Taken from the 25 September 2003 edition of the Far Eastern Economic Review here.

WTO MEMBERSHIP HAS ITS PITFALLS
By Murray Hiebert and Margot Cohen

Almost lost in the furore between rich and developing nations over farm subsidies during the recent World Trade Organization talks in Cancun, Mexico, were the invitations for least-developed countries Cambodia and Nepal to join the body. In Cambodia, some people believe that WTO membership will jump-start the kingdom’s economic development. But others fear that the country isn’t prepared for the onslaught of foreign goods that might now descend.

Optimists see Cambodia’s WTO membership promoting economic reform and reinvigorating foreign investment, which has fallen by about two-thirds since peaking in 1996 at $300 million. Deputy Commerce Minister Sok Siphana hopes membership will be a springboard for improvements to Cambodia’s legal system, bureaucracy and infrastructure.

“I look at the WTO as a catalyst,” says Siphana, who spearheaded Cambodia’s membership drive. “We need to reform ourselves, and the WTO gives us a perfect argument that we should reform.”

Phnom Penh is betting that membership will bolster investment beyond the garment industry, which accounts for some 96% of the country’s exports. Siphana hopes that foreign investors will take advantage of Cambodia’s lower labour costs and diversify into such areas as footwear, mattresses and toys.

Cambodia also gets a seat at the table where trade policy is set. “It can now go to the U.S. and say ‘here’s how your policies are hurting us’,” says Edward Gresser, a trade specialist who served in America’s Clinton administration. One of the first things Phnom Penh might want to complain about are U.S. tariff levels on Cambodian exports. At an average of 16%, tariffs charged on Cambodian goods are 10 times the average that the U.S. charges the rest of the world.

Conversely, non-governmental organizations and opposition politician Sam Rainsy have warned that reducing tariffs on Cambodia’s imports will prompt a surge of cheap food products from neighbouring Thailand and Vietnam that will devastate small farmers, who make up 80% of Cambodia’s workforce. Oxfam, the British relief agency, said in a recent briefing paper that Cambodia’s maximum tariff rate under its WTO accession agreements is 60% on agricultural products, compared to a U.S. rate of 121%.

It is far from assured that foreign investors who were burned earlier in Cambodia will now return. The nation’s commitment to reform will be seriously tested in the months ahead as it implements its WTO commitments.

As recently as January, Cambodian rioters, apparently angry at the extent of Thai involvement in their economy, looted and burned the Thai embassy and Thai-owned companies in Phnom Penh. On top of that, opposition parties are refusing to join a coalition government with Prime Minister Hun Sen, who failed to win a majority in the national assembly during elections in late July. Political instability isn’t likely to help the country as it embarks on a potentially dramatic economic journey.

Posted on September 22nd, 2003 by jl
Filed under: Intl Trade