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TRADE AND ECONOMIC DEVELOPMENT

 

(i) Introduction

 

Cambodia’s first full year of membership in the WTO was marked by a global debate on the unequal nature of the world economic order and the unwillingness of trade superpowers to surrender a portion of their advantage for the sake of developing nations. This debate culminated with the 6th WTO Ministerial conference held in Hong Kong last December – an event widely regarded by NGOs as generally ineffective at setting policies likely to promote development.

Even a deal offering tariff and quota-free access to rich country markets for products from “least developed countries” (LDCs) is far from a guaranteed boon for Cambodia (itself an LDC); with the United States expected to continue restricting textile imports and Japan proposing limits on imports of rice and fish. The agreement by rich countries to allow the tariff-free import of value-added products from LDCs however, may, in the future, aid the much-discussed development of Cambodia’s agro-processing industry.

Meanwhile, here at home, the much-feared end of the Multi-Fiber Agreement (MFA) has yet to take the disastrous toll on the Cambodian garment industry that many had anticipated. In fact, it was reported that 9,000 new garment sector jobs have actually been created over the past year, with the value of exports to the US increasing by 16.6% through October,[1] due in large part to the continued resistance to Chinese garment imports by the EU and the US. Citing such positive data, as well as the expansion of the tourism, telecom and construction sectors, the World Bank upgraded Cambodia’s economic growth forecast for 2005 from 2.6% to 6.1%.[2]

However, 2005 was also yet another year marked by growing criticism and concern over the stifling effects on the economy of patronage, corruption and the failure to tie economic growth to broad-based poverty reduction. Despite the continuing din, institutions and policies that funnel the benefits of growth away from Cambodia’s poor and into the hands of the politically connected persist. Forward-looking members of the RGC must keep pushing ahead in their difficult fight to distribute both the benefits of growth, and the stock of national capital more equitably, in order to better meet development goals.

Placing trade, finance and industrial development high on its agenda, while issues of poverty, decent work, environmental protection and universal education remain unresolved, will ultimately serve to limit the extent to which any nation’s economy is able to prosper.[3] In addition to concerns over corruption, ineffectual governance, and a myriad of social challenges, there is cause to remain critical of the economic system itself, and to consider the sustainability of a policy approach that has lead to disappointing results in many countries across the developing world.

 

(ii) Key Issues

 

Measures of Development

The 2005 UN HDR is explicit in it’s warning that “export growth” and “export success” are not the same things. The former alone is not a sufficient indicator of development and converting a growing volume of export production into higher incomes and improved living standards can be difficult.[4] We see this in Cambodia’s own garment sector, where a 2005 ADI survey found that despite the importance of the workers’ remittances home, their incomes tend to simply meet the daily needs of those they support, while contributing little to savings, investment or a meaningful rise in living standards.[5] The income and employment opportunities generated by garment manufacturing are typically more of a poverty stopgap than an avenue through which Cambodians can escape the poverty trap.

An impending demographic shift resulting in a million new job-seekers entering the labor force over the next four years,[6] an under-educated population, limited productive capacity and WTO regulations that disallow technical transfer and local content requirements on foreign investment projects, are all conspiring to make Cambodia’s climb out of poverty more difficult.

 

Regional Markets and the Need to Compete Better

Cambodia’s integration into the open, trans-national markets of Southeast Asia, while promising to reduce her dependence upon the whims of US and EU trade policy and market preferences, could either be a blessing or a detriment to Cambodia’s future economic development, with investors gaining reduced–tariff access to the entire regional market regardless of which ASEAN nation they invest in. Thus Cambodia may find itself in even greater competition with its neighbors and perhaps forced to cater more aggressively to investor demands.

With endemic corruption and an insufficiently educated population already acting as major inhibitors of legitimate foreign investment and negating much of the country’s comparative advantage,[7] one fears that many of the potential benefits arising from regional economic integration will remain unrealized, particularly when one recalls the important contribution that a well-educated, national labor force made to the development of Asia’s most successful economies.[8]

 

Social Impacts of Orthodox Trade Policies

Cambodia’s economy, like the global economy, has been growing for years, and still poverty persists at levels that most agree are unacceptably high, while inequality worsens. Often, the success of a growth-based economy is measured in terms of the surplus (profit) created. Of course, the owners of this surplus are generally not the poor. Some benefits trickle-down, typically in the form of low-paying employment. The poor are necessary participants in the economy’s “basic toil” but unless growth is sustained at a rate that satisfies the investor class, even the benefit of employment will be taken away[9].

Regarding the trade of agricultural goods, policy-makers in Cambodia should not confuse building a future with exporting it. Reform focused on export-oriented farming receives tremendous government and donor support. This may generate foreign exchange, as well as jobs for a limited number of rural people, much the same as commercial concessions do, but its results merit close attention. Such an industry does not guarantee improved livelihoods for the farmers producing for non-export markets or on a small scale. Export efficiency can lead to lower levels of food-security, a loss of local capacity for producing necessary goods, and an expanding rural wealth gap[10].

As extractive industry, tourism services, commercial agriculture and aquaculture have emerged in Cambodia as the sectors most expected to grow alongside the garment industry, we have seen a scenario develop in which the rich increasingly compete with the poor for the same limited supply of natural capital. Land-grabbing, opaque land concession agreements, the displacement of both rural and urban communities, and hydro-electric projects undertaken without proper social and environmental assessments can weaken eco-systems and degrade the present and future supply of available, natural capital.

If development policies degrade this capital without sufficiently replacing the wealth and livelihood opportunities that it once provided, the displaced poor will be forced to compete with one another for the limited quantity of replacement livelihoods that the nascent industrial economy is capable of creating for them. The limited number of Cambodians being employed at the Svay Rieng Special Economic Zone (SEZ) and the dearth of employment opportunities available to even vocationally trained youth in that community may foreshadow the troubles that lie ahead.

 

Strategic Resistance to the Economic Policy Dictates of External Forces

IFI and WTO efforts at creating a global policy convergence based upon the uninhibited flow of goods and capital, rather than social stability and poverty reduction, have failed to achieve the stated WTO intentions of “ensuring full employment,” “preserving the environment” and attending to different countries’ “respective needs and concerns at different levels of economic development.”[11] And yet the RGC is prevented (by both policy constraints and lackluster governance) from manipulating the economy in a way that may better meet ensure that such pressing social needs are addressed.[12]

 

(iii) Recommendations

 

To the Donors:

 

To the Government of Cambodia:

 

To the NGOs:

 

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

The Development Policy Issues Programme of the NGO Forum on Cambodia at:

Tel: 023 990-063, Email: ngoforum@ngoforum.org.kh.

 

 


[1] The Cambodia Daily, “Garment Jobs Grow; Buyers Talk Rights” Thursday, December 8th, 2005

[2]Cited from XinhuaNet, 11 August 2005, available at http://www.cdri.org.kh/webdata/flashrep/2005/Nov05.pdf

[3] UNHDR 2005, Chap.4

[4] (Ibid.)

[5] (Ibid.)

[6] Cambodia Economic, Watch volume II 2005; Executive Summary, Economic Institute of Cambodia

[7] (EIC/World Economic Forum, 2005)

[8] ADB Asian Economic Cooperation and Integration p.7

[9] Steady State Economics by Herman Daly, Chapter 5, 1973

[10] UNHDR, 2005

[11] The Marrakesh Agreement establishing the WTO, available at: http://www.wto.org

[12] UN HDR 2005, p. 121

[13] “Poverty Assessment-consultation draft” a World Bank Presentation to Civil Society Partners, Phnom Penh, Cambodia,  January 24th, 2006

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