a matter of taking the time to explain to my colleagues the pros and cons. They are not objecting they are just asking, 'Hey, what the hell am I getting into here?'

These are the efforts that have paid off for me. I believe it's the right thing to do. It's not easy, but the other option is not pretty. Try to stay out: when you live under economic embargo you'll see what it's like. In the last ten years of openness we've gone from ox-carts to Mercedes-come on, give me a break!


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