Trade policy and regulation

Cambodian Prime Minister Hun Sen were at the Aid for Trade Global Review 2019. Photo by World Trade Organization (WTO), taken on 03 July 2019. Licensed under CC BY-SA 2.0.

International trade plays an essential role in improving Cambodia’s growth, employment and business opportunities. Trade policy and regulation can help steer the right type of trade to expand income and employment, reduce poverty and modify the risk of economic and financial crises.1 Cambodia’s trade policy and regulation is made up of different strategies and plans, aligning with the Rectangular Strategy Phase IV. There are four strategic goals: ensuring sustainable growth, creating more jobs, achieving the poverty reduction target and strengthening public institutions’ capacity and governance.2

The government has also been focusing on attracting investment, diversifying export products and markets, promoting transport connectivity and logistics systems, improving the regulatory framework, strengthening institutional mechanisms and enhancing capacity building.3

Rectangular strategy

Rectangular Strategy Phase IV, dated on 03 November 2021. Licensed not specified.

  • Sustainable growth

Cambodia has set a goal to ensure sustainable growth of around 7 percent per annum through diversifying the production base and export markets, maintaining macroeconomic stability, ensuring a stable exchange rate, increasing international reserves and managing public debt.4

Diversification of exported goods is a high priority of the Royal Government of Cambodia, said Phay Siphan, Government spokesperson. Cambodia has been diversifying its export products instead of relying largely on garment and footwear exports. There is also a plan to increase non-textile manufacturing goods by 15 percent by 2025 and boost the exports of processed agricultural products by 12 percent to achieve sustainable growth and economic diversification.5

ASEAN Free Trade Area Agreements, Trade and Investment Framework Agreement, Cambodia-Korea Free Trade Agreement, Cambodia-China Free Trade Agreement (CCFTA), Duty-Free Quota-Free and other agreements and free trade agreements allows Cambodia to promote economic growth and diversification. The CCFTA will help Cambodia gain access to a large market, especially for agricultural products, processed products and handicrafts, through customs and tariff facilitation and rules of origin. According to Ky Sereyvath, the Royal Academy of Cambodia economic researcher, the Government will shift away from the textile sector to electronics, electricity and auto parts industries to seize new foreign investment opportunities, particularly from China. He added that the shift was not because of the E.U. ‘s Everything But Arms (EBA) withdrawal but new investment opportunities from China after the effects of the Sino-U.S. trade war. “I believe investing in this sector will help increase export prices because the industry will use less labor. It is more lucrative than the garment sector and this industry is suitable for Cambodians because of their skills training,” he said.6

  • Job creation

The government also has a strategic goal to create more quality and quantity of jobs by focusing on training, providing job market information, improving working conditions and promoting business and investment.7

For the first five months of 2021, new investment projects reached $825 million, a 59 percent decrease from the same period in 2020 due to the pandemic. Foreign direct investment is expected to recover as vaccination rates grow and the investment law is drafted. The draft Law on Investment of the Kingdom of Cambodia was approved by the Royal Government to replace the one from 2003 (the first law was passed in 1994). The aim is that Cambodia can attract more investment by creating an open, transparent and predictable legal framework, strengthening capacity, considering the provision of incentives for priority sectors, technology and technical levels, job creation, training, research, development and innovation skills, and small and medium enterprises (SME).8

  • Poverty reduction

Reducing the poverty threshold to below 10 percent of the population has been a priority, which can be done through enhancing market participation, social protection policy, quality public services and reducing social gaps.9

A key part of reducing poverty over the long term will come from growth that is achieved by expanding market access and diversification, allowing Cambodia to expand exports to other trading partners. The policy to expand the markets has not been limited to Asia. The Government has been helping the producers to gain access to the European Union (EU) markets and eligible for the EU’s Generalised Scheme of Preferences’s (GSP) EBA though there was a partial withdrawal.10 Prime Minister Hun Sen said during a news conference that he wanted Cambodia to have many different trade agreements with different partners to diversify its economic markets and attract more foreign direct investment.11 Cambodia Trade Integration Strategy 2019-2023 has made some recommendations to improve trade relations, particularly with ASEAN, the E.U., Japan and China, and relating to negotiations of the Regional Comprehensive Economic Partnership, Comprehensive and Progressive Agreement for Trans-Pacific Partnership, Eurasian Customs Union and research and capacity building.12

The Asian Development Bank also endorsed the 2019–2023 country partnership strategy to support Cambodia in becoming an upper middle-income country by 2030. It aims to achieve this by boosting competitiveness, diversifying the sources of growth, promoting sustainable and inclusive development, building climate resilience and accelerating governance reform. Under the 5-year strategy, $1.45 billion worth of loans, grants and technical assistance will be provided for developing agriculture and natural resources, urban and rural living conditions, renewable energy infrastructure, education and skills, public sector and institutional capacity.13

  • Institutional capacity and governance

Improving capacity and governance quality is another way for the Government to ensure the effectiveness and efficiency of public services, to improve the business and investment environment and achieve policy objectives. Cambodia has been promoting good regulatory practices and developing new regulatory frameworks to improve regulatory policy process by reducing the costs and complexity of administrative formalities.14

Trade facilitation in terms of promoting transport connectivity and logistics systems is also a priority. The draft Interim Master Plan on Intermodal Transport and Logistics Connectivity for 2020–2021, prepared by the Ministry of Public Works and Transport in collaboration with the Japan International Cooperation Agency since 2018, was approved to develop and lower costs of the sector. The Ministry says it intends to modernise transport and logistics connectivity, improve supply chains, reduce costs, increase cross-border movement, boost Cambodia’s competitiveness, diversify its economy and create jobs. Five sectors are included in the plan: road transport, railways, waterways and ports, Phnom Penh and Sihanoukville logistics and general logistics.15

Similarly, the draft Intermodal Transport Master Plan for 2021–2030, funded by China International Engineering Consulting Cooperation, serves as a roadmap to increase Cambodia’s connections, reduce transportation and logistics costs, integrate Cambodia into the region and globe and ensure the country’s sustainable economic growth as a whole. Key master plans are also included – logistic and intermodal transport systems, land, maritime, air and railway transport – to develop the transportation infrastructure and increase efficiency of public investments in Cambodia.16

World Trade Organization (WTO)

Being a member of the World Trade Organization (WTO) since 13 October 2004, Cambodia can benefit from rights under WTO agreements such as non-discrimination requirements and dispute settlement procedures. In return for those rights, there are some obligations and commitments Cambodia has to accept. The commitments cover topics including respecting ownership, trading rights (the right to import and export), customs duties and charges, tariff rate quotas and tariff exemptions, fees and charges for services rendered, application of internal taxes, quantitative import restriction, customs valuation, rules of origin, other customs formalities, pre shipment inspection, anti-dumping, countervailing and safeguard regimes, export restriction, export subsidies, industrial policy, sanitary and phytosanitary measures, trade-related investment measures, state trading entities, free zones and special economic areas, transit, agricultural policies, textiles regime, trade-related aspects of intellectual property rights, transparency and regional trade agreements.17

Related to Trade policy and regulation

References

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