Obstacles Loom Over Cambodia’s WTO Bid

Calling its 1999 entrance into Asean a stepping stone, Cambo­dia is desperately trying to join the World Trade Organization—an ambitious effort that faces many obstacles, according to government officials and experts.

Government officials have been lobbying to join the international club, which sets rules for trade in goods, services and intellectual property, because the country needs the protection provided by WTO’s global trading system. And with its recently established stability, officials said Cambodia is ready for membership.

But even Commerce Minister Cham Prasidh, who will travel to Geneva May 8 to lobby for Cam­bodia’s membership, ac­know­ledges the task of becoming a member won’t be easy. “It’s a real battle,” he said.

Economic observers say nu­merous barriers will have to be removed before Cambodia is accepted into the WTO. Inte­grating Cambodia’s weak trading system into the global one is a difficult task as only a handful of Cambodia’s laws fall in line with WTO standards. And the country must prove its commitments to reforming customs duties, formulating more regulations in trade and improving trade administrative services, the observers say.

“The hardest part for WTO accession is that you have to show you have good laws which abide by all the WTO rules,” an economic observer from a leading WTO member said.

Cambodia’s major trading partners, all of which are powerful WTO members, have submitted 180 questions to Cambodia on its trading system since mid-1999, when the country submitted an application to join the international trade agency. Cambodia first informed Geneva of its intention to join the WTO in 1994.

After two years of preparation, Cham Prasidh will lead a delegation to Geneva May 8 for the first in a series of bilateral and multilateral negotiation sessions with powerful WTO members, who will scrutinize every aspect of Cambodia’s legal trade framework. The formal multilateral meetings will start on May 22.

Cham Prasidh named the US, the European Union, Japan, Canada and Australia, among others, as his counterparts at the first WTO working party meeting.

The WTO, which succeeded the General Agreement on Tariffs and Trade in 1995, now has more than 130 member nations from both industrialized and developing countries. Each member is guaranteed Most Favored Nation status among the WTO community and is free from any trade discrimination.

If Cambodia is admitted to the global trading system, the country will have more trade protection with the Most Favored Nation status. That privilege will add to the regional free trade benefits Cambodia enjoys under the Asean Free Trade Agreement (AFTA) as well as special trade privileges called General System of Preferences, which is granted by rich nations to developing countries.

In addition, its entrance to the WTO will set Cambodia free from the garment export quota system imposed by major importers, which the government claims slows Cambodia’s economic growth. The US has imposed the quota limiting the amount of garment imports it takes in from Cambodia since 1999, and Canada last week entered a new textile quota agreement with Cambodia.

Under the WTO‘s Agreement on Textiles and Clothing, no member country will be able to impose the quota system on Cambodia after 2005 if the country succeeds in its efforts.

“As a member of the WTO, we will be protected by WTO rules,” Cham Prasidh said. “It’s better than dealing with major trading partners on a bilateral basis [because] it’s up to them to decide what conditions they put on us.”

WTO membership will help Cambodia compete in the global economy, assuring investors and foreign trading partners that Cambodia acts under international rules.

“Cambodia’s WTO membership is good for not only garments but also other goods,” Van Sou Ieng, chairman of the Garment Manufacturers Association, said. “It assures the country a good reputation. No one will bully Cambodia any more.”

Experts say it is crucial for Cambodia to get a membership before 2005 when the quota system will be eliminated for members under the WTO agreement.

“The question is when Cambodia becomes a member,” said Sok Hach, macro-economist with the Cambodia Development and Resource Institute. He said every country whose major export is garments seeks to enter the WTO by 2005. More than 30 countries are now looking for a membership, including China and Vietnam.

“It is crucial to be a member at least at the same time as Vietnam…Vietnam will be a direct competitor in garment and other industries,” Sok Hach said.

He predicted if Vietnam joins the WTO earlier than Cambodia, the garment industry in Cambodia may be driven into a corner by Vietnam, which has a better legal framework, more developed infrastructure and cheaper and more skilled workers. “Cambodia needs to speed up its institutional reforms.”

The first thing Cambodia must do, observers said, is enact various legislation including laws on commercial contracts, bankruptcy, commercial arbitration, industry standards, trademarks and copyrights. And it must show good governance in trade practices.

Reviewing a government comprehensive report on Cambodia’s foreign trade submitted in mid-1999, powerful WTO members have questioned aspects of many regulations that appear to violate WTO rules. The members asked how and when those regulations will be changed.

“We suggest that Cambodia prepare and submit to the WTO an action plan that identifies [differences] between the current legislation and WTO rules and specify [measures] to be taken,” one member wrote about the customs code.

Another member criticized Cambodia’s lack of legal framework in industry standards. “We are particularly concerned that Cambodia has not established mandatory standards or quality requirements for imports, because [not having them] would violate WTO agreements.”

The members of the working party group are also skeptical about Cambodia’s preparation in intellectual property protection. “There is still some uncertainty whether or not Cambodia fulfills the requirements” under the WTO’s Trade-related Aspects of Intellectual Property Rights agreement, one member wrote.

The upcoming meeting in Geneva is the first face-to-face examination in which powerful WTO members will assess Cambodia’s progress on reforms. At the meeting, Cambodia must resolve concerns expressed in the 180 questions.

If not, negotiations at the WTO working party level will be repeated until Cambodia is ready for membership. After the working party group approves Cambodia’s preparedness, it’s membership will finally be reviewed by all the members.

“It‘s not going to be a smooth sailing,” said Kao Kim Horn, executive director for the Cambodian Institute for Cooperation and Peace.

China, for example, has been stuck at the assessment stage by the working party level for several years. Although a small country like Cambodia would not take so many years as China, one diplomat said, he noted that Cambodia had been refused membership into the more loose regional economic bloc of Asean for a couple of years.

Despite a tough road ahead, Sok Siphana, secretary of state for the Commerce Ministry, said Cambodia has been well prepared for WTO accession since its efforts to integrate into AFTA, which requires the country to reduce its customs duty rates to zero-5 percent by 2010.

“We have already committed in AFTA,” he said, adding Cambodia now has only a promising future with the WTO. “I can only see the positive side.”

 

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