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Trade Policy

(i)  Introduction

The section of the NPRS on Trade Development is consistent with the “Pro-Poor Trade Strategy” of the Ministry of Commerce. There have been opportunities for debate on this policy with members of the Ministry of Commerce both through the PRSP drafting process and outside this process, but there has been no full public discussion.

Cambodia’s accession to the World Trade Organisation (WTO) was announced at the Cancun Meeting of Trade Ministers in September 2003, and has since been ratified by the National Assembly. Rapid accession was the central plank of the “Pro-Poor Trade Strategy” of the Ministry of Commerce, but it is far from clear that membership of the WTO will deliver poverty reduction. HE Cham Prasidh said of the accession treaty:

"This is a package of concessions and commitments that goes far beyond what is commensurate with the level of development of an LDC like Cambodia. Nonetheless, we do accept the challenges, because we see the benefits of joining the world trading system".

It is still not clear just what these benefits will be. Certainly there has been no “ex-ante poverty and social impact analysis… to better predict both the positive and negative consequences of the trade strategy, as well as ensure that the benefits are directed to the poorest” as promised in the NPRS.

 

(ii)  Key Issues

The Need for Policy Analysis and Debate

Given the commitment that “ex-ante poverty and social impact analysis will be conducted” on the trade strategy, it is regrettable that Cambodia’s WTO Accession Treaty has been negotiated without any such analysis. The NPRS recognizes that there are necessarily negative as well as positive impacts of the proposed trade strategy. The World Bank’s draft Concept Note for its Development Policy Review on “Sources of Growth and Poverty Reduction” also states that “Cambodia is expected to become a WTO member this year which would pose both challenges and opportunities.”

However these pros and cons have still not been analyzed or debated and the National Assembly was presented with a WTO Accession Treaty, and asked to ratify it on a ‘take it or leave it’ basis. Pressure to ratify was intense, yet there is much in the Treaty that is worthy of debate, given the NPRS commitments on trade development.

As an example, the NPRS states: “Measures to reduce price fluctuations, or to protect poor producers (or poor consumers) from the impacts of these price fluctuations, need to be considered, e.g. carefully paced reduction of tariffs, subsidies and other complementary measures.” However, Cambodia has had to agree in its WTO Accession Treaty to eliminate agricultural export subsidies by binding them at 0 percent[1]. Whilst Cambodia has no previous export subsidies for agricultural products, the Cambodian negotiator at the WTO had resisted this provision, stating that under the Agreement on Agriculture, Least Developed Countries (LDCs) were not required to undertake any commitments on export subsidies. Nevertheless, after sustained pressure, Cambodia complied with the demand. As for tariffs, during WTO accession negotiations Cambodia was forced to reduce its initial offer on average bound tariffs by 25 percent to a level of 22.13 percent, which is extraordinarily low for an LDC. In terms of peak tariffs, Cambodia, a country where 80 percent of the population is employed in the agricultural sector, has been asked to provide far less protection to its sensitive agricultural sectors than the US, the EU and Canada.

Mention is made in the NPRS of the “diagnostic study of Cambodian trade competitiveness” carried out with “the assistance of the donors of the “Integrated Framework” group (IMF, ITC, UNCTAD, UNDP, World Bank, and WTO)”. This study covers “developments in trade policy… and a selection of sector studies… A matrix of technical assistance requirements for pro-poor trade mainstreaming was developed, which lays out a range of policy, program and capacity building initiatives and their resource needs.” While this study suggests some potentially useful sectoral directions for Cambodia it is wholly unconvincing in its attempts to draw links between trade liberalization and poverty reduction. In no way can it be said to be a credible “ex-ante poverty and social impact analysis”[2].

 

Srey Tuic is 23 years old from Prey Veng Province. She has been in Phnom Penh working in a garment factory for over 3 years. She does not like the work or the living conditions and is often sick and nostalgic for the village. Despite this she continues to work and earn money to send home to the family.

She started working in the factory because her parents were finding it difficult to support the family. She recalls her father explaining “before when you were younger we could grow enough rice to fill our stomachs and sell the extra to the wholesalers, but now it costs too much to grow.” Srey Tuic tells that she can only remember not having enough, and sometimes it was because her family had to give away a portion of the yield to the owner of the fertilizer shop, as payment in kind for the fertilizer to be borrowed. Other times they had to sell a large portion of the yield, so there was not enough to eat, she attributes this to “my brother got sick and needed to go to the hospital”. Another time it was because the family lost everything during a protracted drought. She recalls “even though my family borrowed money to pay for the water pumping it was never enough and the drought killed everything that season and we were left behind and felt despair all the time.”

“So when I heard of another girl going to Phnom Penh to work in the factory, I and my mother went to enquire how to also pay my way to the job at the factory. For this my family borrowed a big sum of money, … I think about US$100. It was after this I prepared and I knew I would have to work to help them from despair.”

“Now my family just live from the money I send them. It is so hard for me that now I eat fish one time a week. I am sick because I do not eat good food, and I work hard because if you do not make the pieces you do not get money because they count the ones you make.”

Srey Tuic explained that when her father had some rice to sell it is very cheap, because the rice from Vietnam or Thailand keeps the Cambodian rice low. But fertilizers from the Philippines or the USA are very expensive and the new rice varieties are dependent on them.

She also explains that she still tries to find ways to earn some money because she knows that it is not easy in the factory and that she cannot do the work forever. “When I am really sick I do not dare go to the doctor because I cannot spare the money. I never go to a wedding or have leisure time because this would be to waste the money that my parents need from me. I am really afraid I will lose my job. Many people are saying that the factories will close soon, if this happens I will not know what to do because my parents will die if I cannot support them. Many girls also fear that their jobs are on the line, the fear is motivated by the same concern, that their families will be hopeless without the remittances.”

The Need to Address the High Cost of Doing Business in Cambodia

The government should be congratulated for the expressed commitment in the NPRS of tackling the constraints to trade posed by corruption. The section on Trade Development mentions that “red tape and corruption continue to be pervasive” in the area of domestic manufacturing and that “internal transportation costs are high due to poor quality infrastructure and unofficial charges for road users (up to 17 percent of total transport costs).” Mention is also made of “weaknesses in the Cambodian legal, judicial and administrative systems”. Clearly it is important that these constraints are addressed and it is encouraging to see both the “Actions and Commitments” of the government, and the strong analysis and recommendations of the World Bank in the “Investment Climate Assessment and Reform Strategy” published in August 2004.

(iii)  Recommendations

Recommendations for the Government:

Recommendations for Donors:

Recommendations for NGOs:

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For more information on the issues raised in this paper, please contact:

Mike Bird or Khorn Dinravy at Oxfam Great Britain; Tel: 023 720036, Email: mbird@oxfam.org.kh, or Rosanna Barbero or Sam Vuthy at Womyns Agenda for Change; Tel: 023 722314, Email: rosanna@womynsagenda.org


[1] WT/ACC/SPEC/KHM/4/Rev.1, 19 June 2003
[2] For a detailed critique of the IF study, please contact Oxfam GB