Trade Policy

(21). Trade Policy

According to the NPRS, “trade policy represents an important component of the RGC’s priority poverty reduction actions in several areas, including improving rural livelihoods and expanding job opportunities. Several other components, including maintaining macro-economic stability; reform in the legal sector, and promoting secure intellectual and property rights, are designed to support a regionally and globally integrated trade policy.”

In Section 4.1.1. Maintaining Macroeconomic Stability under Economic Growth, the NPRS observes that the industrial sector has been the main engine of growth, increasing by 16% per year. The sector consists primarily of manufacturing and construction, of which the textile and garment sub-sector is the most significant. Some of the constraints facing the garment industry, include: (1) declining competitiveness; (2) reliance on quota categories; (3) high concentration in a few markets; and (4) heavy reliance on imported inputs/materials.

The NPRS concludes that “it is crucial for Cambodia to maintain its competitiveness as a low-cost production center, and that mechanisms to mitigate any wage increase should also be focused upon.” The NPRS also observes that” far too little has been spent on training staff with skills that are transferable across the industry, and mentions that the RGC will give priority to the development of alternative labour-intensive enterprises (e.g., toys, footwear, and electronic assembly).”

It is important to understand the country’s external trade orientation in the context of its industrial development strategy. It addition to alternative labour-intensive products, the NPRS refers to agri-business development (e.g., agro-processing) through tax incentives and other policy levers and the utilization of basic natural resources. There is also reference to the establishment of industrial and export processing zones (EPZs), [1] including infrastructure development (e.g., transport, energy) and education and vocational training. The RGC also intends to increase production of goods for import substitution (e.g., chemical fertilizers). Finally, the RGC’s policy is to promote “cultural and natural tourism.”

In Section 4.2.2. Trade Development, the NPRS states that “the pro-poor trade development strategy necessarily includes embracing globalization and the increasing openness of the world trading system, and work on Cambodia’s accession to the WTO is well advanced. The NPRS refers to the fact that the RCG has carried out and published a diagnostic study of Cambodian trade competitiveness…”

The NPRS says that “”Ex-ante poverty and social impact analysis will be conducted in order 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, and the RGC will carefully monitor impact on the most vulnerable groups. In this sense, the RGC will need to develop indicators and predictors for the poverty impacts of trade policies, and means to ensure prosper assessment and monitoring of poverty reduction targets. There will also be a national legislation implementation action plan to meet WTO accession requirements, including more than 40 new laws either recently passed or under consideration…”

In the Annex 3 Matrix, under Section 2.2. (Trade Development), the NPRS lists three strategic objectives:

“Trade Environment: Economic integration of Cambodia with its AFTA member states and the world through WTO;”
“Trade Facilitation: Enhancing Cambodian firms’ ability to export competitively through low-cost, efficient trade facilitation which is harmonized with trade partners;” and
“Export Diversification: Reduce Cambodia’s dependence on GSP exports and prepare for full trade liberalization.”

NGO Action:

The NGO CG Statement argues that “trade policy will only be pro-poor if the pace, sequencing, and distributional aspects of trade and economic policy reform are considered carefully.”

Analyze and comment on the above-mentioned diagnostic study of Cambodian trade competitiveness;
Seek clarification of the “ex-ante poverty and social impact analysis process,” including possible roles for NGO participation as well as input regarding indicators and predictors, and comment as appropriate;
Monitor, assess, and comment as appropriate on the national legislation implementation action plan regarding new laws associated with WTO accession;
Seek clarification, and/or assess the implications for agri-business development for small farmers and other vulnerable sectors, and comment as appropriate;
Prepare sector-by-sector analysis/assessment and make statement concerning how “full liberalized trade” might (and does) affect people in various groups, especially rural poor (e.g., small farmers) and women, with recommendations to be incorporated into the APRI; and
Continue to provide information to relevant policy makers concerning the experience of liberalized trade impacts in other developing countries.

[1] Elsewhere in Section 4.2.2., the NPRS observes that EPZs also “risk the export of all benefits along with the products, if they do not guarantee backward linkages and address the possible intensification of income inequalities between rural and urban areas, increased rural to urban migration, and the creation of urban and peri-urben slums.”

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