Almost exactly a decade after beginning the application process, Cambodia has ratified
its membership to the World Trade Organization (WTO) and must now rush through a
host of new laws to bring it into compliance with international trade standards.
The National Assembly approved the accession on August 31 and it was rubber-stamped
by the Senate a week later, just scraping into the already-extended deadline.
Cambodia will become a full member after a 30-day processing period.
The prospect of a stronger commercial legal system and access to new trade markets
has been widely welcomed by the private sector, but economists say widespread reforms
to the business environment will be the key to profiting from WTO membership.
"It's more likely to have long-term benefits because of the legal changes required
by WTO, which will open up the country and reduce internal and external barriers
to investment and export growth," said Kazi Matin, lead economist for the World
Bank in Cambodia, Laos and Thailand.
"Over the short term, Cambodia will be positively impacted through a perception
of change - a more open economy linked with global markets [is] more attractive to
investors," said Matin.
WTO membership comes just in time for Cambodia's garment industry, responsible for
around 90 percent of all exports and facing the end of a preferential quota system
with the United States in January 2005.
A place in the WTO means there will be no limits to the quantity of garments exported
to the US and should help secure a lower tariff rate for exports, an issue that will
be raised next week when a trade delegation heads to the US to lobby for duty-free
status for Cambodian garments.
Currently duty costs for garments going to the US are between 16 and 34 percent of
value and it is hoped that a zero or very low duty deal would reduce prices for buyers,
said Ken Loo, secretary-general of the Garment Manufacturing Association of Cambodia,
who will join the delegation.
Last year the industry was worth $1.5 billion in sales - and the 213 factories operating
in Cambodia employ 270,000 workers, mostly young women who often use part of their
salaries to support their families in the provinces.
"WTO becomes more like a basic criteria of survival [rather] than a bonus,"
said Loo.
"Being a member of the WTO means that we have to enact certain laws in line
with WTO agreements. Will that lead to an influx of factories? We don't know, but
definitely without that companies are going to leave," Loo said.
While Cambodia is not the cheapest place to produce garments, it is favored by some
brands because of its good labor record, giving it the edge over production powerhouses
like China, which is expected to increase its current 16 percent share of the market
once quotas are lifted.
Staying competitive in the "touch and go" environment of the garment industry
will also depend on the government's efforts to cut other non-tariff barriers for
investors, said Loo.
Corruption, unwieldy bureaucracy, the high price of utilities and low skill levels
among workers are factors that must be changed if Cambodia is to take advantage of
WTO membership, said Sok Hach, director of the Economics Institute of Cambodia.
"The [trade] barrier outside is finished but now we have the barriers inside
the country," said Hach.
Aside from garments, Cambodia currently has few products it can trade and little
capacity to process raw materials to gain the most out of its exports.
Trade industries of the future could include the manufacture of toys, shoes and electrical
goods, said Sok Siphana, the government's chief WTO negotiator, with agricultural
products a promising medium term prospect,
Plans to establish special economic zones at the border towns of Poipet and Koh Kong
could also attract Thai investors with the prospect of using cheaper Thai electricity
and the Cambodian origin of their products to leverage better tariff deals in their
existing export markets.
"What I like about WTO is that it has put legislative reform on a fast track,"
said Brett Sciaroni, chairman of the American-Cambodian Business Council. "It
will make it a more attractive prospect for foreign direct investors."
One of the most important pieces of legislation to be approved is the setting up
of a commercial court, originally slated for enactment in December this year, but
likely to be delayed due to the year-long political deadlock that held up formation
of the current coalition government.
While few see WTO membership as a guarantee of future prosperity, many consider it
a sign the government is on the right track to address Cambodia's dire economic situation
by attracting more foreign investment and opportunities for export.
In the words of one Western diplomat: "This is not a silver bullet, this is
a chance."
