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
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.