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CICP E-BOOK N0. 6
ASEAN-CHINA FREE TRADE AREA
AND CAMBODIAN INDUSTRIES
CHAP SOTHARITH AND CHHEANG VANNARITH
December 2010
Supported by the People’s Republic of China Regional
Cooperation and Poverty Reduction Fund
through the Asian Development Bank (ADB)
Phnom Penh, Cambodia
3
Executive Summary
Using qualitative methods with desk study and selected interviews, the study aimed to serve
three main objectives: (1) to compile and analyses the background information on
Cambodia‘s foreign trade situation and its policy in different stages of development; (2) to
raise awareness and knowledge on trade liberalization, trade facilitation and its impacts on
Cambodian economy by presenting some case studies in selected industries, especially under
ASEAN China Free Trade Agreement (ACFTA); and (3) to propose some feasible
recommendations for future direction so that Cambodia can use the opportunity in
implementing ACFTA with maximum benefit.
With strong political commitment, Cambodia has integrated its economy with the
regional and global markets and production network. It became a full member of the
Association of Southeast Asian Nations (ASEAN) in April 1999 and the World Trade
Organization (WTO) in October 2004. Through its membership in these organizations,
Cambodia has boosted its international trade and investment, thereby contributing to its own
economic development and poverty reduction. Its trade activities have been robust, especially
with neighboring countries. United Sates and Europe are the two main markets from
Cambodian textile products. However, Cambodia‘s trading pattern remains vulnerable to
external shocks as its market segment is narrow. Nearly half of total exports go to a single
country, the United States and more than sixty percent of imports come from 4 countries in
East Asia, China, Thailand, Hong Kong and Vietnam.
The market system and the private sector are regarded to be engines of growth by the
Royal government. Thus, the government seeks to institute reforms in order to eliminate the
bottlenecks and obstacles faced by the private sector, especially in trade liberalization and
promoting a favorable environment for free and fair trade. A comprehensive Customs Code is
being devised to conform to the World Customs Organization (WCO) standards. The
government is also implementing a reform agenda covering 2004-2008 that includes a trade
facilitation programme and a single window for customs.
Trade liberalization in Cambodia has resulted in job creation, improvement in
productivities, and poverty reduction. Cambodia‘s successful case in benefit of trade has been
praised by many countries, organizations and scholars. The largest beneficiaries from trade
liberalization are likely to be ordinary Cambodian citizens as consumers and the retail
industries that serve them, who can enjoy more choices with lower cost of imported products,
4
and domestic products with some import content. The second most important beneficiary will
be the Cambodian private sector and the workers it employs, particularly as the investment
climate improves and private sector-supporting institutions are put in place.
The paper concludes that Cambodia‘s benefit from regional FTA is still limited as the
country‘s export remains minimal, especially export to China. However, ASEAN-China FTA
in the long run will provide substantial benefit to Cambodia in term of increasing volume of
trade, tourism, inflow of FDI, economic growth, improvement of bilateral relation, and
political interests in general. The challenges for Cambodia‘s export are: 1) Lack of trade
promotion activities; 2) Lack of information and understanding regarding Regional Trade
Agreements; 3) Complicated bureaucracy for trade in Cambodia; 3) High cost of doing
business; 4) Limited size of production capacity with poor technology; 5) Lack of credit
access and insurance; and 6) Lack of appropriate partner.
According to case studies in part II of the paper, Cambodian exporters can enjoy more
benefits than losses in joining ACFTA because of two main reasons: First, Cambodian
products especially agricultural products are competitive in terms of price and quality.
Cambodian products like beverage and food can compete effectively with the imported
products from ASEAN countries and China due to the low price, acceptable quality, and
brand awareness. However, it is difficult for them to export to regional market like China
because of the absence or the lack of brand promotion and marketing strategy, high cost of
export process and packaging. Food and beverage sector seem to have lowest opportunity to
export mainly due to low quality standard and high cost. It calls for the strong support from
the government in facilitating export and find the market for the products. In addition, the
lack of financial investment and packaging services refrain the industry from expanding their
market to the region especially China.
It is safe to say that Cambodia has huge potential to export agricultural products to
Chinese market under the ASEAN-China FTA. However, the lack of information on regional
market, lack of market entry strategy, lack of government support in facilitating export, and
the lack of firm‘s capacity in large scale production and high quality standard production are
the main constraints in promoting Cambodian export to China.
5
Contents
Executive Summary ................................................................................................................. 3 Abbreviation ............................................................................................................................. 8 Chapter 1: Introduction ........................................................................................................ 10
1.1. Background ................................................................................................................... 10 1.2. Objectives ..................................................................................................................... 11
1.3. Methodology ................................................................................................................. 11 1.4. Structure of the Study ................................................................................................... 12
Chapter 2: Cambodia: A Pro-trade Country ...................................................................... 14 2.1. Historical and Economic Background .......................................................................... 14 2.2. Recent Development of Cambodia‘s Trade .................................................................. 16 2.3. Cambodia‘s Trade Policy .............................................................................................. 23
Trade Liberalization Policy .............................................................................................. 24
Pro-poor Trade Policy ...................................................................................................... 25 2.4. Trade facilitation ........................................................................................................... 28
Government Private Sector Forum .................................................................................. 28 Chambers of Commerce and Professional Association ................................................... 30
The Institute of Standards of Cambodia (ISC) ................................................................ 31 Trade Infrastructures ........................................................................................................ 31 Other Supports ................................................................................................................. 34
2.5. Beneficiaries from Trade Liberalization ....................................................................... 35
2.6. Challenges in Cambodia Export ................................................................................... 37 Lack of trade promotion activities ................................................................................... 37 Lack of information and understanding regarding Regional Trade Agreements ............ 38
Complicated bureaucracy for Trade in Cambodia ........................................................... 38 High Cost of Doing Business ........................................................................................... 39
Limited Size of Products .................................................................................................. 39 Poor Technology .............................................................................................................. 39 Lack of credit access and insurance ................................................................................. 40 Lack of appropriate partner .............................................................................................. 40
Chapter 3: Cambodia’s Trade with China .......................................................................... 41 3.1. Background of Cambodia-China Relation .................................................................... 41
3.2. Trade with China........................................................................................................... 42
3.3. FDI from China ............................................................................................................. 44 Table 3.4: FDI from China in Approval (1994- 2009) .................................................... 45
3.4. ODA from China........................................................................................................... 45 3.5. ASEAN-China Free Trade Area ................................................................................... 46 3.6. Cambodia in ACFTA .................................................................................................... 48
Chapter 4: Summary of Part I and General Recommendations ....................................... 50 4.1. Summary of Part I ......................................................................................................... 50 4.2. General Recommendations ........................................................................................... 51
Promotion of Agricultural Products ................................................................................. 51 Quality Products............................................................................................................... 52
Infrastructure Development ............................................................................................. 52 Trade Facilitation ............................................................................................................. 52
Access to Market Information ......................................................................................... 54 Promotion of Two-way Trade .......................................................................................... 54 Human Resource Development ....................................................................................... 55
6
Brief introduction of Part II.................................................................................................. 57 Chapter 5: Case Study in Agricultural Industry ................................................................ 58
5.1. Background of the Industry .......................................................................................... 58 5.2. Case Study 1: Loran Import Export Co. Ltd. (Rice Exporter) ...................................... 62
Main findings ................................................................................................................... 65
5.3. Case Study 2: Mega Green Co. Ltd. (Rice Exporter) ................................................... 66 Main findings ................................................................................................................... 68
5.4. Case Study 3: Seladamex Co. Ltd (Cotton Exporter) ................................................... 69 Main findings ................................................................................................................... 72 Main findings ................................................................................................................... 75
5.6. Conclusion .................................................................................................................... 75
Chapter 6: Case Study on Food and Beverage Industry .................................................... 77 6.1. Background of Industry ................................................................................................ 77 6.2. Case Study 1: Ly Ly Food Industry .............................................................................. 80
Main findings ................................................................................................................... 82 6.3. Case Study 2: Cambrew Co. Ltd .................................................................................. 82
Main findings ................................................................................................................... 84
6.4. Case Study 3: Confirel .................................................................................................. 85 Main findings ................................................................................................................... 87
6.5. Conclusion .................................................................................................................... 87
Chapter 7: Case Study on Garment Industry Sector ......................................................... 88 7.1. Background of Industry ................................................................................................ 88 7.2. Case Study 1: Seak Chan Textiles Manufacturer ......................................................... 92
Main Findings .................................................................................................................. 94 7.3. Case Study 2: B&N Garment ........................................................................................ 95
Main findings ................................................................................................................... 96 7.4. Conclusion .................................................................................................................... 97
Chapter 8: Summary and Policy Recommendations .......................................................... 98 Reference .............................................................................................................................. 103
List of Tables
Table 2.1 Cambodia Basic Indicators ...................................................................................... 15
Table 2.2: Trade in ASEAN Countries .................................................................................... 19
Table 2.3: Cambodia Export by Country 2008 ........................................................................ 20 Table 2.4: Cambodia Import by Country 2008 ........................................................................ 21
Table 2.5: Trade Export by Products in 2008 .......................................................................... 22 Table 2.6: Cambodian Import by Products in 2008 ................................................................. 23 Table 2.7: List of Special Economic Zones in Cambodia ...................................................... 32 Table 2.8: Sihanoukville Port Traffic ...................................................................................... 33 Table 3.1: Cambodia-China Trade (2000- 2008) ..................................................................... 42
Table 3.2: Cambodia Export to China in 2006- 2008 by Products .......................................... 43 Table 3.3: Cambodia Import from China 2006- 2008 by Products ......................................... 44 Table 3.5: Top ten ASEAN trade partner countries/regions, 2009 .......................................... 48 Table 5.1: ASEAN Tariff Scheme in Rice............................................................................... 61
Table 6.1: Number of food, beverage, and tobacco SME ........................................................ 78 Table 6.2: Investment capital and employment of industries .................................................. 78
Table 6.3: Output multiplier and value added of industrial sectors ......................................... 78 Table 6.4: Destinations of Cambodia‘s garment export .......................................................... 89
7
Table 6.5: Amount of import-export of textiles and apparel 2008-2009 (US Dollars) ........... 90 Table 6.6: ASEAN Trade in Textiles ....................................................................................... 91
List of Figures
Figure 2.1: Cambodia Economic Growth Rate (1996-2010) ................................................... 14 Figure 2.2: Trade from 2000- 2009 .......................................................................................... 17
8
Abbreviation
ACFTA ASEAN China Free Trade Agreement
AFTA ASEAN Free Trade Area
ASEAN Association of South East Asian Nation
ASYCUDA Automated System for Customs Data
CDCF Cambodia Development Cooperation Forum
CMEA Council for Mutual Economic Assistance
DICO Department for International Cooperation
DITIS Diagnostic Trade Integration Strategy
DTP Department for Trade Promotion
EDPs External Development Partners, bilateral & multilateral and NGOs
G-PSF The Government Private Sector Forum
IF Integrated Framework
ITC International Trade Centre
LDEs Least Developed Economies
MDGs Millennium Development Goals
MOC Ministry of Commerce
PRC People‘s Republic of China
RGC Royal Government of Cambodia
SECO State Secretariat for Economic Affairs of Switzerland
TRADE Trade Related Technical Assistance for Development and Equity
Trade SWAp Trade Sector Wide Approach
WCO World Customs Organization
WTO World Health Organization
9
PART ONE
Overview of Structural Change
of Cambodia’s Trade
by
Chap Sotharith
10
Chapter 1: Introduction
1.1. Background
After revival from decades of civil war, genocide and international isolation, Cambodia has
returned back to normalcy and become one of the emerging economies in the region due to its
high economic growth rate coupled with new market opportunities and high potential for
local economic development and attracting investment. At the same time, Cambodia is one of
the Least Developed Economies (LDEs) which pioneers in trade development significantly
contributed to economic development and poverty reduction.
The pace of Cambodia‘s economic reforms picked up after the Soviet Union was
dismantled in 1989. Similar to Vietnam‘s Doi Moi, Cambodia launched an aggressive reform
program in which private property rights were restored and price control was abolished.
Many of State-owned enterprises were privatized and incentives were provided to local and
foreign private investment. With the signing of the Paris Peace Accord in 1991, Cambodian
warring factions, except the Khmer Rouge, agreed to put an end to the protracted civil war
and started to rehabilitate the economy.1
After the 1993 General Elections, Cambodia has been transformed from centrally
planned economy to free market economy and the Royal Government of Cambodia began
formulating comprehensive macroeconomic and structural reform and achieved some
significant successes in stabilizing the macro-economic foundation. The economy expanded
rapidly during the first half of the 1990s and 2000s, while inflation was dramatically reduced.
Apart from advances in peace, stability and social order, Cambodia is now getting
increasingly integrated into the region by joining ASEAN and other regional and sub-regional
mechanism with active participation in activities and events including successful hosting
ASEAN summit in 2002 in Phnom Penh. The Royal Government of Cambodia has signed
trade agreements with many countries in Asia to increase easy access to outside markets.
Globally, an important milestone was finally reached with Cambodia being admitted as the
148th
member of the WTO on 13 October 2004. Cambodia is the second LDC after Nepal to
1 Chap (2009).
11
join the WTO through the full working party negotiation process.2 With limited human
resources and expertise in international trade, this has imposed higher responsibilities to
adhere to strict protocols and standards but has equally opened up tremendous opportunities
for trade with the world at large on a competitive basis.
Moreover, Cambodia is also a member of the ASEAN-China FTA which is the
world‘s biggest free trade area, embracing 1.7 billion consumers, with a combined gross
domestic product (GDP) of approximately 2 trillion US dollars, and total international trade
of 1.23 trillion US dollars. The Framework Agreement provides the legal instrument for
enhancing the ASEAN-China economic, trade and investment relations from the short-term to
the long-term. It will serve as the foundation for establishing the free trade area (FTA) by
year 2010 for the six original ASEAN states Brunei, Indonesia, Malaysia, the Philippines,
Singapore and Thailand and 2015 for less developed ASEAN members Cambodia, Laos,
Myanmar and Vietnam.
1.2. Objectives
The study aimed to serve three main objectives. They are (1) to compile and analyses on
background information on Cambodia‘s foreign trade situation and its policy in different
stages of development; (2) to raise awareness and knowledge on trade liberalization, trade
facilitation and its impacts on Cambodia economy by presenting some case studies in
selected industries, especially under ASEAN China Free Trade Agreement (ACFTA); and (3)
to propose some feasible recommendations for future direction so that Cambodia can use the
opportunity in implementing ACFTA with maximum benefit.
1.3. Methodology
In order to attain the best results from the above objective, the study combines two different
research methods: desk study and field research.
Desk Study: For Part I, data were collected from secondary sources, including books,
papers, reports, trusted websites, credible newspapers, and other reading materials, especially
2 On 22 July 2003, Cambodia submitted its Acceptance of the Terms and Conditions of WTO Membership and
it was approved by the Ministerial Conference on 11 September 2003 in Cancun and it was subject to
ratification. Source: http://www.wto.org/english/thewto_e/acc_e/a1_cambodge_e.htm
12
those related to Cambodia‘s trade background, ACFTA and its possible impacts to Cambodian
industries. Due to lack of official trade statistic, raw customs data (in 8 digits) provided by
Ministry of Commerce ware analyzed to highlight trade by country and trade by products
both in export and import in selected year.3 In addition, personal and telephone interviews
with selected experts such as top business leaders and government senior officials were also
conducted to fill information gaps and to form the solid foundation for analysis.
Field Research: For Part II, Qualitative case study method is applied by conducting a face to
face interview with the representatives from nine selected companies in the three main
sectors namely: Agricultural Sector, Food and Beverage Sector, and Textiles Sector. These
three sectors are the main players in economic development in Cambodia in the context of
regional and global economic integration. The field interviews were to understand their
business background and perceptions on the ACFTA. Moreover, the interviews also sought
feedback on policy dissemination, business support services and implementation by
government. This part wishes to provide recommendations for policy adjustment at both the
industrial and government levels. The study is embedded with sectoral policies given
international trade relations is a part of a series of networks of producers, exporters,
importers, and retailers. Knowledge and relationships are necessary factor to get access to
market and suppliers.
1.4. Structure of the Study
This paper is dived into 2 Parts. Part I describes Overview of Structural Change of
Cambodia‘s Trade with focus on Cambodia‘s trade development in different stages and pro
trade policy. In addition, some analyses and description on Cambodia-China trade relation
was highlighted. Part I is divided in 4 Chapters. Chapter two describes historical and
economic background with emphasis on trade development in general. Chapter 3 highlights
economic relation between Cambodia and China with focus on bilateral trade. Chapter 4
summarizes Part I and proposes General Recommendations.
Part II is divided into 4 Chapters. Chapter 5 presents Case Study in Agricultural
Sector with 4 selected cases to highlight how the industry operates linking with international
trade and its production chains. Chapter 6 highlights three Case Studies on Food and
3 Trade Data in Cambodia are often different if obtained from different sources. The main source of data used in
analyses for the paper is based on data from the Ministry of Commerce, compiled by CAMCONTROL.
13
Beverage Sector with highlight productions and market. Chapter 7 shows two Case Studies
on Garment Industry Sector and finally Chapter 8 gives summary and policy
recommendations.
14
Chapter 2: Cambodia: A Pro-trade Country
2.1. Historical and Economic Background
After achieving full peace in 1999, the Cambodian economy became more resilient and
dynamic despite the major challenges faced by the regional and global economic crisis and
the natural disasters the country experienced. For the period 2000—2008, Cambodia
achieved an average growth of approximately 9 percent per annum. In particular, during the
last three years, Cambodia‘s economic growth reached unprecedented double-digit rates of
11.4 percent per year on average, with 2005 as its peak year when growth reached 13.3
percent. Economic growth was 10.8 percent and 10.2 percent for 2006 and 2007, respectively.
Though Cambodia has been affected by the global recession, it posted economic growth of
6.7 percent in 2008. Nevertheless, the crisis has an impact to its economy and the GDP
growth was only 0.1 percent in 2009.4 In 2010, it is expected that the economy will recover to
an estimated growth of about 5 percent (see Figure 2.1). As result, the average per capita
income increased remarkably from US$288 in 2000 to US$513 in 2006 and then to US$900
in 2008. Poverty has been reduced by about 1 percent per year.
Figure 2.1: Cambodia Economic Growth Rate (1996-2010)
Source: Hang Chuan Naron (2010).
4 Chap (2009) and Hang (2010)
15
Continued efforts to develop the banking and financial sector plus the implementation
of a prudential monetary policy have significantly contributed to the sustainability and good
shape of Cambodia‘s macro-economy. The exchange rate between the riel and the U.S. dollar
has been stable in the last few years, with inflation rate under control. Despite the effects of
the global economic and financial crisis, Cambodia has been able to significantly ensure and
increase its international reserves, which have risen to over US$ 2.52 billion as of August
2009 compared to only US$ 2.07 billion in 2008, a 21.48 percent increase.5
Table 2.1 Cambodia Basic Indicators
Land Area (square Km) 181,035
Population (thousands, 2008) 14,700
GDP (million current US$, 2008) 9,574
GDP (million current PPP US$, 2008) 27,997
Current account balance (million US$, 2008) (1,060)
Trade per capita (US$) 900
Trade to GDP ratio (2006-2008) 144
Source: WTO,
http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=KH
Within a span of thirty years, Cambodia has gone from having nothing to achieving
development in political stability and predictability, economy, and social affairs. Its banking
sector, in particular, has developed rapidly in terms of scale and transactions. This has played
an important role in the country‘s economic development, its efforts to reduce poverty, and
the increase in the standard of living for the Cambodian people as outlined in the Financial
Sector Development Strategy and the Rectangular Strategy of the Royal Government of
Cambodia.
Nevertheless, with the experience of rapid increase in food and fuel prices, followed
by the global economic downturn, Cambodia has faced difficult times recently, similar to
other countries around the world. As a result, last year the Cambodian economy suffered a
severe setback with increased hardships for many of the poor and vulnerable Cambodians.
Around four million people still live in poverty in Cambodia, plus a large proportion of the
population live precariously near poverty line (one US dollar per day). There are big
widening inequalities between rich and poor, rural and urban, and in particular life continues
to be extremely challenging for the majority of Cambodian rural families who remain
5 Hun Sen‘s speech at the 30
th Anniversary of the Re-establishment of the National Bank of Cambodia at
InterContinental Hotel on October 8, 2009
16
vulnerable to shocks. This poverty results in malnourishment of children, poor educational
outcomes, and large numbers of women dying as a result of child-birth, and poor rural
sanitation and water supply which is reflected in the poor health status of Cambodians.6
2.2. Recent Development of Cambodia’s Trade
Foreign trade was preoccupied by the Government during 1950s to 1970s. Most of export and
import activities were conducted through State-Owned Enterprise of Société Nationale
d‘Export et Import, (SONEXIM) and absent during the war in 1970s. During the Democratic
Kampuchea (or Khmer Rough time, 1975- 1979) Cambodia had no foreign trade at all due to
the Regime‘s self-sufficient policy. After the establishment of the new Government of
People‘s Republic of Kampuchea in 1975, the government controlled all official foreign
trade. In July 1979, under the administration of the State of Kampuchea, the Ministry of
Local and Foreign Trade set up the Kampuchean Export and Import Corporation
(KAMPEXIM, the state trading agency) to handle exports, imports, and foreign aid. In
addition, the National Trade Commission was created to be in charge of both internal and
external economic coordination. In March 1980, the Foreign Trade Bank was formed to deal
with international payments, to expand trade, to provide international loans, and to control
foreign exchange. There were reports on special clearing arrangements for trade (similar to
barter trade regime) among the Indochinese countries and with some members of the Council
for Mutual Economic Assistance (CMEA, or Comecon). 7
Beginning in 1982, the government made serious efforts to promote foreign trade as a
means of accelerating national reconstruction and development. The First Plan emphasized
exports as a way to correct imbalances in the national economy, but it did not provide any
commodity export target figures. In the late 1980s, Cambodian officials released information
revealing the direction and the patterns of trade rather than specific numbers. Most official
trade was being conducted with Comecon countries in the form of exchanges of commercial
goods. In the absence of authoritative data, unofficial Western sources placed Cambodia's
trade deficit at US$100 million to US$200 million annually from 1981 to 1987. According to
the Asian Development Bank, the country's total external debt in 1984 was US$491 million,
6 Remarks Delivered by Ms. Annette Dixon, World Bank Country Director, at 3rd Cambodia Development and
Cooperation Forum (CDCF), which is a Fund Raising for ODA on 2 June 2010. 7 Russell R. Ross, ed. Cambodia: A Country Study. Washington: GPO for the Library of Congress, 1987. at
http://countrystudies.us/cambodia/68.htm accessed on 17 April, 2010
17
up from US$426 million in 1983 and US$368 million in 1982.8
Cambodia started to introduce market economy in late 1980s. However, the economic
reform process was very slow due to the continued civil war and political crisis. It takes about
a decade for Cambodia to stabilize its macro-economy. The year 2000 can be regarded as the
starting point of Cambodia‘s economic reform after Cambodia gained total peace in 1999.
With strong political commitment, Cambodia has integrated its economy with the regional
and global markets. It became a full member of the Association of Southeast Asian Nations
(ASEAN) in April 1999 and the World Trade Organization (WTO) in October 2004. Through
its membership in these organizations, Cambodia boosted its trade, thereby contributing to its
own economic development and poverty reduction. Its trade activities have been robust,
especially with neighboring countries.
However, Cambodia‘s trading pattern remains vulnerable to external shocks as its
market segment is narrow. Nearly half of total exports go to a single country, the United
States and more than sixty percent of imports come from 4 countries in East Asia, China,
Thailand, Hong Kong and Vietnam (see Table 2.3 and Table 2.4).
Figure 2.2: Trade from 2000- 2009
Source: Hang (2010)
8 Ibid.
18
19
Table 2.2: Trade in ASEAN Countries
Country 2008 2009 1/ Year-on-year change
Exports Imports Total trade Exports Imports Total trade Exports Imports Total trade
Brunei Darussalam
10,268.0
2,506.7
12,774.7
7,168.6
2,399.6
9,568.2
(30.2)
(4.3)
(25.1)
Cambodia
4,358.5
4,417.0
8,775.6
3,906.9
5,448.0
9,354.9
(451.6)
1,031.0
579.3
Indonesia
137,020.4
129,197.3
266,217.7
116,508.8
96,829.2
213,338.0
(15.0)
(25.1)
(19.9)
Lao PDR
827.7
1,803.2
2,630.9
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
Malaysia
194,495.9
144,298.8
338,794.7
156,704.3
123,183.8
279,888.1
(19.4)
(14.6)
(17.4)
Myanmar
6,620.6
3,794.9
10,415.4
6,341.5
3,849.9
10,191.3
(4.2)
1.4
(2.2)
The Philippines
49,025.4
56,645.6
105,671.0
38,334.7
43,008.3
81,343.0
(21.8)
(24.1)
(23.0)
Singapore
241,404.7
230,760.3
472,165.0
269,191.1
245,226.5
514,417.6
11.5
6.3 8.9
Thailand
174,966.7
177,567.5
352,534.2
151,364.7
134,124.6
285,489.3
(13.5)
(24.5)
(19.0)
Viet Nam
61,777.8
79,579.2
141,357.0
57,096.0
69,949.2
127,045.2
(7.6)
(12.1)
(10.1)
ASEAN
880,765.7
830,570.5
1,711,336.2
802,709.6
718,571.2
1,521,280.8
(8.3)
(12.8)
(10.5)
Source: ASEAN Secretariat and updated data for Cambodia in 2009 using official data (Hang 2010).
Based on official data by General Department of Customs and Excise of the Ministry
of Economy and Finance, Cambodia trade volume presented an increase by about two folds
from US$ 5,858 million in 2004 to US$ 11,217 million in 2008. At the same period,
Cambodia has a huge trade deficit which was widened about three folds from US$681 million
in 2004 to US$ 1.80 billion in 2008 (see figure 2.2).
Nevertheless, Cambodia‘s trade volume of US$11,217 million in 2008 is still small
compared to trade in her neighbors and some other countries in the ASEAN (see table 2.2).9
9 Data is different if compared between Figure 2 and Table 3 and Table 4. Data in Figure 2 can be considered as
or accurate as it is presented by H.E.Mr. Hang Chuan Narong, Secretary of State, Ministry of Economy and
Finance during 3rd
CDCF on 2 June 2010. Those data is calculated by General Department of Customs and
Excise while the data which are later used by the Authors to analyze in 2008 is based on MOC‘s data which
compiled by CAMCONTROL in 8 digits.
20
Table 2.3: Cambodia Export by Country 2008
Country Name Custom Value of Export US$ % of Total
United States of America 1,970,696,220.65 45.21%
Hong Kong 840,994,262.83 19.29%
Canada 291,515,434.26 6.69%
Vietnam 170,825,056.53 3.92%
United Kingdom 155,949,804.33 3.58%
Holland 152,138,918.82 3.49%
Germany 138,220,032.04 3.17%
Spain 123,780,462.21 2.84%
Singapore 113,586,340.66 2.61%
Belgium 50,983,938.39 1.17%
France 34,184,171.86 0.78%
Japan 32,144,805.72 0.74%
Italy 26,608,860.20 0.61%
Mexico 21,199,754.91 0.49%
Sweden 16,017,850.82 0.37%
Ireland 15,421,234.92 0.35%
Thailand 13,533,984.90 0.31%
China 12,932,592.90 0.30%
Austria 12,443,061.11 0.29%
Russia 11,810,197.37 0.27%
Australia 10,870,424.82 0.25%
Luxemburg 9,713,817.44 0.22%
Switzerland 9,508,557.69 0.22%
Malaysia 8,976,662.73 0.21%
Denmark 8,742,946.92 0.20%
Norway 8,731,210.79 0.20%
Turkey 7,442,303.68 0.17%
South Korea 7,398,820.32 0.17%
United Arab Emirates 5,694,325.38 0.13%
Greece 5,609,584.53 0.13%
Brazil 5,562,521.78 0.13%
Nigeria 5,342,506.06 0.12%
Argentina 5,308,495.56 0.12%
Taiwan 5,059,632.57 0.12%
Others 50,141,405.79 1.15%
Total 4,359,090,201.48 100%
Source: Author computing based on Ministry of Commerce Database 2008
In 2008, Cambodia‘s biggest export markets are the United States of America, Hong
Kong, Canada, Vietnam, United Kingdom, Holland, Germany, Spain and Singapore (see
Table 2.3). As seen in Table 2.4, at the same time, Cambodia imported most from China
(US$933.55 million representing 21.13 percent), Thailand (US$696.73 million representing
15.77 percent), Hong Kong (US$588.51 million), Vietnam (US$471.68 million), Taiwan
(US$365.84 million) and Singapore (US$303.70 million).
21
Table 2.4: Cambodia Import by Country 2008
As shown in Table 2.5, Cambodia‘s export depends completely on textile, garment and
apparel products which cover about 70 percent of total export. Pulp and paper stands number
2 in exports covering about 20 percent of total export. Though Cambodia is based on
agriculture where about 85 percent of population is living with agriculture in rural areas,
Cambodia has limited export of her agro-products as shown in the same table. Agro-products
Country Names Customs Value of Import
(US$) % of Total
China 933,553,096.27 21.13%
Thailand 696,739,334.98 15.77%
Hong Kong 588,517,318.41 13.32%
Vietnam 471,688,996.18 10.68%
Taiwan 365,840,756.81 8.28%
Singapore 303,701,806.84 6.87%
South Korea 229,263,625.72 5.19%
United States 220,199,977.19 4.98%
Malaysia 122,465,933.79 2.77%
Japan 114,146,309.67 2.58%
Indonesia 96,422,140.00 2.18%
India 88,675,483.99 2.01%
France 33,802,803.75 0.77%
Australia 17,027,913.67 0.39%
Pakistan 16,543,215.67 0.37%
Switzerland 16,467,218.38 0.37%
Germany 15,931,314.83 0.36%
Luxemburg 8,327,269.46 0.19%
Russia 7,223,924.03 0.16%
Italy 6,104,100.57 0.14%
United Kingdom 5,598,006.34 0.13%
Holland 5,232,802.53 0.12%
Belgium 5,151,295.12 0.12%
Philippines 4,754,810.26 0.11%
Sweden 4,320,352.27 0.10%
Ireland 3,422,630.35 0.08%
New Zealand 2,528,139.71 0.06%
Bangladesh 2,523,986.79 0.06%
Finland 2,405,247.88 0.05%
Canada 1,952,079.27 0.04%
Denmark 1,921,825.94 0.04%
Saudi Arabia 1,824,847.96 0.04%
Brazil 1,679,819.46 0.04%
Sri Langka 1,675,051.23 0.04%
Turkey 1,597,753.43 0.04%
Macao 1,491,437.94 0.03%
United Arab Emirates 1,400,731.30 0.03%
Spain 1,350,923.17 0.03%
Argentina 1,139,010.26 0.03%
Swaziland 1,111,421.34 0.03%
Nicaragua 1,092,584.56 0.02%
Others 10,750,035.56 0.24%
Total 4,417,567,332.90 100.00%
Source: Author computing based on Ministry of Commerce Database 2008
22
(sector 01-16 in Harmonized System) covered only about 0.3 percent of total export. This can
be interpreted that the country has not used her full potential for agricultural development for
export. It can be explained in another way that agricultural products, especially rice, rubber
and other products were traded across border to neighboring countries without recording
through customs or with poor data entry.
Table 2.5: Trade Export by Products in 2008
Chapter Section Export Value US$ % of Total
1-5 Live Animal 2,426,563.62 0.06
6-14 Vegetable Products 9,648,310.68 0.22
15 Fats and Oils 8,951,496.67 0.21
16-24 Prepared Foodstuffs 9,458,443.41 0.22
25-27 Mineral Products 117,687,756.88 2.70
28-38 Chemicals 968,564.99 0.02
39-40 Plastics 34,398,196.80 0.79
41-43 Hides and Leather 863,504.14 0.02
44-46 Wood and Wood articles 3,558,391.53 0.08
47-49 Pulp and paper 903,851,658.00 20.74
50-63 Textiles and apparel 3,025,351,504.39 69.40
64-67 Footwear 93,912,377.29 2.15
68-70 Stone/Cement/Ceramics 1,295,743.88 0.03
71 Gems 11,239,364.59 0.26
72-83 Base metal and Metal articles 16,509,529.97 0.38
84-85 Machinery and Electrical Appliances 6,978,053.91 0.16
86-89 Vehicles 97,946,760.38 2.25
90-92
Optical, precision & musical
instruments 2,950,386.65 0.07
93 Arms 83,462.41 0.00
94-96 Miscellaneous Manufactured articles 6,805,703.19 0.16
97-98 Antiques and works of art 4,130,390.62 0.09
Total 4,359,016,164.00
Source: Author computing based on Ministry of Commerce Database 2008
Due to the urgent need for reconstruction of her economy and the booming in private
sector, Cambodia imported more in raw materials such as cloth and related unfinished
products of textile which covered about 35 percent of import. Other main import items
include vehicles (both new and second hand ones in chapter 86-89), Machinery and Electrical
Appliances (chapter 84-85) and mineral resources including oil and gas (chapter 25-27)
which covered 13 percent, 11 percent and 10 percent of imports respectively (see Table 2.6).
23
Table 2.6: Cambodian Import by Products in 2008
Chapter Section Import Value US$ %
1-5 Live Animal 6,127,890.60 0.14%
6-14 Vegetable Products 37,366,927.06 0.84%
15 Fats and Oils 6,895,474.83 0.16%
16-24 Prepared Foodstuffs 258,217,650.37 5.83%
25-27 Mineral Products 454,908,915.03 10.26%
28-38 Chemicals 202,128,457.20 4.56%
39-40 Plastics and Rubber 124,380,959.45 2.81%
41-43 Hides and Leather 29,927,420.17 0.68%
44-46 Wood and Wood articles 2,427,069.93 0.05%
47-49 Pulp and paper 214,470,780.57 4.84%
50-63 Textiles and apparel 1,563,560,144.57 35.28%
64-67 Footwear and Headgear 26,430,183.24 0.60%
68-70 Stone/Cement/Ceramics 59,569,529.19 1.34%
71 Gems 35,952,583.94 0.81%
72-83 Base metal and Metal articles 216,507,025.76 4.88%
84-85 Machinery and Electrical Appliances 505,134,534.47 11.40%
86-89 Vehicles 577,765,817.84 13.04%
90-92 Optical, precision & musical instruments 42,536,254.53 0.96%
93 Arms 66,655.97 0.00%
94-96 Miscellaneous Manufactured articles 66,010,491.78 1.49%
97-98 Antiques and works of art 1,720,125.16 0.04%
Total 4,432,104,891.65 100.00%
Source: Author computing based on Ministry of Commerce Database 2008
2.3. Cambodia’s Trade Policy
Cambodia stated to integrate her economy (starting from trade) to the region and the world
after the Government has stated to launch its ―Triangular Strategy‖ in 1998.10
The economic
rationale for greater regional and global co-operation and integration has four dimensions.
First, the local market is too small to generate a level of domestic activity that could eradicate
poverty. Second, Cambodia does not have sufficient financial resources or managerial
expertise to utilize its natural resource base optimally. Third, Cambodia needs access to the
technological innovation that underpins increasing efficiency and widening consumer choice.
Fourth, no country has a comparative advantage in producing everything and all countries can
therefore benefit from co-operating and trading with others.
10
Triangular Strategy briefly includes: 1) Political normalization and stabilization; 2) Regional and Global
Economic Integration and 3) Poverty Reduction.
24
Trade Liberalization Policy
With the vision of ―Outward Looking‖, over the last several years the Royal Government of
Cambodia has embarked on a comprehensive program of economic policy reforms. Key areas
include fiscal reform, banking sector restructuring, civil service reform and improved
governance. The trade policy reform focuses on trade liberalization; export oriented and
import substitution industrialization.
All quantitative restrictions on trade were eliminated in 1994. More recently, the tariff
regime has been significantly simplified with the number of rates falling from 12 tariff bands
to only 4 bands (0%, 7%, 15% and 35%) in April 2001 and the top rate reduced from
maximum 120 percent to 35 per cent. Tariff reduction covered several major finished goods
as well as some intermediate goods and raw materials. Importation of raw materials to
produce export product could be exempted from duty (or 0 percent rate).11
The currency is
convertible with pervasive dollarization. Thus in many respects the trade regime in the
country is relatively open.12
The market system and the private sector are regarded to be engines of growth by the
Royal government. Thus, the government seeks to institute reforms in order to eliminate the
bottlenecks and obstacles faced by the private sector, especially in trade liberalization and
promoting a favorable environment for free and fair trade.
A comprehensive customs Code is being devised to conform to the World Customs
Organization (WCO) standards. The government is also implementing a reform agenda
covering 2004-2008 that includes a trade facilitation programme and a single window for
customs. Policy and legal reforms are also being carried out to unleash the potential of the
private sector, safeguard commercial activity, and promote foreign direct investment into
Cambodia. The trade policy framework has resulted in dynamic export performance and
integration of the country into numerous regional bodies, as well as Cambodia's accession to
the WTO in 2003. After fulfilling the target of regional and global integration, Cambodia has
conducted a policy of trade liberalization. Government recognizes the selection of Cambodia
as one of the three pilot countries for the Implementation of the Integrated Framework on
Trade-related Technical Assistance to the LDCs (May 2001) as one of the main positive
external factors resulting to Cambodia‘s accession to WTO.
11
Hang (2003), p.13-14. 12
Ministry of Commerce (2001) p.vii
25
Economic integration including accession to ASEAN and WTO falls into one of the
Royal Government of Cambodia‘s Development Triangle Strategies: building peace and
stability, economic integration, and poverty reduction. Therefore there is a strong political
commitment behind the preparation for the accession into the WTO.13
The role that trade plays in promoting growth and reducing poverty cannot be
overemphasized. Increased trade, promoted by liberalization policies, acts as a powerful
stimulus to economic growth, and such open trade regime will lead to higher rates of
economic growth. Trade may facilitate international diffusion of knowledge, thereby
speeding up growth. In many ways, trade may even occasionally substitute for aid in the
development process.14
As result, the economy has responded well to this opening of trade. Growth rates of
double digit for the past are good compared with those achieved in Cambodia‘s recent past.
Moreover, these growth rates are sufficient to make a dent in the incidence of poverty,
estimates of which range about 30 per cent using the headcount approach, and reducing
poverty by about 1 percent per year.
Pro-poor Trade Policy
Cambodia has put in place a trade policy framework in 2001 to promote growth and
contribute to poverty reduction. The Royal Government is preparing a Trade Sector Wide
Approach (Trade SWAp) with legal framework, procedures and institutional structures in line
with international standards including the implementation of harmonized customs
nomenclature.
Since the mid-1990s, there has been a rapid revival in Cambodia‘s trade sector.
Export growth has been an engine of economic growth and employment creation. However,
trade must be made to contribute more fully to poverty reduction. In order for this to happen,
the Government is committed to the formulation and implementation of a pro-poor trade
sector strategy. The strategy is based on three key concepts: (1) shifting the balance of policy
emphasis from issues of market access and macro-reforms for trade to micro-level issues of
supply capacity; (2) focusing strongly on the delivery of capacity-building support at the
export-enterprise and export sector levels (private sector development for trade); and (3)
13
The Triangular Strategy was adopted by the RGC in its term (1998-2003). Later, the Rectangular Strategy has
been replaced from new term (2003- 2008) and (2008-2013). 14
Sok (2002). p.1
26
stressing the rationalizations and geographical decentralization of export business within
Cambodia.
Effective design and implementation of a pro-poor trade sector strategy requires the
development of a new partnership framework among government, business, the donor
community and civil society, which is aimed at driving the process of strategy formulation
and implementation. It also requires explicit attention to making trade sector strategy
deliberately supportive of the national strategy for poverty reduction.
Cambodia‘s trade agenda was quite modest at the start of the implementation of the
Integrated Framework. Cambodia conceptualized its preliminary trade policy needs
assessment in 1998 followed by a Preliminary Concept Trade Sector Strategy Paper which
was tabled at the mid-term Government Meeting held in Phnom Penh on 29 January 2001. A
document titled the Tokyo Road Map was presented at the Fifth Annual Consultative Group
(CG) meeting in Tokyo, June 2001 essentially describing what Cambodia needed to do to
prepare all the inputs required to formulate a robust pro-poor trade sector strategy which can
become a critical cornerstone of the country‘s poverty reduction strategy. The trade strategy
built upon an early assessment of the incidence and nature of poverty using Cambodian
poverty surveys and identified the importance of reducing impediments to trade for rural
household production in areas such as diversified agriculture, fisheries, handicrafts and labor
services.
Learning from the experiences of other countries with similar characteristics,
Cambodia has sought to design its trade policy framework with the following elements:
A coherent trade strategy that is closely integrated with the country's overall
development strategy;
Effective mechanisms for consultation among the three key sets of stakeholders:
government, the enterprise sector and civil society;
Effective mechanisms for intra-governmental policy co-ordination;
A strategy for enhanced collection, dissemination and analysis of trade related
information;
Trade policy networks, supported by indigenous research institutions; Networks of
trade support institutions; A commitment by all key trade stakeholders to outward-
oriented regional strategies;
A shift from emphasis on macro-environment issues to focus on micro- and meso-
environment issues;
27
Competitiveness is an enterprise issue and a sectoral issue; and
Regionalization and decentralization of the export sector within Cambodia.
As a result of the analysis of the commitments and concessions given at the WTO
accession the government has identified a few areas where gaps and shortcomings are to be
paid special attention to. Cambodia is required to prepare voluminous and complex
documentation regarding its trade regime for goods and services. The country also needs to
undergo significant domestic reforms to achieve conformity with the requirements of the
implementation of the WTO Agreements including the adoption of an ambitious National
Program of Legislation of more than 40 new laws. Finally, in order for Cambodia to fully
benefit from the membership of WTO, the supply side, backward-forward linkages, domestic
content and export capacity of the country are to be further enhanced. All this requires further
capacity building, and coordinated support by the donor community.
In order to support pro-poor trade policy, Cambodia has launched a project called
―Trade Related Assistance for Development and Equity (TRADE)‖ The project cost US$ 2.4
million with main focus to four priority objectives: (i) In the light of Human Development
needs of Cambodia, assess the Trade Related Technical Assistance gaps in order to allow for
tailor-made responses, and greater coordination among the bilateral and multilateral partners
of the government; (ii) Enhance the national capacity to facilitate pro-poor trade policy
formulation and implementation including cross-sectoral and decentralized capacity; (iii)
Ensure people‘s participation, and placement of poverty eradication concerns in the center of
the formulation and implementation of national trade policy and private sector development
strategy, and communicate the people‘s voices to the national and international community in
the context of the MDG8; and (iv) Enhance the country‘s supply capacity in the identified
export potential sectors in order to expand Cambodia‘s exports and present concrete and
visible examples of employment generation and poverty reduction through enhancement of
Cambodia‘s international trade integration. The programme‘s Phase II will build on the
achievements of Phase I and the conclusions of the IF National Trade Event on Trade and
Poverty held in October 2003 in Phnom Penh. Coordination with the new SECO-ITC project
―Support to Trade Promotion and Export Development in Cambodia‖ will be pursued. 15
15
Source: Ministry of Commerce Website www.moc.org.kh
28
2.4. Trade facilitation
From early 1990s, Cambodia has opened her trade policy for more liberalization. The
foreigners are allowed to establish trading companies with 49 percent foreign shares and
Investment Companies up to 100 percent foreign shares. Most non-tariff barriers were
eliminated.
The Royal Government of Cambodia has made significant improvements in processes
and procedures for trade facilitation over recent years. The government is also implementing
a reform agenda covering 2004-2008 that includes a trade facilitation programme and a single
window for customs. Policy and legal reforms are also being carried out to unleash the
potential of the private sector, safeguard commercial activity, and promote foreign direct
investment into Cambodia. The trade policy framework has resulted in dynamic export
performance and integration of the country into numerous regional bodies, as well as
Cambodia‘s accession to the WTO in 2004.
In its stable growth since 1993, Cambodia has received immense financial, technical
and advisory support from External Development Partners (EDPs). Private sector investment,
domestic and foreign, has been a driving force for strong growth in GDP. RGC has paid
particular attention to further strengthen, deepen and broaden the Partnership in Development
with EDPs, private sector and the civil society. In terms of cooperation with private sector, a
high level ―Government - Private Sector Forum‖ has been set up and meets regularly. For
further strengthening cooperation with EDPs, RGC has set up 18 Joint Technical Working
Groups (TWGs) to bring about close coordination among EDPs together with the
government. A high level Government Donor Coordination Committee (GDCC) has also
been set up to guide the TWGs and review progress on various fronts.
Government Private Sector Forum
The Government Private Sector Forum (G-PSF), was established in 1999 at the initiative of
the Prime Minister of the Royal Government of Cambodia to provide a reliable dialogue
mechanism for consultation between the government and the private sector on investment
climate issues ranging from long range policy to day-to-day operations to encourage private
sector initiatives. The G-PSF provides a reliable platform for the business community to raise
and resolve problems with the Government of Cambodia. The Council of Development of
Cambodia acts as the secretariat of the G-PSF. CDC facilitates dialogue within and among
29
the joint government/private sector Working Groups, and broadly, between the Government
and the business community.16
Throughout the year, eight private sector working groups (PSWGs) meet regularly to
identify and prioritize common problems, and negotiate solutions with Government
counterparts. These groups are currently as follows:
1. Agriculture & Agro-industry
2. Tourism
3. Manufacturing and Small and Medium Enterprises
4. Law, Tax and Governance
5. Banking and Financial Services
6. Export Processing and Trade Facilitation
7. Energy, Transport and Infrastructure
8. Industrial relations
The private sector and Government meet as often as necessary, and at two levels:
1) Private sector-only working group (PSWG) meetings, which are open to business
associations and company representatives, allow members to discuss and agree
internally on issues to raise with their Government counterparts. These PSWGs meet
every month or so. The agenda of issues to discuss with Government is prepared
following broad consultation. IFC organizes and hosts many of these PSWG
meetings, coordinates the nominations and elections of the Private Co-Chair for each
working group, and encourages inputs from national and international private sector
members.
2) Joint Government-Private Sector Working Group (WG) meetings take place at the
request of the private sector or the Royal Government of Cambodia to discuss
problems, find solutions, and share information raised by the parties. Each
Government-Private Sector Working Group is co-chaired by a Minister of the Royal
Government of Cambodia (the Government Co-chair) and a representative from the
private sector (the Private Sector Co-chair). These WG meetings are inter-ministerial
meeting as they are attended by representatives of the line ministries who have been
invited by the Government co-chair so that these Government officials can provide
16
Cambodian Government Website for the G-PSF at http://www.cambodia-gpsf.org/about.aspx?x=1&c=1
accessed on 28 June 2010.
30
solutions to the problems raised by the private sector and report progress back to their
senior management.
With its enlarged cabinet meeting status and being chaired by the Prime Minister, the
biannual G-PSF has been a valuable platform for the business community to raise important
problems which have not been settled at the working group level to be resolved in the context
of a “full cabinet style meeting”. For about a decade of its existence, many issues ranging
from long-term policies to day-to-day operations have been raised and resolved satisfactorily.
In particular, during the most recent forum, the 15th G-PSF held on April 27, 2010, 11 of 20
key issues raised by the private sector were solved. These include elimination of rice export licensing
requirements, administrative process improvements and tax incentives for small and medium
enterprises, reduction of export processing fees, and possible betterments in the industrial relations
environment.17
Chambers of Commerce and Professional Association
Phnom Penh Chamber of Commerce: Established in 1995, the Phnom Penh Chamber of
Commerce (PPCC) is responsible for providing support for commercial enterprises; advices
to government and local authorities on economic and commercial regulations; and
professional training and business education. The Chamber, with a membership of 2100
approx., and a staff of 17 should be well placed to provide information and advice to export
enterprises in Phnom Penh, but seems to be unable to reach out to smaller enterprises,
whether in the Capital or the provincial towns.
Provincial Chambers of Commerce: Recently 3 provincial chambers of commerce
(Siemreap, Battambang, and Sihanoukville) have been created by government decrees and
the processes of election of their governance structure have just been completed. Other key
provinces like Koh Kong, Kampong Cham and Banteay Meanchey are getting organized. The
creation of provincial chambers is a response to the demands of provincial businesses who
felt that their interests were not well represented by the PPCC.
Other professional association: In Cambodia, there are a number of private sector
representative bodies e.g. GMAC – Garment Manufacturers Association in Cambodia,
International Business Clubs, Federation of Rice Millers Associations, Rice Exporter
Association, etc. and foreign business Clubs such as Cambodia-US Business Club, etc. to
17
Bretton G. Sciaroni (2010), Senior Partner, Sciaroni & Associates, Co-Chair, Working Group on Law, Tax,
and Good Governance, in his presentation in 3rd CDCF June 2, 2010
31
work together in serving its members‘ interest. These bodies from time to time prepare and
present the position of their members to government.
The Institute of Standards of Cambodia (ISC)
The Institute of Standards of Cambodia (ISC) was established by 2007 Law on Standards of
Cambodia with the main objective of promoting standardization and quality assurance in the
country. The ISC that is a government institution functioning within the purview of the
Ministry of Industry, Mines and Energy is recognized as the leading National Standards body
of Cambodia actively promoting, standardization and conformity assessment activities as a
means of upgrading the quality infrastructure for increasing the competitiveness of products
and services for the benefit of the people of Cambodia.18
For the purpose of trade and
industrial development internationally and regionally, ISC is a subscriber of the International
Organization for Standardization (ISO), an affiliate member of the International Electro
technical Commission (IEC) and also a member of the ASEAN Consultative Committee on
Standards and Quality (ACCSQ). With the accession of Cambodia to the World Trade
Organization (WTO) in October 2004, ISC operates a WTO/TBT (Technical Barriers to
Trade) enquiry point and acts as a notification authority.
Trade Infrastructures
Convention Centers: Cambodia has recently two main Convention and Exhibition Centers
operated by private sectors: Diamond Center and Koh Pech Center in Phnom Penh. Both
convention centers have been frequently used by both government and private sector to hold
conferences, gala dinners, parties, public and private functions and exhibitions for local and
foreign products.
Special Economic Zone (SEZ): The Royal Government of Cambodia recognises that Special
Economic Zones (SEZs) are the foundation for industrialization, trade promotion and
economic development because they bring infrastructure, jobs, skills, enhanced productivity
and the prospect of poverty reduction in rural areas. The Royal Government has since
approved a total of 21 Special Economic Zones (SEZs) located along the border with
Thailand and Vietnam (Koh Kong, Poipet, Bavet, and Phnom Den), at Sihanoukville and
Phnom Penh. Of the 21 zones, 6 have commenced operations (see Table 2.7). Aiming to
18
ISC website: www.isc.gov.kh
32
attract more investors, the SEZs offer a ‗One-Stop Service‘ for imports and exports, with
government officials stationed on-site providing administrative services. Applications to
establish factories within the SEZs are dealt with on-site as well as all administrative
clearances, permits, authorisations, etc.19
Table 2.7: List of Special Economic Zones in Cambodia
Name Locations Area
(ha)
Ownership Capital
($ mil)
Status
1 Koh Kong SEZ Koh Kong 336 Mr. Ly Yong Phat
(Cambodian)
n/a Licensed in 2002,
Operational
2 Suoy Chheng SEZ Koh Kong 100 Mrs. Kao Suoy
Chheng (Cambodian)
14 Licensed in 2002. Not
yet operational
3 N.C SEZ Koh Kong 150 Mr.Kong Triv
(Cambodian)
14 Licensed in 2002. Not
yet operational
4 Stung Hav SEZ Sihanoukville 192 Ms. Lim Chhiv Ho
(Cambodian)
14 Licensed in 2002. Not
yet operational
5 N.L.C SEZ Sray Rieng 105 Ms. Leang Vouch
Chheng
(Cambodian)
13 Licensed in 2005. Not
yet operational
6 Manhattan (Svay
Rieng) SEZ
Sray Rieng 571 Mr. Clement Yang
(Taiwan)
15 Licensed in 2005.
Operational
7 Poipet O‘Neang SEZ Banteay
Meanchey
467 Mrs. Van Ny
(Cambodian)
15 Licensed in 2005.
Operational
8 Doung Chhiv Phnom
Den SEZ
Takeo 79 Mr. Doung Chhiv
(Cambodian)
28 Licensed in 2006. Not
yet operational
9 Phnom Penh SEZ Phnom Penh 350 Ms. Lim Chhiv Ho
(Cambodian)
68 Licensed in 2006.
Operational
10 Kampot SEZ Kampot 145 Mr. Vinh Huor
(Cambodian)
15 Licensed in 2006. Not
yet operational
11 Sihanoukville SEZ 1 Sihanoukville 178 Mr. Lav Meng Khin
(Cambodia)
100 Licensed in 2006. Not
yet operational
12 Tai Seng Bavet SEZ Svay Rieng 99 Mr. Ly Hong Shin
(Cambodian)
37 Licensed in 2007.
Operational
13 Oknha Mong SEZ Koh Kong 100 Mr. Mong Rithy
(Cambodian)
40 Licensed in 2007. Not
yet operational
14 Goldfame Pak Shun
SEZ
Kandal 80 Mr. Chan Ji Kvong
(Korean)
34 Licensed in 2007.
Operational
15 Thary Kampong
Cham SEZ
Kompong
Cham
142 Chhorn Thary
(Cambodian)
69 Licensed in 2007.
Operational
16 Sihanoukville SEZ 2 Sihanoukville 1688 Mr. Lav Meng Khin
(Cambodian)
n/a Licensed in 2007.
Operational
17 D&M Bavet SEZ Svay Rieng 117 Ms. Men Pheakdey
(Cambodian)
52 Licensed in 2007. Not
yet operational
18 Kiri Sakor Koh Kong
SEZ
Koh Kong 1750 Mr. Ly Yong Phat
(Cambodia)
110 Licensed in 2008. Not
yet operational
19 Sihanoukville Port
SEZ
Sihanoukville 70 Mr. Lu Kim Chhun
(Cambodian)
34 Government owned.
Licensed in 2008. Not
yet operational
20 Kampong Saom SEZ Sihanoukville 255 Mr. Kith Meng
(Cambodian)
190 Licensed in 2009. Not
yet operational
21 Pacific SEZ Svay Rieng 107 Mr. Chea Eavmeng,
Mr. Gau Hieckhuor,
Mrs. Yin Phanny
70 Licensed in 2009. Not
yet operational
Source: http://www.investincambodia.com/economic_zones/sezs.htm accessed on 07 July 2010
International Ports: Cambodia has two international Ports, Sihanoukville Autonomous Port
and Phnom Penh Autonomous Port. The Sihanoukville Autonomous Port (PAS) is the sole
19
http://www.investincambodia.com/default.htm
33
international and commercial deep seaport of the Kingdom of Cambodia. At present, the total
operational land area of the Sihanoukville Autonomous Port is around 124.76 ha. The Old
Jetty was constructed in 1956 and became operational in 1960. This jetty is 290m long by
28m wide and can accommodate 4 vessels with medium GRT at both sides. The exterior
berth is -8.50m-13m depth, while the interior berth is -7.50m -8.50m depth. In order to cope
with the increasing rates of cargo throughput the Royal Government of Cambodia had
constructed another 350m long new quay with -10.50m maximum draft in 1966. At
present, this new quay can accommodate 3 vessels with -7.00m draft medium GRT. The
construction of Container Terminal with 400m long by -10.50m depth and 6.5 ha of container
yard was fully completed on March 2007. In 2008, the Port handled more than 2 million tons
of cargo (see Table 2.8).20
Phnom Penh Autonomous Port is located at the junction of the
Bassac, the Mekong, and the Tonle Sab rivers. The Port is the only river port capable of
receiving nearly 800,000-ton ships during the wet season and 500,000-ton ships during the
dry season. The floating terminals server passenger and tourism boat and the concrete piers
also rehabilitated by constructing new terminal with the 300m length and 20m width. The
new terminal is able to berth up to 4 vessels at the same time.21
Table 2.8: Sihanoukville Port Traffic
Item 2003 2004 2005 2006 2007 2008 2009(9m)
- Gross Throughput (Tons) 1,772,361 1,503,050 1,380,847 1,586,791 1,818,877 2,057,967 1,405,338
- Not Include Fuel 1,454,856 1,242,011 1,131,699 1,320,102 1,428,992 1,605,672 958,279
- Not Include Fuel &Cont. 650,329 308,153 107,929 197,573 193,573 291,114 162,520
- Cargo Containerized 804,527 933,858 1,023,770 1,122,529 1,235,419 1,314,559 795,759
- Container Throughput (TEUs) 181,286 213,916 211,141 231,036 253,271 258,775 157,639
- Vessel Calling (Units) 878 730 686 912 876 954 642
Note: -Max Vessel Dimensions: At berth 10 000 DWT, -8.50m Draft.
-Principal Imports: Container Cargo, Cement, Oil Products, Steel, Rice & General Cargo.
-Principal Exports : Container Cargo, Processed Wood and Agricultural Products.
Source: Port Website: http://www.pas.gov.kh/traffic-handling.html
Railways: As the result of decades of conflict and civil war, Cambodia‘s transport
infrastructure is extremely weak. There is a limited train system which runs to the southern
seaport of Kampong Saom and to the northwest (Poipet) on the Thai border. There are plans
to rehabilitate the railway to Poipet and to build a new railway linking Phnom Penh and Ho
Chi Minh City in Vietnam as part of the trans-Asia railway. These railways cover a total of
603 kilometers (375 miles). The Royal Government of Cambodia has granted the license to
20
Port website: http://www.pas.gov.kh/introduction.html 21
Phnom Penh Port Website: http://www.ppap.com.kh/ppap/sub04.asp
34
the Australian Company, Toll (Cambodia), to invest in the country‘s two railways. Deputy
Prime Minister and Minister of Economy and Finance Keat Chhon, Public Works and
Transportation Minister Tram Iv Tek and Toll Representative Charles Thompson on June 12
signed a 30-year concession agreement on the development and exploitation of the two railway
lines – from Phnom Penh to Poipet of Banteay Meanchey province and from Phnom Penh to
Preah Sihanouk province. In March 2010, Cambodia received assistance from Asian
Development Bank (ADB) and Australia Government to rebuild its entire railway system by
2013. The country received an additional $42 million loan from the ADB and a $21.5 million
grant from the Australian government. The ADB had already provided a total of $84 million
in loans to help revive the 600 km (370 mile) network. Another $13 million had come from
the OPEC Fund for International Development and Malaysia had contributed 106 km (66
miles) of track worth $2.8 million. The railway has played a central role in Cambodia for
more than 75 years and many Cambodians see it rightly as a symbol of development and a
means of integration with Cambodia's neighbors in the Greater Mekong Sub region and the
world beyond. The Railways, when completed, will help promote trade with reduced cost of
transportation. The railways would connect with the railway in Thailand, and through it with
Malaysia and Singapore.22
Airports: Cambodia has 3 international airports, Phnom Penh, Siem Reap and Sihanoukville.
Phnom Penh and Siem Reap have already operated with passengers and cargo transportation
by international flights. Phnom Penh International Airport has a 3,000-meter runway and is
linked with many parts of Asia by direct services. Phnom Penh International Airport is
operated by private sector in form of Build-Operate- Transfer (BOT) for operation,
management, and development and improvement of airport facilities. The BOT is granted to
a joint enterprise between French and Malaysian corporations. Siem Reap Airport has a
2,500-meter runway, and is used both by domestic and international flights. Sihanoukville,
which is under renovation and upgrading, will be the biggest airport to serve future
development of industrialized zones and passengers in the coastal areas. With increasing
cargo and passenger flights, international airports and warehouses will facilitate trade.
Other Supports
With funding support from the International Finance Corporation‘s Mekong Private Sector
Development Facility (IFC MPDF), Ministry of Commerce published a book titled
22
Source: Agence Khmer Press (AKP) June 15, 2009 and Reuters, ―Cambodia rebuilds railway with Australian,
ADB aid‖ March 2, 2010.
35
“Handbook on Export Procedures: Practical Guide for Small and Medium Enterprises in
Cambodia” which explains the export procedures respective government agencies require for
a wide range of products.23
The handbook provides clear and concise information on
government export procedures in a user-friendly format suited to SMEs with little export
experience. These include the procedures at the five main export points in Cambodia,
including Bavet, Poipet, Sihanoukville port, Phnom Penh port, and Phnom Penh International
Airport. In addition to general procedures that apply to all exports, the handbook also
explains the requirements for obtaining Certificates of Origin, export licenses, and other
export certificates from various ministries.
With the project supported by International Trade Center, ITC project CMB/61/87 –
Support to Trade Promotion and Export Development in Cambodia, the Ministry of
Commerce, has published Handbook for Official Trade Representatives for trade promotion
activities abroad. It is also for providing home-based officials who work with the commercial
representative an effective insight into that side of trade operations and thus benefit their own
work. Similarly, it may also enable diplomatic officials, who are occasionally called upon to
do trade work, to find answers to some of their questions.24
2.5. Beneficiaries from Trade Liberalization
It is difficult to access in term of money or other concrete data resulting from the impacts of
trade liberalization to Cambodia. However, some abstract result can be identified from the
impacts. Trade liberalization including many FTAs and especially the ASEAN-China FTA is
believed to offer potential advantages to all members, ranging from greater economic
efficiency to closer cooperation and partnership in non-economic areas. The removal of trade
barriers between ASEAN and China may lower costs, increase intra-regional trade and
increase economic efficiency. The FTA is also expected to lead to greater specialization in
production based on comparative advantage.25
Cambodia‘s entry into the ASEAN Free Trade Area (AFTA) in 1999 offers substantial
potential for its integration with international economies. Since international trade has been
23
The Handbook can be downloaded from MOC‘s Website http://www.moc.gov.kh/pdf/pdfnews/Handbook-
Export-Prodcedure-Eng.pdf 24
The Handbook can be downloaded from Ministry of Commerce Website:
http://www.moc.gov.kh/pdf/pdfnews/Handbook%20for%20Official%20Trade%20Representatives%20(English)
.pdf 25
Hing et al. (2006) p.12
36
acknowledged as being important for developed economies as well as developing economies,
it is widely expected that Cambodia's AFTA membership improves welfare through the
creation of increased access to global markets and expanding trade flows. Indeed,
Cambodia‘s trade volume has been growing steadily since its accession to AFTA.
Cambodia needs to create around 250,000 new jobs each year over the next five years
in order to absorb young people entering the labor market and re-deploy demobilized
soldiers. The economy, in recent years, has not been able to produce jobs at such a high rate
and the results have been a tripling of official unemployment rates (1.9 percent in 1994 to 7.1
percent in 2000) and, more significantly, a considerable increase in rural underemployment.
Simply put, more and more rural workers are working to produce a slow-growing agricultural
output, with a consequent decline in output per head.
The solution to this problem lies in a combination of two developments. First, more
rapid growth in agricultural output through increases in productivity and the development of
new markets is required. Second, more rapid employment growth in the manufacturing,
service, and export sectors is needed, while ensuring that output and productivity increases
are sustained in those sectors. The export sector has a major role to play in breaking the
vicious circle of rapid population growth, growing underemployment, stagnating income, and
poverty.
The largest beneficiaries from trade liberalization are likely to be ordinary Cambodian
citizens as consumers and the retail industries that serve them, who will face a greater choice
and lower cost of imported products, and domestic products with some import content.
The second most important beneficiary will be the Cambodian private sector and the
workers it employs, particularly as the investment climate improves and private sector-
supporting institutions are put in place. But here the picture is a dynamic one that depends on
further reforms and responses of the private sector to those reforms over time. A recent
survey of 500 private enterprises – a productivity and investment climate assessment, found
that only 16% of the samples are actually exporters, but the vast majority import some part of
their production inputs.26
Those that export or import intensively will benefit immediately.
The benefits are also indirect – a more competitive telecommunications environment will
lower the cost of telecom for everyone.
Cambodia‘s successful case in benefit of trade has been praised by many countries,
organizations and scholars. As example, a Press Release of Carnegie Endowment raised a
26
Ministry of Commerce (2007) Cambodia‘s WTO Accession: Risks and Benefits.
37
unique and successful international policy experiment in Cambodia creates a model for how
trade agreements can address working conditions and labor rights and improve governance of
increasingly global production systems. A textile trade agreement between the United States
and Cambodia established quota limits on the small Asian country‘s apparel exports. In a
unique step, the two countries agreed that if Cambodia‘s factories achieved substantial
compliance with national labor laws and internationally agreed basic labor rights, the new
quotas would be increased. Two seemingly small decisions were keys to the success of this
unprecedented model for global corporate regulation and self-regulation: the Cambodian
government required factories to participate in the monitoring in order to benefit from
increased quota allotments, and the ILO provided full transparency of monitoring results.
International apparel firms now knew the range of conditions in supplier factories and could
select partner firms accordingly. Factory owners had two strong incentives to improve
treatment of workers: increased market access through the quota bonus system and increased
orders from reputation-conscious buyers. The Press Release describes specific outcomes from
the experiment, including boosted exports, new job creation, and better working conditions
(especially in payment of wages)—all achieved at a fairly modest cost. It reviews the
elements of this successful model that could be replicated in future trade agreements, after the
apparel quota system ends on January 1, 2005. 27
2.6. Challenges in Cambodia Export
Though many efforts Cambodia has made to promote trade, export of made-in-Cambodia
products are still facing many challenges as follows.
Lack of trade promotion activities
With limited resources and level of decentralization, Cambodia has a very limited fund for
conducting activities in promoting trade to exporting markets. Unlike Thailand, Vietnam,
China, Korea and other countries in the region, the Cambodia find it difficult to conduct trade
fairs and trade promotion events except that from time to time the country is provided free
space for international convention or exhibition abroad such as ASEAN-China Expo in
Nanning, Shanghai Expo and a few others. Cambodian embassies stationed abroad also have
limited resources and capacity for trade promotion.
27
Source: http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=15891
38
Lack of information and understanding regarding Regional Trade Agreements
Except for foreign investment firms, Cambodian enterprises, especially small and medium
enterprises, experience a variety of difficulties in entering export markets and in expanding
exports. Familiarity with modern data and information sources is low and sometimes non-
existent. Small and medium enterprises are not able to inform themselves on the design and
quality requirements of foreign markets. For example, according to a study in 2007 (Chap
2007), private sector has little or no idea about the ASEAN-China Free Trade Area. There is
also limited support from Cambodian government to inform the private sector on commodity
prices and market access. This lack of knowledge causes loss in opportunity to exploit the
chance of exporting products under EHP to China, which a huge market.
Complicated bureaucracy for Trade in Cambodia
Though the market is available for the country in much regional free trade agreement such as
ASEAN FTA, the framework of ASEAN-China FTA and others, Cambodia is still facing a
domestic problem in dealing with complicated procedure and corruption for exporting
products. Fisheries, rice and other agro-products still require various permits including
transportation permits, exporting permits and so on. Firms are frequently faced with delays in
clearing imported inputs through customs, thereby jeopardizing their production schedules
and ability to meet the delivery dates required by their clients abroad. At the 15th
G-PSF, the
Working Group on Export Processing and Trade facilitation raised an outstanding challenge
that still remains to be solved for trade promotion and facilitation. It is the ―high cost of
clearing and transportation‖. The export industry, especially the garment sector continues to
seek further improvements in the area of import/export procedures. Mr. Van Sou Ieng, Co-
Chair of the Working Group on Export Processing and Trade Facilitation and President of the
Cambodia Federation of Employers and Business Associations, as well as Chairman of
Garment Manufacturers Association in Cambodia (GMAC) requested the Government to
solve the problem in order to raise Cambodia‘s competiveness. He said that many factors of
the world economy continue to pose many challenges to the garment industry namely the
continued rise in global oil prices and the increase in minimum wage. He said that the costs
involved for the import and export of goods is still very high when compared to Cambodia‘s
competitors. For example, the costs of importing and exporting one 40-foot container via
39
Sihanoukville port is almost double when compared to the cost in Vietnam when they export
using Ho Chih Minh Port. He added, ―This causes our industry to be less competitive than
Vietnam and certainly affects our ability to attract more buyers and investors to Cambodia.‖28
High Cost of Doing Business
As the country is in transitional stage, corruption in the administration is still considered a
common problem. Local business people have identified concerns over high cost of doing
business in the Cambodia. This is caused by lack of infrastructure, high level of corruption,
particularly in business operation including import export activities, delay in clearing
customs, expensive electricity, internet, telephone and high transportation costs. Phnom Penh
and many other major cities often face electricity black out due to lack of electric supply or
unreliable source of electricity.
Limited Size of Products
Economy of scale is very favorable for external trading. With exception to garment and
apparel products, Cambodia has limited production capacity, especially in agricultural
products. But most of Cambodia agricultural products are in small-sized family bases which
are not appropriate for export as some importers requires big volume of products.
Intermediate traders (or middlemen) usually exploit the market and extort the prices that may
lead to loss in revenues for smallholders. On the other hand, most of Cambodian agricultural
products are only available in some parts of the year or seasonally and not all the year round.
As example, rice (except the small scale dry season rice) can be harvested only once a year
between Novembers to January and the storage capacity is limited or in sub-standard.
Therefore, it is difficult to supply to the market rice in all year round unless Cambodia has a
good technology in post-harvest storage and quality control.
Poor Technology
Cambodia has limited production bases, especially in production, harvesting, post-harvest
management and processing industry. With limited support from the central government and
limited human resource, Cambodian farmers and producers depends primarily on traditional
28
Source: Extracted from Speech of Mr Van Sou Ieng at 15th G-PSF Government Palace, April 27, 2010, at
http://www.cambodia-gpsf.org/downloads/Final_VSISpeech%20-%2025Apr2010%20(V3).pdf
40
style of farming and productions with full dependence on natural condition, especially rain.
Hence, productivity in the country is very low compared to competing countries.
Lack of credit access and insurance
In order to promote commercialization of Cambodian agro-products, it requires financial
resources to invest on land, fertilizers, machinery, crop collecting or purchasing, insurance,
labor hiring, etc. At present, there is a huge need of credit for farmers or association of
producers to start and expand their businesses. But they cannot get a loan without a condition
or a collateral as a normal commercial bank would needs. International trade and financing
procedure usually are carried out by banks and credit guarantee. But the case of Cambodia,
there is limited or no credit access and payment guarantee such as letters of credit for small
business. Pre-and post-shipment finance is not easily available from banks in Cambodia.
Insurance is not well developed. Factories and the transport of merchandise within Cambodia
are not fully insured by insurance company.
Lack of appropriate partner
In order to conduct business, especially trading, it requires visits, marketing and associating
with appropriate business partners for distributors or sale representatives. Cambodian
producers and traders are difficult to explore trading opportunity in potential market such as
China, Japan and Korea markets. Most of traders have limited experience to explore to find
appropriate and trustful partners. Limited language skill and qualification of Cambodia
traders are also constraints in finding appropriate partners.
41
Chapter 3: Cambodia’s Trade with China
3.1. Background of Cambodia-China Relation
Cambodia and China have had diplomatic relations since July 19, 1958. Cambodia is strongly
committed and adheres to the One China Policy and firmly opposes Taiwan‘s move toward
independence. It recognizes the government of the People‘s Republic of China (PROC) as the
sole legal government of China. Cambodia also considers Taiwan as an inalienable part of
Chinese territory and will continue to support China‘s cause of peaceful reunification.
Historic relations between Cambodia and China go back many centuries to ancient
times when Chinese diplomat Zhou Daguan under the Temur Kahn, Emperor of Chengzong
of Yuan, visited Angkor of the Khmer Empire from August 1296 to 1297.29
Cambodia‘s
relations with China have further improved in recent times as Cambodia enjoys a unique and
special position in Chinese foreign policy since the late Chinese Premier Zhou Enlai
befriended Sihanouk at the Bandung Conference in Indonesia in 1958.30
Cambodia‘s closer
relations with China began on July 19, 1958 when the government of Prince Norodom
Sihanouk recognized the PROC and established an enduring personal relationship with the
late Chinese Premier Zhou Enlai. The Chinese leaders have not forgotten that it was
Cambodia that helped break China‘s isolation in the 1960s by campaigning at the United
Nations (UN) for the expulsion of the Republic of China (Taiwan) and the seating at the UN
of the PROC.
Bilateral relations between the two countries have grown stronger through the years
through frequent exchanges of visits of leaders and government officials, including the
Chinese president and Cambodia‘s king as well as both countries‘ prime ministers and deputy
prime ministers. Political ties between the two countries have strengthened considerably since
1997. In 2000, President Jiang Zemin became the first Chinese head of state to visit
Cambodia, and his trip was followed by National People‘s Congress (NPC) Chairman Li
Peng in 2001 and Premier Zhu Rongji in 2002. Cambodian Prime Minister Hun Sen has also
become a frequent visitor to the PRC since 1997. He has visited China nine times, with his
most recent visit taking place from 29 April to 02 May 2010 when he met Chinese President
29
see Harris and Chandler (2007) 30
Marks (2000)
42
Hu Jintao during the opening ceremony of the Shanghai World Expo in Shanghai. Cambodian
Prime Minister usually returned from those trips with many bilateral agreements and huge
pledges of aid and investment.
3.2. Trade with China
Trade between Cambodia and China has increased dramatically, especially after Cambodia
became a full member of the ASEAN in 1999. In 2007, China-Cambodia trade rose to
US$933 million, an increase of 72 times compared to 1992. Both countries are committed to
increasing volume of trade, which has resulted in an increase in trade volume of up to
US$946 million in 2008 in which Cambodia exported only US$12.9 million to China and
imported US$933.43 from China.
China provided tax exemption for 418 items or tariff lines for Cambodian products
entering China. However, Cambodia is still unable to maximize the benefits from the
cooperation due to its lack of resources, quality products, information on the markets, and
means. Every year, Cambodia posts a trade deficit with China ranging from -US$104.57
million in 2000 up to -US$920.50 million in 2008 (see Table 3.1).
Table 3.1: Cambodia-China Trade (2000- 2008)
Unit million US$
2000 2001 2002 2003 2004 2005 2006 2007 2008
Export 59.49 34.8 24.55 26 29.93 27.31 15.72 51.07 12.93
Import 164.06 205.61 251.56 294.65 451.77 536.03 541.44 882.93 933.43
Balance (104.57) (170.81) (227.01) (268.65) (421.84) (508.72) (525.72) (831.86) (920.50)
Source: BRC Report No.1 (2009), p.27 and Ministry of Commerce
As indicated in Table 3.2, Cambodia‘s export to China reduced from US$15.72 million in
2006 to only US$12.93 million in 2008. The main exported products are textiles and
garments which cover about 68 percent of total export. Though the Early Harvest Programme
within the framework of ACFTA provides opportunity for Cambodia to export to China,
Cambodia has not used China as the main export market yet. So far Cambodia has exported
nearly nothing to China, especially agro-products.
43
Table 3.2: Cambodia Export to China in 2006- 2008 by Products
Chapter Section 2006 (US$) % 2008 US$ % Change
1-5 Live Animal 514,372.75 3.27 386,854.05 2.99 -33%
6-14 Vegetable Products 145,783.33 0.93 14,894.01 0.12 -879%
15 Fats and Oils 28,142.39 0.18 107,679.71 0.83 74%
16-24 Prepared Foodstuffs 90,245.70 0.57 269,068.97 2.08 66%
25-27 Mineral Products 10.16 0.00 6,409.84 0.05 100%
28-38 Chemicals - - - -
39-40 Plastics 34,321.95 0.22 156,419.05 1.21 78%
41-43 Hides and Leather 141,054.53 0.90 9,251.39 0.07 -1425%
44-46 Wood and Wood articles 2,306,608.28 14.67 933,767.17 7.22 -147%
47-49 Pulp and paper 14,214.56 0.09 7,745.24 0.06 -84%
50-63 Textiles and apparel 10,050,216.59 63.91 8,917,201.09 68.95 -13%
64-67 Footwear 159,566.03 1.01 98,898.04 0.76 -61%
68-70 Stone/Cement/Ceramics - - 197.24 0.00 100%
71 Gems - - 61,084.17 0.47 100%
72-83 Base metal and Metal articles 91,680.59 0.58 4,730.67 0.04 -1838%
84-85 Machinery and Electrical Appliances 1,481,731.84 9.42 85,486.45 0.66 -1633%
86-89 Vehicles 460,767.51 2.93 275,585.12 2.13 -67%
90-92 Optical, precision & musical instruments - - - -
93 Arms - - - -
94-96 Miscellaneous Manufactured articles 205,274.11 1.31 6,673.27 0.05 -2976%
97-98 Antiques and works of art 1,382.32 0.01 1,590,647.42 12.30 100%
Total 15,725,372.63 100.00 12,932,592.90 100.00 -22%
Source: Author computing based on Ministry of Commerce Database 2006 and 2008
Cambodia has imported about US$ 933 million from China in which the main imports are
textiles and garment and machinery and electronics covering 62.5 percent and 17.42 percent
of total import respectively (see Table 3.3).
44
Table 3.3: Cambodia Import from China 2006- 2008 by Products
Chapter Section 2006 US$ % 2008 US$ % % Change
1-5 Live Animal 1,100,706.20 0.21% 219,549.85 0.02 -401.35%
6-14 Vegetable Products 1,893,912.59 0.36% 4,641,074.37 0.50 59.19%
15 Fats and Oils 17,998.11 0.00% 189,834.87 0.02 90.52%
16-24 Prepared Foodstuffs 4,579,160.46 0.86% 8,577,476.56 0.92 46.61%
25-27 Mineral Products 229,843.49 0.04% 2,986,659.24 0.32 92.30%
28-38 Chemicals 11,827,091.69 2.23% 15,304,185.24 1.64 22.72%
39-40 Plastics 6,873,310.64 1.29% 10,307,937.56 1.10 33.32%
41-43 Hides and Leather 2,847,443.74 0.54% 1,195,396.93 0.13 -138.20%
44-46 Wood and Wood articles 281,856.03 0.05% 885,362.72 0.09 68.16%
47-49 Pulp and paper 5,704,361.83 1.07% 7,202,960.97 0.77 20.81%
50-63 Textiles and apparel 357,982,861.61 67.36% 583,452,128.57 62.50 38.64%
64-67 Footwear 1,354,902.38 0.25% 2,053,247.05 0.22 34.01%
68-70 Stone/Cement/Ceramics 24,238,429.32 4.56% 35,171,189.84 3.77 31.08%
71 Gems 1,331.56 0.00% 17,141.28 0.00 92.23%
72-83 Base metal and Metal articles 12,849,130.53 2.42% 29,883,145.13 3.20 57.00%
84-85 Machinery and Electrical Appliances 78,773,485.89 14.82% 162,666,186.35 17.42 51.57%
86-89 Vehicles 10,269,386.30 1.93% 41,967,158.89 4.50 75.53%
90-92 Optical, precision & musical instruments 1,191,029.79 0.22% 12,463,463.10 1.34 90.44%
93 Arms 82,315.98 0.02% -
94-96 Miscellaneous Manufactured articles 9,341,471.79 1.76% 14,328,528.94 1.53 34.81%
97-98 Antiques and works of art 0.00 0.00% 40,468.80 0.00 100.00%
Total 531,440,029.93 100.00% 933,553,096.27 100.00 43.07%
Source: Author computing based on Ministry of Commerce Database 2008
3.3. FDI from China
China‘s investment in Cambodia has increased yearly and is distributed among many sectors,
including garments, textiles, apparel, hotels and resorts, industrial parks, power plants,
petroleum, cement, and so on. Most of Chinese companies investing in Cambodia are state-
owned ones.
China started investing in Cambodia in 1994. A large portion of its investments
directly contributed to economic development and poverty reduction, especially from 2005
up to present. China is considered one of the biggest investors in Cambodia with a total
capital of US$5.56 billion invested from 1994 up to April 2009 (see Table 3.4). The main
projects include infrastructure and energy, textiles, manufacturing, agriculture, and food
processing.
Chinese investors are flexible in lobbying and negotiating for investment licenses
45
from Cambodian authorities. They are also familiar with the situation in Cambodia, and many
Chinese-Cambodians speak Chinese. Historically, Cambodia‘s indigenous Chinese were not
rice farmers like most Cambodians, but rather buyers to whom the farmers sold their surplus
and merchants who sold everything else of use in an agricultural society. They are once again
returning to these functions, and their economic capacity is being multiplied by an influx of
Chinese investment, both official and private, that would be the envy of any developing
country. Therefore, Chinese investors feel at home here.
Table 3.4: FDI from China in Approval (1994- 2009)
Year Number of Projects FDI Capital
1994 1 7,000,000.00
1995 9 2,937,531.00
1996 29 38,156,703.14
1997 29 36,157,049.09
1998 39 104,729,154.73
1999 26 46,034,912.00
2000 7 28,405,061.70
2001 5 5,034,745.00
2002 8 23,030,130.50
2003 10 31,006,918.00
2004 21 77,065,242.13
2005 41 444,122,349.51
2006 32 274,339,894.70
2007 31 116,131,944.35
2008 24 4,369,202,447
2009 (up to June) 14 247,586,097
1994-2009 137 5,850,940,179.85
Source: Cambodian Investment Board database
3.4. ODA from China
China provided grant of RMB 1,395.77 million (US$204.41 million) from 2000 to 2009. In
2009, it provided an interest-free loan of RMB 510.77 million (US$74.8 million) to finance
the construction of Road No. 78 from O-Pong Mon to Banlung. Accumulated concessional
loans from 2000 to 2008 amounted to about US$500 million.
The main assistance projects funded by China are the rehabilitation of National Road
No. 8 from Ksach kandal to the Vietnam Border (109 km); the design and construction of
National Road No. 62 from Tbeng Meanchey to Prasat Preah Vihear and Road No. 210 from
Thanl Bek Village, the junction of NR No. 62 to Srayang-Koh Ker; the construction of the
building for the Council of Ministers; the repair and construction of the library of the Senate;
conduct of a feasibility study for a new railway line from Batdeng to the Cambodia-Vietnam
46
border; and provision of computer and other equipment for the electronic library of the Royal
Academy of Cambodia.
China‘s assistance to the Cambodian government is less complicated and can be
realized within a short period of time. This is due mainly to the Chinese government‘s real
commitment to help Cambodia in response to the state of urgency and the country‘s priority
status without conditionality. Cambodia Prime Minister Hun Sen praised China for ―talking
less, but doing a lot” to help Cambodia.31
3.5. ASEAN-China Free Trade Area
At the Annual Summit in Bandar Seri Begawan on November 6, 2001, a closer trade relation
between the Association of South East Asian Nations (ASEAN) and the People's Republic of
China (PRC) started wherein both parties decided to undertake an unprecedented initiative
aiming at establishing a bilateral free trade area in 2010. On 4 November 2002 during the
ASEAN-China Summit in Phnom Penh, Cambodia, the Leaders of ASEAN and China signed
the Framework Agreement on Comprehensive Economic Cooperation.
The ASEAN-China FTA is the world‘s biggest free trade area, embracing 1.7 billion
consumers, with a combined gross domestic product (GDP) of approximately 2 trillion US
dollars, and total international trade of 1.23 trillion US dollars. It is part of a series of
engagements the 10-nation regional grouping in planning with its more prosperous Northeast
Asian neighbors to deepen regional integration.
The Framework Agreement, which contains a preamble and 16 Articles, provides the
legal instrument for enhancing the ASEAN-China economic, trade and investment relations
from the short-term to the long-term. It will serve as the foundation for establishing the free
trade area (FTA) by year 2010 for the six original ASEAN states Brunei, Indonesia,
Malaysia, the Philippines, Singapore and Thailand and 2015 for less developed ASEAN
members Cambodia, Laos, Myanmar and Vietnam.
The CLMV can enjoy all time low tariffs when exporting to China under the Early
Harvest Programme including live animals, meat and edible meal offal, fish, dairy produce,
other animal products, live trees, edible vegetables and edible fruits and nuts, as well as other
specified products now enjoy the following ACFTA tariffs:
31
Prime Minister said in his keynote speech at a Ceremony of Opening a new bridge with assistance from China
in May 2010.
47
China’s (MFN) Applied Tariff Rates:
ACFTA Tariff Rate
2005 2006
Greater than 15% 5% 0%
Between 5% (inclusive) and 15% (inclusive) 0% 0%
Less than 5% 0% 0%
Under the Trade in Goods Agreement, all other products, which are listed under the
Normal Track can enjoy the following ACFTA tariffs:
China’s (MFN) Applied Tariff Rates: ACFTA Tariff Rate
2005 2007
Greater than or equal to 20% 20% 12%
Between 15% (inclusive) and 20% 15% 8%
Between 10% (inclusive) and 15% 10% 8%
Between 5% and 10% 5% 5%
Less than and equal to 5% Standstill
In order to accelerate the implementation of the Agreement, the Parties agree to
implement an “Early Harvest” Program (EHP) for trade in goods which is contained in
Article 6 of the Framework Agreement. All products at 8/9 digit level in HS Chapters 1-8
(live animals, meat and edible meat offal, fish, dairy produce, other animal products, live
trees, edible vegetables and edible fruits and nuts) shall be covered. The Parties are allowed
to have an Exclusion List. However, to balance the concession, the Parties may submit
request list to China on products beyond HS Chapter 8.
The tariff concession under the Chapter based approach shall be multilateralized to all
parties (i.e. all ASEAN members and China) provided that the same products are included in
their early harvest programme.
As a general rule, to enjoy ACFTA tariff rates the products must originate from
ASEAN and/or China. To be classified as originating, at least 40% of a product‘s local
content should have come from ASEAN and/or China. This 40% local content requirement
refers to both single country and cumulative content. 32
Now, all traders need to do is to obtain a Certificate of Origin Form E from the
government agency authorized to issue such document. This Form E would certify that the
product the traders are exporting complies with the content requirement.
After the ACFTA started to implement in 2005, ASEAN and China trade volume
increased to US$178 billion in 2009 making China to be ASEAN‘s largest trade partner
covering about 11.6 percent of ASEAN‘s total trade (see Table 3.5).
32
:Source : http://www.aseansec.org/4920.htm accessed on 20 July 2010.
48
Table 3.5: Top ten ASEAN trade partner countries/regions, 2009
value in US$ million; share in percent
Trade partner
country/region1/
Value Share to total ASEAN trade
Exports Imports Total trade Exports Imports Total
trade
ASEAN
199,587.3
176,620.1
376,207.3
24.6
24.3
24.5
China
81,591.0
96,594.3
178,185.4
10.1
13.3
11.6
European Union-27
92,990.9
78,795.0
171,785.9
11.5
10.8
11.2
Japan
78,068.6
82,795.1
160,863.7
9.6
11.4
10.5
USA
82,201.8
67,370.3
149,572.1
10.1
9.3
9.7
Republic of Korea
34,292.9
40,447.4
74,740.3
4.2
5.6
4.9
Hong Kong
56,696.7
11,218.6
67,915.2
7.0
1.5
4.4
Australia
29,039.3
14,810.8
43,850.1
3.6
2.0
2.9
India
26,520.3
12,595.5
39,115.8
3.3
1.7
2.5
United Arab Emirates
10,569.5
13,797.0
24,366.5
1.3
1.9
1.6
Total top ten trade
partner countries
691,558.3
595,044.0
1,286,602.3
85.3
81.9
83.7
Others2/
118,930.9
131,310.1
250,241.0
14.7
18.1
16.3
Total
810,489.2
726,354.1
1,536,843.3
100.0
100.0
100.0
Source: Asean General Secretariat at www.aseansec.org/stat/Table20.xls
3.6. Cambodia in ACFTA
In order to fully implement the ―Framework Agreement on Comprehensive Economic
Cooperation between the Association of South East Asian Nations and the People's Republic
of China‖, Cambodia finally ratified the Agreement with Royal Decree No.NS/RKM/
1009/018 dated 22 October 2009.33
Cambodia is ready to fully implement the ACFTA and hopes to gain benefit from it
though expanding trade with China. In this regards, Cambodian Prime Minister Hun Sen said
that ―I strongly believe that the establishment of ASEAN-China Free Trade Area will further
strengthen and expand Cambodia's opportunity in socio-economic development. I wish to
take the opportunity, once again, to thank the government of the People‘s Republic of China
for opening a market to us with no tariff and no quotas for 418 items of Cambodian goods. I
33
Ministry of Commerce (2010), p.35
49
strongly appeal to Cambodian and Chinese as well as ASEAN businessmen to explore means
to better utilize the preferential treatment in order to export goods within the rage of the 418
items to the Chinese market. Indeed, you all can come and invest in Cambodia to produce
those goods for exporting to China‖.34
China is regarded as a big market for Cambodian export, as Cambodia already
received a favorable status in the framework of ―Early Harvest Program,‖ in ASEAN-China
FTA. The Cambodian government and private sector should take this window of opportunity
to search for potential markets and reap benefit of market access. But it is unfortunate that
though Cambodia is a part of ASEAN-China FTA, the benefit of market access is still limited
and it is premature to evaluate the costs and benefits at this stage. Private sector participation
in trade promotion to gain benefits from ASEAN-China FTA is very limited. Therefore, there
is limited direct impact to Cambodian export to China according to statistics discussed in the
previous sections and based on many studies.35
Cambodia‘s benefit from regional FTA is still limited as the country‘s export remains
minimal, especially export to China. However, ASEAN-China FTA in the long run will, at
least indirectly, provide substantial benefit to Cambodia in term of increasing volume of
trade, tourism, inflow of FDI, economic growth, improvement of bilateral relation, and
politics for the whole country in general. Hence, Cambodia needs to explore more options
and efforts both locally and abroad to promote its capacity of export in order to maximize its
benefit from ACFTA.
34
The speech was delivered at the second China-ASEAN business and investment summit held in Nanning,
Guangxi Zhuang Autonomous Region, PRC, on October 19, 2005. His speech is posted in Cambodia New
Vision Home Page www.cnv.org.kh 35
For more details, see Chap (2007) and Hing, et.al (2006).
50
Chapter 4: Summary of Part I and General Recommendations
4.1. Summary of Part I
With series of policies to promote trade including trade liberalization and pro-trade policy,
Cambodia can be named a pro-trade country. With the participation from vibrant private
sector, trade volume has been rapidly increased. Though Cambodia trade development is
considered to be a pattern for developing countries in pro-poor trade policy, many challenges
are still lying ahead for Cambodia to overcome. The biggest challenge is trade promotion and
facilitation to meet the world of competition. Cambodia‘s immediate task is to ensure that
favorable trade agreements are reached and are taken advantage of by the expanding
production base and quality of products so that exports become more diversified and diverge
from dependency on the garments industry alone.
Cambodia has huge potential to export agricultural products to Chinese market under
the ASEAN-China FTA. However, the lack of information on regional market, lack of
government support in facilitating export, and the lack of firm‘s capacity in producing quality
products are the main constraints in promoting Cambodian export to the region. Cambodia
for the time being has not used its strong potential infiltrate the greater market access to its
products in the global market especially in markets including China and developed countries.
China is regarded as a big market for Cambodian export, as Cambodia already
received a favorable status in the framework of ―Early Harvest Program,‖ in ASEAN-China
FTA. The Cambodian government and private sector should take this window of opportunity
to search for potential markets and reap benefit of market access. But it is unfortunate that
though Cambodia is a part of ASEAN-China FTA, the benefit of market access is still limited
and it is premature to evaluate the costs and benefits at this stage. With limited private sector
participation in trade promotion to gain benefits from ASEAN-China FTA, there is limited
direct positive impact to Cambodian export to China.
However, in general, ASEAN-China FTA in the long run will provide substantial
benefit to Cambodia in term of increasing volume of trade, tourism, inflow of FDI, economic
growth, improvement of bilateral relation, and politics for the whole country in general.
The main obstacles for Cambodia in promotion of export to China are firstly the
difficult in transportation due to geographical position, secondly the lack of capacity in
51
production with quality and quantity, and thirdly, lack of awareness of market access. With
poor and narrow base economy, Cambodia is very difficult to reap the benefit in market
access to China. The country needs to promote awareness to the private sector and provide
facilitation to the local producers to enhance capacity in production of exportable goods to
China.
Cambodian has very few finished products, usually in poor quality that cannot
compete with similar products imported from our neighbouring country. Though the trade
volume increased year by year, the trade deficit still keeps increasing. However, with active
participations in trade promotion activities such as World Expo and China-ASEAN Expo,
Cambodia can display her products to the world and thus promote them and export to the
foreign markets. Taking examples of a few products such as wood carving, painting, jewelry,
silverwork, Muscle Wine, Palm Wine and Angkor beer, Cambodia can show the world that
she can produce these products to big markets in the world including Japan, France and
others. Other products such as rice, fish, rubber, wood and others can also be promoted to
export as well.
ASEAN-China FTA creates both opportunities and challenges for the key Cambodian
industries namely agriculture, food and beverage, and textile. These three sectors get more
benefits than losses in joining ACFTA. ACFTA impacts on each sector in different way and
at different level. The benefits are generated from market opportunity for Cambodian
agricultural products and Cambodian producers who import raw materials and machineries
from China.
4.2. General Recommendations
Promotion of Agricultural Products
Due to available huge market in China in the framework of ACFTA, the RGC should
implement agriculture-led strategies in order to achieve accelerated progress in expanding
agro-products both with large quantity and good quality. Growth in the agricultural sector can
result from increased production through higher productivity, containment of losses which, at
present, could often be as high as 35-40 percent, sound post harvest support systems, crop
diversification including horticulture and floriculture and increased emphasis on animal
husbandry and fisheries. Laboratory for testing and preserving quality should be installed to
52
promote quality of Cambodia products to be accepted by International Organization for
Standardization (ISO).
Quality Products
At present, though there are many FTAs Cambodia has signed; producers of made-in-
Cambodia products are facing daunting challenges in market access due to the quality issue.
Only a few Cambodian products have been certified as ISO Certificates. They are: chili
sauce, drinking water and vinegar. Though the Government has established the Institute of
Standards of Cambodia (ISC), its operation is still in an early stage due to many constraints
such as lack of laboratory equipment and human resources.
Not many Cambodian business persons understand the ISO and its impacts to their
products. Therefore, Cambodian products should be promoted through promotion of its
quality and brand names and by raising awareness through marketing and advertisement.
Infrastructure Development
Major investments are now being made to improve physical transport infrastructure linking
Cambodia with Thailand and Vietnam, as well as to improve sea and air access to
international destinations, especially China. Sea Ports, River Ports and airport should be
promoted to meet the increasing demand of transpiration of products to serve trade activities.
Due to high cost of electricity, Cambodian Government should find all means to reduce the
cost of electricity such as building hydro-electricity and buying from neighboring countries to
promote production in the country. These developments could greatly reduce costs and
increase the competitiveness of Cambodian products on export markets. The full benefits of
Free Trade Agreement will only be realized if people and goods can move across border
freely at minimal cost.
Trade Facilitation
The Government should have a role to support the farmers with standard certificate, credit
access and market information. The role of the Cambodian government in trade promotion
and trade support services is in its infancy. At present, the Cambodian government does not
effectively promote trade or provide trade support services. Though the MoC has recently
established a trade promotion department, it is not yet operational. Developing effective
mechanisms and trained officials for trade promotion and trade support services is clearly an
53
area of great need and importance for Cambodia. Thus far, the Phnom Penh Chamber of
Commerce has not actively promoted trade among its members or the Cambodian private
sector at large.
Assistance is needed in all aspects of creating an effective export promotion
mechanism, including the elaboration of an export promotion strategy, developing and
managing the necessary national and international data bases, and training on techniques for
organizing a trade fairs and other trade promotion activities. Particular attention needs to be
given to promoting the exports of small and medium enterprises.
Assistance is also required in completing the task of putting in place an appropriate
legal and regulatory framework for the financial sector. Training on trade finance and trade
insurance is required for both the private sector and government officials (in particular those
dealing with export promotion). Help is needed in setting up proper mechanisms to supervise
the implementation of the forthcoming legislation on insurance.
In the area of business information, training on international marketing is required for both
those involved in export promotion and private traders associations. Assistance is also needed
in establishing a Trade Point to facilitate the exchange of information needed by exporters
and importers. Assistance is required in putting in place more effective customs procedures,
allowing Cambodia to benefit fully from customs automation through ASYCUDA. The
National Single Window Service for all the procedures involved in the exporting and import
process should be operational soon so that it will facilitate trade activities and cut the cost of
trade.
In addition to allowing more efficient customs clearance for traders, automation will
enhance the capacity of the Customs Department to generate timely trade data, and improve
revenue collection.
Export Credit and Investment Insurance Agencies play a critical role in international
trade and finance in developing countries, and thus have great impact on sustainable
development. Export credit and investment insurance agencies, commonly known as ECAs,
provide government-backed loans, guarantees and insurance to corporations seeking business
opportunities in developing countries and emerging markets that are often considered too
risky for conventional corporate financing. They are primarily public or publicly-mandated
institutions that support and subsidize exports and investment from the countries in which
54
they are located into host countries.36
Cambodia should recognize the ECA as a part of trade
facilitation.
Cambodia Government should further reduce bureaucratic constraints and remove
procedural and institutional bottlenecks in order to reduce transactions costs especially
inspection, clearing and in exporting process. Reducing time and money in trade transaction
encourage the private sector to fully use its potential and capacity to export and import.
Access to Market Information
The government agencies should have the duty to provide information relating trade
including export and import market information. The information should be in form of
issuing bulletin or posted in website to be updated regularly. More focus should be made in
providing information related to export market opportunity to Cambodian exporters and assist
them to find the foreign business partners particularly importers. Information on trade, agro-
business and potential markets should be strengthened so that both local and foreign business
communities can use to analyze the potentials for trading with Cambodia. The government
should disseminate information through TVs or radio and encourage the people to use
internet and other information communication technology.
Promotion of Two-way Trade
Cambodian merchants usually support and promote import of Chinese products due to
profitability and availability of the products for reselling in Cambodia. Therefore, many
Cambodian merchants visited China and seek Chinese products to import. This leads to
further trade deficit between the two countries with favor to China. Therefore, the
government should encourage the Cambodian merchants to introduce Cambodian products to
Chinese markets as well in order to promote two-way trade.
In trade promotion, Cambodian Government should conduct Trade Expos in main
China cities to introduce Cambodian products. Trade missions should be regularly conducted
to China in order to disseminate information about Cambodian products to China markets.
Cambodian Embassy and General Consulates should be regarded as the focal points for trade
and investment promotion abroad.
36
For more details see Center for International Environmental Law (2002), ―Export credit and investment
insurance agencies and Sustainable Development‖, Environmental Law Issue Brief For the World Summit on
Sustainable Development, 26 August - 4 September 2002
55
Human Resource Development
Cambodia must focus on developing human and institutional capacities, taking full advantage
of market access opportunities, intensify horizontal and vertical diversification especially
boosting productivity and moving up the value chains, and promoting competitiveness and
sub-regional/regional cooperation to increase Cambodia‘s exports and facilitate the
integration of domestic enterprises into the international economy.
56
PART TWO
Sector Analysis
by
Chheang Vannarith
57
Brief introduction of Part II
Part II of the paper attempts to identify the impacts of regional trade agreements particularly
the China-ASEAN Free Trade Agreement on several key industries at the firm level in
Cambodia in order to determine the challenges and opportunities for key industries which
Cambodia has comparative and competitive advantages. This part wishes to provide
recommendations for policy adjustment at both the industrial and government levels. The
study is embedded with sectoral policy nature given international trade relations is a part of a
series of networks of producers, exporters, importers, and retailers. Knowledge and
relationships are necessary factor to get access to market and suppliers.
The study analyses several companies within each industry of importance to
Cambodia and through which we can determine challenges, opportunities, and policy
recommendations. Qualitative case study method is applied by having a face to face interview
with the selected companies both losing and gaining in the three main sectors namely:
Agricultural Sector, Food and Beverage Sector, and Textiles Sector. These three sectors are
the main players in economic development in Cambodia in the context of regional and global
economic integration. Agriculture, fishery, and food industry have high potential for pro-poor
growth in Cambodia37
while textile industry is the top employing industry for Cambodian
labor forces and reduce poverty in Cambodia through export led growth38
. Nine companies
were selected to conduct interview. Based on the findings, it demonstrates that in general
China-ASEAN FTA does not have yet much impact on the local industries in Cambodia.
Market access and import of machinery from China seem to be the current expectations from
the local producers and exporters. Agricultural industry is the main benefactor from this trade
arrangement.
37 KOBAYASHI et.al (2009). At http://www.jircas.affrc.go.jp/english/publication/jarq/43-4/43-04-06.pdf,
p.315, last access on May 20, 2010. 38
Tatsufumi (2006). at
https://ir.ide.go.jp/dspace/bitstream/2344/131/5/ARRIDE_Discussion_No.062_yamagata.pdf, last access on
June 5, 2010.
58
Chapter 5: Case Study in Agricultural Industry
5.1. Background of the Industry
Cambodia has a total land area of 181,035 square kilometers with arable land of about 21
percent in 2005 and has a permanent crop of 1 percent. With large arable land area,
Cambodia has great potential in agricultural development. Moreover, there are about 80
percent of Cambodians living in the rural area and most of them are farmers. Cambodia is
still an agrarian society in which agriculture contributes about 30 per cent of Country‘s Gross
Domestic Products (GDP) and employs about 50 percent of total Cambodian labor forces.39
Understanding the nature of Cambodian economy and the significance of agriculture,
Cambodian government, development partners, and donor community strongly encourage
and give priority to agricultural sector as it links directly with poverty reduction.
In order to develop agriculture, the government continues to enforce zero tariff policy
on importing agriculture materials such as seeds, fertilizers, pesticide and agricultural
equipments. The government is drafting legal procedures for investment projects in
agriculture especially investment projects especially in rice stockpiling and processing. The
government has increased Rural Development Bank‘s capital to USD13 million for pilot
project in agricultural support especially rice production and it provided credit line of USD15
million for rural development. In addition, the government is establishing ―Agriculture
Support and Development Fund‖ which is managed by Rural Development Bank to support
private sector especially Small and Medium Enterprises, on a number of targets including
providing short-term credit for collecting paddy rice from farmers at a reasonable price level
to maintain price stability and ensure food security and providing medium-term credit to rice
millers to increase capacity in stockpiling, drying and processing.
Agricultural development in Cambodia is still facing with serious lack of
infrastructure especially irrigation system. Private and public investment in this area is
necessary. For instance, in 2009, the governments of Cambodia and Kuwait signed
Memorandum of Understanding (MOU) on construction of hydro dam and irrigation in
Kompong Thom province with the committed investment capital of 350 million US dollars.
The project will provide irrigation to 130,000 hectares for rice cultivation land. The rice
3939
Based on the data from the Ministry of Agriculture and World Development Indicators of the World Bank.
59
products produced from this project will export to Kuwait. In 2010, Chinese government
committed to help Cambodia to build irrigation system by providing 310 Million US
Dollars40
. It is expected that through the construction of irrigation, Cambodia can increase
rice productivity and rice yield which can lead to boost more rice export in the coming years.
In order to push the export of agricultural products, the association of agricultural
products producers was established with the support from the government. In addition
associations such as rice millers were created to provide trainings on management, financing,
and market information sharing. For example, recently, the association established
partnership with business partners from Quang Xi autonomous region in China, and got
facilitation support from Thai authority to use Lam Cha Baing port as a transit to export to
third countries. At the local level, provincial governors in Kompongcham and Kompongthom
provinces of Cambodia signed MOU with the Vietnam‘s Dong Nai province to support each
other in producing and finding the market for Cambodian cashew nuts. China is considered to
be potentially the largest market for Cambodian agricultural products in the next five years.
However, the current export process to Chinese market meets some challenges and is still at a
very limited volume.
State owned enterprises, with autonomous authority, developing agricultural
production and purchase are quite active. They are the main actors in collectively buying
agricultural products at a large amount. Warehousing and logistics are the two other functions
of the enterprises; they are not yet active in exporting the products. The enterprises focus on
rice and rubber, the two most important agricultural products. The Agricultural Inputs
Company was established in February 1999 and is managed by a board of directors from the
Ministry of Agriculture, Forestry and Fisheries, Ministry of Economy and Finance, and Ministry
of Commerce. The Company‘s main activities are purchases and sales of agricultural products
(fertilizers, pesticides, seeds and agricultural equipment), warehousing and managing the
distribution of fertilizers and agricultural inputs obtained from foreign donations. Public
investment in this sector has been gradually increasing.
Cambodia has become one of the leading rice exporters in the region after Thailand
and Vietnam. In 2009, Cambodia produced 7.58 million tons in 2009 over 2.4 million
hectares of land and has a surplus of 3.50 million tons. It is estimated that in 2010, Cambodia
can export 2.24 million tons of rice. But in terms of value added to rice, it is still very low
40
The Mirror, March 19, 2010, China Signed Three Commercial Agreements with Cambodia, Available at
http://cambodiamirror.wordpress.com/2010/03/20/china-signed-three-commercial-agreements-with-cambodia-
friday-19-3-2010/, last access on May 14, 2010
60
especially good quality rice milling factory and packaging industry and services in Cambodia
is still limited. The limitation of low cost and good quality rice millers push Cambodian
traders to especially those located in the border areas to export their rice products to
neighboring countries41
. Cambodia annually exports more than 1 million tons of paddy rice to
Thailand and Vietnam for further reprocessing before Thailand and Vietnam re-export to
other countries.42
According to Economics Today magazine, there is about 20 to 30 percent
of unprocessed paddy exporting to neighboring countries43
. Such rice export to Vietnam and
Thailand is encouraged also by the ASEAN Free Trade Area framework in which tax ranges
from 0 to 5 percent (Table 5.1). Another reason is geographical proximity. Cambodian
farmers living close to the border with Thailand and Vietnam find it more convenient to sell
their paddy rice to the middlemen from these two countries due to the current transport
facility especially in the provincial areas near the border is not good. It also can be explained
that Cambodian rice milling factory is still at low capacity and Cambodia cannot find enough
market for its milled rice. The private sector has been, in recent years, investing in building
milling factory and trying to find the oversea market for Cambodian milled rice. Constraints
in the rice sector are comparatively low yields compared with Thailand and Vietnam, lack of
research capacity, and low capacity to export due to inability to meet hygiene standards,
heavy burden of informal fees for exporting, lack of irrigation, high cost of production due to
poor infrastructure and the failure to build a system to help farmers to meet the standard.
High energy cost hinders local Cambodian rice millers from making profits and competing
with rice millers in Thailand and Vietnam. As result, Cambodian farmers export raw paddy to
Thailand and Vietnam44
. Notwithstanding the limitations and constraints, rice product in
Cambodia is moving toward more value added in its chain of production. This is due to the
increasingly role played by the private sector in investing in milling and packaging services.
41
Ear (2009). 42
Oryza News on June 04,2007, Cambodia Could Become Rice Exporter by Next Year, http://oryza.com/Asia-
Pacific/Cambodia/cambodia-rice.html 43
Leng (2009). Agro-industry and processing. Phnom Penh: Economics Today. 44
Ear (2009).
61
Table 5.1: ASEAN Tariff Scheme in Rice
Rice
Sta
tus
20
07
Sta
tus
20
08
MF
N
Tar
iff
Tentative CEPT rates
- Rice in the husk (paddy or rough): 2007 2008 2009 2010
1006.10.10 - - Suitable for sowing N N 0 0 0 0 0
1006.10.90 - - Other N N 7 5 5 5 5
- Husked (brown) rice:
1006.20.10 - - Thai Hom Mali rice N N 7 7 7 7 5
1006.20.90 - - Other N N 7 7 7 7 5
- Semi-milled or wholly milled rice, whether or not
polished or glazed:
- - Fragrant rice:
1006.30.11 - - - Whole N N 7 5 5 5 5
1006.30.12 - - - Not more than 5% broken N N 7 5 5 5 5
1006.30.13 - - - More than 5% but not more than 10% broken N N 7 5 5 5 5
1006.30.14 - - - More than 10% but not more than 25% broken N N 7 7 5 5 5
1006.30.19 - - - Other N N 7 7 7 7 5
1006.30.20 - - Parboiled rice N N 7 6 6 5 5
1006.30.30 - - Glutinous rice (pulot) N N 7 7 7 5 5
1006.30.40 - - Basmati rice N N 7 6 5 5 5
1006.30.50 - - Thai Hom Mali rice N N 7 7 5 5 5
- - Other:
1006.30.61 - - - Whole N N 7 6 5 5 5
1006.30.62 - - - Not more than 5% broken N N 7 6 5 5 5
1006.30.63 - - - More than 5% but not more than 10% broken N N 7 6 5 5 5
1006.30.64 - - - More than 10% but not more than 25% broken N N 7 7 5 5 5
1006.30.69 - - - Other N N 7 7 5 5 5
1006.40.00 - Broken rice N N 7 7 5 5 5
NOTE: CEPT: ASEAN Common Effective Preferential Tariff Scheme
N: Normal Track of the Inclusion List
Source: ASEAN Secretariat, http://www.aseansec.org/18137.htm
Rubber plantation and processing is also the strength of Cambodian agricultural
sector. There are more than 107 thousands hectares of rubber plantation. In addition cotton
plantation has been growing remarkable in recent years due to the increasing demand from
the international market. Similar to paddy rice, Cambodian rubber and cassava are mostly
exported to Thailand and Vietnam for further processing. For instance, Cambodian rubber is
exported to Vietnam for processing before Vietnam re-export to other markets especially
China. Under the ASEAN common effective preferential tariff scheme, member states of
ASEAN can enjoy low tariff for rice product (5 percent in 2010).
Cotton has been growing in Cambodia since long time ago with the main objective to
get fiberscope. Before 1979 cotton is grown in some provinces such as Kandal, Kratie,
Battam Bong, and Kampong Cham. Unfortunately, because of war and market issue, the land
62
used cotton was changed to crop corn, bean, and potato instead. Nowadays, Cotton Industry
restarts its operation again. Recently, Seladamex Company invested in the construction of
cotton invention factory in Sdao commune, Ratanak Mondul district. It is about 28 km from
Battambong provincial city which have capacity to produce 15 ton per day and collect 5,475
ton per year including purchase from local farmers. Today, Sela Damex is the largest cotton
producer with 106 ha square includes 5 ha for factory. Cotton is emerging to be one of the
main agricultural products for export.
To promote an export of agricultural products, it requires the participation from the
private sector. It is therefore necessary to understand the opportunities and challenges facing
by private sector especially those exporting companies. In this study, four exporting
companies were chosen namely Loran Import Export (rice exporting company), Mega Green
(rice exporting company), Seladamex (cotton exporting company), and Green Development
(rubber exporting company). Loran is currently exporting rice to Hong Kong, Switzerland,
Italy, France, Portugal, and the US. Loran is interested in exporting rice to Chinese market in
the near future. Seladamex exports cotton to China early this year although the amount of
export is still small about 50 tons per year. China is the second largest market after Vietnam
for the company‘s cotton export. Green Development is currently producing and exporting
rubber to Vietnam for further processing and packaging before Vietnam re-export to other
countries especially China.
5.2. Case Study 1: Loran Import Export Co. Ltd. (Rice Exporter)
Loran was officially founded by a Cambodian businessman in 1993 with the initial
investment of slightly above USD 10,000. Nowadays, it becomes one of the main rice
producers and exporters with the investment capital of approximately USD2 million, and
employs 80 people. It is worth noting that, only six staff members gain the regular salary,
whereas the rest are paid on the basis of daily allowance (about three US dollar a day).
The firm has the capacity to produce up to 110 tons of rice a day in comparison with 8
tons at the initial years in order to meet the local and oversea demand. Noticeably, about
3,000 tons of rice, accounting for 0.6% of total Cambodian rice export volume, has been
annually exported by the company to foreign countries such as Switzerland, Italy, France,
Portugal, Hong Kong, and the US. When asked reasons why the company has not exported to
the mainland China, the respondent openly confessed that he also wanted to do so, but he did
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not have any middleman who could introduce his company to the Chinese clients. This was
the reason why Loran firm plans to dispatch its market study team to China in the very near
future in order to conduct a feasibility study and, if possible, to establish a trade tie with any
Chinese rice importing firm. From this point, we can observe that Cambodian government
has not made enough efforts in disseminating the information about Chinese market; more
specifically, the ASEAN-China Free Trade Agreement to the local rice industries. Broadly
speaking, Cambodian rice producers still lack of support from the government in terms of
market information sharing and export potential.
Even though Loran has little knowledge about Chinese market as well as ASEAN-
China Free Trade Agreement (ACFTA), it seems that the firm has benefited from this
regional trade agreement to a certain extent. The respondent said that the company‘s rice
productivity has dramatically increased in the recent years due to the continuous application
of higher technologies in the production process. These technologies, particularly the rice-
coloured selection machines are originally imported from China. Notably, the general
director of Loran company decided to purchase these Chinese-made machineries from a local
supplier, whose name is Yeung Shi, because the quality of the machines is as high similar to
those imported from Japan and Thailand and the price of the former group is much cheaper
than the latter group. The rice-coloured selection machines made in China cost about USD
30,000 per unit in Phnom Penh market whereas the same machines imported from Japan and
Thailand cost approximately USD 60,000 per unit. It is worth noting that due partly to the
government‘s commitment to implementing the regional trade agreements including the
ASEAN-China Free Trade Agreement, importing tariff (the custom duty) of agricultural
machineries from China has been reduced to zero percent since May 22nd
, 2008, creating a
favorable condition for the rice milling industry to raise its competitiveness in both local and
international markets. The Loran case fastens this trend. The general director is confident that
his company‘s export volume could even reach 10,000 tons in 2010 compared to 3,000 tons
in 2009. In addition, he is not much worried about the competition with the Chinese products
both on Cambodian and international markets as he strongly believed in his rice quality and
price could easily access the European and the US market even the Chinese market based on
his production chain with the state-of-the-art machineries imported from China.
Despite the positive sign of the export growth, the firm is still facing with the
complicated exporting procedures which cause delays in delivering the products to its foreign
clients. In order to encourage export to foreign countries including China (his prospective
market), the company strongly urged that Cambodian government should do its utmost effort
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to ease the current exporting procedures which cause two main problems to all Cambodian
exporters including Loran. First, it could delay the delivery process of the product since the
company has to take much time just to precede the legal exporting applications through the
two main government ministries: the Ministry of Commerce and the Ministry of Agriculture,
Forestry, and Fisheries. More specifically, it takes at least 5 to 7 days to finish the paperwork
before the firm could go ahead with its actual export. The company wanted to have shorter
period to get the paperwork done. Additionally, after finishing the paperwork, the firm
suggested that the government should grant the exporters a multiple exporting permit.45
By so
doing, Loran would be able to deliver their products to foreign countries faster and reduce its
expenses; thereby contributing to raising the competitiveness of Cambodian rice in
international market including China.
Second, the current exporting procedures and logistics time and cost lead to an
increase in the total cost of the products, and this would significantly lead to the increase of
the product‘s price and lower the income or revenue generated from exporting the products.
Loran has to go through at least 15 checking processes and is required to pay for each process
before the export, resulting in the company‘s increasing expenses including unofficial
solicitation fee. He went on explaining that the company has to spend at least 55 USD per ton
for the transportation or delivery of the products from Phnom Penh to Sihanouk Ville and for
the exporting paperwork. The company spends about USD 1,000 for each container loading
20 tons of rice. In comparison with Vietnam, the rice exporters spend approximately USD
500 for each container.
Because of costly and time-consuming exporting procedures, some exporting firms
decided to export its products by using Vietnamese international sea port rather than
Cambodia‘s. Truck loading containers are used to transport products from Cambodia,
specifically from Phnom Penh, through the Cambodia-Vietnam Border (Bavet) to Saigon Port
in Hochiminh City. This transport route is considered by some exporting firms as faster and
costs less than from Phnom Penh to Sihanouk Ville Port. However, there is no scientific
study on the cost and time on this route yet. It should be noted that the documents required
for products to be exported or transited to Vietnam are bill of products, packaging invoices,
Certificate of Rules of Origin (in some cases), and Phytosanitary documents if necessary.
Similar paperwork is also required by Cambodian authorities when products are exported
from Cambodian port. However, transiting via Vietnam may be less time-consuming and less
45
Nowadays, all exporting firms could gain only one permit for each time of their export. So if they want to
export again, they have to start applying for the permit again.
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costly, because of geographical proximity, better infrastructure connectivity, and faster
customs procedures. Loran is looking forward to the improvement of the government policy
concerning the exporting procedures; otherwise, more Cambodian exporting firms may
choose the Vietnamese ports as their transit point rather than the Cambodian port. Loran still
uses Cambodian port because it generates income/revenue for the Cambodian government.
Finally, he suggested Cambodian government to help Cambodian rice exporting firms which
may compete with the foreign firms, especially the Chinese ones via three means: First, The
government should help ease the exporting procedures by following his aforementioned
request. Second, the government should provide fund or loan to the exporters so that they
could expand their business much easier. He noted that in order to expand the business, his
company has to borrow money from a private bank called ANZ with a rather high interest
rate (10% per year). Third, Cambodian government should provide more trainings on new
scientific agricultural production methods to Cambodian rice exporters and farmers to enable
them to raise their rice productivity.
In conclusion, the ASEAN-China Free Trade Area seems to bring more benefit to
Cambodian rice exporters through providing a favorable condition for them to access Chinese
technologies with cheaper prices, thereby reducing expenses and expanding their businesses.
Meanwhile, Cambodian rice exporters seem to have a strong interest in Chinese market, but
they could not yet fully get benefits from the ACFTA due to the lack of information about
Chinese market. Another noticeable finding of the Loran rice exporting case is that
bureaucracy and corruption within Cambodian government ministries apparently frustrate
Cambodian rice businesses in diversifying their export to China.
Main findings
Tariff-free imports of Chinese-made agricultural machinery significantly contributed
to the rice productivity of Cambodia. But normally only used machinery from China
was imported given it is cheaper than new ones. Having old machinery with upgraded
technology is better than the old ones although it is relatively less productive and
environmental friendly than brand new machines. The government needs to support
local producers in terms of technology transfer and purchase.
Private sectors have strong interest in Chinese markets, but the information on
Chinese market is extremely limited. Cambodian producers cannot communicate or
find the business partners in China due to the lack of capacity and financial resources.
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Complicated and time-consuming export procedures and unofficial fees are a large
burden for Cambodian exporters. Exports are sometimes conducted via Viet Nam
because it is less time-consuming and less expensive due to geographical proximity,
better road connectivity, and faster customs procedures.
Logistic services are still limited and expensive; this can constraint Cambodia‘s
export and reduce Cambodian competitiveness on international market.
5.3. Case Study 2: Mega Green Co. Ltd. (Rice Exporter)
The company was established in 2008 with the objective to promote the export of Cambodian
rice to the region and the world. There are four main managing staffs in the company with
very limited investment capital. The company gets the loans from the bank based on actual
order from foreign clients so the company does not need much working capital to invest in
this trade business. Although it is a new trading company, the networking capability of the
company with the domestic suppliers and overseas clients is relatively efficient.
Mega Green has a strong network with the rice milling factories in Cambodia. There
are more than 15 milling factories in several provinces in the country. These millers supply
good quality rice to the company based on the standard set by the overseas clients. The
supply chain of rice product is mainly based on two criteria namely legally binding contract
between Mega Green and the supplier and mutual trust between the two. So far, according to
the Secretary General of the company, there has been no problem in terms of ensuring
quantity and quality of the supply chain.
Regarding the quality of rice, the company refused to buy rice that produced with the
genetically modified organism due to the market demand does not accept such kind of rice.
Other factors contributing to the quality control are the level of liquidity, shape of the rice
grains, and cleanliness of the rice itself. The company so far has not had any problem
regarding this quality standard demanded by the buyer from Europe.
Concerning exporting process, the company has its own in house export facilitation
services. But export process is time consuming and costly. According to secretary general of
the company, complicated bureaucracy and under the table money are the main challenges for
the company to export. Another issue is the lack of logistics services and inefficient
transportation infrastructure. For instance, here in Cambodia the 20 Feet containers can only
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be loaded 24 tons of rice comparing with neighboring county Vietnam which can be loaded
25 tons of rice. In addition, the road from Phnom Penh to Sihanouk Ville port is still narrow.
According to the company, under the trade agreement called Everything-But-Arms
Agreement between Cambodia and European Union, Cambodia can export rice products to
European market with special tax preferential treatment which means Cambodia can get tariff
free which is about 120 Euros per ton for import tax. This increases the competitiveness of
Cambodian rice in the European Market.
The principal export market of Mega Green is the European Market. The quantity of
rice export to Europe depends on the order from the buyers; and it has been increasing over
the last years. At the beginning the company could only export about 72 tons per one order
and now it increased to 1500 tons per one order. Normally, the company can export three
times per year. Such positive upward trend explains the attractiveness of European Market for
Cambodian rice exporters.
Regarding why the company does not export rice to US and Japan and whether the
company can expand its market to China, the Secretary General explained that US and Japan
are also attractive markets but the company does not have demand from or business partners
connection with these two countries given the company is operating based on demand side.
China is more complicated and difficult since China does not totally recognize the documents
of Certificates of Rule of Origins from Cambodia (CO). Being asked about the reason why
China did not accept the CO from Cambodia, the secretary general explained that probably
Chinese authorities did not trust one hundred percent the CO documents issued by the
Cambodian government/authority. It should be noted that China is obliged to recognize CO
issued by Cambodian government under both WTO and ACFTA framework. According the
agreement on trade in goods between ASEAN and China, it states in article 5 that ―the rules
of origin and the operational certification procedures applicable to the products covered under
this agreement and the early harvest programme of the Framework Agreement are set out in
Annex 3 of this agreement‖.
In addition to the complicated documents requirement, the company complains, based
on is business partner/importer in China, that when the rice arrives at the Chinese port,
normally the process of unloading takes quite long time about 7 days. If China can open the
market for Cambodian rice products like Europe and the export and import process is
efficient then it would be good for Cambodian rice exporters.
Being asked about the knowledge of ACFTA, the secretary general replied that there
was little knowledge about this trade agreement and was not aware of the tariff benefits
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generated from this agreement on rice products. It could explain that the lack of knowledge
and information relating to ACFTA and import procedures into Chinese market discourage
the company from entering into Chinese market. Mega Green exported to China once last
year (2009) and found it difficult to enter the Chinese market mainly due to complicated
import procedures to China.
The Mega Green case seems to suggest that Cambodian rice milling industries and
rice exporters could not fully utilize benefits from the ACFTA due to two main reasons: First,
Cambodian rice millers appear to have little knowledge about the said agreement, especially
about Chinese market. In other words, Cambodian government seems to prove its limitation
in disseminating the ACFTA or providing other vital supports for Cambodian rice milling
industries in the context of East Asian regionalism. Second, another major obstacle for
Cambodian rice milling industries in maximizing the benefits from the ACFTA is related to
the complication of exporting procedures caused by both Chinese and Cambodian
bureaucracies. The complication of the trade procedures plus lack of market information tend
to make Cambodian rice exporters depend more on their traditional markets (EU) for their
export rather than seek for new potential markets, i.e. China.
Main findings
European Market provides favorable condition for Cambodian rice exporters under
the trade agreement between Cambodia and EU. US and Japan are also attractive to
Cambodian rice exporters, but for Mega Green, it does not have business connection
with the clients or middlemen in these two countries.
ACFTA is another venue for Cambodian rice exporters but less attractive comparing
with EU in terms of tariff preference and import procedures at the port in Europe.
Complicated and time consuming export procedures and custom clearance plus under
the table fees are the main obstacles for Cambodian exporters.
Mega Green and Loran case studies share similar experiences in terms of complicated
exporting process from Cambodia due to high cost and time consuming. The knowledge and
information of the markets, and especially business connection in the exporting market
determine the involvement of the company. Loran is exporting to both US and European
market and going to export the Chinese market while Mega Green just exports rice to
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European market. Loran is rice millers, rice buyers, and rice exporter while Mega Green is
just rice trading firm.
5.4. Case Study 3: Seladamex Co. Ltd (Cotton Exporter)
Seladamex was founded in 2006 by a Cambodian businessman with a total of 80 employees,
40 of whom are regular staff, and with investment capital worth over USD 2 million. The
company majors in exporting cotton. It has the cultivated land area of over 1,500 hectares
(expanded from 100 hectares at its inception) in Rottanak Mondul district of Battambang
province. Today, the total exporting volume of Seladamex reached 150 tons per year. This
makes the company become one of Cambodian top cotton exporters. The company‘s revenue
is approximately USD 300,000 to 400,000 a year.
The reason behind the establishment of the company was firstly originated from a
Chinese businesswoman who came to visit Battambang province and suggested the founders
of Seladamex Company to grow cotton plant in order to export to China. The Chinese
businesswoman even assured to buy all products produced by the company. However, later
on the company tries to diversify its exporting markets in order to ensure its business
sustainability.
Even though the company did not reveal how much cotton it could produce a day, it
stated that the firm could export about 150 tons of cotton per year. The main exporting
markets are Vietnam, China, Japan, and South Korea. Noticeably, even if China just started
to import cotton from this company in February 2010, it has now become the second largest
cotton importer after Vietnam with the import volume of 50 tons. When asked the reasons
why the firm chose to export cotton to China, Selademex revealed that Chinese market was
the main driving force of creating the company and now it just can export to China. In
addition, producing cotton is a time-consuming task; therefore, it takes Seladamex quite long
time to just grow cotton plants before processing it. Another reason why it takes a couple of
years in order to export to China is that the firm would like to diversify its export market to
different countries in addition to the Chinese market. This is because it tries avoiding the
situation in which the cotton price of his firm could be dumped by the Chinese partner if his
company relies too much on exporting to China. Here, it is worth noting that even though his
firm was created at the Chinese initiative, but it doesn‘t mean that it is obligated to sell all of
its products to China. In other words, the company sale is made on contractual basis. The
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firm could sell its products to any client who approaches it, not limited to China. By doing so,
the price of Seladamex cotton will not be dumped by its Chinese counterpart. In June 2010,
the company shipped 50 tonnes of unprocessed cotton to Vietnam, 40 tonnes to China and 10
tonnes to Japan, and the seed all to Vietnam. Raw cotton was sold for US$2,200 per tonne,
while seed was sold $250. The company expected to export another 200 tonnes of raw cotton
and 400 tonnes of seed to these countries throughout the year.
In order to successfully establish the cotton plant, the founders of Seladamex started
to visit China several times in order to study and learn about this market, and decided to grow
cotton after coming back from China. Later on, Seladamex decided to import some cotton
processing machineries from China with the price of USD 600,000 per unit. Although the
unit price of the cotton machine seems to be rather high, the respondent seemed not to be
reluctant to purchase them, giving the reason that both Cambodian and Chinese governments
did not cause any difficulty to his company‘s importing process. On the part of Cambodian
government, it should be noted that the importing tariff (custom duty) imposed on his
machineries was brought down to zero percent. In addition to that, other taxation on raw
materials imported from China to Cambodia was also abolished such as the cotton seeds and
its packing materials. Therefore, like Loran rice exporting firm, Seladamex has benefited
from the ASEAN-China Free Trade Agreement in terms of the reduction of input expenses
even though they both are not aware of the aforementioned Agreement. This also suggests
that Cambodian government should make more efforts in publicizing the ACFTA to the
private sector so that they could maximize their benefit from such an Agreement.
When asked whether the firm could compete with the same product imported from
China, the Seladamex project manager is positively confident that his product could surely do
by giving the reason that the cotton quality of his firm was already tested in a laboratory in
China. The result was that quality of the Cambodian cotton seems to be superior in
comparison with the same item of different countries. Specifically, Cambodian cotton [his
company product] stays longer, more enduring, and whiter than the cotton from other
countries including China. Not only does China praise the quality of the Cambodian cotton,
Japan and South Korea also do. Because of the high quality of Seladamex product, China,
Japan, South Korea, and Vietnam promised to purchase all cotton that Seladamex can
produce. What the company worries about was that it could not supply these markets in time
since cotton, unlike other plants and crops, requires much longer time to grow. Moreover, it
also demands more land to cultivate in order to gain high productivity. For instance, at least
260 cotton fruits are used to make one kilogram of cotton. Given the scarcity of this product
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in the international market and the fact that the cotton has been widely used to make a variety
of goods such as clothes (especially luxury clothes), medical materials, papers and so forth,
the cotton in Cambodia has experienced USD 500-600 increase in its price in comparison
with the previous years. When the company started exporting, it cost approximately 1700 to
1800 US dollars per ton. Nowadays, the price of the cotton in the world market costs from
USD 2,200 to USD 2,500 per ton.
In spite of the positive development of the cotton export, Seladamex project manager
admitted having some problems with the exporting procedures. Without disclosing how much
he has to pay for getting the export permit, he admitted that the process to get the export
permit could be delayed if he did not pay some unofficial fees. In addition to the problem
caused by Cambodian side, the project manager pointed out another major problem caused by
the Chinese side during the export to China. While the product arrives China, Chinese
customs officers require his business partner, who is in charge of proceeding the importing
procedures, to do several importing papers other than the certificate of origin (CO). This took
his business partner about one month just to complete the paperwork in order to get the
product imported. In comparison with Vietnam, the project manager stated that the
Vietnamese customs officers do not require many papers (except the certificate of origin).
Perhaps, this was the reason why Seladamex chooses to export more to Vietnam rather than
to China.
To cope with the export challenges, Seladamex suggested the government to help
company by easing export procedures and custom clearance processes. For instance, the
government should charge only the fee of Phytosanitary and inspection, and the rest of
procedures should be eliminated. In addition, the company also requested Cambodian
government to grant multiple export permits with the validity period of one year so that the
firm does not need to waste much time and money to do paperwork for its export for several
times. Lastly, Seladamex also hopes that the government would help to disseminate and
promote the cotton made by his firm to the international market. In addition to the suggestion
to Cambodian government, Seladamex, on its part, committed to increasing its productivity
by increasing the use of natural fertilizers and the cultivating land.
Learning from the case of Seladamex Cotton Plant, the ASEAN-China Free Trade
Agreement could benefit Cambodian cotton exporters in two ways: First, it enables
Cambodian cotton exporters to reduce their expenditures in purchasing new technologies and
importing other production inputs from China. Second, Cambodian cotton exporters could
and would continue to enjoy accessing Chinese market due to the competitive quality of
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Cambodian cotton. The Seladamex case also suggests that the private sectors may not be able
to maximize its benefits from the ACFTA yet owing to the insufficient information about
Chinese market and complicated bureaucracy on both sides: Cambodia and China. The
company relies much on the Chinese business partner to export to Chinese market.
Seladamex does not have information about the Chinese factories using the cotton for
production. In other words, the company does not have direct contact with the end clients jut
through the middlemen or trading firm in China.
Main findings
ACFTA can assist Cambodian cotton exporters to increase its productivity and market
by accessing to machinery imported from China and establishing business network
with Chinese importers.
Time consuming and costly export procedures from Cambodian side and import
procedures from Chinese side are the main constraint of Cambodian exporters.
Because the procedure with regard to certificate of origin at the Chinese side is
sometimes troublesome, exporter tend to chose export markets other than China, such
as Viet Nam.
Information of Chinese market is still limited
It is critical for Cambodian exporters to diversify their exporting markets in order to
have more bargaining power in terms of export price.
5.5. Case Study 4: Green Development Co., Ltd.
The history of natural rubber in Cambodia has started since the early 1910s and has been
fluctuating overtime. Now rubber is one of Cambodian major export products with an
estimated total value of USD 124 Million in 201046
. In 2008, 107,900 hectares of rubber were
planted, and with new plantings taking place in small, medium and large farms, it is expected
that this could rise to 300,00047
hectares within a decade. Cambodia will be one of the main
rubber exporters in Southeast Asia. But most of Cambodia‘s natural rubber is exported as
intermediate goods to other countries. The export of nearly all Cambodian rubber is through
46
According to Natural Rubber Trends & Statistics issued on May 2010 by the Association of Natural Rubber
Producing Countries with the assuming average price of dry natural rubber at 2,500 USD/T 47
Driving Economic Growth and Poverty Reduction by UNDP, 2009
73
Vietnam where it re-exports to China, and other large-scale rubber consumers such as Japan,
United States, and India.
Steng Ou Co., Ltd, was established in 2001, but the name was changed to Green
Development Co. Ltd in 2006. The company has involved in the whole value chain of
cultivating rubber plants to making rubber crepe for export. It has, so far, around 1,700
hectares of all arable land areas including 700 hectares of rubber plantations with
approximately 180 working staffs. The company is a medium size comparing with other
rubber companies especially the state owned companies. The export share of the company is
only about 1 percent of Cambodia. It can export roughly about 1 million US Dollars per year
to Vietnam.
The owner of the company said that the lack of technology and investment capital
were the two main challenges/issues for the company to grow. The absence of value chain
creation for the rubber products in Cambodia such as the absence of rubber processing
factories that can produce rubber related articles with high quality and the high cost of
production due to high electricity cost constraint Cambodian rubbers producers from
maximizing their profits from rubber plantation and production. They just produce rather a
primary or raw rubber with just a bit processing into rubber crepe for exporting.
The company cannot export profitably any rubber crepe directly to consuming
markets such as China through the Sihanoukville Seaport because of the lack of information
regarding Chinese market, lack of partnership with Chinese importer, and the numerous
export procedures involved coupling with the high transportation cost and unofficial fees.
Therefore, the company has no choice but to sell its products to Vietnamese middlemen who
come to buy directly from Cambodia. Under the bilateral agreement between Cambodia and
Vietnam on the commercial transaction, exchange of goods and services in the border areas
between the two countries, Cambodian exporters, especially close the border, are facilitated
to export to and have a transit in Vietnam, particularly Hochiminh City and Saigon Port.
However, such dependence on Vietnamese middlemen poses some risks and costs. The price
depends mainly on Vietnamese side. Sometimes, it does not reflect the international market
price. For instance, when the FOB rubber international price is around 2,800$/T in Japan,
they would buy only 2,100$/T. In some occasions Vietnam just stops ordering or buying
without reason which lead to the serious lack of cash flow. For instance, on the occasion of
the Vietnamese New Year, the Vietnamese companies are closed for about fifteen to thirty
days, which make the Cambodian company be in short of working capital due to the absence
of buying and paying from Vietnamese side.
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It was noted by the company manager that the Cambodia Specified Rubber
certification fee including quality patent and export certificates obtaining from Camcontrol
cost about 70 to 80 US dollars per ton of rubber. These documents are required in exporting
Cambodian rubber. The total cost from the company to Vietnam is about 130 US Dollars per
ton. The quantity of export is at least 2500 tons per time in order to make profits. The
manager of the company mentioned that the reason he choose to export to Vietnam was
mainly driven by cost. It is cheaper to export to Vietnam through Cambodia-Vietnam border
due to the fact that his farm and factor locate in Kompongcham province close to Vietnam
border so the transport cost is much cheaper than using the Cambodian‘s Sihanoukville Port.
It was about 700 US dollars cheaper for one container.
Being asked about whether the company has taken or is taking advantages of regional
trade arrangements including ACFTA, the owner responded that he just heard about ACFTA
through the mass media, newspaper, but had no idea what was it about. The respondent
continued saying that he did not know or participate in any regional trade arrangements even
the notification from the government was also limited. He seems to be outside of the loop of
what is taking place economically in the region. Owing to the limitation of knowledge,
information, and support from the government, the company is operating under ad hoc basis
which means it depends on the buyers from Vietnam. The company does not have strategy to
find the export market due to limited resources (human and financial resources). The
company is rather vulnerable to price fluctuation in which sometimes it does not really reflect
to real international market price but depends on the buyers‘ decision.
Within the context of ACFTA, rubber producers in ASEAN can have a favorable
condition to export directly to Chinese market but with the condition that they domestically
processed the rubber products into rubber related products such as compounded rubber.
Against this background, the government should be able to provide the technical guidance
and relevant service to the rubber producing companies. In addition, the government must
encourage the establishments of more down-stream industries to domestically absorb its own
rubber industry.
Since its inception in 2001, the company has been hit hard in the mid of 2008 by the
sharp decrease in rubber price in 2008 and 2009 in tandem with the world economic
downturn, when the operation expenses such as staff salary still remained unchanged. The
mismatch between the rubber price and the company‘s expenses push the company to face
with financial shortage. The limited re-investment capital resources constraints the company
from expanding and cultivating more lands. This in return limits the outputs.
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The global demand for rubber tends to keep increasing; this creates opportunity for
rubber exporting countries like Cambodia. The strength of Cambodian rubber producers and
exporters are the low labor cost plus large land areas for rubber plantation. Attractive land
concession policy encourages more foreign investors especially from Vietnam to invest in
planting rubber. Vietnam is expected to establish rubber processing factory in the near future.
Such processing factory can absorb more Cambodian rubbers and especially provide more
values added to Cambodian rubber.
Main findings
The weak points of current Cambodian rubber exporters are the high dependence on
Vietnamese middlemen/company, lack of high technology to produce rubber related
products/articles, complicated and costly export procedures and process, high
unofficial fees and high energy cost.
The company needs to use Vietnamese merchant to export to China, because the
company cannot find the direct Chinese importers of rubber products and the supply
chain is not stable from Cambodian side.
Economic cooperation especially logistic connection and custom harmonization
among the member of ASEAN, in this case Cambodia and Vietnam, can improve the
competitiveness of the Cambodian exporting products to the third market, in this case
China, through cost reduction and time efficiency. Cambodia and Vietnam border in
Kompongcham Province (rubber plantations are mainly located in Kompongcham
Province) and Saigon Port in Hochiminh City are the two main transit points for
Cambodian rubber exporters.
5.6. Conclusion
The lack of information on regional market, lack of government support in facilitating export,
and the lack of firm‘s capacity are the main constraints in promoting Cambodian agricultural
export to the region. It is therefore necessary to have an institution which can provide
information on regional market opportunities, facilitate exporting process, and find the
importers or partners from the regional countries.
The government needs to reduce bureaucratic constraints and under the table money
in order to encourage the private sector to fully use its potential and capacity of exporting
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agricultural products. Prompt procedures of export are particularly important to agricultural
products, which are sometimes perishable. The government has the duty to find the market
and business partners for the Cambodian local firms and producers.
The government should establish one-window service for all the procedures involved
in the export and the inspection should be on two spots (1) at the departure point and (2) at
the port before shipped.
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Chapter 6: Case Study on Food and Beverage Industry
6.1. Background of Industry
Manufacturing industry in Cambodia is still at the very preliminary stage in which only light
industries with low technology have been developed and established. Cambodia is pursuing
more export oriented rather than import substitution industrial development policy. Textiles
and apparel are the top export oriented manufacturing in Cambodia. While other light
industry especially food and beverage are rather focusing on local than foreign market. The
food industry in Cambodia has great potential to expand their market to the region especially
China and Japan as long as they can increase mass production with low cost and high quality.
Small and medium enterprises (SMEs), which make up approximately 95 percent of all
enterprises and account for almost half of all employment, are the backbone of Cambodian
economy. The Royal Government of Cambodia has emphasized the important role of SMEs
in economic growth and poverty reduction in its Second Socio-Economic Development Plan
and National Poverty Reduction Strategy. The Prime Minister has also emphasized the
importance of SMEs as part of the Government‘s ‗Rectangular Strategy‘ for economic
development.48
In 2009, the total number of small and medium factories and handicrafts
registered with MIME (Ministry of Industry, Mines and Energy) is 35,560 establishments.
This figure shows a growth rate about 8.4% comparing to 2008. In term of product value, this
sector is estimated to have a growth rate of about 9.3% comparing with the value in 2008.49
According to the Cambodian Ministry of Industry Mines and Energy, It is noted that
Small and Medium Sized Enterprises (SMEs) account for more than 80 percent of the whole
Cambodian manufacturing industries and within that there are about 82 percent dealing with
beverage, food and tobacco (as of 2006). There are 25,455 establishments of food, tobacco,
and beverage industry. The small and medium size factories showed a remarkable growth rate
in 2009. This is mainly due to the sector's close links with agriculture and domestic markets.
The most significant growth is observed in food and beverage sector.
48
Sub-Committee on Small and Medium Enterprise (July 2009) 49
Ministry of Industry, Mines and Energy (2009).
78
Table 6.1: Number of food, beverage, and tobacco SME
Sector Number of
Establishments
Licensed
Total licensed % of total licensed est.
Manufacture of food, beverage and Tobacco 25,455 12,350 49%
Rice milling 23,103 10,922 47%
Textile and wearing apparel and leather
industries
1,689 167 10%
Source: Ministry of Industry, Mines, and Energy (2006)50
Table 6.2: Investment capital and employment of industries
Description of Industry Investment Amount Labor Employed
Female Male Total %
Food, Beverage, Tobacco $ 161,004,250 18,439 28,694 47,133 65.41%
Textile and leather $ 2,194,250 1,020 5,368 6,388 8.87%
Wood Products $45,000 6 23 29 0.04%
Paper and Printing $ 406,250 71 208 279 0.39%
Chemicals $ 1,644,250 191 646 837 1.16%
Non-metallic $ 8,036,000 2,780 5,207 7,987 11.08%
Fabricated metal $ 7,139,750 747 4,374 5,121 7.11%
Other Manufacturing $ 5,800,000 878 3,402 4,280 5.94%
Total 186,269,750 24,132 47,922 72,054 100%
Source: COSECAM and Plan Cambodia (2005) available at
http://www.cosecam.org/publications/cambodia_commodity_chain_analysis_study_volume1_eng.pdf,p.16
Table 6.3: Output multiplier and value added of industrial sectors
Industrial Sectors Output Multiplier Value Added
Paddy 1.5337 0.714
Cereals, beans, and vegetables 1.557 0.730
Cash crops 1.218 0.798
Other crops 1.319 0.746
Livestock 1.315 0.836
Fishery 1.641 0.808
Forestry 1.343 0.806
Mining and quarrying 1.316 0.710
Food products and beverages 2.195 0.792
Textiles and apparel 1.329 0.477
Other manufactures and utilities 1.425 0.601
Construction 1.261 0.607
Trade 1.157 0.904
Hotels and restaurants 1.720 0.842
Transport and communication 1.278 0.606
Other services 1.275 0.751
Source: Kobayashi et al. (2009). p. 314
50
http://www.usaid.gov/kh/documents/Report_SME_Statistics_English_Bound%20_23_Jan_08.pdf, last
accessed on May 10, 2010.
79
Food products and beverages have highest output multiplier but relatively low value
added. It shows that the food processing industry in Cambodia is still at a developing stage.
According to the research conducted by the Emerging Market Consulting firm, it found out
that for processed fruit and vegetables, growers sell crops to middlemen, who then transport
or store them before selling them on to small-scale processors. In some instances, the
processors can also buy direct from the growers if the fruit and vegetables are grown in their
home village. Once the fruit and vegetables have been processed, the processors either sell
directly to their local market, or sell to wholesalers where products can be sold to other
provinces. Such products include chili, soybean, fish sauces, canned bamboo-shoots,
pineapples jam/marmalade, and dried bananas, etc. With unprocessed fruit and vegetables,
however, growers sell to middlemen who then transport products to the wholesalers for
distribution to retailers and ultimately reselling to consumers. If the prices in Vietnam or
Thailand are higher, and the goods are therefore more profitable, the middlemen sell direct to
Vietnamese and Thai traders. In some cases these products are imported back into Cambodia
when they have been processed or ―value-added‖, such as in the case of cashew nuts, chili,
soybean, rice, maize etc.51
It is argued that substantial amount of import of fruit, vegetables and processed foods
have come from Thailand and Vietnam. It is still hard to assess the quantity of imported
processed food products from these two countries to Cambodia and how it impacts on
domestic food industry.52
But it is agreed that Cambodian food industry is facing with several
constraints and weaknesses such as the lack of processing facilities, lack of food processing
technology and skills, lack of market analysis and marketing information, lack of sanitation
and hygiene knowledge, negative perception among local consumers, poor infrastructures,
unreliable supply of raw materials, uncompetitive due to high operating costs.53
How
Cambodian food industry can enter regional market like China if it can‘t compete with
imported food products from Thailand and Vietnam at home?
For the food and beverage sector, three companies are selected Ly Ly Food Industry
Cambrew, and Confirel. Ly Ly Food Industry is producing cookies targeting domestic
children. The Industry is facing with some kind of competition with cookies imported from
China, Vietnam, and Thailand; Cambrew produces Angkor beer and it is concentrating on the
51
COSECAM and Plan Cambodia (2005) p.16 52
Ticker (1996). Food security in Cambodia: A preliminary assessment. UNRISD Discussion Papers. United
Nations Research Institute for Social Development. 53
Cambodian Commodity Chain Analysis Study (2009), Available at
http://www.cosecam.org/publications/cambodia_commodity_chain_analysis_study_volume1_eng.pdf, p.23
80
domestic market but this company is exploring regional market to export particularly Chinese
market; Confirel is producing organic palm sugar, vinegar, palm wine and whisky. It is
focusing on local market and interested in exporting to other countries in the region.
6.2. Case Study 1: Ly Ly Food Industry
Ly Ly Food Industry was established in 2002 by a young Cambodian female entrepreneur
with the mission to provide jobs to Cambodians, create market for local products namely corn
and rice, and substitute imported foreign products. Ly Ly Food Industry has grown quite
remarkably since its inception. There were only 25 workers in 2002 with the investment
capital of about 100, 000 US Dollars, now the company employs more than 100 regular
working staffs with the working capital of about one million US dollars. The company is
regarded as the role model for other entrepreneurs to learn from due to the rapid development
and creative entrepreneurship. The company focuses only on domestic market and children
are the main target. With sill small domestic market share, the company is looking for
international partner to introduce new technology in order to have mass scale production with
good quality.
The production cost structure of company is 40 percent on packaging (plastic bags are
imported from Vietnam), 30 percent on labor (totally domestic labor), and 30 percent on
other costs (electricity, water etc). The target market is domestic and the average sale is about
400, 000 packs per day, approximately about 1,500 US dollars per day. The company‘s net
profit is around 10 percent of total sales. Profit is mainly used for reinvestment and business
expansion.
The manufacturing machine was imported from mainland China and the management
team is domestically recruited. On the job training is used to create a pool of human resources
with the capacity building partially assisted by several Non-Governmental Organizations
such as IMPACT Cambodia54
, GTZ, and World Bank. IMPACT also provides Vitamin to be
integrated into the products in order to increase the health of children/consumers.
Management skills and production know-how are the top priority for the human resources
development.
The main strengths of the company are the entrepreneurship, support from
government and international organizations, human resource management and skills
54
IMPACT Cambodia is a social enterprise working with a food manufacturer to produce snacks fortified with
essential vitamins and minerals for distribution in 24 villages as part of IMPACT‘s disability prevention project.
81
development, and marketing strategy. The company‘s vision is to help Cambodian farmers to
have market and assist Cambodian people in employment which is strongly supported by the
consumers and other key stakeholders alike.
The main challenges are the high cost of electricity and imported packages from
neighboring country, Vietnam, because packaging industry and service in Cambodia is still
not competitive due to high cost and low quality. The lack of sophisticated production
technology is limiting the production capacity of the company. The owner and manager are
looking for partnership or joint venture with foreign investor to introduce mass production
system and lower the unit cost of the products. It is said that without such technological
upgrading, the company will lose its competitiveness with imported food products from
Thailand, Vietnam, and China.
The company has never exported since its establishment and it wishes to export their
products to neighboring country but the complicated export process and the lack of capacity
(especially capital and production technology) constraint the company from doing so. In
terms of production cost, it is higher than Vietnam and Thailand due to high electricity cost
and old machinery. The machinery used for production is second hand and it is not so
efficient in production process. The company spends a lot of money in maintaining and
repairing the machine. Low production capacity and high electricity cost lead to high cost per
unit of product. In addition, export facilitation mechanism in Cambodia is still developing.
Moreover, the lack or absence of brand promotion limits the capacity for the company to
export to other countries in the region. It is noted that it needs huge capital investment in
marketing and promotion. Such small and medium sized enterprises like Ly Ly find it almost
impossible to promote its brand in foreign markets.
Being asked about the awareness of ASEAN-China Free Trade Agreement, the owner
expressed the lack of information and knowledge regarding regional trade arrangements let
alone the ASEAN-China FTA. There is various channels of public-private relationship and
partnership especially the annual government-private sector forum and working group on
manufacturing and SMEs. The government normally invites her to attend various workshops
and meetings but mainly concentrate on SMEs development in Cambodia not so much on
assisting Cambodian SMEs to export to regional market. She urges the Cambodian
government and regional institutions to further assist the private sector especially SMEs in
exporting to regional market and joining regional production network. Regional market
information and regional business networks are necessary for the private sector to develop
and compete.
82
Concerning the question whether the company is facing with competition from similar
products imported from China, the company owner and manager mentioned that there was
competition with imported food products especially from Thailand, Vietnam, and China but
the company could compete with imported products through quality, cost, and marketing
strategy. The company manager is confident that it can expand market share in Cambodia.
Main findings
Food SMEs is emerging to be lucrative industry with potential to grow. But they are
facing with serious constraints in terms of expanding their market to the region due to
the lack of market information (including information on FTAs) and export
facilitation system/mechanism. Market information is necessary before exploring
export opportunity such as food prices, consumers‘ behavior, effective ways to have
business network, import process/procedure to China, and trade incentives provided
by Chinese government to Cambodian products.
Food SMEs are competing with imported food products from neighboring countries
such as Thailand, Vietnam and China. Low production capacity with high electricity
cost of this industry will lead to higher price which make Made in Cambodia food
products less competitive.
ACFTA creates both challenges and opportunities for Cambodian food producers and
exporters. For domestic oriented producers, they will compete more with Chinese
products. For the exporting producers, they can explore opportunities to enter Chinese
market. More investment in food processing industry will come to Cambodia from
China.
6.3. Case Study 2: Cambrew Co. Ltd
Angkor Brewery was created in Cambodia in early 1960s but it stopped operation during the
civil war period (1970s and 1980s). Cambrew assumed the control of Angkor Brewery in
1991 and started producing Angkor beer and other beers in 1992. In 2006, Carlsberg bought
50 percent of the shares of the company. The company is multinational company totally
owned by foreigners. With its present capacity of 800,000 hl (250 million cans of Beer), it is
the biggest brewery in Cambodia. There are other domestic beer producers in Cambodia such
as Phnom Penh Beer. In addition, there are more than twenty names of beer imported from
83
various countries around the world. Angkor Beer is the most popular and best selling in the
country due to low cost comparing with imported beer.
Regarding the competition with other similar imported products, according to the
senior staff of the company is confident to compete with them given its quality, taste, and
price are very competitive plus the brand ―Angkor‖ in the domestic markets in Cambodia.
The marketing strategy of the company is very effective given it integrates patriotism in to
the product: ―My Country, My Beer‖ although it a foreign owned multinational company.
According to the senior staff of the company, there is no scientific market survey on the
market share of the company but it is just known that it is the most popular especially the
small bottled Angkor Beer.
The export policy of the company at this stage still maintains a very passive stance.
The company is attempting to expand its market in the region and the world and it has just
started to export its products to Japan, United States, Europe and China but the amount is
very limited in the last few years. Angkor Beer is not well known in other countries,
according to the senior staff of the company. At this moment, the international sales are
mainly driven by the foreign buyers and middlemen. Whenever foreign buyers come to order
Angkor beer, the company simply supplies the products, without having a concrete strategy
on how to increase oversea sales in a long run. At this stage, the company is still focusing on
establishing its brand name and increasing its market share in the domestic market. Once the
company is able to dominate the domestic market, then it can pay more attention to foreign
markets. Based on the experience of the Cambrew, which is supposed to be one of most
promising Cambodian companies in terms of international market promotion, it is safe to say
that the main challenge for Cambodian products in finding its market in other countries is the
absence or lack of concrete marketing and promotion strategy.
China is the most recent market for Angkor Beer but the amount of export to this
market is still very low. They could sell to Chinese market only two containers last year
through Chinese local partners. In addition, the company found it difficult to export beverage
products to Chinese market since the local Chinese government‘s income tax is generated
from the local alcoholic producers which are mainly state owned enterprises. The
management of the company is aware of China-ASEAN Free Trade Agreement but they are
not sure how to enter the Chinese market effectively, given the fact that the brand name of
Angkor Beer is not well-known to the public in China. Such limitation of information and
market entry strategy constraint the export capacity of the company.
84
United States. European Union, Japan, Korea, and ASEAN markets are potentially the
destination for Angkor Beer given tourists from these countries rank top ten of tourist arrivals
to Cambodia. Through tourism industry development, according to the senior staff of the
Cambrew, Angkor Beer brand can be developed within tourists visiting Cambodia. The name
Angkor Beer is easy to be remembered given the name Angkor is the most popular
icon/image among tourists. The company hopes that through such brand promotion in
Cambodia, Angkor Beer can be further exported in the future. Cambrew Company is
targeting also ASEAN market in the near future by taking advantage of the ASEAN Free
Trade Area. Under such free trade arrangements, the company can enjoy free tariffs.
So far the company uses Sihanouk Ville International Sea Port to export to China,
Japan, United States, and Europe due to the factory of the company is located in Sihanouk
Ville which makes it convenient to use the port. The exporting procedure is not difficult,
according to the senior staff of the company, given the buyers they come to buy at the sea
port. The company just clear export procedures then things go smoothly. But in the future, the
company may export directly to the end users in ASEAN, Chinese, Japanese, and Korean
markets.
Main findings
Beverage sector, here Angkor Beer, finds it difficult to enter the regional market
especially China due to the lack of marketing strategy, branding, and cost
competition.
Brand name of the products determines the possibility of market access. While
Angkor beer established its brand name domestically, it is not widely known in the
international markets, making the company‘s export difficult. Tourism industry can
help Cambodian producers, here Angkor Beer, to promote its brand for future export
opportunities. Cambodia lacks of promoting Cambodian brands, so it is difficult for
Cambodian products to be accepted in foreign market.
ACFTA can create a venue for Cambodian beverage sector to expand its market to
China but it needs to invest more in marketing and create strong business connection.
Local governments in China are not necessarily keen to import beverage products
because income tax is generated from local alcoholic producers.
85
6.4. Case Study 3: Confirel
Conifrel Company was registered in 2001. Before the establishment of the company,
the owner, Cambodian French, came to study about products that can be produced from palm
juice with the objective to help Cambodian farmers to have more income in producing palm
juice. The owner brought palm juice from Cambodia to France for laboratory research. It
found out that they could make wine, organic sugar and vinegar from palm juice. Then the
owner decided to invest in building a small factory outside Phnom Penh to produce products
related to palm juice. The products of the company include organic palm sugar, organic
vinegar, palm drink, and different types of wine and whisky. Regarding the production
capacity, the factory can produce 5,000 bottles of wine and whisky per month, 12 tons of
organic palm sugar per year, 100,000 liters of vinegar per year.
For the palm wine and whisky, the company‘s market mainly focuses on domestic and
only around 1 percent of the total products are exported to France. The export to France is
usually through unofficial channel such as French tourists, friends, and acquaintances. Wine
and whisky bottles are imported from France, which costs one dollar per one bottle. Some
type of palm wine costs only two dollars which mean the bottle is already half of the price.
The reasons of importing wine and whisky bottles from France are driven by the design and
quality and the unrestricted quantity of bottles ordered due to the fact that the company just
orders small amount of bottles each time. Such high cost makes company less competitive in
exporting its products to regional market and even compete with imported products in
domestic market.
For the organic palm sugar, the main markets are international. The company now
exports organic palm sugar to France, Taiwan, Japan, Singapore, and United States. The
French market is the largest for the company. Exports to those oversea markets are usually
through business partnership with buyers and middlemen from those countries. The critical
bottle neck of the sugar export is transport costs and customs procedures. The company
complaints about the high transport and custom clearance cost in Cambodia. Export costs
from USD 1,700 to USD 2,000 per container of organic palm sugar (use outside service
provider from the Factory near Phnom Penh to the Sihanoukville International Seaport).
Packaging cost is also high (about 50 percent of the total cost of each unit product). The
company ordered packages (plastic box) from Vietnam and pack in Cambodia for its products
For the vinegar, the main market is domestic. The company cannot export vinegar
products due to the lack of certificates of standard such as GMP (Good Manufacturing
86
Practice), ISO (International Standard Organization), and ASAC (Science Accreditation
Commission) demanded by the buyers/importers. These standard quality certificates are
technical standard which are necessary for the company to export their beverage products to
the international markets. Currently the company is trying to increase and control the quality
by undertaking analysis at every stage of the production process, using the latest technology.
Through a partnership agreement with CIRAD (International Cooperation center for
Agronomic Research and Development), training and technical support are being provided to
produce manufacturing engineers of the company. In order to certify the quality of its
products, Confirel undertakes several checks at every stage of the production: - a visual and
tactile check (shape, taste, and texture), checks using three types of instruments. To get those
accreditation certificates namely GMP, ISO, and ASAC is very costly for such small local
producer. It may take time for the company to expand its production capacity and enlarge its
operation only then the company considers applying for those certificates to export.
The company is interested in expanding production and market especially China as
the Chinese markets are growing fast for Cambodian agriculture related products. But at the
moment, the company finds it difficult to enter into the Chinese markets due to the lack of
price competitiveness vis-à-vis Chinese products. The company relies on the business
partners from China who are interested in importing the products from his company
otherwise the company could not export the products by itself.
Being asked about the involvement of private sector in regional trade negotiations and
information on regional trade agreements particularly ACFTA, the manager of the company
were not aware about this. The company conducts trade based on business to business
relationship with less consultation with and support from the government. The manager
showed interests in exporting the company‘s products to China under the ACFTA scheme, if
the use of the FTA is easy and brings preferential market access. The company is also
interested in ASEAN market. The company plans to expand its market access to China and
ASEAN in the near future through improving the quality of its products and production
capacity.
The company finds it difficult to export because of the high transport fee, packaging
cost, and custom clearance cost in Cambodia. Export costs from USD 1,700 to USD 2,000
per container of organic palm sugar (use outside service provider from the Factory near
Phnom Penh to the Sihanoukville International Seaport). Packaging cost is also high (about
50 percent of the total cost of each unit product). The company ordered packages (plastic
box) from Vietnam and pack in Cambodia for its products.
87
Main findings
Private company is not well informed about regional trade arrangement particularly
ACFTA and lacks of information regarding Chinese market.
Transport and custom clearance cost and packaging cost are limiting Cambodian
exporters from expanding their international market.
Lack of standard is another constraint of the private sector to export. To apply for the
international quality accreditation certificates is complicated and costly. Such high
cost is not affordable for the small and medium enterprises. It needs the support from
the government and accreditation authority to assist SMEs from developing countries
to get international standard quality certificates in order to export.
6.5. Conclusion
From these three case studies, we can understand that Cambodian products like beverage and
food can compete effectively with the imported products from ASEAN countries and China
due to the low price, acceptable quality, and brand awareness. However, it is difficult for
them to export to regional market like China because of the absence or the lack of brand
promotion and marketing, high cost of export process and packaging. Food and beverage
sector seem to have lowest opportunity to export unless there is a strong support from the
government in facilitating exportation and find the market for the products. In addition, the
lack of financial investment and packaging services are the constraints for the industry from
expanding their market to the region.
88
Chapter 7: Case Study on Garment Industry Sector
7.1. Background of Industry
Cambodian garment industry started to develop since the mid-1990s with export orientation.
The garment sector emerged in response to MFN/GSP trade privileges granted in 1996 by US
and EU. Moreover, in 1998-99, the Clinton administration initiated the US-Cambodian Trade
Agreement on Textiles and Apparel (1999-2004) which linked market access (increasing
quota) for Cambodian textiles products to labor standards. Cambodia is the only country
where a trade-labor arrangement was agreed to and implemented in order to secure a quota
for exports to the US (Ear, Sophal, 2009:7). In 1999, quota on textiles was imposed by the
US on textile exporting countries except Cambodia, which could still enjoy free quota
exporting to the US market. In addition to this, in 1998 one year after the Asian Financial
Crisis started in Thailand. Cambodia was less affected by the then crisis and many firms
moved to Cambodia from Thailand, South Korea, and Indonesia. With the relatively low
wage rates and the preferential access to the US and Europe market for Cambodian textiles
before the end of Multi Fiber Agreement in 2004, the textile industry has developed very fast
in Cambodia. Most the foreign direct investment to Cambodia, mainly from China including
Taiwan, focuses on this industry. There are, according to Garment Manufacturers Association
in Cambodia, there are 136 garment export oriented factories with 93% are Foreign Direct
Investment.
After the end of the Multi Fiber Agreement (MFA) in 2004, garment industry in
Cambodia could still compete in the international market and it maintains its dynamism in
exporting to US, European, Canadian and Japanese markets. The garment sector which
accounts for approximately 14 percent of GDP and 72 percent of the Cambodia‘s total
merchandise export, is the main income generator for Cambodian labor forces and the largest
foreign currency earner. The garment industry contributes about 80 percent of Cambodia's
foreign exchange earnings.55
It employs 320,734 workers, among them 293,664 women, are
55
Business in Asia, Update on Cambodian Garment and Textile Industry, available at http://www.business-in-
asia.com/industries/cambodia_garment.html, last access on May 20, 2010
89
working in 269 factories across the country.56
However, Cambodia only has limited share of
the value chain and the value added since it just involve in the ―cut, make, and trim‖ phase of
the value chain. Almost all inputs for the sector are imported.
Textiles and apparel are the largest industry in Cambodia and their production share
accounts for 20 percent. The production level of Textiles and Apparel reaches 500% of the
self-sufficiency level. The economy largely relies on the industry57
. The main markets for
Cambodian textiles are the United States, European Union, Canada, and Japan. In 2009, the
total garment exports to foreign countries in 2009 amounted US$2,385 million, of which
US$1,486 million to the United States, US$577 million to European markets, US$184
million to Canada and US$136 million to other countries.
Table 6.4: Destinations of Cambodia’s garment export
Market Value in 2007
(US$‘000)
Share of total
in 2007 (%)
Value in 2008
(US$‘000)
Share of total in 2008
(%)
Total 1,899 100 2,001 100
USA 1,359 72 1,405 70
EU 391 21 404.5 20
Canada 100.5 5 130.6 6.5
Japan 7 0.4 7.9 0.4
Rest of world 42.6 2 53.09 2.7
Source: Ministry of Commerce
The textile agreement between Cambodia and the European Union entered into force
on July 1st 1999. The agreement formalizes the principle of unlimited access of Cambodian
textile products to the EU market. The privilege of unlimited access has been supplemented
by a liberalisation of the conditions of access to the EU's GSP scheme, which grants an
exemption from customs duties to Cambodian exports entering the EU market. A first
measure of liberalisation is the indefinite granting, since 1 September 1999, of the benefit of
"regional accumulation" to Cambodia. With this privilege, unfinished textile products
imported by Cambodia from another ASEAN country are considered as of Cambodian origin,
allowing Cambodia to more easily satisfy the GSP Rules of Origin.
56
People Daily Online, Cambodia employs 320,734 workers in 269 garment factories, Available at
http://english.people.com.cn/90001/90777/90851/6990883.html, last access on May 20, 2010 57
KOBAYASHI, et al (2009). p.315
90
In 2009, the total number of large size manufacturing industry rose about 2.6%,
comparing to 17.2% in 2007. The total number of large size factories registered with the
Ministry of Industry, Mines and Energy in 2009 is 556 establishments, of which 422
establishments are garments. The contraction of large size industry sector is more significant
in term of its shared values in GDP. The overall total product value of dropped by 8.8%
comparing to year 2008, and in which the value in garment sector dropped by 11.8%. This
contraction results in a significant negative growth rate in the overall industry sector, despite
other manufacturing sectors remain strong.58
According the chairman of GMAC (Garment
Manufacturers Association in Cambodia), he stated that:
The recent global economic crisis has affected many countries in the world and Cambodia is no
exception. Since the onset of the crisis in mid 2008, we have seen more than 60 factories closed
resulting in more than 60,000 jobs being lost. Our exports for 2009 have seen a significant drop of
approximately 20% as compared to the previous year. For 2010, the outlook does not appear
positive.59
Table 6.5: Amount of import-export of textiles and apparel 2008-2009 (US Dollars)
Description 2008 2009 Comparison
Import 4,421,753,656 3,739,863,818 - 681,889,838 - 15.42%
Export 3,356,219,813 6,530,611,798 - 1,247,361,671 - 16.04%
Source: Ministry of Commerce, Annual Report 2009
Regarding the textile and apparel, it faces some competitiveness with Chinese
products either in domestic market (for domestic oriented smaller scale garment industry) and
third market especially in the US and Europe (for export oriented larger scale garment
industry). Cambodian garment industry does not produce fabrics but just garments in which
most of the raw materials, fabrics, and machines are imported from China and other countries
in the region. According to the Garment Manufacturers Association of Cambodia, its garment
industry imported US$1 billion in raw materials in 2009 and 66% of garment components
were imported from China, while the rest were from Taiwan and South Korea. According the
Cambodian taxation law, import tax of raw materials to serve the industries in the country is
very low, almost free. The key constraints for the garment industry in Cambodia are: external
58
Ministry of Industry, Mine and Energy (2009). 59
Message from Van Sou Ieng, Chairman of GMAC, in the annual report of Garment Manufacturers
Association in Cambodia.
91
constraints including slowdown in international demand. International constraints include
governance related such as high cost of export and facilitation, and high labor turner over
(mainly due to health issue), high cost and unreliable electricity supply, and high transport
cost60
. In addition, almost all raw materials are imported from foreign countries.
Table 6.6: ASEAN Trade in Textiles
Commodity Group Intra-ASEAN trade Extra-ASEAN Total ASEAN
Description E
xp
ort
s
Imp
ort
s
To
tal
Tra
de
Exp
ort
s
Imp
ort
s
To
tal
Tra
de
Exp
ort
s
Imp
ort
s
To
tal
Tra
de
58. Special woven fabrics; tufted textile
fabrics; lace; tapestries; trimmings; embroidery
114.4
85.2
199.6
261.1
713.1
974.3
375.5
798.3
1,173.9
59. Impregnated, coated, covered or
laminated textile fabrics; textile articles for industrial use
162.9
88.8
251.7
331.2
958.9
1,290.1
494.1
1,047.7
1,541.8
60. Knitted or crocheted fabrics
483.2
299.5
782.6
200.7
2,566.3
2,767.1
683.9
2,865.8
3,549.7
61. Apparel articles and accessories, knitted or crocheted
380.6
641.5
1,022.1
13,064.7
876.5
13,941.2
13,445.3
1,518.0
14,963.3
62. Apparel articles and accessories, not
knitted or crocheted
429.1
248.3
677.4
10,480.2
1,175.5
11,655.7
10,909.3
1,423.8
12,333.1
63. Other textile articles; needlecraft sets; worn clothing and worn textile
articles; rags
234.4
139.9
374.2
901.5
508.8
1,410.3
1,135.9
648.7
1,784.6
64. Footwear, gaiters and the like and
parts thereof
357.5
294.3
651.7
6,984.1
817.8
7,802.0
7,341.6
1,112.1
8,453.7
Source: ASEAN Secretariat, http://www.aseansec.org/18137.htm
To date, Cambodia captures only a relatively limited share of the value chain and the
value added. Cambodia is only involved at the ―Cut, Make, and Trim‖ phase of the value
chain. Almost all inputs for the sector are imported, and the country does not have a textiles
industry. More than 95% of garment factories are foreign owned, and a significant part of the
profits are repatriated. Direct contributions to the government budget have been limited since
the sector enjoys import tax exemptions as well as tax holidays61
.
To further understand the challenges and opportunities posed by the private sector,
four textile industries were selected by using case study approach. Seak Chan Textiles
Manufacturer is chosen as one of the two case studies measuring the impacts of the ACFTA
on Cambodian domestic textile producer because of one important reason. That is, this textile
maker is currently facing a rather serious competition with the ready-made clothes imported
from China. For another textile industry, B&N garment was selected due to its characteristic
of export oriented company in order to see how the company competes with similar products
from China in the third market.
60
Ear (2009) p.9 61
Ear, Sophal (2009).p.8
92
7.2. Case Study 1: Seak Chan Textiles Manufacturer
Seak Chan Textile Manufacturer, owned by a Cambodian businesswoman, has started
operation since 1995 with the current investment capital of more than 140,000 USD. Even
though it is a quite small textile maker (based on the definition given by the Royal
Government of Cambodia Sub-committee on Small and Medium Enterprises SME in 2005),
the industry is chosen as one of the nine outstanding case studies identifying the impacts of
the ACFTA on Cambodian domestic producers because of one important reason. Seak Chan
is currently facing a rather serious competition with the ready-made clothes imported from
China.
The owner of this textile maker actually began her business as a normal clothes
vendor at Olympic market, the current biggest clothes wholesaler in the capital Phnom Penh,
in 1990. She realized that Cambodia could not produce cotton fabrics; therefore, , she came
up with an idea of importing raw materials, particularly the cotton fabrics from foreign
countries and having them assembled in Cambodia. She calculated that through relatively
cheap labor force in Cambodia and her Cambodian style design, her products can be more
competitive. Fortunately, her relative helped her to realize her will by instructing her where
and how to purchase Thai cotton fabrics from Thailand. She began making her own clothes
and her business has grown well since 1995. At least, approximately 40-50 packages of
ready-made clothes (1 package contains 12 pieces of ready-made clothes) have been sold out
daily, and she could make money amounting to USD4000-USD 5000 per day. Her products
have been sold not only at Olympic market, but also at various markets in Phnom Penh such
as Oruessei Market, Central market, Deum Kor Market, and Chbar Ampaov Market. In the
meantime, the number of workers employed in her manufacturer also grew from an
insignificant number to 30 people in 2006.
Despite the positive sign, her sales in the recent years have dropped drastically.
Today, only few packages of her ready-made clothes are sold out daily, and her sale profit
has dropped to approximately USD 200-300 per day. She now decided to reduce the number
of her workers to around 10 people. When asked the reason her sales has decreased sharply in
recent years, she blamed for the massive inflows of the ready-made clothes imported from
China. According to her, there are a huge number of Chinese products sold at Olympic and
other markets nowadays. The price of the Chinese ready-made clothes is USD 1-USD 2.5
cheaper than her products (approximately USD 8- 10) whilst the quality of the products is
almost the same.
93
When questioned the reason why she could not make the price of her clothes cheaper
than China‘s ones, she blamed for the high input cost resulted from high tariff imposed on
imported cotton fabrics and high electricity cost in Phnom Penh. Nowadays, tariff imposed
on cotton fabrics imported from Thailand and China is the same, that is, 7 percent of the total
price of the materials. In addition to the tariff, the fabrics imported from the two countries are
subject to 10% of the Value Added Tax (VAT). As seen, with the same level of tariff and the
VAT, ASEAN textile products (more specifically, Thai products) exported to Cambodia are
apparently losing its competitiveness against Chinese ones on Cambodian market. In addition
to the tariff problem, the high electricity cost in Cambodia is another important reason for
high production cost for Seak Chan manufacturer. For instance, the electricity cost in Phnom
Penh today ranges from Riel 610 (USD 0.14) to Riel 720 (USD 0.17) per Kilowatt based on
the consumption level. In other words, the more electricity is consumed, the more money
people or producers have to pay. While this policy is expected to help minimize the
government electricity expenditure as the government now finds more difficult to allocate the
budget for such an expense, such a pricing mechanism makes the economy of scale difficult
to work.
The loss of competitiveness against the Chinese ready-made clothes has made the
owner of Seak Chan manufacturer seek a cheaper input cost by means of importing the cotton
fabrics from Indonesia. The owner revealed that the cost of Indonesian fabrics is about USD
1 per yard (including importing tariff) whereas the cost of the Thai fabrics is about USD 1.5
or slightly above that price per yard. Even though the respondent has recently sought a
cheaper source of importing raw materials (cotton fabrics) from other countries, she was still
uncertain about whether her final products would be able to compete with the Chinese ones
or not this time.
When asked the reason why she did not import the raw materials, especially the
cotton fabrics from China, she confessed that she did not know anyone who could guide her
about the fabric markets there and help her to go through importing procedures from China.
She decided to import the fabrics from Indonesia and Thailand since she has her relative, who
used to trade the cotton fabrics with Indonesian and Thai cotton fabric suppliers in the past,
help her to contact the suppliers and facilitating the fabric importing procedures. Finally, the
owner of Seak Chan textile maker suggested Cambodian government to help the small and
micro textile businesses by means of eliminating tariffs imposed on the cotton fabrics from
ASEAN member countries, cutting electricity cost, and providing capital or loans to small
textile producers.
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Here, one may also question why Seak Chan does not use the home-made cotton,
especially those made by Seladamex plant in order to minimize the input cost. There are two
logics to be explained here. First, Cambodian cotton plants do not have capacity to produce
the final-end product yet; more specifically, the cotton fabrics. They focus more on producing
low and middle-end products (for instance, semi-processing cotton) and then export those
goods to other countries to make the final-end products such as cotton fabrics, medical
equipments, and so forth. Second, most of cotton plants in Cambodia are export-oriented;
therefore, they are inclined to sell their product to international rather than local market (since
they want higher prices). This could make Cambodian textile makers choose to import raw
material (cotton) whose price could be relatively cheaper for their production.
In conclusion, the case of Seak Chan textile manufacturer suggests that the ACFTA
seem to have a rather serious adverse impact on small Cambodian textile makers whose
productions are basically based on raw materials imported from ASEAN countries (more
specifically, Thailand) rather than China. Under the same treatments between ASEAN and
Chinese products (tariff and the VAT), ASEAN textile producers who import raw materials
from ASEAN countries in order to produce final-end product (clothes) may not be able to
compete with Chinese ready-made clothes because of the extreme low price of the latter
group. This also suggests that ASEAN should abolish its tariff imposed on raw materials
imported from its members as soon as possible so that small ASEAN textile manufacturers
will not have to suffer more from the competition with the Chinese textile. Interestingly, the
case also suggests that the shortage of information about Chinese market could lead to
extreme difficulties or even bankruptcy of small Cambodian textile producers.
Main Findings
Local producers whose clothes products aim at domestic market oriented face fierce
competition with clothes imported from China.
In the short term, ACFTA can harm Cambodian small and medium textile
manufacturers who are domestically oriented and whose productions rely on materials
imported from regional countries. This creates higher production cost comparing with
China. It is noted that raw materials or inputs for the garment industry in Cambodia
area imported from other countries.
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In the long term, ACFTA will create more benefits than losses for the small and
medium textile enterprises in Cambodia due to dynamic increase of labor cost in
China comparing with Cambodia.
7.3. Case Study 2: B&N Garment
The company was established in year 2000 by an entrepreneur from Hong Kong. With the
head office in Hong Kong and factories in mainland China and Cambodia, this Chinese
company has established its long term connection with the buyers in Europe. The factory in
Cambodia employs 400 staffs in which ninety percent are female. The company produces
jackets and sweaters which are totally exported to Europe. The production inputs of the
company are raw materials that are imported from mainland China and labor force by the
local Cambodian people. The importation of the raw materials to produce textiles in
Cambodia is free from taxation. B&N Garment can also enjoy other tax incentives including
tax holidays because the company is totally export oriented.
B&N is a supplier and the company just produces the products based on the actual
order from the main company/buyers in other countries especially Europe and Canada. The
trade mark and brand names of the products are designed by the buyers or partner companies.
It means that as a supplier, the factory just produce the products in accordance with the
design, quality, and quantity requested by the buyers.
The company has never been involved in trade negotiation between Cambodia and
other countries and regions but the company is paying attention to various preferential trade
agreements provided by other countries and regions to Cambodia. Europe has been very good
for Cambodia‘s textile exporters since Europe has provided special trade treatment for
Cambodian products under Everything-But-Arms Agreement. Thanks to such preferential
trade treatment, the company started operating in Cambodia.
Being asked about the ASEAN-China Free Trade Agreement, the staff of the
company said that she was not aware of ACFTA and the company did not pay much attention
to the agreement because the company just imports the raw material from China based on
FOB (Freight on Board) without paying import tariff in accordance with Cambodian
investment law and investment facilitation policy of the Cambodian Council of Development.
It seems that ACFTA does not really have any impact on the company operation. The
company is interested to learn whether there is a trade preferential treatment for Cambodia to
96
export textile products to Mainland Chinese market but it seems that there is very narrow
opportunity to do so due to the fact that Chinese textiles are still very competitive at least for
now.
The B&N Garment case suggests that the ACFTA seems to have little impacts on
Cambodian textile industries; especially those which are export-oriented given their market
mainly focusing on Europe, not China, and those which import the raw materials from China
that have already enjoyed the import tariff exemption under the Cambodian investment law.
Almost all textile producers in Cambodia are just suppliers and they don‘t involve in selling
process in the market. As suppliers, they just produce the products based on the order from
the buyers or partner companies.
Regarding the competition in the third market, here refer to Europe, there is slight
competition for Cambodian textile products with those from other countries including China
but it is shouldered by the buyers and wholesalers/retailers in those markets. B&N itself does
not directly involve in such competition process. The headquarter office in Hong Kong is in
charge of finding buyers and partners while the factory in Cambodia is just a producer. There
could be a serious competition, according to administrative and shipping officers of B&N,
with Chinese textile products on the third market (the EU) when the Everything-But-Arms
given by the EU phases out sometime in the future depending on EU‘s foreign trade policy.
But B&N still believes that Cambodian cheap labor- much cheaper than labor in China- can
still make Cambodian textile products competitive. Besides Europe, the company does not
have any plan to either export to ASEAN market because the company already has long term
relationship with the buyers in Europe. Furthermore, the company‘s products, namely jackets
and sweaters, are not suitable for tropical ASEAN countries including Cambodia.
Main findings
ACFTA provides less benefits for the export oriented textile industry than other
industry especially agro-industry, because Cambodian garment products are still not
competitive enough vis-à-vis Chinese garment products in the Chinese markets and
most of garment factories in Cambodia are still importing large amount of raw
materials from China.
Competition with Chinese similar products in the third market is low, especially in the
European markets, because textile products made in Cambodia can enjoy duty and
quota free access to Europe. In addition, garment-related raw material imports from
97
China are tariff-free, because the Cambodian government wants to encourage more
investment in this industry. Thus, importing raw materials from China, producing
garment products using Cambodian labors and exporting them into European market
is a reasonable business model.
7.4. Conclusion
The ACFTA still has very low impact on export oriented textile industry in Cambodia but it
has some negative impact on small and medium size local textile producers whose market
focusing on domestic one. The case study of Seak Chan demonstrated the vulnerability of
Cambodian clothes producers to lose competition with the imported Chinese clothes. The
weakness of Cambodian textile industry is the lack of local raw material suppliers. Almost of
production inputs are imported from other countries in the region including China. This
increases the production cost which lead to high unit price comparing with made-in-China
products.
98
Chapter 8: Summary and Policy Recommendations
8.1. Bottlenecks of Cambodia’s Export
ASEAN-China FTA creates both opportunities and challenges for the key Cambodian
industries namely agriculture, food and beverage, and textile. From the findings of the case
studies, it argues that these three sectors get more benefits than losses in joining ACFTA.
Impacts of ACFTA on each sector are in different way and at different level. The benefits are
generated from market access opportunity for Cambodian products and Cambodian producers
who import raw materials and production machineries from China. In general, nevertheless,
Cambodia still finds it difficult to take advantage and benefits from regional trade
arrangements due to the lack of technology, investment capital, human resources, and local
suppliers of production materials. Most of the manufacturing industry in Cambodia,
especially garment industry, just focuses on assembling services which has low value added
in the production chain. It is expected that under the framework of ACFTA, Cambodia could
attract more investments from China and other countries to produce those products under the
preferential list of the Agreement in order to export to China.
For the agricultural industry, ACFTA provides market access for Cambodian
agricultural products in two ways. First, Cambodia can export milled rice and other food
products to China because Cambodian products have relatively competition in price and
quality. Second, Cambodia can export more agricultural products to serve the
industrialization in China especially rubber and cotton. In addition, ACFTA encourages more
import of machineries from China in order to increase productivity. Cambodia has huge
potential to export agricultural products to Chinese market under the ASEAN-China FTA.
However, the lack of information on Chinese market, lack of government support in
facilitating export, and the lack of firm‘s export capacity are the main constraints in
promoting Cambodian agricultural export to China.
Concerning the food and beverage industry, Cambodian domestic producers are still
competitive with imported similar products. ACFTA can assist this industry in terms of
machinery importation and can support Cambodian food and beverage exporters to get access
to Chinese market in the future. However, high packaging cost, small scale production base
99
due to the lack of technology, low quality standard, low investment capital, and high
exportation fee are constraining this industry from expanding their international market. It is
expected that under ACFTA, more Chinese investment projects will concentrate on this
industry in order to export to China.
Regarding the textile industry, it shows lowest impact from ACFTA given the market
for Cambodian textiles products are Europe and United States except in Seak Chan case in
which the local domestic textile producers aiming at local consumers. Seak Chan finds it
difficult to compete with imported Chinese textile products/finished clothes because of
cheaper price and better design. In the cases other than Seak Chan, the local clothes are still
comparatively more expensive than imported Chinese clothes due to the fact that Cambodian
producers import almost all production materials from China and other regional countries.
Such absence of local raw material suppliers limits the competition capacity of local
producers. For those export oriented textiles like B&N whose main market is Europe find no
impact from ACFTA.
From the case studies, ten main constraints, from the private sector perspective, are
identified:
1. Lack of market information and market entry strategy
2. Lack of production capacity especially high technology
3. Lack of investment capital and human resources to expand production base
4. Lack of internationally recognized quality standard especially in the food and
beverage industry
5. Lack of effective and efficient export facilitation services
6. Lack of local raw material suppliers especially for the garment industry
7. Lack of supporting industries for the exporting firms
8. High transportation cost due to poor road connection and high cost logistics
services
9. High unofficial facilitation fee or tea money
10. Lack of participation from the private sector in regional trade arrangements
negotiation process
100
8.2. Policy Recommendations
Recommendation 1: Improvement in market research and market information
dissemination
Public institutions and development partners need to provide more information regarding
regional trade arrangements/agreements and support the private sector to design appropriate
market entry strategy. Agricultural and food and beverage industries face difficulty in
exporting to China just because of lack of market information. Weak commercial network
especially international networks are another critical problem. In stead of directly exporting
to China, Cambodian firms sometimes need to export to Vietnamese intermediates who have
commercial connections with China, just because they do not have direct commercial link
with China Such a situation is evident in the case of rubber industry.
Ministry of Commerce together with the Cambodian Council for Development should
improve its functions by conducting scientific international market research for Cambodian
exporters. In addition, the private sector should be more encouraged to participate in regional
trade arrangement dialogues in order to raise their voices and concerns and to be informed.
Recommendation 2: Quality improvement of Cambodian products
Food and beverage industry in Cambodia is seriously facing with the lack of international
quality standard. It is therefore necessary for the public institution and development partners
to assist the private sector especially exporting firms and factories to improve their products
quality. Technology transfer also contributes significantly to improve the products quality
and production capacity. Foreign direct investment and the foreign-local business partnership
will encourage more flows of technology and knowledge transfer which can contribute
significantly to the food industry development in Cambodia.
Recommendation 3: Simplification of trade procedures and efficient transportation
All exporting industries in Cambodia are facing with sophisticated, costly, and time
consuming export procedures and transportation. The government needs to reduce
bureaucratic constraints in exporting process and eradicate the unofficial facilitation fees in
101
order to encourage the private sector to fully use its potential and capacity to export. In
addition, logistics services should be invested more by the private sector.
Hard infrastructure (particularly road and railway) connectivity needs to be improved. Public
institutions and development partners need to further identify and develop important strategic
hard infrastructure in order to facilitate export. In the case of rubber and cotton industries,
exporters tend to use Vietnamese ports instead of Sihanoukville port, because the transport
cost is cheaper and less time consuming. In addition, the government should establish one-
window service for all the procedures involved in the exporting process and procedures. The
government should issue a multiple export permit to exporting firms so that they don‘t waste
time and resources to apply many times for the export permits.
Recommendation 4: Human resources development and capacity building for exporting
firms
Human resource is the main constrain for the exporting firms. Particularly in the food and
beverage industry, human resources are extremely limited especially in the field of
production engineering and management science in order to reduce cost and guarantee
international standard quality. In the agricultural industry sector, manpower on agricultural
engineering, laboratory and scientific research are seriously required to increase crops
productivity and develop the agro-industry in a sustainable way as currently Cambodian
agricultural products still have very low value added.
The regional institutions such as ASEAN and Asian Development Bank should introduce and
implement more projects to support the exporting firms/companies in Cambodia by helping
them to get information, providing them technical and management support, and link them
with regional business network. In addition, the private sector should be encouraged to more
actively participate in regional trade arraignments negotiations and dialogues. Capacity
building projects for the private sector should be encouraged and further developed. Only
through pro-poor trade strategy and value chain creation within the industry that can help
reduce poverty and provide sustainable development for Cambodia.
102
Recommendation 5: Establishment of local suppliers, supporting industries and values
chain creation
The garment industry in Cambodia is facing with serious lack of local suppliers especially
production materials. Public institutions and development partners should support the
creation of local suppliers for the exporting industries especially in the textile industry. Other
services such as packaging services should be invested more by the private sector. Value
chain creation within the production network is necessary for job and income generation.
Relating to this point, it is important to build up supporting industries of exporting sectors.
For example, Cambodia‘s food industries have been less competitive just because they need
to use expensive imported packages. It is not food per se but imported packages that push up
the cost of Cambodian food prices. If inexpensive but high-quality packages are domestically
produced in Cambodia, Cambodian food industries will become more competitive and
profitable.
Recommendation 6: Reduce unofficial facilitation fee
All the industries interviewed raise their concern about the high unofficial facilitation fee in
exporting process. To get export permits and other required documents is quite costly due to
various red tape and unofficial fee. The government needs to seriously deal with this issue by
enforcing the newly adopted anti-corruption law and set up an effective monitoring
mechanism and improve law enforcement. The private sector, especially exporting firms,
should be given direct access to inform the senior leaders of the anti-corruption unit about
their cases. Only through partnership and cooperation between the public and private sectors,
unofficial fees can be reduced.
103
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