cambodia and asean economic community (aec) 2015: implications of aec on poverty reduction in...
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CAMBODIA AND ASEAN ECONOMIC COMMUNITY (AEC) 2015:
IMPLICATIONS OF AEC ON POVERTY REDUCTION IN CAMBODIA
By
PIN VATHANAK
A thesis submitted in partial fulfillment of
the requirements for the degree of
BACHELOR OF ARTS IN
INTERNATIONAL STUDIES
at the
ROYAL UNIVERSITY OF PHNOM PENH
DEPARTMENT OF INTERNATINAL STUDIES
2015
Permission-to-Copy Page
for Bachelor of Arts in International Studies
I hereby grant the Royal University of Phnom Penh the nonexclusive right to use this
work for the University’s own purposes and to make single copies of the work
available to the public on a not-for-profit basis if copies are no otherwise available.
___________________________
Pin Vathanak
The thesis of Pin Vathanak is approved by the Thesis Examining Committee:
___________________________________
Lecturer Hoeun Ratanak (Supervisor)
___________________________________
Lecturer Sok Parinha (Examiner)
iv
Abstract of the Thesis
Cambodia and AEC 2015: Implications of AEC on Poverty Reduction in
Cambodia
By
Pin Vathanak
Bachelor of Arts in International Studies
Royal University of Phnom Penh, 2015
Lecturer Hoeun Ratanak, Supervisor
As AEC is approaching soon, it is a doubt whether the poor in Cambodia are
left out from this integration or not that would affect the RGC’s goal to become
upper-middle income country by 2030. Therefore, it is the sole interest of this paper
to discover this doubt. This study analyzes the poverty reduction strategy in
Cambodia to know whether it is pro-poor growth or not. Then, it aims to compare
key policies and action in ‘single market and production base’, which is the first
pillar of AEC, to know whether they are consistent with poverty reduction policies in
Cambodia or not. As a result, it is found that all the five core elements: (i) free flow
of goods, (ii) free flow of services, (iii) free flow of investment, (iv) freer flow of
capital; and (v) free flow of skilled labor, plus the two important components namely
the priority integration sectors, and food, agriculture and forestry are consistent with
RGC’s poverty reduction policies. They help to complement the four main key areas
of RGC’s poverty reduction strategy: (i) improving agriculture sector, (ii) developing
human resource and improving the capacity, (iii) promoting private sector and non-
farms jobs through urbanization, and (iv) developing physical infrastructure.
However, there are some specific policies of AEC’s first pillar that are not consistent
and undermine the poverty reduction effort of the RGC as well.
v
Table of Contents
Abstract ................................................................................................................................... iv
Figures and Tables ................................................................................................................ viii
Acknowledgement .................................................................................................................. ix
Abbreviation .............................................................................................................................x
Chapter 1: Introduction .............................................................................................................1
1. Contextual/Conceptual Introduction ............................................................................1
2. Research Problem and Questions .................................................................................5
2.1. Research Problem ...............................................................................................5
2.2. Research Objectives and Questions ...................................................................5
2.2.1. Main and Specific Objectives ..................................................................5
2.2.2. Main and Specific Research Questions ....................................................5
3. Significance of the Study .............................................................................................6
4. Research Methodology .................................................................................................7
4.1. Study Design ......................................................................................................7
4.2. Measurement Procedures ...................................................................................8
4.3. Data Analysis .....................................................................................................9
5. Scope and Limitation....................................................................................................9
6. Structure of the Report ...............................................................................................10
7. Ethical Issue ...............................................................................................................11
Chapter 2: Literature Review ..................................................................................................12
1. Pro-poor Growth Policy .............................................................................................12
1.1. Inclusive Growth ..............................................................................................13
1.1.1. Sustaining Growth..................................................................................14
1.1.2. Pro-poor Growth Pattern ........................................................................15
1.1.2.1. Education .................................................................................15
1.1.2.2. Health.......................................................................................16
1.1.2.3. Infrastructure ...........................................................................16
1.1.2.4. Agriculture ...............................................................................17
1.1.3. Addressing Inequality ............................................................................18
1.1.4. Addressing Risk and Vulnerability ........................................................18
vi
1.1.5. Tackling the Causes of Market Failure and Improve Market Access ....20
1.2. Chronic and Transient Poor...............................................................................21
2. Economic Integration .................................................................................................23
3. Economic Integration and Poverty Reduction ............................................................24
3.1. ASEAN Economic Community and Cambodia ................................................25
3.1.1. Advantages of ASEAN Economic Community on Cambodia ................25
3.1.2. Disadvantages of ASEAN Economic Community on Cambodia ............26
3.2. Impacts of Other Regional Economic Integration on Poverty ..........................27
4. Conclusion ..................................................................................................................30
Chapter 3: Poverty Reduction Strategy in Cambodia .............................................................32
1. Cambodia’s Government Poverty Reduction Policies ...............................................32
2. Effectiveness of the Poverty Reduction Strategy in Cambodia ..................................33
2.1. Cambodia’s Poverty Reduction Strategy and Pro-poor Growth Policy ............34
2.1.1. Inclusive Growth ....................................................................................34
2.1.2. Chronic and Transient Poor ...................................................................36
2.2. Achievement of Cambodia’s Poverty Reduction Strategy ................................38
3. Conclusion ..................................................................................................................40
Chapter 4: The Consistency of Policies in ‘Single Market and Production Base’ Pillar with
Poverty Reduction in Cambodia .....................................................................41
1. Policy of Single Market and Production Base Pillar ..................................................41
2. Single Market and Production Base Pillar and Cambodia’s Poverty Reduction
Strategy ....................................................................................................................41
2.1. Free Flow of Goods ...........................................................................................42
2.1.1. Elimination of Tariffs .............................................................................45
2.1.2. Elimination of Non-Tariff Barriers ........................................................48
2.1.3. Rules of Origin .......................................................................................50
2.1.4. Trade Facilitation ...................................................................................52
2.1.5. Custom Integration .................................................................................56
2.1.6. ASEAN Single Window ........................................................................61
2.1.7. Standards and Technical Barriers to Trade ............................................63
2.2. Free Flow of Services ........................................................................................67
2.3. Free Flow of Investment ...................................................................................72
vii
2.3.1. Investment Protection ............................................................................75
2.3.2. Facilitation and Cooperation ..................................................................79
2.3.3. Promotion and Awareness .....................................................................81
2.3.4. Liberalization .........................................................................................83
2.4. Freer Flow of Capital ........................................................................................85
2.4.1. Strengthening ASEAN Capital Market ..................................................85
2.4.2. Allowing Greater Capital Mobility ........................................................86
2.5. Free Flow of Skilled Labor ...............................................................................88
2.6. Priority Integration Sectors ...............................................................................92
2.7. Food, Agriculture and Forestry .........................................................................94
3. Conclusion ................................................................................................................99
Chapter 5: Conclusion and Recommendation .......................................................................101
1. Conclusion ..............................................................................................................101
2. Recommendation ....................................................................................................105
References .............................................................................................................................107
Appendices ............................................................................................................................126
A.1. Summary of Cambodia’s Poverty Reduction Policy ...........................................126
A.2. Consistency of Policies in AEC’s First Pillar and Poverty Reduction Strategy ..147
viii
Figures and Tables
Figure 1: Cambodia SME’s Policy Index .................................................................. 43
Figure 2: ASEAN Integration Matters: Potential Economic Impact of AEC Measures
on AMS’s GDP ........................................................................................ 49
Figure 3: Change in Poverty and Annual Growth in Services Output (1990-2010) .. 68
Figure 4: Trade Restrictiveness and Per Capita Income ............................................ 69
Figure 5: Average Monthly Wages in ASEAN.......................................................... 89
Table 1: Cost Structure of Industry ............................................................................ 87
Table 2: Analysis of Net Effects of AEC on Cambodia ............................................ 99
ix
Acknowledgement
Achieving this research cannot be done solely by my hard work if there was
no encouragement, professional advice, and commitment from my supervisor,
interviewees, lecturers, family and friends who contribute to this thesis. Therefore, it
is my honor to take this precious opportunity to express my sincerest gratitude to
them.
First, I would like to show my sincere appreciation to my supervisor, Mr.
Hoeun Ratanak, who trusts my ability in the first place and approved my thesis
proposal at the first place. He provided me with constructive and professional
comments during the time of writing this thesis. He is willing to help and guide me
all time in the event when I faced obstacles and difficulties in researching and
writing this piece of paper. His efforts, especially his constructive comments, have
played a crucial role in my achievement on this thesis.
Second, I would like to express my sincere appreciation to one scholar,
researcher at one research institution in Cambodia, and Mr. Roth Vathana, research
fellow in the field of economy at CDRI and lecture at DIS. Even though they are
busy, they have devoted their valuable time to allow me to interview them.
Third, my family, especially my parents, is the ones who encourage me to
decide to write this thesis given the busy and hard time I am studying two majors at
the same time. Without my family’s support and encouragement, I would not had
committed myself to grab the opportunity to write the thesis in the first place. They
are the main and most important motivation to keep me working hard on this thesis.
Finally, I would like to express my sincere appreciation toward my friends in
class A4.1. Especially, I would like to sincere thank my some of good friends who
have accommodated me through these four years of my study, particularly during the
thesis’s writing process. They are the medicine to reduce the hard time I have faced
during my study’s journey. Without them, I do not think I would have this day.
x
Abbreviation
ADB Asian Development Bank
AEC ASEAN Economic Community
AFTA ASEAN Free Trade Area
AMS ASEAN Member States
APEC Asia-Pacific Economic Cooperation
ASEAN Association of Southeast Asia
ASEAN-6 Brunei, Malaysia, Indonesia, Singapore, Thailand, and the Philippines
ASW ASEAN Single Window
ASYCUDA Automated System for Custom Data
CBTA Cross Border Transport Agreement
CDC Council for the Development of Cambodia
CDRI Cambodia’s Leading Independent Development Policy Research
Institution
CEPT Common Effective Preferential Tariff
CICP Cambodia Institution for Cooperation and Peace
CLMV Cambodia, Laos, Myanmar, and Vietnam
CMDG-1 Cambodian Millennium Development Goal-1
CSR Corporate Social Responsibility
EBA Everything but arms
EU European Union
FDI Foreign Direct Investment
FTA Free Trade Area
GDP Gross Domestic Product
GMS Greater Mekong Subregion
G-PSF Government-Private Sector Forum
HDI Human Development Index
ICT Information and Communication Technology
xi
IDP Industrial Development Policy
ILO International Labor Organization
MFN Most Favoured Nation
MRA Mutual Recognition Arrangement
NAFTA North American Free Trade Agreement
NSDP National Strategic Development Policy
NTB Non-Tariff Barrier
NTM Non-Tariff Measure
OECD Organization of Economic and Cooperation Development
PIS Priority Integration Sectors
PPP Public Private Sector Partnership
QIP Qualified Investment Project
R&D Research and Development
RGC Royal Government of Cambodia
ROO Rules of Origin
SECDP Socio-Economic Development Plan
SEZ Special Economic Zone
SL Sensitive Lists
SME Small and Medium Enterprise
TEL Temporary Exclusive Lists
TTC Trade Transaction Costs
UNESCAP United Nations Economic and Social Commission for Asia and the
Pacific
WCO World Customs Organization
WTO World Trade Organization
1
Chapter 1: Introduction
1. Contextual/Conceptual Introduction
In January 2007, ten member states of ASEAN agreed to implement the AEC
by 2015. Free movement of goods, services, FDI and skilled labor, and free flow of
capital will be taken part in AEC (Peter, Plummer, & Zhai, 2010).
The AEC aims to make ASEAN become a single market and production base
making ASEAN more dynamic and competitive with new mechanisms and measures
to strengthen the implementation of its existing economic initiatives; accelerating
regional integration in the priority sectors; facilitating movement of business persons,
skilled labor and talents; and strengthening the institutional mechanisms of ASEAN.
AEC has four key pillars namely (a) a single market and production base, (b) a
highly competitive economic region, (c) a region of equitable economic
development, and (d) a region fully integrated into the global economy. (ASEAN
Secretariat, 2008, p. 5-6). AEC is scheduled to be achieved by December 31, 2015
(Fernquest, 2015).
Since single market is the main purpose for ASEAN to integrate their
economy, AEC’s first pillar, ‘single market and production base’, is the most
important pillar (Fernquest, 2015). In this pillar, (i) free flow of goods, (ii) free flow
of services, (iii) freer flow of capital, (iv) free flow of investment and (v) free flow of
skilled labor, plus two important components namely (i) priority integration sector
and (ii) food, agriculture and forestry are what it aims to achieve (ASEAN
Secretariat, 2008, p. 6).
2
ILO estimates that AEC can boost regional economies by 7.1% and generates
additional 14 million jobs by 2025; however, many jobs which are not in the AEC’s
priority will be lost. In addition, even though improving productivity might increase
income for some people, this could avoid a large majority of people. These issue will
exist if the ASEAN leaders will not adopt appropriate action and policy (Uramoto,
2014).
However, big development gaps between the region’s richest and poorest
countries create hurdles for forging a single economy. The poorest countries include
Cambodia, Laos and Myanmar (Hruby, 2014). According to Hsieh (2012), it is
essential that ASEAN should deal with poverty in order to achieve AEC by 2015.
Supporting this idea, Deputy Secretary-General Rintaro Tmaki (as cited in OECD
Development Centre, 2012, p. 1), said at the 2012 ASEAN Business summit in
Phnom Penh that ASEAN growth, after integration, will depend less on net exports,
but more on the expansion of middle class to boost domestic demand. Additionally,
Mario Pezzini, director of the OECD Development Center, said that “to maintain
economic growth in ASEAN and to benefit for the whole population after
integration, greater efforts are needed to reduce disparities between and within
ASEAN countries” (OECD Development Centre, 2012, p. 1). The disparities,
according to OECD Development Centre and ASEAN Secretariat (n.d.), consist of
infrastructure gap, poverty gap, human resource development gap, ICT gap, trade
and investment gap, tourism gap and poverty gap. Among these disparities, poverty
3
gap has the greatest sub-index which is 4.41 over 10 in 2011, comparing the CLMV
with ASEAN-6.
At a country level, even though many development gaps have been reduced
over time, poverty and human resource development are still relatively wide and
require critical attention from national policy makers (OECD Development Centre,
2012).
Decades of war and internal conflict have made Cambodia one of the poorest
countries in the World. In addition, the fast-growing population also contribute to
poverty. Among 90% of them who are in rural area, most of them depend on
agriculture for their living; however, at least 12% of those poor people in rural area
are landless. Even though they start to look for work or other activities, those
activities are mainly temporary and poorly paid. Lack of education and skills training
have brought inadequate employment opportunities and low capacities for the poor
people in Cambodia. Insecurity, vulnerability, limited access to natural resources,
poor health, lack of education, poor infrastructure, low productivity, endemic
corruption, high income inequality and poor job prospects have led to deeper poverty
(CIA, n.d.; & IFAD, n.d.). Even though overall poverty has declined, poverty in rural
area is still high (Chap, 2008, p. 354).
In 2011, Cambodia, one of poor countries in ASEAN, has two out ten people
who are in poverty. The poverty rate was 18.6% in 2012, with almost 3 million poor
people, and over 8.1 million who are near-poor or vulnerability (live on less than
$2.30 per day per person). About 90% of them live in the countryside (The World
1 Each sub-index of disparities between ASEAN-6 and CLMV is valued from 0 to 10 base points—
where 0 denotes no gap and 10 the widest gap. (OECD Development Centre, n.d.)
4
Bank, 2014a; Zachau, 2014). Therefore, despite reducing dramatically in poverty
rate, Cambodia is still classified as low income country (The World Bank, 2014b).
Cambodia, in 2013, is ranked 147 on the World Bank’s GDP per capita index
(Hruby, 2014).
Therefore, according to Widjaja (n.d., p. 1), since poverty remains high in the
rural area that most poor people have engaged in agriculture, promoting agriculture
growth will play an important in reducing poverty. Importantly, employment in other
sectors is very important to absorb surplus labors from agriculture in the case that the
latter becomes more developed and productive. However, low level of education is
the challenge for the poor to shift to other sectors.
Since Cambodia is one the low income country, as well as in the region, it is
very essential for the government to reduce and eradicate poverty and increase the
living standard of the people. AEC aims to accelerate economic growth of ASEAN
member states; however, according to Kurmar and Ny (2014), increasing economic
growth can foster inequalities in an economy, especially when the initial conditions
including elite domination and under-provision of basic social and economic services
are existed. Neak Samsen, poverty analyst of the World Bank in Cambodia and the
co-author of the Poverty Assessment Report said that “the loss of just 1,200 riel
(about $0.30) per day in income would throw an estimated three million Cambodians
back into poverty, doubling the poverty rate to 40%” (The World Bank, 2014c).
Thus, this study aims to discover whether AEC will benefit to the poor or not
by looking on the policy of AEC whether it contributes to poverty reduction strategy
in Cambodia or not by focusing on its consistency with pro-poor growth policy.
5
2. Research Problem and Questions
2.1. Research Problem
It is not known whether poor people in Cambodia can benefit from this
integration or not because whether the four pillars of AEC will be elite domination or
poor domination is not known. Among the four pillars, the first pillar, ‘single market
and production base’, is the most important pillar due to AEC aims to create single
market in ASEAN. In addition, since reducing poverty is the main priority issue that
Cambodia has to deal with, it is very important to know whether AEC’s policies in
the first pillar are pro-poor growth or not since those policies are the locomotive that
direct the pattern of growth of each ASEAN countries once integrated.
2.2. Research Objectives and Questions
2.2.1. Main and Specific Objectives
Main Objective: To determine whether policies in the first pillar of AEC is
pro-poor growth or not in the context of Cambodia.
Sub-Objectives
To discover the pro-poor growth policy in Cambodia.
To determine whether AEC’s policy in the first pillar is consistent with
Cambodia pro-poor growth policy or not
2.2.2. Main and Specific Questions
Main Research Question
Do policies in the first pillar of AEC help to complement poverty reduction
strategy in Cambodia through promoting pro-poor growth?
6
Sub-Research Questions
1. What are the poverty reduction policies adopted by the Royal
Government of Cambodia (RGC)? Are they pro-poor growth policies?
2. What are the consistent policies in the first pillar of AEC with the RGC’s
poverty reduction policies?
To answer these two questions, first of all for the first question, poverty
reduction policies in Cambodia, which are consisted in the Rectangular Strategy,
IDP, NSDP and Poverty Alleviation of the Ministry of Planning, will be reviewed in
order to ascertain and categorize those policies in each document into groups. To
prove that they are pro-poor growth policies, those policies will be reviewed whether
they meet the requirements of pro-poor growth policies defined by OECD (2006) or
not. For the second question, each policy and action in the first pillar of AEC will be
compared with the poverty reduction policies in Cambodia, which have been found
in the previous question, in order to find whether they shared the same or similar
characteristic or not. In addition, the study of other scholars on the effect of each
policy on growth and poverty reduction will be used to further support the argument
that those policies are pro-poor growth.
3. Significance of Study
Cambodia, with its low GDP (ranked 147) compared to other ASEAN
nations, has been the main focus by many scholars whether this country can benefit
from AEC or lose from AEC. Therefore, many studies such as “ASEAN Economic
Community (AEC) 2015: What Does It Mean for Cambodia’s Economy and for
Business?” by CDRI (n.d.) have been produced to find out the benefit and the cost of
Cambodia when AEC is implemented in 2015. However, whether the poor people in
7
Cambodia could be positively impacted by the implementation of AEC or not is not
known or less known because there is no or less research study that has been done on
this issue. Therefore, this paper is aimed to fill this gap and contribute to the existing
field of study. It will discover how AEC’s policies in the first pillar benefit to the
poor in Cambodia. In other word, it is very important to know whether the policies in
the first pillar of AEC are pro-poor growth or not. Additionally, this study also
examine the possible impact of those policies that could affect Cambodia, especially
the poor.
4. Research Methodology
4.1. Study Design
This study is conducted by using qualitative research study. As the paper’s
main focus is to know whether AEC’s policy in the first pillar is pro-poor growth or
not in the context of Cambodia, the comparative study design is used in order to
ascertain the consistent AEC’s policy in the first pillar that is consistent with poverty
reduction policy in Cambodia by comparing these two policies together to know their
consistency.
Both primary data and secondary data will be used in this study. Primary data
will be taken from interview. Semi-structure interview is selected because only
relevant information is needed. However, it is very crucial for interview to remain
flexible as well so that other important information can still arise. The main targeted
interviewees are the researchers at CDRI such as Mr. Roth Vathana because this
institution has done many research papers related to poverty in Cambodia, and the
benefit and cost of Cambodia from joining AEC. For the collecting of secondary
8
data, Rectangular Strategy Phase II and Phase III, NSDP, Poverty Alleviation of the
Ministry of Planning, AEC Blueprint, journal, earlier research such as from CDRI,
and other documents such as newspapers, magazine and online articles will be
collected.
4.2. Measurement Procedures
In this paper, pro-poor growth policy is defined as the policy that is able to
reduce poverty rate and those policies benefit to the poor directly and indirectly by
enabling them to participate in the economic growth process and benefit from that
growth. The term “poverty” is defined based on absolute poverty. Specifically, the
RGC defines poverty as the condition when the people failed to meet the minimum
food and non-food expenditure set by the RGC (Japan Bank for International
Cooperation, 2011, p. 1). Non-food items contain medical care, transport, personal
care, clothing and footwear, communication, education, furnishings, servant’s
salaries, in-country recreation, recreation abroad, gambling, jewelry etc.,
miscellaneous items, water, sanitation, garbage disposal, energy, house rent, and
house repair (Ministry of Planning, 2013, p. 7). Additionally, according to the World
Bank (2014c), ‘near-poor’ or ‘vulnerability’ has escaped from poverty condition, but
earn less than $2.30 (Cambodia’s context) and is at risk to fall back in to poverty.
Hence, the protection of vulnerable people to fall back into poverty will be measured
through poverty reduction since further reducing poverty means helping both the
poor and the near-poor. Since poverty in multidimensional concept, this paper will
only look on economic dimension only, which is on the line with RGC’s definition,
to make judgment whether AEC’s policies in the first pillar is pro-poor growth or
not. Therefore, RGC’s definition on poverty is used in this study. To measure the
9
effectives of eliminating poverty based on this concept, income per capita and access
to public services will be looked upon. Additionally, pro-poor growth policy
requirements that will be identified in the literature are used in order to further clarify
Cambodia’s poverty reduction policies to be pro-poor growth.
Since this paper indirectly prove policies in the first pillar of AEC to be pro-
poor growth through their consistency with the RGC’s poverty reduction strategy
instead, the term “consistency” will be operationalized in this paper. Consistency in
this paper means the conformity of two groups of policies, which share similar
substances or elements that result in similar action plan or effect.
4.3. Data Analysis
With regard to data analysis, this paper will used content-based analysis to
analyze the poverty reduction strategy of Cambodia that is pro-poor growth policy.
Additionally, the AEC’s policies in the first pillar will be ascertained to know which
one is on the line with the pro-poor growth policy of Cambodia. Other policies that
are not consistent will be further identified its effect and nature in order to know
whether they can contribute to the pro-poor growth policies of Cambodia or not to
make the recommendation. Therefore, AEC Blueprint, specifically the first pillar of
AEC, together with Cambodia government policy to reduce poverty in Cambodia
will be used to as the main documents in this paper.
5. Scope and Limitation
This paper is mainly aimed to determine whether AEC’s policy in the first
pillar is pro-poor growth policy or not in the context of Cambodia. Therefore, this
paper does not explain the result of AEC on the poor people when AEC is achieved.
In addition, other policy that tend to be pro-poor growth policy in AEC might be left
10
out because only the policy in the first pillar is taken into account, not the other three
pillars. Furthermore, it is no guarantee that the AEC’s policy in the first pillar that is
found to be pro-poor growth in Cambodia context is also pro-poor growth for other
ASEAN member states because different countries require different policies to
reduce poverty.
Additionally, limitation is noticed in this paper as the difficulties facing
during working process. Some interviewees may be difficult to contact because of
their high rankings in government and prestige.
6. Structure of the Report
In this study, four main parts namely introduction, literature review, analysis
and conclusion and recommendations will be included.
Chapter 1, Introduction, will provide the overview of this study including
conceptual background of the topic, research objectives, problems, and questions,
significant of the study, research design, measurement and other important elements
of research proposal.
Chapter 2, Literature Review, will provide the theoretical and conceptual
framework, and empirical evidence that is related to this study.
In the analyzed part, two chapter are included. Chapter 3 is Poverty
Reduction Strategy in Cambodia and chapter 4 is The Consistency of Policies in
‘Single Market and Production Base’ Pillar with Poverty Reduction in Cambodia.
Last but not least, Chapter 5, Conclusion and Recommendations, will
summarize the whole study and give recommendations to the government.
11
7. Ethical Issue
As this paper will be based on secondary and primary data, including
numerical and qualitative data, from the government publication, and other types of
available documents related to the benefits of the AEC to the poor in Cambodia, the
concerning with ethical issues are as followed.
Challenges will be faced in the numerical data collection because of with one
issue, there are more than one interpretations, for example, poverty will be defined
differently between the World Bank and the RGC; thus, to ensure its consistence,
national poverty line will used, which data can be both derived from World Bank and
RGC. Moreover, some interviewees may want to maintain low image by not showing
their names in this paper due to regulation set by their research institution. Hence, to
deal with these concerns, permission to record data using electronic methods and
citing their name in this thesis will be asked for confirmation from the interviewees.
12
Chapter 2: Literature Review
To investigate the proposed topic, it is very important to review both
theoretical framework and empirical research that previous studies have done, which
are related to pro-poor growth, and relations of economic integration and poverty.
Theoretical review would provide vital framework for this study to answer the
research questions, while empirical review would allow this study to identify gaps
that previous studies with similar purpose failed to explain.
1. Pro-poor Growth Policy
Pro-poor policies are the policies directly targeting poor people, or they are
the policies more generally aimed at reducing poverty. Pro-poor processes are those
that enable the poor to be directly involved in the policy process, or, by their nature
and structure, lead to pro-poor outcomes. In short, the objective of pro-poor policies
is to improve the assets and capabilities of the poor (Renzio, 2004). Since poverty is
multi-dimensions that are in the forms of deprivation that poverty takes including
economic, human, political, and socio-cultural and protective (security) are
interlinked, and that gender equity and environmental sustainability cut across all
dimensions of poverty, pro-poor policy needs to consider all these dimensions
(CDRI, 2012, p. 9; & OECD, 2006, p. 16).
Economically, it is important to make the growth become pro-poor growth
because in order to raise the income the poor to escape from poverty, economic
growth is prerequisite (OECD, 2006, p. 1). Pro-poor growth means that the poor,
both men and women, are able to participate in, contribute to and benefit from
growth (Federal Ministry for Economic Cooperation and Development, 2006, p. 2; &
13
OECD, 2006, p. 1). According to Federal Ministry for Economic Cooperation and
Development (2006), there are two types of pro-poor growth: relative definition and
absolute definition. Absolutely, economic growth is pro-poor when it results in as
large as a number of the poor as possible being lifted above the poverty line due to
income growth—income distribution within society is not considered. Relatively,
economic growth is pro-poor when the poor derive disproportionate benefit from it
and their share in the national income increase—income inequality is decreasing (p.
2-3). Combining these two types of definition together, what matters the most is
whether poverty rate is decreasing or not, whether the poor benefit more or less
proportionately from growth, and whether inequality is increasing or falling, which
mean that the income of the poor are rising relative to the income of the non-poor.
According to OECD (2006), pro-poor growth policy need to be inclusive
growth. Hence, there are five elements that pro-poor growth policy need to put into
consideration in order to reduce economic poverty, which are sustaining growth, pro-
poor growth pattern, addressing inequality, addressing risk and vulnerability, and
tackling the causes of market failure and improving market access.
1.1. Inclusive Growth
Both the pace—refer to rate—and pattern—refer to the distribution of
benefit—of growth, in term of its sustainability, composition and equity, are
compulsory for effective economic poverty reduction. Growth has to be broad based
across sectors rather than depending on only one or two sectors. In addition, that
growth has to provide greater opportunity for the poor to participate in its process to
promote equity. Therefore, both pace and pattern of growth need to be addressed
14
together. So, policies need to address on pace and pattern of growth. In order word, it
is a need to promote inclusive growth2 (OECD, 2006, p. 20).
1.1.1. Sustaining Growth
Economic growth is a prerequisite for reducing poverty. Studies of the
experiences of 14 developing countries during 1990s showed that income poverty
fell only when there was growth—the higher the growth is, the greater is the decline
in income poverty (OECD, 2006, p. 20). In addition, economists have found that
poverty increases by 2% for 1% of decline in growth (Weller, 2002). Therefore, it is
a need to guarantee that economic growth is both rapid and sustainable because
China and India can reduce income poverty substantially thanked to rapid and
sustainable growth. To have sustaining growth, it requires deepening the incentive to
invest and increasing the use and productivity of capital and labor across the
economy as a whole. Therefore, it is a need to develop private sector by improving
investment and trade (OECD, 2006, p. 20-22). To achieve this, investment climate
and functioning of goods, capital and labor markets need to be improved. It is also a
need to improve mobilizing private capital and promote FDI and public private
partnership (Federal Ministry for Economic Cooperation and Development, 2006, p.
6). In addition, environmental sustainability is also important because most
developing countries depend on natural resources and agriculture. (OECD, 2006, p.
20-22)
2 Inclusive growth refer to the increasing in income growth for overall population while inequality of
income distribution need to be tackled. In order word, every people should be able to realize their
potential and to share the benefit of growth. (Anand, Tulin, & Kumar, 2014, p. 16; & OECD, n.d.)
15
1.1.2. Pro-poor Growth Pattern
According to Ravallion (as cited in OECD, 2006, p. 22), “1% increase in per
capita income may reduce income poverty by as much as 4% or by less than 1%,
depending on the country and time period.” According to OECD (2006), it depends
on the extent to which growth pattern improves the ability of poor people to
participate in, contribute to and benefit from growth. Therefore, the sectors that poor
earn their living need to be created more jobs, and improved access to productive
assets and markets for goods and services they produce. As a result, it is very likely
that their income will increase more rapidly and they can get the assets they need to
further increase their income. It is very important to guarantee that the poor are not
stuck in the regions and sectors that are marginalized from the growth. For instance,
in China, since 2000, even though there has been double digit rates of growth,
income poverty has not been reduced since the poor are stuck in marginalized sector
regions—rural area. Thus, policies are needed to guarantee that the poor are not
being marginalized from the growth process. So, it is a need that the government
need to focus on investment in health, education, infrastructure and agriculture that
will ensure that the poor are left out in the growth process since the aforementioned
sectors are very important to develop and link the rural areas with urban areas, to
improve the capacity of the poor to participate in sectors that promote growth, and to
enhance agricultural sector to be more developed and contribute to the national
growth given the fact that the poor involve more in this sector (p. 22-25).
1.1.2.1. Education
The government needs to focus on the quality of universal basic education
and on its access to enable the poor, especially in the rural area, to participate in
16
education to at least secondary school and vocational training. Gender-inequality in
education has to be eliminated. Importantly, the employability of the poor and
disadvantaged people needs to be enhanced (Federal Ministry for Economic
Cooperation and Development, 2006, p. 6). For instance, in the work of Van de
Walle (as cited in Ali, & Pernia, 2003, p. 8) raising primary schooling for all
household heads to five full years (and of other adult by one standard deviation)
results in a 36% differential increase in crop income between irrigated and
unirrigated farms.
1.1.2.2. Health
The poor’s health needs to be improved by fighting disease with negative
effects on the productivity of the poor, such as AIDS and malaria. In addition, it is a
need to increase significance of sustainable social insurance models and systems
(Federal Ministry for Economic Cooperation and Development, 2006, p. 6). Based
on the report of the WHO Commission of Macroeconomics and Health showed that
the disease caused by malaria, tuberculosis and AIDS annually reduces GDP growth
by as much as 1.3%. Therefore, combating these diseases will reduce the
vulnerability of the poor to poverty-inducing health shocks and increase their
productivity, which help to increase economic growth so as to reduce poverty
(WHO, 2003, p. 3).
1.1.2.3. Infrastructure
It is very important to improve accessibility of the poor to local, national and
international economic cycles. Thus, institutional structures need to be strengthened
for the sustainable maintenance of productive infrastructure (Federal Ministry for
17
Economic Cooperation and Development, 2006, p. 6). In the study of Kwon (as cited
in Ali, & Pernia, 2003) on Indonesia in 2002, he estimated a growth elasticity with
respect to poverty incidence of -0.33 for good-road provinces and -0.09 for bad-road
provinces, which means that poverty is reduced by 0.33% and 0.09% respectively for
every 1% growth in provincial GDP. In other word, 1% increase in road investment
is associated with a 0.3% drop in poverty rate over five years. Thus, Ali and Pernia
(2003) concluded that infrastructure investment, specifically in rural area, lead to
higher farm and nonfarm productivity of wage goods; hence, poverty can be reduced
by raising mean income and consumption (p. 9).
1.1.2.4. Agriculture
Agricultural productivity needs to be improved such as through R&D in
agriculture. In addition, irrigation system needs to be improved also to further
enhance agriculture sector (Federal Ministry for Economic Cooperation and
Development, 2006, p. 6). Research in India, the Philippines, Thailand, and Vietnam
shows that poverty is substantially lower in irrigated areas compared with unirrigated
areas. For instance, in the Philippines, 1% increase in irrigation leads to 0.31% rise in
the poor’s incomes, and in Vietnam, targeting irrigation expansion to the poor
household increase crop income about 4.5% of poor household expenditure
compared with only 0.1% rise for the richest group (Ali, & Pernia, 2003, p. 7-8) At
the same time, competitive opportunities for small-scale framers has to be increased.
Lastly, the government needs to enforce the ownership rights and redistribution of
land (Federal Ministry for Economic Cooperation and Development, 2006, p. 6).
18
1.1.3. Addressing Inequality
Unequal distribution of productive assets reduces the ability of the poor to
increase their income and contribute to growth, which in turn result in inequality of
income distribution. If income inequality increases, the benefit of growth on the poor
people will decrease (OECD, 2006, p. 25). Strengthened this argument, Cashin et al.
(as cited in Santos-Paulino, 2012, p. 9) said that growth can reduce poverty with
strongest effects as long as that country has less inequality in income and assets. For
instance, in Ethiopia, during 1981 and 1995, growth should have resulted in a 31%
reduction of income poverty if the poor had benefited from the growth equitably.
However, increase inequality hindered the potential benefits from growth on the
incomes of the poor and resulted in income poverty rising by 6% (OECD, 2006, p.
25).
Therefore, a range of policies are required to address inequality. Investment
in early childhood development will promote equality of opportunity. So, efficient
public spending on basic social services such as health, education and infrastructure
is important to reduce inequality. Specifically, social stigma, which result in
discrimination, and gender biases need to be eliminated because this would make
individuals failing to achieve potential that obstruct them to escape from poverty. It
is a need to enforce law to address discrimination on social grounds (OECD, 2006, p.
25-26).
1.1.4. Addressing Risk and Vulnerability
In the previous parts, which are ‘pro-poor growth pattern’ and ‘addressing
inequality’, it is shown that opportunities have been made available to the poor.
However, taking advantage of those opportunities requires taking risk. Producing
19
new crops, entrepreneurship, and moving to new areas and jobs all involve risk. With
meager incomes, the poor are very vulnerable to the consequences of risk taking;
thus, they are reluctant to take that risk. Risk and vulnerability limit the poor
people’s participation in the growth process. Therefore, prevention, mitigating or
coping strategies such as increasing the reliability of agriculture income, deepening
insurance markets, and ensuring credible social protection that reduce vulnerability
to risk are very important. (OECD, 2006, p. 26)
In addition, the just-escaped poor people might fall back into poverty again
because of shock caused by either natural disasters or man-made crises. It is very
impossible to eliminate such shock, but it is possible that social protection
instruments can be established to deal with natural disasters and man-made crises in
order to avoid extreme deprivation for the poor and the loss of their financial, social
and human capital in a desperate attempt to cope. The poor may end up in “poverty
traps” if they are forced to sell of deplete the very assets that they need to earn better
income in order to solve the current problem, so they will be less likely to escape
poverty in the future. Therefore, polices preventing extreme deprivation such as labor
schemes to build infrastructure might help. In addition, “smart” cash transfers that
are conditional on the poor building assets by accessing health and education for
their children should help also. Providing safety nets such as contributory or non-
contributory pensions or cash transfer can also help to prevent extreme deprivation
amongst the elderly, chronically infirm or extreme poor. (OECD, 2006, p. 26-27)
20
1.1.5. Tackling the Causes of Market Failure and Improve Market
Access
Market failures are the common problem in developing countries. When they
occur, outcomes undermine pro-poor growth. Inappropriate policies and institution,
unequal access to market information, concentration of market power, high cost of
transactions, co-ordination failures or failing to take account of wider impacts such
as on the environment, and other factors are all the causes of market failure. Even
though the markets do not fail, the poor could be disadvantaged when participating in
those markets, which are discriminatory formal or informal institutions and higher
costs of accessing markets. (OECD, 2006, p. 27)
When markets fail or the outcomes have not been pro-poor, government often
intervene directly to provide goods and service themselves. In many cases, however,
the poor still remain disadvantaged because market failures is usually being replaced
by government failures. Deregulation, in some cases, has helped to improve market
access and functioning for the poor. However, in agricultural and rural markets
where old market failure have reemerged again, the poor remain disadvantaged by
the high transaction and co-ordination costs, poor access to information and lack of
market power. As a result, new approaches combining tackling market failures with
improving market access are needed to make markets work better for the poor.
Investment in the economic capabilities of the poor needs to be included. (OECD,
2006, p. 27)
Participation in markets allows the poor to improve their living standard and
to contribute to the growth. Therefore, well-functioning markets for productive assets
21
that increase access for the poor are very important for to generate pro-poor growth.
Financial sector deepening especially when accompanied by increased access of the
poor to financial services can contribute to higher rates of pro-poor growth. In
addition, greater access to and security over land and other property for the poor,
together with well-functioning labor markets that increase formal job creation, enable
labor movement and meet core labor standards are all needed to promote pro-poor
growth. Most importantly, assistance is necessary for the poor who still cannot make
use of market opportunities because of lack of assets such as knowledge and skills,
capital, land or certain basic needs. However, the assistance needs to be smart in
order to avoid distortions, to address real constraints and to reach those who needed,
but it should be provided in temporary term only. Such assistant include cash for
work, voucher systems for research and business development services and output
based payment systems for infrastructure services. (OECD, 2006, p. 27-28)
1.2. Chronic and Transient Poor
According the CDRI (2012), pro-poor policies, which can benefit
economically to the poor, have to support both community growth and poverty
reduction and respond to both chronic3 and transient4 poor via support for both farm
and non-farm jobs for poverty reduction. They have to be integrated into an
agricultural and rural development policy framework and upcoming development
interventions. In addition, to be effective, those policies need to harness existing
synergy of community growth and economic opportunities generated along with
3 Chronic poverty is referred to the in ability to fulfill basic needs during a period of more than five
years (Ghosal, 2013, p. 3) 4 Transient poverty referred to poverty at a temporary state due to a short-lived drop in individual
levels of living (Jalan, & Ravallion, 1998, p. 2)
22
structural change—from an agricultural to a non-agricultural-based growth—in order
to build the capacities of the poor, which will not only increase productivity, but also
lead to stronger capacity to cope with socio and economic shocks or crises (p. xiii).
Jalan and Ravallion (1998) divided the pro-poor policies into two groups:
policy reducing chronic poverty and policy reducing transient poverty. Longer term
investment in the poor, such as increasing their human and physical assets, or the
returns to those assets are likely to be more appropriate for reducing chronic poor,
while insurance and income-stabilization schemes that protect households against
idiosyncratic economic shocks would be important for reducing transient poverty.
However, they claim that it is very hard to differentiate between chronic poverty and
transient poverty. Nor can it be determine whether these two types of poverty are
caused differently—maybe quite similar causes create both types of poverty. Hence,
the same policies would help to reduce both chronic and transient poverty (p. 2).
In their study on China, China’s anti-poverty strategy has emphasized more
on fighting chronic poverty through the national poor area development program by
promoting income-generating investments in local agriculture and rural development,
rather than short-term insurance or state-contingent transfers. This program focuses
more on raising farm yields (Jalan, & Ravallion, 1998, p. 3). However, this emphasis
is not really significant to reduce transient poverty, so this program cannot really
help to reduce transient poverty even it can reduce chronic poverty given the fact that
both types of poverty are reduced by greater command over physical capital since
transient poor have greater human capital than chronic poor and transient poor are
exposure to uninsured income risk. Thus, to combat poverty and in addition to
23
policies to reduce chronic poor, other policy instruments like seasonal public works,
credit schemes, buffer stocks, and insurance options for the poor to smooth
variability in come are needed (Jalan, & Ravallion, 1998, p. 12-19).
2. Economic Integration
According to Balassa, economic integration is “the set of political and
economic measures designed to eliminate discrimination between economic units
that belong to different national state”. (Argüello, 2000, p. 4) Similarly, Kahert
defined economic integration as “the process of removing progressively those
discriminations which occur at national borders”. In addition, Machlup defined it as
the process of combining separate economies into a larger economic region, and
together with Staley, they claimed this kind of integration focuses on “the utilization
of all potential opportunities of efficient division of labor” (Hosny, 2013, p. 133).
According to Balassa (n.d., p. 174), economic integration can be taken into
five stages namely free trade area (FTA), customs union (CU), a common market
(CM), economic union and complete economic integration. In FTA, tariffs between
member countries are eliminated except non-member. In CU, the equalization of
tariffs in trade with nonmember countries is added more to what has been done in
FTA. In CM, not only trade restrictions are removed, but also the restrictions on
movements. In economic union, it is the higher form of economic integration that
criteria in CM combined with the elimination of restriction on commodity and factor
policies. Finally, complete economic integration consists of the unification of
monetary, fiscal, social and countercyclical policies that will be monitored by supra-
national authority that will be set up by and are binding to all member states.
24
According to Chan et al. (1998, p. 66), economic integration can be further classified
in to broad categories, which are modest integration (in FTA) and deep integration
(from CU to higher stages).
3. Economic Integration and Poverty Reduction
In the work of Sala-i-Martin (2007), he argued that “poverty reduction,
economic growth and economic integration are, indeed, related phenomena” (p. 1).
In his paper, he claimed that trade boost growth, which result in falling of poverty
rate by about two thirds. International trade increased more than 60%. Surprisingly,
regional trade agreements contributed 40% of total trade (Sala-i-Martin, 2007, p. 1).
In his study, he explained how economic integration reduce poverty through trade,
which boosts growth, reduces poverty and increases the incomes of the
disadvantaged.
However, not all growth benefits the poor. Eventually, growth increases
income inequality. Anyway, growth that result from economic trade and integration,
as well as some other alternative factor tends to reduce poverty (Sala-i-Martin, 2007,
2-3). Supporting this idea, Berg and Krueger (as cited in Sala-i-Martin, 2007, p. 4)
said that “growth associated with trade openness is as pro-poor as growth in
general”. They further added that “since within-country inequality does not
systematically increase with trade, we can say that openness also reduce poverty”.
Openness is good for economy, believed by the economists, because of (1) increased
specialization, (2) greater exploitation of increasing returns, (3) importing ideas, (4)
larger availability of capital, (5) technological progress, and (7) positive effect on
institutions, policies and the political process (reform) (Sala-i-Martin, 2007, p. 7-10).
25
Therefore, economic integration can reduce poverty as long as it produces
trade openness, which would result in pro-poor growth.
3.1. ASEAN Economic Community and Cambodia
People have debated over the advantages and disadvantages of economic
integration. Some believed that economic integration will bring stronger economic
growth, but it is not known whether it will contribute to poverty reduction or not.
However, the opponent of this kind of integration said that the people in developing
countries, especially the poor will be exploited (Aun, 2007). Chan et al. (1998) said
economic integration will boost economic growth and income per capita at the
national level, but no guarantee is made that this benefit will be shared among all
people (p. 73). However, there is no study, which has shown the strong evidence to
prove that AEC will impact whether positively or negatively to the poor. Most of
those studies just provide an overview of the advantages and disadvantages of AEC
on Cambodia.
3.1.1. Advantages of ASEAN Economic Community on Cambodia
In AEC context, Runckle (2012) said benefits of AEC include regional
cooperation, FDI, tourism opportunity and internationalization of health care under
the AEC. Additionally, 600 million people in ASEAN will benefit from 14 million
jobs generated by the ASEAN interaction (Villa, 2014).
Therefore, Cambodia, according to Hing (2014), will benefit from AEC. This
country will benefit from increased and diversified trade and investment from
ASEAN nations, integration into regional networks of production, and free
26
movement of labors across the region. Additionally, joining AEC, Cambodia can
also develop favorable economic relation with key global economic powers. In
addition, H.E Sok Siphana, advisor to the Ministry of Foreign Affairs and
International Cooperation, said that Cambodia is likely to attract more foreign
investment because of relatively low wages labor (The Cambodia Herald, 2012).
Therefore, it is estimated that export will rise by 5.3%, investment will rise by 24.8%
and real GDP will rise by 4.4% (Hing, 2014). However, Chan et al. (1998) worried
that “it might happen in Cambodia that a small number of rich people will enjoy a
large portion of benefits from economic integration at the expense of the living
standard of poor and vulnerable people” (p. 73).
3.1.2. Disadvantages of ASEAN Economic Community on Cambodia
On the other hand, joining AEC, many people said that Cambodia is not
ready. Chheang Vannarith, executive Director of CICP, said that Cambodia is not
ready to compete (Sok, 2012). He further said that:
“ASEAN is still mainly driven by the elites, not general people. The ASEAN poor
are left behind or even marginalized. They become the victims of globalization and
regional integration should there be a lack of appropriate social policy to help the
poor to grow and benefit from the process” (Chheang, 2014).
In AEC, skilled labor is flowing freely and tariffs are dropping to zero; thus,
Cambodia will likely benefit the least, said participants of a regional forum “Labor
rights and preparation of 2015 ASEAN Community” (Hurby, 2014). Chheang (2012)
further said that the eliminating tariffs would decrease the revenue of the government
and also encourage the influx of imported products which would harm infant
industries in Cambodia. He continued to say that free movement of skilled labors
27
would make Cambodian labors to lose some jobs to labors from other ASEAN
labors.
Moreover, according to Pich (2014), Cambodia also face a number of
challenges as well when joining AEC. First, Cambodia will lose import revenues
when tariffs are eliminated or reduced to maximum 5%. Second, Cambodian
products are required to meet international standard in order to compete with other
ASEAN member states’ products in finding buyers and get better price. Third,
Cambodian education is great in quantity but low in quality, so it is hard to compete
in the region. Fourth, lack of financial resources hinders Cambodia to actively
participate in all ASEAN economic activities
3.1.3. Impacts of Other Regional Economic Integration on Poverty
Mexico, a NAFTA member, has been affected both positively and negatively
by this regional economic integration on her poverty reduction. In the work of Sala-i-
Martin (2007), using v Mexico’s GDP has improved substantially. Its GDP growth
rate increased from 0.6% between 2001 and 2003 to 3.9% from 2004 to 2006. Such
positive growth needs to thank to NAFTA. Exports grew from 19% before NAFTA
to 30.4% by 2007 in term of share of GDP. Additionally, investment grew from
18.3% before NAFTA to 30.4% after joining NAFTA in term of share of GDP. As a
result, the author claimed that NAFTA would had brought 3 million Mexicans out of
poverty because of around 6 million jobs made by NAFTA between 1994 and 2005.
However, Sala-i-Martin said that economic integration may not bring greater
good to all people. As a result, in the work of White, Salas, and Gammage (2003),
the impact of NAFTA from 1994 until 2000 on poverty and employment on poor
famers, especially the women. This paper aims to discover the effects of NAFTA on
28
agriculture sector in Mexico in order to forecast the impacts of increasing trade
liberalization through FTAA on poor farmers in Mexico.
In their paper, they use Trade Impact Review (TIR), which is a framework
that enable trade negotiators, governments, and others to predict the benefits and
costs of a trade agreement before the agreement is ratified showing the direct and
indirect economic effects of a change in trade or investment policy. This framework
employs both a content and conflict analysis to discover possible gender-
differentiated effects of trade and investment agreements.
They have found that poverty increased by 50%5 in female headed
households since the NAFTA was implemented because NAFTA has negatively
affected on agriculture sector, particularly corn and bean due to rising in importing
quota and decreasing of tariff in these products, which result in cheap import
agricultural products. Women were much affected than men because men are given
more value than women. For instance, when the family can afford only one child to
school, they will choose men over women. In addition, the Mexico’s government has
to reduce price supports for the domestic farmers and consumers. Thus, NAFTA has
affected negatively on bean and corn sectors that make many farmers lose a lot of
revenue. In exchange of creating 5.3 million jobs, NAFTA made 1.3 million jobs
losses, mostly in the corn and bean producers, which would affect the small framers.
Moreover, around 36% of all jobs created by NAFTA was in the informal sector6 and
the other remaining jobs were in the formal sector. Even though the share of formal
5 From 10% before NAFTA to 15% of women-headed households reporting poverty after NAFTA
implementation (Women Edge’s Coalition, 2003, p. 3) 6 Workers receive no benefits, are not entitled to vacation pay or overtime, and routinely have no
contract protections. (Women Edge’s Coalition, 2003, p. iv)
29
sector job is higher, they cannot substitute the loss of those poor farmer because
those jobs require more education that those poor farmers do not have. In addition,
having stronger compliance measures, NAFTA constrains a country’s development
options because it is very impossible to renegotiate the agreement again if the
circumstances changes—if a country believes that other country’s laws are the
barrier to trade, the former may either change its regulation or compensate the latter
in order to maintain the rule.
On the bright side, NAFTA has brought advantages to non-traditional
agricultural exports7 (NTAEs). It is said that NAFTA would create new jobs and new
market for products that one country has a comparative advantage and Mexico has
comparative advantage in NTAEs, which consists of fruits and vegetables. By 1997,
17% of all agricultural jobs came from the agro-industrial sector.
Generally, NAFTA has negatively affected on Mexico’s rural sector, which is
agriculture involved mainly small farmers and subsistence producers. They cannot
bear to cover the production costs through crop sales anymore. As a result, most of
them left the sector. As the poverty increased, those rural families started to diversify
their sources of income. Three family members today could only earn what one
family member could before the implementation of NAFTA. They began to
participate in informal sector. Even though more family members are working, every
families still find it hard to meet their basic needs. Moreover,
7 Non-traditional exports has three distinction. First, non-traditional exports is a product that has not
been produced in a particular country before. Second, it is a product traditionally produced for
domestic consumption, but is now being exported. Third, it refers to the development of a new market
for a traditional product. (Barham, Clark, Katz, & Schurman, 1992, p. 43)
30
According to what have been found in NAFTA, they, using TIR, predict that
implementation of FTAA would further result in job losses and harm to Mexico’s
agricultural sector due to the nature of FTAA is similar to that of NAFTA. When
FTAA is implemented, Mexico’s agriculture sector will face two main challenges:
competition with other Latin American and Caribbean countries over accessing to the
US market and competition between other Latin American and Caribbean countries
for a share of intra-regional trade. Therefore, NAFTA has brought employment
losses in agriculture. The author suggest that increasing productivity and efficiency
are the only ways to make Mexico’s agricultural sector remain competitive.
However, argued by Sala-i-Martin (2007), agricultural sector declined
because the weight of industry and services has increased. Economic integration does
not bring specialization in labor intensive products, but increases demand for skilled
labors because of FDI (p. 18). Therefore, he further argued that there will be winners
and losers; it is just the gains of winner is bigger than losses of the losers. Anyway,
in the longer run, everyone may benefit from such integration (Sala-i-Martin, 2007,
p. 22).
4. Conclusion
In conclusion, AEC can bring both advantages and disadvantages to
Cambodian people. However, in overall, AEC can boost the economic growth of
Cambodia. However, there is lack of evidence to show what impacts that AEC could
has on the poor because there is no much study has done on this issue.
Anyway, evidence NAFTA’s effect on poverty in Mexico, they bring trade
openness; however, it is no guarantee that it will definitely be pro-poor growth. It
31
depends on the policies of each regional economic integration whether they will
benefit to the poor or not. NAFTA’s effects are not too good for the poor farmers in
Mexico, especially women, because NAFTA’s policies tend to make them worse off.
From the point view of NAFTA, the author makes an assumption that FTAA would
bring similar result to them as NAFTA did because of the similar characteristic
between them. Therefore, it is more about policies of each regional integration that
determine whether that integration is pro-poor growth or not.
Since the debate is over whether the poor in Cambodia can benefit or not
from AEC, it is the interest of this paper to discover this issue. Learning from the
result and gap of the previous study, this paper; thus, will focus on the policy of
AEC, specifically in the first pillar, to make a claim whether AEC can benefit to the
poor or not since policy is the locomotive of the AEC and it shapes the process and
outcome of AEC. In other, this paper aims to find whether those policies are pro-
poor growth or not.
32
Chapter 3: Poverty Reduction Strategy in Cambodia
1. Cambodia’s Government Poverty Reduction Policies
The highest priority of the RGC is to reduce poverty, especially in rural area.
It is the single most important long term goal. To achieve this set goal, it rests on
what has been called the Rectangular Strategy (CDRI, p. xi; NSDP, 2009; &
Ministry of Women’s Affair, n.d., p. 24). According to CDRI (2012), SEDP, the
Triangular Strategy, the Rectangular Strategy for Growth, Employment, Equity and
Efficiency, the Education Strategic Plan 2006-2010, and the Health Strategic Plan are
the key documents that focus on policy to reduce poverty in Cambodia. However, the
Rectangular Strategy includes most key elements of other policies such as SEDP, and
the Triangular Strategy, with the fact that the Health Strategic Plan and the Education
Strategic Plan’s key elements are also touched upon in the Rectangular Strategy, so
the Rectangular Strategy has been made to be a single document containing the
RGC’s priority goals and strategies including poverty reduction (p. 17-19).
In addition, IDP, NSDP, and Poverty Alleviation: An Approach to a Plan for
CMDG-1 also contain poverty reduction policies. IDP is the key policy to promote
private sector, which is mentioned in the Rectangular Strategy (RGC, 2014b, p. 53).
NSDP has been set out to assist and evaluate the implementation of the Rectangular
Strategy (RGC, 2014b, p. 104). Last but not least, Poverty Alleviation: An Approach
to an Action Plan for CMDG-1 has been set out by the RGC to further enhance the
poverty reduction effort (Ministry of Planning, 2014).
To achieve poverty reduction, Rana and Ardichvili (2015) claimed that four
key areas namely improving agriculture sector, developing human resource and
33
improving the capacity, promoting private sector and non-farms jobs through
urbanization, and developing physical infrastructure are crucial to reduce and
eliminate poverty.
Thus, the Rectangular Strategy, IDP, Poverty Alleviation, and NSDP will be
reviewed, summarized and grouped into the four aforementioned categories. The
summary and grouping of poverty reduction strategy are listed in the Appendix A.1.
2. Effectiveness of the Poverty Reduction Strategy in Cambodia
“Growth in Cambodia has been an inclusive growth. It has been with
structural transformation—people move from very low productive jobs usually in
agriculture to more productive jobs in services, industry and manufacturing”, said
Clovis Freire, economic affairs officer at the Macroeconomic Policy and
Development Division of UNESCAP (Chan, & Baliga, 2015). The HDI of Cambodia
has keep increasing from 0.466 in 2000 to 0.584 in 2013, which is above the rate in
2012 (0.579) and is considered as medium human development (UNDP, n.d.). The
Rectangular Strategy has “borne fruit, sustaining the progress in expanding the
economic and diminishing poverty” (CDRI, 2012, p. xi). As a result, this
achievement most likely results from the policy of the RGC that has been set out,
including the policy on poverty reduction that has been reviewed above.
This achievement, according to RGC (2014b), is contributed by double-digit
growth in GDP (2004-2007), urbanization, labor-absorption in non-farm sectors, and
reduction in consumption inequality (p. 6). According to CDRI (2012), pro-poor
growth policy needs to focus on the following priority actions: employment creation
by broadening its economic base through diversifying export products and generating
34
non-farms jobs; agricultural intensification and diversification; infrastructure
development; land and natural resource management; and effective pro-poor
programs. These priority actions are all cover in the Rectangular Strategy, IDP and
Poverty Alleviation that have been discussed above.
2.1. Cambodia’s Poverty Reduction Strategy and Pro-poor Growth Policy
Additionally, with regard to the literature review in the previous chapter, pro-
poor growth policy need to be an inclusive growth and tackle both chronic and
transient poor. As a result, the poverty reduction strategy that has been mentioned
above is consistent with those two criteria.
2.1.1. Inclusive Growth
In term of inclusive growth, Cambodia’s economic growth (GDP’s growth)
has depended on three main important broad sectors, which are agriculture (32%),
services (38%) and industry (22%)—data in 2011. The remaining share of
Cambodia’s economic growth is from taxes on products (“Economic overview,” n.d.,
p. 1). Importantly, the poor have participated in this growth since they have moved
from very low productive jobs usually in agriculture to more productive jobs in
services, industry and manufacturing (Chan, & Baliga, 2015).
In addition, the poverty reduction strategy of the RGC above has promoted
sustaining growth since it focuses on promoting private sector, as well as
environment sustainability, which have been mentioned in the second area and fourth
part of the first area respectively of the discussed polices above (see Appendix A.1).
35
This strategy also promotes pro-poor growth pattern since it focuses on
increasing the ability of the poor to participate in the sectors that they can earn their
living. Education and health are mentioned in the first and second part of the third
area of the RGC’s poverty reduction strategy while infrastructure is focused in the
fourth area. Agriculture is also promoted by the RGC that is mentioned in the first
area of the strategy (see Appendix A.1).
For addressing inequality, the RGC has also put great consideration on it,
such as promoting childhood development through education, health and
infrastructure that have been mentioned in the first and second part of the third area,
and fourth area respectively. In addition, eliminating gender inequality is mentioned
in the third part of the third area. For addressing risk and vulnerability, the RGC has
promoted social protection system mentioned in the last part of the third area (See
Appendix A.1.).
Lastly, for tackling the causes of market failure and improving market access,
the RGC has also focused on improving market access in agricultural market to the
famers that has been mentioned in the second part of the first area and market in
production to SMEs that mentioned in the second part of the second area. Finance
sector deepening has been mentioned in the fourth part of the second area for
increasing the capability of SMEs and promoting financial inclusion for the poor, and
in the fourth part of the third area for increasing the capability of the poor (See
Appendix A.1.).
36
2.1.2. Chronic and Transient Poor
In term of chronic and transient poor, the aforementioned poverty reduction
strategy has provided both policy to reduce chronic and transient poor. According to
CDRI (2012), there are two different sets of policy to combat chronic and transient
poverty (p. xv).
To combat chronic poverty, there are three policies. First, it is a need to
expand pro-poor scholarship and free health care services. Many poor households
have benefited from health services due to the ID poor card from the Ministry of
planning. However, for education, only some poor households could benefit from the
universal education policy while others had to force their children to withdraw from
school at an early age to help in earning incomes for their families. Thus, the study of
CDRI (2012) proposed to further provide the pro-poor scholarship programme. This
is mentioned in the Poverty Alleviation, which is scholarship for poor children in
lower-secondary schools under the last part of the third area of the RGC’s poverty
reduction strategy. Second, the government needs to create cash transfer programmes
for small business creation and non-farm activities. As a result, cash transfer program
is also mentioned in Poverty Alleviation, which is in the last part of the third area of
the poverty reduction strategy above. Third, it is a need to enhance support for
development services. Since most chronic poor depend on livestock rearing as an
alternative income generation, but they lack knowledge as how to protect their
animals from infectious diseases. Therefore, this problem can be addressed by
increasing and strengthening agricultural extension services for the poor. As a result,
37
this problem has been addressed by the RGC because the second part of the first area
is talking about promoting livestock farming (CDRI, 2012, p. xv-xvi).
To combat transient poverty, according to CDRI (2012), there are also three
policies (p. xvi). First, it is a need to promote formal protection schemes to respond
to crises, such as food for work and employment creation programmes to provide
work for the unemployed worker. As a result, most of these concerns have been
addressed in the last part, which is about protection system, of the third area of the
RGC’s poverty reduction strategy. Those policies include, such as, food for work
programme. Second, it is a need to build community risk reduction mechanisms such
as saving groups. Addressing vulnerability and risk is also paid attention by the RGC
since fourth part—developing social protection system to protect the poor and to
address vulnerability—of the third area of the poverty reduction polices mentioned
above has also focused on risk reduction. Third, it is a need to promote linkages
between social protection and pro-poor agricultural development. Such social
protection system such as technical transfer to the poor and crop insurance schemes
can enhance resilience for the transient poor in the face of threats, limit
disinvestment, reduce risk from fro example economic crisis, and promote
investment by the poor. As result, the RGC has also include this action into its
poverty reduction strategy. For example, crop insurance is mentioned in the social
protection system, which is the last part of the third area of the policies reviewed
above (CDRI, 2012, p. xvi).
Therefore, there are enough evidences to show that policies that has been
reviewed are pro-poor growth policies. To further strengthen this argument, some
38
empirical data will be provided to explain the effectiveness of these policies on
poverty reduction.
2.2. Achievement of Cambodia’s Poverty Reduction Strategy
Cambodia’s GDP growth rate was 7.3% in 2013 and increase slightly to 7.4%
in 2014 (The World Bank, 2014b). It is projected that Cambodia with enjoy GDP
growth rate at 7.3% and 7.5% in 2015 and 2016 respectively, which 2016 will be the
year that Cambodia will join AEC (ADB, 2015). It is stated that an average growth
rate of 7% to 8% per year is an ideal target to support poverty reduction objectives in
the medium term (CDRI, 2012, p. 19; & Todaro, & Smith, 2003, p. 15). Looking on
the absolute amount, GDP per capita in Cambodia has risen from 735.4 USD in 2009
to 1,006.8 USD in 2013 (The World Bank, 2014b).
This growth really contributes to the poor because income inequality, using
GINI Coefficient8 per capita consumption, has decreased from 41.3% in 2007 to
31.8% in 2011, which shows Cambodia has relatively equitable distribution of
consumption in 2011 (The World Bank, 2014b). In term of Gini coefficient per
capita income, it decreased from 47.1% in 2004 to 41.1% in 2011 (Cambodia
Socioeconomic Surveys 2004-2011). As a result, the income held by the richest 10%
fell from 34% in 2007 to 26.9% in 2011, whereas income held by the lowest 20%
increased from 7% in 2007 to 9% in 2011 (The World Bank, 2014b).
8 Gini coefficients are aggregate inequality measures and can vary from 0 (perfect equality) to 1
(perfect inequality). In reality, Gini coefficient for countries with high income inequality typically lies
between 0.50 and 0.70, while for countries with relatively equitable distribution, it lies between 0.20
to 0.35 (Todaro, & Smith, 2003, p. 201)
39
According to ILO (2012), unemployment rate in Cambodia is very low.
Cambodia is able to maintain unemployment rate below 1% from 2006 to 2013—the
rate in 2013 is 0.3% (The World Bank, 2014b). In addition, employment is
contributed by agriculture 51%, industry 18.6% in 2012 and services 27.3% (2010)
(CIA, n.d.; & UNData, 2015). In 2007, employment was contributed by agriculture
58.1%, industry 14.7% and service 27.2% (Economic Institute of Cambodia, 2008, p.
13). Comparing the data in 2012 and 2007, employment in agriculture decreased
7.1%; employment in industry increased 3.9%; and employment in service (2007-
2010) increased slightly 1%. Therefore, it can show that non-farm job is increasing
since people started to move out of agriculture to non-agriculture jobs in order to find
a better wage.
As a result, according to the World Bank (2014b), using poverty headcount
ration at national poverty line9, poverty rate has dropped from 45% in 2007 to only
17.7% in 2012. In 2014, according to RGC (2014b), the poverty rate is 16.9% (p. iv)
Specifically, rural poverty rate has also decreased from 52.3% in 2007 to only 19%
in 2013 (Ministry of Women’s Affairs, n.d., p. 23). Using these data, they states
clearly that Cambodia is very successful in eliminating poverty. Cambodia has
achieved ahead of schedule on the MDG’s goal 1, eradicating extreme poverty and
hunger, and she is one of the best performer in poverty reduction worldwide (The
World Bank, 2014c, & RGC, 2013, p. 6). Therefore, it is possible to state that
Cambodia’s poverty reduction strategy taken from Cambodia’s Rectangular Strategy,
Poverty Alleviation by the ministry of planning, and NSDP worked well in reducing
9 According to Phann (2014), Cambodia’s national poverty line is 3,871 KHR—based on CSES 2009
data (p. 7)
40
poverty. In the NSDP 2014-2018, it is projected that poverty ratio in Cambodia will
continue to decrease to 15.9 in 2015, 14.9 in 2016, 13.9 in 2017 and 12.9 in 2018,
which equal to 1% reduction in average from 2015 to 2018 (RGC, 2014b, p. 8).
3. Conclusion
In conclusion, the poverty reduction strategy in Cambodia has derived from
the Rectangular Strategy, Poverty Alleviation, IDP and NSDP. There are four main
areas that the RGC has put as its priority to reduce poverty through promoting pro-
poor growth: improving agriculture sector, developing human resource and
improving the capacity, promoting private sector and non-farms jobs through
urbanization, and developing physical infrastructure.
These four main areas of policy are most likely to be pro-poor growth since
they are consistent with the requirement of pro-poor growth policy that has been
reviewed in the literature—they promote inclusive growth, as well as combat chronic
and transient poverty. Specifically, poverty rate in Cambodia is keep decreasing and
is expected to be further reduced in average of 1% from 2015 to 2018.
41
Chapter 4: The Consistency of Policies in ‘Single Market and Production Base’
Pillar with Poverty Reduction in Cambodia
1. Policies of Single Market and Production Base Pillar
AEC consists of four pillars namely (a) a single market and production base,
(d) a highly competitive economic region, (c) a region of equitable economic
development, and (d) a region fully integrated into the global economy (ASEAN
Secretariat, 2008). The important goal of creating AEC is to make ASEAN become a
single market and production base (Fernquest, 2015). Hence, it is very important to
know whether “single market and production base” promotes pro-poor growth or not.
The purpose of this study is to know whether the policies in the AEC’s first
pillar are pro-poor growth or not in the context of Cambodia. Therefore, since
poverty reduction strategy in Cambodia is a pro-poor growth policy, this paper
compares the policies in the AEC’s First Pillar of the AEC blueprint (ASEAN
Secretariat, 2008) with the poverty reduction strategy of the RGC to know whether
either they are consistent with each other or complement each other or not.
2. Consistency of policies in AEC’s First Pillar with Cambodia’s Poverty
Reduction Strategy
According to CDRI (2014), integrated network and market such as GMS
provides Cambodia with opportunities for trade, economic growth, prosperity,
development of private sector and especially poverty reduction (p. 8). Given the fact
that AEC is a big economic integration, which creates single market and production
base in Southeast Asia region, even bigger than GMS, it is very important to find out
whether AEC promotes pro-poor growth or not. Thus, in this chapter, policies of
42
‘single market and production base’ pillar will be compared with Cambodia’s
poverty reduction strategy to know how AEC can promote pro-poor growth in
Cambodia.
2.1. Free Flow of Goods
Free flow of goods aims to facilitate the production networks development in
the region and to enhance capacity of ASEAN to serve as a global production center
or as a part of the global supply chain (ASEAN Secretariat, 2008, p. 6). H.E Sok
Siphana said that “the benefit of AEC, for a country like Cambodia, are to grab
several links of the supply chain that we wouldn’t get into before because of our
small market, which would benefit to the business and investment aspect that is very
crucial for Cambodia” (Postplus, 2015). According to Mr. Roth Vathana, Cambodia
market is still small. Thus, he said that “in overall, Cambodia will benefit, even
though Cambodia cannot benefit 100%”(V. Roth, personal communication, June 13,
2015). Free trade would allow technology and learn-how knowledge spill over to
Cambodia (Anonymous, personal communication, June 15, 2015). In addition,
according to Ouch et al. (as cited in CDRI, 2014), trade importantly contributes to
poverty reduction effort of the RGC through increasing export shares of labor-
intensive agricultural products, especially rubber, and textiles and garments, and
rising import shares of pro-poor consumer goods (p. 9). Some may argue that, like
one scholar at one research institution, trade policy is not an effective tool to reduce
poverty. However, it will boost export, FDI, and economic growth of Cambodia,
which are the crucial elements, stated in RGC’s Poverty Reduction Strategy, to
reduce poverty (Anonymous, personal communication, June 15, 2015).
43
However, it might be a concern for SMEs that cannot compete with products
of other ASEAN’s SMEs since the latter are old-age companies having know-how
knowledge and great available of capital, said Chy Sila (Anonymous, personal
communication, June 15, 2015; Path, 2013; & V. Roth, personal communication,
June 13, 2015). In short, Cambodia’s SMEs have low capacity, low protection by the
government policies, and low access to finance (Anonymous, personal
communication, June 15, 2015; & V. Roth, personal communication, June 13, 2015).
Cambodia would lose in term of free flow of goods because Cambodian SMEs lack
behind other ASEAN’s SMEs in term of SME policy index10. According EIRA
(2014), Cambodian SME policy index in 2014 is the lowest among ASEAN
countries, which is equal to 2.4 that below the ASEAN’s average—around 3.7 and
3.8 (p. 10). Figure 1 shows that Cambodian SMEs lack all important elements to
improve their capacity.
Figure 1: Cambodia SME’s Policy Index
(Source: EIRA, 2014, p. 236)
10 It is a tool to review SME development policy and its implementation (EIRA, 2014, p. 5).
44
Therefore, it could result in job loss when those SMEs failed to compete and
then they close down since SMEs contribute 99.8% of all industries and 72.9% of
total employment in Cambodia—data in 2011 (ERIA, 2014. p. 1). So, there might be
a mixed result in free flow of goods, especially in eliminating tariff barrier and NTB.
However, Mr. Roth Vathana said that “free flow of goods will not be allowed
abruptly. It is a milestone since other countries also worried about this issue and they
said their SMEs are also not ready” (V. Roth, personal communication, June 13,
2015). One scholar also claims that SMEs in other ASEAN countries are similar to
Cambodia’s SMEs, agreed by Mr. Roth Vathana (Anonymous, personal
communication, June 15, 2015; & V. Roth, personal communication, June 13, 2015).
Therefore, what Cambodia’s SMEs concern the most is fair competition since
Cambodia are already an open border market, so the RGC needs to guarantee the
fairness of competition. For instance, tax payment is not a problem, but the RGC has
to make sure that other SMEs, both local and foreign, also pay the tax (V. Roth,
personal communication, June 13, 2015).
As a result, according to Chan (2015), as shown in Table 2, Cambodia would
lose from free flow of good. In order to reduce this negative effect, protection and
improvement of capacity of SMEs has to be made (Anonymous, personal
communication, June 15, 2015). However, Cambodia cannot use protectionism
policy like East Asian country used before since it is a fair competition world (V.
Roth, personal communication, June 13, 2015). Therefore, the RGC need to
implement the poverty reduction strategy above that has been made and put it into
action since improving capacity and access to finance of SMEs are mentioned in the
45
second area. So, the negative effect would be result in short term only, claimed by V.
Roth (personal communication, June 13, 2015).
Therefore, if the following policies are on the line with Cambodia’s SMEs
development policies in its Poverty Reduction Strategy, AEC will put a pressure to
government to effectively implement those policies that are very crucial for
development of SMEs.
2.1.1. Elimination of Tariff
In the first pillar, single market and production base, there are four key
elements. First, it about free flows of goods. To have free flows of goods, there are
seven key policies. First, it is about elimination of tariff. No policy in the RGC’s
poverty reduction strategy talking about elimination of tariff. However,
implementing this policy, it could benefit indirectly to other key actions of the RGC
to reduce poverty.
The first action taken in this policy is about elimination import duties. There
is no action or policy talking about tariff elimination in the poverty reduction strategy
of Cambodia. However, this policy can benefit the action to “promote commercialize
of agricultural products” under the action to “promote export and trade facilitation”
under the policy of “development of industry and SMEs” of the second area.
Agricultural products and fisheries are two out of other PIS that AEC seek to
eliminate import duties can serve the promotion of commercial of agricultural
products of Cambodia to other ASEAN countries (Romero, 2013). Not only PIS’s
46
products, but also tariff on all products except products in highly sensitive11 and
sensitive lists, will be eliminated that can promote the export of SMEs in Cambodia
since it can increase the duty-free importation of goods needed by SMEs from
ASEAN countries to produce finished products.
According to Tokarich (2006), import duties reduction is an option that
developing countries could implement to improve incentives to export. In general,
tariff barriers, both posted by exporting countries and importing countries, hamper
the ability to export of one country. In other word, tariff applied by importing
countries, particularly industrial countries, reduces exports from developing
countries while own tariff of exporting countries, particularly developing countries,
discourage export. The latter case happens because of two reasons. First, import tariff
would encourage people to consume homemade products rather than importing
products, if that products are substitute, due to the higher price of importing
products; thus, since the demand is increasing rapidly compare to supply made by
home supplier, it would increase the price of home products, which discourage the
home producers to export their products to other countries since selling in their own
countries can produce much more revenue. Second, import tariff will increase the
price of inputs needed to produce finished products both domestic and import inputs.
It will increase the cost of producing goods to export and thus, will reduce exportable
output and demand (p. 3-5). Thus, this policy will benefit the action to “improve
agricultural productivity through importing of agricultural outputs” under the policy
11 Refers to Annex 2 (ASEAN Secretariat, 2014b) and Annex 1 (ASEAN Secretariat, 2014a) for the
list of Sensitive and Highly Sensitive products respectively. Import duties of products in sensitive lists
must be lower than 5%, whereas import duties of products in highly sensitive list is more flexible, but
they must be agreed upon by other member states (Saquandeekul, n.d.).
47
of “improving productivity diversification and commercialization of agriculture
sector” of the first area, and “improve custom clearance procedure for the duty-free
importation of goods under QIP projects” under the policy of “development of
industry and SMEs” of the second area.
In addition, according to a study conducting by JICA as citied in Vixathep
(2013), Cambodia, from 2010 to 2020, has comparative advantage over garments,
footwear, frozen fish fillets, crustaceans, agricultural products, tapioca and derived
products, palm oil, and automotive electrical equipment based on index of revealed
comparative advantage (RCA)12, which almost all of them are mentioned in PIS of
AEC. In addition, eliminating import duties does not really affect the sensitive
products in Cambodia such as vegetables because Cambodia can work gradually to
reduce and eliminate tariff in these products until 2017 that she has more time to
make some changes and improvement on these sensitive products, plus Cambodia
can maintain the tariff rate from 0-5%, so it will less likely affect the welfare of
Cambodia people who grow these sensitive products (ASEAN Secretariat, 2014b).
Moreover, other Moreover, Cambodia has no products that are in highly sensitive
products lists (ASEAN Secretariat, 2014b). So, it is possible to that Cambodia will
be able to gain from agricultural product, but not from SME’s products since
Cambodian SME has low production base. Thus, there is a mixed result.
12 Using RCA, a country is defined as being specialized in exports of a certain product if its market
share in that product is higher than the average or, equivalently, if the weight of the product of the
country's exports is higher than its weight of the exports of the reference area (“Balassa,” n.d.).
48
2.1.2. Elimination of Non-tariff Barrier
Second, it is about elimination of NTBs. According to Besant (2015), Sun
Chanthol, Cambodian Minister of Commerce Ministry, said that Cambodia don’t
have NTMs (p. 25). As a result, there is no policy, particularly in poverty reduction
strategy, talking about eliminating NTBs. However, Mr. Roth Vathana questions
whether Cambodia really has no NTBs since the waiting time to export, 22 days, and
import, 24 days (in 2013), is still high (V. Roth, personal communication, June 13,
2015; & WITS, 2015). Even though Cambodia has NTBs, one anonymous scholar
said that Cambodia, if having, has less NTBs compared to other developed countries
(Anonymous, personal communication, June 15, 2015). As a result of all 186 NTMs
imposed ASEAN, Cambodia has only 3 NTMs from 2009-2013 (Balboa, &
Wignaraja, 2014).
However, NTBs imposed by other countries can obstruct the two
aforementioned policies of Cambodia discussed in the previous section. In simple
word, NTMs imposed by other ASEAN countries make it hard for Cambodia to
export products to those countries, which undermine the key action in poverty
reduction strategy of the RGC. According to ITC (2014), of 166 Cambodian
exporting companies, mainly agro-food and manufacturing companies, interviewed,
133 of them are affected by NTBs imposed by partner countries, which means that
82% of them are affected. This number is much higher than Thailand and Indonesia’s
affected SMEs by NTBs, which is only around 35% and 30% respectively. In
ASEAN context, it is reported that, in 2012, there were 31 NTB cases applied by
ASEAN countries on Cambodia’s exporting products, which account for 6% of all
49
NTBs cases imposed by all Cambodia’s trading partner (p. 28-32). For instance, Keo
Mom, the vice president of Phnom Penh Small and Medium Industry Association
and the vice secretary-general of Chamber of Professional and Micro Enterprises of
Cambodia, said that she is faced with barriers in exporting her products to
neighboring countries such as Thailand and Vietnam. When exporting products to
these countries, they make up reasons that Cambodia’s products do not meet the
required quality or they try to ask for certificates that show them the product quality
(Sam, 2012). Therefore, it could undermine Cambodia’s policy in poverty reduction
strategy, which is to increase export. Since Cambodia’s export value to ASEAN
countries in 2012 accounted for 12.5%—behind US (26.1%), EU (24.3%), and China
(21.6%) only, it is very important that Cambodia needs to ease the export to ASEAN
countries through eliminate NTBs in these countries in order to achieve the said
policy in poverty reduction strategy of the RGC (ITC, 2013, p. 32). Therefore,
eliminating NTBs, enhancing transparency of NTM and having regional rules and
regulation policies in AEC could eliminate this problem facing by Cambodian
exporting companies.
Figure 2: ASEAN Integration Matters: Potential Economic Impact of AEC
Measures on AMS’s GDP
(Source: Intal, 2014)
50
According Figure 2, Cambodia is projected to benefit from tariff
elimination—more than other countries, which result in GDP growth increasing.
Eliminating tariff alone could increase Cambodia’s GDP more than 2%; thus when
tariff is eliminated plus improving trade facilitation and service liberalization by
20%, Cambodia’s GDP will increase 4.4%. In the literature, such growth is the
prerequisite ingredient of pro-poor growth; thus, it enables poverty reduction.
Looking at its effect, it is possible to say it is pro-poor growth, but it is not included
in Cambodia’s poverty reduction strategy since Cambodia has no NTMs, as claimed
by H.E Sun Chanthol.
2.1.3. Rule of Origin
Third, it is about ROO13. According to CDC (2015), there is no local
contents14 (or ROO) requirement in Cambodia, or in other word, no restriction on the
use of imported materials, parts and components for producing the export goods if
those parts or components are nor harmful to health and environment in the society.
However, referring to IDC first draft, ROO or local contents have been listed in that
draft policy, which is to “promote local contents”, which is under the policy of
“strengthening the private sector and promoting investment and business” under the
second area.
1313 ROO “are the criteria needed to determine the national source of a product. Their importance is
derived from the fact that duties and restrictions in several cases depend upon the source of imports”
(WTO, 2015). 14 Local content is the requirement of the host country government to foreign company making a
products in that country to use inputs deriving from that country in a minimum level or percentage
determined by that country’s government (FT, n.d. & OECD, 2001)
51
According to Esteves and Barclay (2011), they claimed that “participation of
local businesses in the resource project is a means by which the benefits of resource
development can flow into their communities” (p. 205). Stephenson (2013) further
illustrated that local content or ROO helps to increase demand for domestic products,
which in turn benefits to the domestic industries development, and it leads to short-
term job creation.
Besides the direct effects, there are also positive indirect effects. In long term,
the country’s economy will gain from “learning by doing” of the local workers and
from increasing the supply of domestic products, which creating business for
supplier, claimed by Esteves and Barlcay (2011, p. 206). They further point out that
local content can attract investment via both supplier engaging other suppliers of
inputs and the multiplier effects of employees of local businesses spending some of
their wages in their communities, and bring other benefits such as improving the
quality of life of employees, and business owners and operators, distributing new
technologies and innovation to other market participants, and attracting investment in
social infrastructure (Estaves, & Barclay, 2003, p. 206). Furthermore, local content
also allows the partnerships between governments, support institutions and
development agencies to establish supplier linkage programs. The SME linkage
programs enable SMEs to access financing and skills development programs,
especially technical skill and business management skills (Estaves, & Barclay, 2003,
p. 207). Thus, ROO policy indirectly supports the other policies of RGC in reducing
poverty. It benefits to “modernization of local enterprises”, “improvement of their
innovation capacity”, and “strengthening of the links between local enterprises and
domestic industries to promote transfer of technology and knowledge to increase
52
productivity and to improve Cambodia’s attractiveness and competitiveness” under
the policy of “strengthening the private sector and promote investment business”,
which is one of key policy of the second area of poverty reduction strategy. In
addition, in the same area of poverty reduction strategy, ROO also indirectly helps to
realize the policy of “developing industry and SMEs” of the second area because it
help “develop human resources in skill training for industrial sector” through
“learning by doing”, and “help SME to form cluster with other SME and large
enterprise”. Lastly, it indirectly help to “promote vocational and technical training
programs” under the action of “attracting FDIs”, which is under the policy of
“strengthening the private sector and promote investment and business”.
2.1.4. Trade Facilitation
Fourth, it is about trade facilitation promotion. According to the work by
Walkenhorst and Yasui (2009), trade facilitation efforts have important effect on
TTC related to border procedures. The cost of businesses differs depending on the
efficiency and integrity of interacting business and administrations, the
characteristics or kind of goods, and the size and type of business. The cost involves
both direct cost such as expense relating to supplying information and documents to
the related authority, and indirect cost such as effects of procedural delays. These
costs result in goods depreciation and loss of business opportunities (p. 19-21).
Direct cost of TTC, according to the study by METI, Haralambides and Londoño-
Kent, and JETRO (as citied in Walkenhorst, &Yasui, 2009, p. 21), tend to be lower
and amount to be around 1% of the value of traded goods. For indirect cost, a study
by Hummels (as cited in Walkenhorst, &Yasui, 2009, p. 21-22) found that exporters
53
will need to pay for switching from slower ocean to faster shipment because each
day saved is worth about 0.5% of the value of the traded good. Therefore, the longer
the goods wait, the higher cost needs to be spent. Consequently, World Bank survey
on 80 countries show that indirect cost of TTC is around 1-24% (Walkenhorst,
&Yasui, 2009, p. 22). Therefore, it is very important to promote trade facilitation in
order to reduce transaction costs, particularly customs and administrative procedures,
in ASEAN in the purpose to achieve single market and production base.
According to N. Wilson (2009), TTC is the challenge to developing countries
to export to developed countries, as well as other developing countries because it
hinder trade by “thickening” the border (p. 52). Within Cambodia, exporters faced
problem with time delays (50%), briberies in public agencies (22%), administrative
hurdle (11%), and high fees and charges for reported certificates or regulations (8%)
(85%). With Cambodia’s exporting country, they face problems with time delays
(40%), high fees and charges for reported certificates or regulations (27%), bribes
(12%) and lacking international accreditation or recognition (9%) (ITC, 2013, p. 31).
Therefore, in overall of this policy in the AEC blueprint, it will further help to
promote export, which benefits two key policy in the poverty reduction strategy,
namely the promotion of commercialize of agricultural products in the Rectangular
Strategy and promote exporting of SMEs in the IDP. Importantly, this policy is in the
line with the policy of export promoting and trade facilitation, which is the key
action of “development of industry and SMEs” under the second area.
Specifically, looking on the specific actions under the trade facilitation, they
also benefit to some policies in the poverty reduction of the RGC as well. First, the
54
key action of developing and implementing a comprehensive trade facilitation work
programme helps to realize the policy of SME upgrading and modernization because
it is consistent with the key action of “strengthening capacity of standardization and
conformity assessment” under the policy of “development of industry and SMEs” in
the second area of poverty reduction strategy. In addition, it also consistent with the
key action under “export promoting and trade facilitation” policy, which is “creating
export promotion agency that offers trading skills and information on foreign
markets and assists exporter to participate in trade fairs”. Furthermore, this action
also in the line with the key action to “improve ASYCUDA15 to make it user-
friendlier”, which is under the same key area as the aforementioned action of poverty
reduction strategy of the RGC, because this software contain all relevant customs
information for stakeholders that simplify the customs process and procedure, which
helps to improve revenue collection, reducing transaction time and costs, and fight
corruption (Afghan Customs Department, n.d.; & UNCTAD, 2013).
Second, for the action to promote transparency and visibility of all actions
and interventions by all stakeholders within international trade transaction in AEC
blueprint, there is one key action in poverty reduction strategy that is consistent. It is
the action of “improving the ASYCUDIA to make it user-friendlier” under “export
promotion and trade facilitation” of the second area because ASYCUDIA help to
improve transparency of transactions related to trade (UNCTAD, 2013).
15 ASYCUDA is an integrated customs management system for international trade and transport
operations in a modern automated environment (UNCTAD, 2013).
55
Third, it is about establishing a regional trade facilitation cooperation
mechanism. This policy is consistent with one action in the RGC’s poverty reduction
strategy, which is “upgrading cross-border transport and trade facilitation
mechanisms” under the “export promoting and trade facilitation” policy of the
second area of the RGC’s poverty reduction strategy.
Fourth, it is about establishing ASEAN Trade Facilitation Repository.
ASEAN Trade Facilitation Repository will serve as a gateway for regulatory
information, trade law, procedure and other information on tariff nomenclature,
preferential tariffs offered under the ATIGA, rule of origin, NTMs, national trade
and customs laws and regulations, documentary requirements, best practices in trade
facilitation, and lists of authorized trader of the ASEAN countries, which its purpose
is to be one-stop online trade system that ASEAN member states can get access via
online (ASEAN Secretariat, 2011; & ASEAN Secretariat, & World Bank, 2013, p.
48). Currently, there are no policy of the RGC talking about one-stop trade system.
However, this policy could compliment to “create export promotion agency” that
offers information on foreign markets, which is one action of “export promoting and
trade facilitation” of the second area since ASEAN Trade Repository acts like an
agency that provides all information related to trading, which also include foreign
market information and governmental requirements to do trading (ASEAN
Secretariat, 2011). As a result, National Trade Repository will be established by the
RGC during April 2015 to August 2016, which will cover relevant government
policies and regulations, as well as other global trade and logistics information, trade
related information and exchanging documents required to fulfill regulatory trade
processes for import-export (Chhieng, 2014).
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Fifth, it is about developing national level measures to support and ensure
effective implementation of regional level initiatives. This policy is consistent with
the action to “strengthen the capacity of Cambodia Measurement Center to prepare
procedure for inspection, verification, calibration, texting and adopted measurement
tools using in the industry” under the policy of “export promoting and trade
facilitation” of the second area of the RGC’s poverty reduction.
Sixth, it is about developing a comprehensive capacity building programmes
to ensure smooth implementation of the work programme. The purpose is to improve
trade facilitation performance and to loosen existing constraints across the region
(ASEAN Secretariat, & World Bank, 2013, p. 80). Therefore, it means to improve
the capacity of SMEs and industries, which is on the line with the action to “promote
competitive SMEs and industries in designated provinces through providing
technical assistance for capacity building and business development” to “develop
industries and SMEs” in the second area of the RGC’s poverty reduction.
2.1.5. Customs Integration
Fifth, it is about customs integration. It will promote economic efficiency and
cost saving for traders in the region (Singapore Customs, 2013). According to the
statement of Jayant Menon, the ADB’s lead economist for the office of Regional
Economic Integration, which is said that “Cambodia needs to speed up its customs
reform and to press ahead with automating processes in order to reduce trade costs
and minimize the opportunities for corruption, and to be ready for live
implementation of its National Single Window by 2015,” it could imply that
Cambodia’s national custom makes higher trading cost than that of ASEAN’s
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integrated customs (Morton, 2014). According to ITC (2013), exporter face problem
with customs formalities because of high charges for reported certificated, informal
payment, inappropriate facilities for testing, which lacking of international
recognition. As a result, when they export to other countries such as Japan and South
Korea, they are required to have qualified private inspectors to issue certificate of
pre-shipment inspection because those countries do not recognize the pre-inspection
by Camcontrol. In turn, they asked for quicker and streamlined pre-inspection to
avoid costly and lengthy waiting period (p. 41-42).
Therefore, in overall, custom integration will benefit to Cambodia because
“it helps to facilitate trade within ASEAN” (Anonymous, personal communication,
June 15, 2015). Therefore, more FDIs will be attracted to Cambodia, which would
create jobs to boost the effort of poverty reduction.
In overall, this policy is also consistent with the RGC’s poverty reduction
strategy. Cambodia’s poverty reduction strategy has focused to “improve custom
clearance procedure for the duty-free importation of goods”, which is one of the key
actions of “export promoting and trade facilitation” under the second area of the
strategy. Specifically, each action of customs integration policy is also on the line
with poverty reduction strategy of Cambodia.
First, it is about modernizing customs techniques, guided by simple and
harmonized customs procedures and formalities in line with international standards
and best practices via the implementation of regional models of processing of
cargoes and shipments. It is on the line with the action to “improve the ASYCUDA”,
which is one of the actions of “exporting promoting and trade facilitation” under the
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second area of the strategy. ASYCUDA seeks modernize customs techniques, and
streamline procedures of cargo control, transit of goods and clearance of goods based
on international standard, which share similar characteristic to the first action of
custom integration (UNCTAD, 2013).
Second, it is about establishing ASEAN Customs Transit system to facilitate
movement of goods and means of transport. Such region transit system can make
each country save and gain from trade, for example, EU’s Common Transit System
can make European business benefit form saving and trade gains at around tens of
billions of euro. In contrast, since ASEAN has not implemented it yet, costs and
delays incurred through the repeated export, import and transshipment of goods at
national borders, which undermine economic competitiveness and act as a brake on
inward investment. A 2007 report on ASEAN Logistic Development showed that
transloading costs between 100 USD to 300 USD per container, plus transits fees
cost around 150 USD to 200 USD more. Thus, once ASEAN Transit System is
implemented, goods in ASEAN could transit through several countries under a single
customs document, insurance policy, and commercial guarantee, without the need for
repeat customs inspection for transit goods under seal (APRIS II, n.d.). As a result,
this policy is consistent with some actions of the RGC to reduce poverty. First, it can
help the action to “establish coordinating mechanism to develop a multimodal
transportation and logistics system linking all targeted industrial areas and regions”,
which is part of “attracting FDI” of “strengthening the private sector and promote
investment and business” under the second area. Multimodal transportation refers to
a combination of at least two means of transport, which will result in an integrated
transport chain where the strength of each alternative is utilized. Its main
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characteristics are transshipment terminals allowing efficient cargo handling between
short-distance and long distance traffic as well as application of standardized and
reusable loading units (LOG4GREEN, n.d.). Therefore, ASEAN Customs Transit
system works as coordinating mechanism that allow multimodal transport at long
distance—across border. Second, it is on the line with two action of policy “export
promoting and trade facilitation”, which are “enhancing trade facilitation through
upgrading cross-border transport” and “implementing regional integrations such as
CBTA and ASW to integrate Cambodia into and efficient and effective regional
transport and logistic system” since ASEAN Custom Transit system will facilitate
cross-border transport and brings Cambodia into an efficient and effective regional
transport and logistic system.
Third, it is about establishing ASEAN Customs system dealing with special
customs regimes such as temporary admission, outward processing and inward
processing with the view to facilitate integration of production and supply chains.
This policy is consistent with the action to “improve connectivity with regional
production network to integrate with and increase global value chains” of the second
policy under the second area since ASEAN Customs system will deal with outward
processing and inward processing that allow regional production to be processed
abroad or locally (within the region) (European Commission, 2015b).
Fourth, it is about adopting international standards and practices to secure a
uniform system of tariff classification, a synchronized system of value assessment
for customs purpose and a harmonized system of origin determination, and
information exchange where possible. This action is on the line with action to
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“improve the ASYCUDA” which is one of the actions of “exporting promoting and
trade facilitation” under the second area of the strategy. ASYCUDA requires the
country using it to comply with international standard when dealing with trade
related procedures (UNCTAD, 2013).
Fifth, it is about implementing ASEAN e-Customs. According to European
Commission (2015a), e-Customs aims to replace paper format customs procedures
with electronic ones. Thus, it is consistent with the action to “improve the
ASYCUDA”, which is one of the actions of “exporting promoting and trade
facilitation” under the second area of the strategy. ASYCUDA is a computerized
system of customs procedure, which is a kind of e-Customs (GDCE, 2014; & Millet,
2014). In addition, according to European Commission (2015a), it is a part of e-
government16; thus, it is consistent with the action to “further develop e-
government”, which is one key action of “develop ICT” of the fourth area of the
RGC’s poverty reduction.
Sixth, it is about promoting mutual assistance for better customs efficiency
and effectiveness. There is no consistent policy in the RGC’s poverty reduction
strategy talking promoting mutual assistance in the field of customs. However, this
policy seems not to affect negatively to the Cambodia’s poverty reduction strategy
16 “E-government” refers to the use by government agencies of information technologies having the
ability to transform relations with citizens, businesses, and other arms of government, which can serve
a variety of different ends such as better delivery of government services to citizens, improved
interactions with business and industry, citizen empowerment through access to information, or more
efficient government management. The resulting benefit can be less corruption, more transparency,
greater convenience, revenue growth and cost reduction. (The World Bank, 2011)
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since it is just an action supporting the aforementioned actions in customs integration
of ASEAN through sharing knowledge and support among ASEAN countries.
2.1.6. ASEAN Single Window (ASW)
Sixth, it is about creating ASW. According to Koh and Mowerman (2013),
ASW works as a platform for electronic trade in the region that offer traders and
regional government security and celerity for their trade transaction at a regional
level. In addition, it allows for greater business-to-government interaction to be done
at a whole-of-government level—not just at individual agency level; thus, it allows
trade transaction to take place in a more transparent and cohesive manner (6-7). Once
all ten National Single Windows have been integrated through the ASW, it is
projected without doubt that ASEAN will be the easiest region in the world to trade
with because of standardization trade related processes such as licensing,
documentation, and inspection processes in such a way that traders and governments
communicated with all countries in block. In addition, it will allow ASEAN to be
stronger negotiation platform, given its closet commercial competing neighbors—
China and India. ASW will benefit both government and private sector because it
allows for more efficient trade transactions, leaner supply chains and more effective
trade community. For instance, countries that have implemented Single Window are
ranked in the highest places in the Doing Business Benchmark study (Koh, &
Mowerman, 2013, p. 9). González (2015) claimed that Single Window allows
countries to gain advantages to attract investment and thus increase export. In the
case of Brazil, just facilitating border administration and transport and
communications infrastructure that is part of Singe Window, Brazil could unlock 84
billion USD. Moreover, he further claimed that trade can lift people out of poverty as
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it has done in other countries already. Since most countries has started to reduce
tariff but not trade-related cost, it is important to improve trade facilitation and
Single Window is one of them. Trade facilitation, including Single Window, matters
enormously if the country care about growth, innovation, and job creation, as well as
poverty reduction and greater economic fairness. Therefore, it is consistent with one
action of Cambodia’s Poverty Reduction Strategy, which is “implementing regional
integrations such as CBTA and ASW to integrate Cambodia into an efficient and
effective regional transport and logistic system” in the policy of “export promoting
and trade facilitation” of the second area of the strategy.
Specifically, in this policy, it requires Cambodia to operationalize National
Single Window. This activity is mentioned in Cambodia’s poverty reduction
strategy, which is “enhancing the legal and regulatory framework through improving
efficiency of public institution including strengthening government in concerned
institution such as the CDC’s ‘one stop service17’ process or ‘single window’” which
is under the policy to “strengthen the private sector and promote investment and
business” of the second area of the strategy.
In addition, it is a need to “standardize data elements based on WCO data
model18, the WCO data set and UNTED, and accelerate the introduction of ICT for
digitalized processing and exchange”. WCO data model is consistent with other
17 It aims to provide information ranging from registration of investment project to routine export-
import approval to the investors, and assist and facilitate investors through investment information
dissemination such as investment guidebooks and development of websites (CDC, 2013). 18 The WCO Data Model is a set of carefully combined data requirements that are mutually supportive
and which will be updated on a regular basis to meet the procedural and legal needs of cross-border
regulatory agencies such as Customs, controlling export, import and transit transactions. It is
consistent with other international standards such as the United Nations Trade Data Elements
Directory (UNTDED) (WCO, 2015).
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international standard such as ASYCUDA. ASYCUDA is compatible with WCO
data model since they share the same characteristics including cargo manifest,
BLA/AWB, customs declaration for import, export and suspense regimes, and the
former is recognized by WCO and UNCTAD, which control ASYCUDA, is partner
with WCO. In addition Cambodia, accessing to WCO in 2001, is currently using
automated clearance system named ASYCUDA (UNCTAD, 2013; WCO, 2015a;
WCO, 2015b; & WCO 2015c). Therefore, “standard elements based on WCO data
model” is consistence with the action to “improve the ASYCUDA”, which is one of
the actions of “exporting promoting and trade facilitation” under the second area of
the strategy. Second part of this action is to accelerate the introduction of ICT for
digitalized processing and exchange. Broadly, it help to compliment the key policy
of “developing ICT” under the fourth area the poverty reduction strategy. However,
there is no specific action that talking about accelerate the introduction of ICT is
trade facilitation.
2.1.7. Standards and Technical Barriers to Trade
Seventh, it is about standards and technical barrier to trade19. World Bank
research and operational work show that lowering technical barriers to trade and
harmonizing standards can improve trade competitiveness, promote market access,
and decrease unnecessary trade costs (J. Wilson, 2012). At same time, according to J.
Wilson (2012), standard and technical barriers to trade can also help to achieve
public policy objectives also, including correcting information asymmetries,
19 Technical barrier to trade refers to mandatory technical regulation and voluntary standards that
define specific characteristics a products should have, such as its size, shape, design,
labelling/marketing/packaging, functionality or performance (European Commission, n.d., p. 1)
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addressing imperfect competition structures, and protecting domestic industries (p.
2). Therefore, standards and technical barrier to trade can enhance trade.
J. Wilson (2012) suggests that standards and technical barrier should be
harmonized based on international standard. Generally, NTMs including price
measures, quantitative restrictions, monopolistic measures and technical regulations
cost the trade at 12% of total traded goods value. Hoekman and Nicita (as cited in J.
Wilson, 2012, p. 3) found that reducing the trading cost resulting from NTMs by
half, from around 10% to 5%, would increase trade by 2% to 3%. Specifically, in the
finding of Portugal-Perez, Reyes, and Wilson (as cited in J. Wilson, 2012, p. 3) to
estimate the net impact of internationally harmonized European standards on EU
imports of electronic products, they found that internationally harmonized EU
standards expand EU imports of electronic products. On the other hand, such
standards that are not on the line with international norm have a lower effect on EU
imports, or even a negative one. Thus, this policy is taken into account by the RGC
since it is mentioned in the RGC’s poverty reduction in the second area, which is to
“strengthen law and regulatory enforcement in WTO on trade technical barriers”.
Specifically, the key actions supporting this policy in AEC are also consistent with
the action supporting the poverty reduction strategy in Cambodia as well.
First, it a need to harmonize standards, technical regulations and conformity
assessment procedures by aligning with international practices only where
applicable. It is consistent with the action to “strengthen capacity of standardization
and conformity assessment” supporting “SMEs upgrading and modernization” in the
second key policy of the second area. Also, it is also on the line with the action to
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“strengthen the capacity of Cambodia Institute of Standard in order to research and
prepare national standard of service and production by following regional and
international standard” supporting “export promoting and trade facilitation” of the
same key area and policy.
Second, it is about developing and implementing sectoral MRAs20 on
Conformity Assessment for specific sectors21. The purpose of this policy is to
identify specific sectors such as electronic equipment and cosmetic products whose
standards, technical regulation and conformity assessment procedures needing to be
harmonized (ASEAN Secretariat, 2008, p. 9; & ASEAN Secretariat, & World Bank,
2013, p. 51-52). Therefore, there is no policy in the RGC’s poverty reduction
strategy that talk about which sectors should be standardized even though the RGC
supports to harmonize the standard based on international standard in general.
However, some specific sectors being harmonize in this policy can help to
complement some policy in the poverty reduction strategy of the government. For
instance, ASEAN seeks to implement the ASEAN Harmonized Electrical and
Electronic Equipment Regulatory Regime (AHEEERR) to guarantee the free flow of
safe and quality EEE products in the region, which all member states has ratified. It
helps to complement the key policy of “electrical power development” of the fourth
area. Specifically, it helps to “expand the capacity of low-cost and hi-tech electricity
production particularly new and clean energy sources in order to strengthen energy
20 MRAs aims to stipulate the general principles for developing sectoral MRAs among ASEAN
member states, to eliminate technical barriers to trade within ASEAN through cooperative activities,
and to stipulate the general conditions under which each member state to a sectoral MRA shall
recognize results of conformity assessment procedures as specified in the sectoral MRA (ASEAN
Secretariat, 2014d). 21 Refer to Article 3 (6) of ASEAN Framework Agreement on Mutual Recognition Arrangements
(ASEAN Secretariat, 2014c).
66
security and ensure efficient, safe, high quality, reliable and affordable electricity
supply and distribution” since the AHEEERR seeks to ensure the free flow of safe
and quality electrical and electronic products that use low voltage power supply.
Third, it is about improving technical infrastructure and competency in
laboratory testing, calibration, inspection, certification and accreditation based on
accepted regional or international procedures and guides. This action is consistent
with the action to support Cambodia’s poverty reduction strategy. It is on the line
with the policy of “infrastructure for industrial development”, which complement the
action to “improve supporting infrastructure and facilities”, under the ley policy of
“strengthening the private sector and promote investment and business” of the
second area. In addition, with regard to improve technical infrastructure, particularly
in laboratory testing, the RGC seeks to create laboratory facility as also, which is the
action to “create a government-run research institute fully offering science and
technology development, and provide appropriate laboratory facility” under the
policy of “development of industry and SMEs” under the second area. Last but not
least, with regard to improving technical competency, it is consistent with the action
to “improve human resources and focus on technical capacity to respond to the needs
of socio-economic development” under the policy of “development of labor market”
in the same area.
Fourth, it is about promoting transparency in the development and application
of standards, technical regulations and conformity assessment procedures parallel
with the requirements of the WTO Agreement on Technical Barriers to Trade and the
ASEAN Policy Guideline on Standard and Conformance. It is one line with one
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action, which is to “strengthen law and regulatory enforcement in WTO on trade
technical barriers” under the policy of “attracting FDIs” of the second area.
Fifth, it is about improving post market surveillance systems to guarantee the
successful implementation of the harmonized technical regulations. However, no
consistent policy or action is mentioned in the RGC’s poverty reduction strategy.
Anyway, it is just a supporting action that is used to ensure that such harmonized
technical regulations is implemented by the industries or SMEs.
Sixth, it is about developing capacity building programmes to safeguard
smooth implementation of the work programme. In general, it help to complement
the action to “promote competitive SMEs and industries in designated provinces
through providing technical assistance for capacity building and business
development” under the policy of “development of industry and SMEs” of the
second area.
2.2. Free Flow of Service
“Employment creation in services is found to help the poor to have a better
chance of overcoming poverty” (Phann, 2014, p. iv). Worker in services is paid
534,464 KHR (131.7 USD) while worker in agriculture and industry is paid 228,036
KHR (56.2 USD) and 375,362 KHR (92.5 USD) per month respectively—data in
2011 (Phann, 2014, p. 12). According to Verena, Vishal and Ken (2009), the service
sector is seen as a mean to promote economic development and reduce poverty. It is
become the largest sector in terms of share in GDP and employment in most
developing countries (p. 1). As a result, service sector contribute to Cambodia’s GDP
at the rate of 38% in 2011, more than agriculture (32%) and industry (22%)
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(“Economic overview,” n.d., p. 1). In addition, it contributes to employment at the
rate of 27.3%--lower than agriculture’s share (51%) and higher than industry (18.6%)
in 2012 and services 27.3% (2010) (CIA, n.d.; & UNData, 2015). However,
comparing with the data in 2007 collected by Economic Institute of Cambodia (2008,
p. 13), employment in service and industry tend to have positive trend—increased
1% and 3.9% respectively, while employment in agriculture show negative trend—
decreased 7.1%.
According to Noland, Park and Estrada (2012), services growth in correlated
with poverty reduction (p.22). According to Figure 3, the higher growth in services
output, the higher poverty reduction is. For instance, form 1990-2010, services
output growth in Cambodia increased nearly 10%; as a result, poverty rate was
reduced more than 30%.
Figure 3: Change in Poverty and Annual Growth in Services Output (1990-
2010)
(Source: Noland, Park, & Estrada, 2012, p. 23)
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Overall, there is no policy or action in Cambodia’s poverty reduction strategy
talking about free flow of services. However, according to CDRI (n.d.), the service
sector will grow in term of outputs and employment if barriers are reduced.
Figure 4: Trade Restrictiveness and per Capita Income
(Source: Noland, Park, and Estrada, 2012, p. 8)
According to Figure 4, trade in service restrictiveness is negatively correlated
to GDP per capita. For example, comparing Cambodia and Kazakhstan, Cambodia
with higher trade in services restrictiveness than Kazakhstan had lower GDP.
Therefore, Mr. Roth Vathana said that “Cambodia would get more benefits from free
flow of services” (V. Roth, personal communication, June 13, 2015).
Given the fact that employment in service sector is a form of non-farm job,
the policy to promote free flow of services will complement to the policy of
“promoting private sector, urbanization, and non-farms jobs”, which is the second
key area that RGC is focusing in reducing poverty.
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Specially, in this policy, ASEAN seeks to remove all restrictions on trade in
services for five priority services sectors by 2013 and other services sectors by 2015
(ASEAN Secretariat, 2008, p. 10) . In Cambodia, tourism is the key component of
this country’s service sector, which has supported the other important services sector
including the expansion of hotels and restaurant businesses, wholesale and retail
trade, and transport and communications (Global Times, 2013). Since in those five
priority services sectors include air transport, e-ASEAN, healthcare, tourism, and
logistics services, the removal of such restriction could further improve the growth of
tourism. Tourism is the potential sector for Cambodia to gain (V. Roth, personal
communication, June 13, 2015). However, there is no actions or policy in the poverty
reduction strategy of Cambodia talking about removing such restriction on the
services sector.
For the action to allow foreign (ASEAN) equity participation not less than
70% for all service sectors by 2015, Cambodia has achieved more than the targeted
goal since Cambodia allow for 100% of foreign equity ownership except electricity
(86%) and transport (70%)—data in 2010—investments, but excluding the
ownership of land (ASEAN Secretariat, & World Bank, 2013, p. 146; & Suon, n.d.).
According to Postplus (2015), H.E Sok Siphana said that “a company comes to
Cambodia instead of Thailand and Vietnam because we allow 100% ownership of
their businesses in Cambodia”. Thus, this policy helps to complement the policy to
“strengthen the private sector and promote investment and business” of the second
area. However, since this policy is successfully implemented, that’s why it is not
mentioned in the RGC’s poverty reduction strategy.
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Moreover, completing and implementing MRAs such as engineers, nurse,
architects, accounting services, medical practitioners, dental practitioners, surveying
professionals, and tourism professionals which are the 8 MRAs (data in 2014) that
ASEAN has already signed help to meet short-term skills shortages in Cambodia,
including engineering, IT, and surveying (Capannelli, 2014; & Chia, 2011, p. 234)
However, in term of financial services sectors such as banking and insurance,
which is high tier service, Mr. Roth Vathana question whether Cambodia is ready or
not since Cambodia’s service sectors are in low tier—buying and selling—given the
fact that financial sectors foundation in Cambodia is still shaky; thus, financial
sectors would be a long way to go for Cambodia (V. Roth, personal communication,
June 13, 2015). As a result, Cambodia is ranked second in ASEAN for service trade
restrictiveness in term of financial sector, which is 4322 over 100, after Thailand
(Balboa, & Wignaraja, 2014).
Anyway, given the fact that liberalization in services sectors is taken through
the ASEAN Minus X formula23, Cambodia can always opt out the sectors that she
cannot comply with the liberalization thresholds established and the deadlines
established. Thus, Cambodia can prevent the sectors that are too sensitive for
Cambodia to liberalize (Das, Menon, Severino & Shrestha, 2013, p. 108-109).
22 0 = completely open, 25 = virtually open with minor restrictions, 50 = major restrictions, 75 =
virtually closed with limited opportunities to enter and operate, 100 = completely closed (Balboa, &
Wignaraja, 2014)
23 ASEAN Minus X formula mean that “if a member country cannot comply with the liberalization
thresholds established and the deadlines established, then it can always opt out” (Das, Menon,
Severino & Shrestha, 2013, p. 108-109).
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Even though this policy is not stated in the RGC’s poverty reduction strategy,
H.E. Sun Chanthol, Minister of Commerce of Cambodia claimed that “labor in
expanding industries, services and firm will benefit from increased employment and
higher wages” (Sun, 2015, p. 26). For instance, Kevin Britten, managing director
Top Recruitment, said that “there will be ongoing pay-rises in the garment industry”
(Postplus, 2015).
2.3. Free Flow of Investment
FDI is a key component for successful economic growth in developing
countries because it positively affects and translates “best practice”—the very
essence of economic development is the rapid and efficient transfer and adoption of
best practice across border—into broad-based growth; thus, FDI is the most
important factor reducing poverty because it promotes growth that is the prerequisite
factor to have poverty reduction (Klein, Aaron, & Hadjimichael, 2001, p. 2). In
addition, Cambodia needs more investment in order to fill the 250,000 jobs needed in
Cambodia every years (Brooke, & Muny, 2014).
It took 350 years for income per capita to double in Europe before the
industrial revolution. In contrast, towards the end of the 20th CE, it just took about 10
years for countries such as China, Japan and Thailand to double the income. This
could happen because developing countries are able to import and imitate technical
and organizational innovation from the world’s leading countries through FDI.
Moreover, FDI help to raise productivity in the recipient economy through adopting
managerial and technical best practice from abroad. For instance, foreign investment
has raised productivity of SMEs in Venezuela more than domestically-owned firms,
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and firms with majority foreign ownership perform better than others, as happened in
Africa (Klein et al., 2001, p. 3-4).
Even though growth, generated by FDI, is the most important ingredient for
poverty reduction, it depends on the capacity of the recipient country to absorb best
practice. According to Borenzstein, De Gregorai and Lee (as cited in Klein et al.,
2001, p. 5), education and infrastructure are required to fully benefit from FDI, as
well as competition in domestic markets identified by Bromstrom and Kokko (as
cited in Klein at al., 2001, p. 5).
Klein et al. (2001) further claim that FDI has potential feature that affects
quality of growth and assist with poverty reduction—it can do more than just
generate growth. First, it helps reduce adverse shocks facing by the poor, which is
the product of financial instability. Second, it help improve corporate governance24.
Specifically, asset stripping cannot easily exist; hence, it help to contribute property
rights more equal. As a result, it could benefit to the action to “strengthen corporate
governance to promote health and growth of private sector and CSR” under to the
policy of “strengthening the private sector and promote investment and business” of
the second area. Third, FDI can help to improve environmental and labor standards
since foreign investors tend to be concerned about reputation in markets, where high
standards are seen as desirable. Finally, FDI generate taxes to support the
24 Corporate governance refers to the system of rules, practices and processes by which a company is
directed and controlled. It essentially involves balancing the interests of the stakeholder in a company,
including shareholders, management, customers, supplier, financiers, government and the community.
Most companies that has high level of corporate governance seeks not only profit, but also seeks to
demonstrate good corporate citizenship, for example, through environmental awareness, ethical
behavior and sound corporate governance practices (Investopedia, n.d.)
74
development of a safety net for the poor. Also, those investors invest considerably in
community development in the area they operate.
Since the purpose to have free flow of investment in AEC is to promote
ASEAN’s competitiveness in attracting FDI as well as intra-ASEAN investment, it is
consistent with the policy to “attract FDIs” under policy of “strengthening the private
sector and promote investment and business” of the second area of the Cambodia’s
poverty reduction strategy. Moreover, four key polies under this policy are also on
the line with policies and actions of the RGC to reduce poverty (ASEAN Secretariat,
2008, p. 12).
In addition, all industries in manufacturing, agriculture, fishery, forestry, and
mining and quarrying, and the sectors and services related to this five sectors is
subject to be open to have free flow of investment (ASEAN Secretariat, 2008, p. 12).
Glancing at the RGC’s poverty reduction strategy, three out of those five areas are
helping the RGC to achieve its objective. Promoting free flow of investment in
agriculture is on the line the action to “promote agricultural diversification through
attracting private investment” under the policy of “improving productivity
diversification and commercialization of agriculture sector” of the first area. Second,
in term of free flow manufacturing investment, it is consistent with the action to
“promote investment in modern and high value added industrial sector to diversify
manufacturing base” under to policy to “strengthen the private sector and promote
investment and business” of the second area. Third, in term of free flow of mining
and quarrying investment, it is help to support the action to “strengthen development
process in extractive industry” under the policy of “development of industry and
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SMEs” under the second area. In addition, in term of granting treatment to those
investors, it also consistent with the action to “provide favorable treatment or
privileges to attract more QIPs” under the policy of “strengthening the private sector
and promoting investment and business” of the second area of Cambodia’s poverty
reduction strategy.
2.3.1. Investment Protection
Overall, investment protection is mentioned in the poverty reduction strategy
of Cambodia. It is on the line with the policy to “inform prospective and registered
SMEs about available support, benefits, and protection provided by the RGC” under
the policy of “development of industry and SMEs” of the second area. Specifically,
the actions supporting this policy in the AEC are also consistent with the actions and
policies in the poverty reduction strategy of Cambodia.
First, for strengthening investor-state dispute settlement mechanism, it is
consistent the action to “strengthen G-PSF25 in order to help addressing challenges
facing private sector” under the policy of “strengthening the private sector and
promote investment and businesses” of the second area. In addition, it is also
consistent with the action to “strengthen the role of Conflict Resolution Committee at
SEZs in order to timely respond or address issue” and the action to “encourage inter-
professional organization to dialogue with the government in resolving their
25 G-PSF is public-private consultation mechanism held bi-annually, where the decision made is
binding. The private sector can used this opportunity to resolve the outstanding issues related to, such
as, either policy or direct operational impediments confronted by the private sector that remain
unresolved from the Working Groups (WGs) meetings (Brew, 2006).
76
concerns and challenges” under the policy of development of industry and SMEs of
the second area.
Second, for strengthening transfer and repatriation of capital, profits,
dividends, etc., no single policy or action mention about this. However, such transfer
and repatriation are mentioned and allowed in Cambodia’s Law on Investment
(Amendment on March 24, 2003 in Article 11 of Chapter 4, and Chapter 8 (CDC,
n.d.). According UNDP (2011), profit repatriations, which result in profit outflow,
can offset the inflow of profit form FDI. Therefore, allowing greater profit
repatriation can put the host countries in problem if there is any reduction in new
investment (p. 100). For instance, in the study of Bhinda and Martin (as cited in
UNDP, 2011, p. 100), Sub-Saharan Africa, even though witnessed record FDI
inflows, face problem because these inflows were often exceeded or matched by
profits remitted, which raise serious question about the sustainability of FDI.
Outflows is higher where investors are not confident enough in the investment
climate and future opportunities in the host countries (UNDP, 2011, p. 100). Thus, it
seems that promoting strengthening transfer and repatriation of profit will hamper the
FDIs; thus, it will reduce economic growth and job opportunities, which undermine
poverty reduction of the host countries. Hence, it is no wonder why the RGC does
not include this action into the poverty reduction strategy. However, it is a need that
the RGC has to allow profit repatriation in the Law on Investment in order to
increase confidence and willingness of the foreign investors in investing in the
country by allowing them to repatriate the profits or capital in case of crisis that meet
the conditions issued in the Law on Investment by the RGC.
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Third, in term of strengthening transparent coverage on the expropriation and
compensation, there also no single policy or action in the poverty reduction strategy
of Cambodia. However, there is a separate piece of law—Law on Expropriation—
that deal with the procedure and compensation on the expropriation of the private
property, which is discussed in Chapter 4 of the law (“Law on Expropriation,” 2010).
This law was put into force in February 2010 (CDC, 2013a, p. III-2)
Even though the two non-consistent actions above are not stated directly in
the poverty reduction strategy of Cambodia, they are also form of support and
protection provided by the RGC; thus, it can be included in the action to “inform
prospective and registered SMEs about available support, benefits, and protection
provided by the policy” under the policy of “development of industry and SMEs” in
the second area.
Fourth, strengthening full protection and security is also another key element
that ASEAN aims to achieve in this policy. ASEAN member states need to provide
full protection and security to ASEAN investors at all times including during riots or
insurgency which may occur (Le, n.d., p. 48). Full protection and security means that
the host states are obliged to take active measures to protect the investment from
adverse effects stemming from private parties or from actions of the host states and
their organs (Schreuer, 2010, p. 1). Similar to the two previous aforementioned
actions, this action is not stated in the poverty reduction strategy of the RGC. Even
though there is an action to “inform prospective and registered SMEs about available
support, benefits, and protection provided by the policy”, full protection and security
is not stated. According to Malik (2011), the full protection and security has
78
maintained a low profile in international investment law because such full protection
and security can impose a burdensome level of liability on state with scare resources
(p. 1). Full protection and security here do not only mean physical protection and
security, but also include economic regulatory powers. In short, the government is
required to provide protection where it has the power to intervene (Malik, 2011, p.
7). However, in reality, most bilateral investment treaties use the either “full
protection and security” or “constant protection and security” since it merely requires
due diligence, which does not create absolute liability (Schreuer, 2010, p. 1-2; &
Malik, 2011, p. 2). In addition, even though some people often consider “fair and
equitable treatment” and “full protection and security” are the same phrase, the
standards provided in this two phrases are different. Fair and equitable treatment
requires states not to act in an unfair or inequitable manner, whereas full protection
and security imposes states a duty to act in manner that protects the investment from
adverse interference. Therefore, it is a difficulty for states with limited resources to
provide such full protection and security standard (Malik, 2011, p. 11) As a result,
full protection and security is not stated overall in the Law on Investment of
Cambodia, it is separately stated in bilateral investment treaties, for example with
Japan, Thailand and South Korea (Dezan Shira & Associates, n.d.a; Dezan Shira &
Associates, n.d.b; & Royal Embassy Cambodia in Japan, n.d.).
Fifth, related to the previous action, treatment of compensation for losses
resulting from strife is granted only to the investment form any countries that has
bilateral agreement with Cambodia on providing full protection and security (Dezan
Shira & Associates, n.d.a; Dezan Shira & Associates, n.d.b; & Royal Embassy
79
Cambodia in Japan, n.d.) As result, no policy or action in the RGC’s poverty
reduction is mentioned about it.
Therefore, it is possible to say that the last four actions in this policy is not
subject to poverty reduction since the state is most likely to lose revenue and only the
investors will benefit from these actions when those policies are implemented.
2.3.2. Facilitation and Cooperation
Supporting this policy, seven key actions need to be implemented (ASEAN
Secretariat, 2008, p. 13). First, it is about harmonizing, where possible, investment
policies to achieve industrial complementation and economic integration.
Harmonizing investment policies is not mentioned in the RGC’s poverty reduction
strategy.
Second, it is about streamlining and simplifying procedures of investment
applications and approvals. This action benefits to the action to “review and change
requirement for QIP approval” under the policy of “strengthening the private sector
and promoting investment and business” of the second area.
Third, it is about promoting the distribution of investment information
through one-stop investment center or investment promotion. This action is
consistent with the action to “enhance the legal and regulatory framework through
improving good governance and efficiency of public institution including
strengthening government in concerned institution such as the CDC’s ‘one stop
service” under the policy of “strengthening the private sector and promoting
investment and business” of the second area. According to CDC (2013b), one stop
service is established to assist the investors through distributing investment
information.
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Fourth, it is about strengthening databases on all forms of investment
covering goods and services to facilitate policy formulation. There is no consistent
policy in the poverty reduction strategy of the RGC.
Fifth, for improving coordination among government ministries and agencies,
such coordination is mentioned in many actions and polices of the RGC’s poverty
reduction strategy not only investment issue, but also other concerned issue such as
trade, social protection system and infrastructure (RGC, 2013). Specifically, it is
consistent with the action to “update SMEs development framework to make it
consistent with IDP in order to enhance SME’s capacity to link with large enterprise
and form a cluster by promoting entrepreneurship, creativity, productivity,
innovation and specialization through introduction and implementation of a
comprehensive package of supporting measures such as strengthening institutional
coordination” under to policy of “development of industry and SMEs” of the second
area.
Sixth, it is about consultation with ASEAN private sectors to facilitate
investment. Domestically, Cambodia has established a forum, G-PSF, that allow the
private sector in Cambodia to discuss with the about any concerning issue to
facilitate the investment projects and businesses of those investors (Brew, 2006).
Thus, it is consistent the action to “strengthen G-PSF in order to help addressing
challenges facing private sector” under the policy of “strengthening the private sector
and promote investment and businesses” of the second area.
Seventh, it about identifying and working toward areas of complementation
ASEAN-wide as well as bilateral economic integration. There is no action or policy
related to this issue mentioned in Cambodia’s poverty reduction strategy. However,
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this action is harmful to poverty reduction strategy in Cambodia because Cambodia
aims to further integrate herself into the region and world in term of economy to
achieve the objective of Cambodia Vision 2030 and Rectangular Strategy (RGC,
2014a, p. 1).
2.3.3. Promotion and Awareness
In supporting this policy, there are seven key actions. First, it is about
creating the necessary environment to promote all forms of investment and new
growth areas into ASEAN. This action is consistent with the action to “to improve
favorable investment and business climate” under to policy of “strengthening the
private sector and promoting investment and business” of the second area.
Second, it is about promoting intra-ASEAN investments, particularly
investment form ASEAN-6 to CLMV. Even though there is no specific action talking
about promoting intra-ASEAN investments, but, generally, it is consistent with
policy of “strengthening the private sector and promoting investment and business”
of the second area of the poverty reduction strategy. In addition, it is stated clearly
that investments from ASEAN-6 are encouraged to invest in CLMV countries.
Third, it is about promoting the growth and development of SME and MNEs.
This action is consistent with the policy of “development of industry and SMEs” of
the second area of the strategy, which consists of many development activities
ranging from promoting to modernizing their capacity.
Forth, it is about promoting industrial complementation and production
networks among MNCs in ASEAN. This action is consistent with the action to
“improve connectivity with regional production network to integrate with and
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increase global value chains” under the policy of “development of industry and
SMEs” of the second area.
Fifth, it is about promoting joint investment missions that focus on regional
cluster and production networks. It is on the line with the action to “update SMEs
development framework to make it consistent with IDP in order to enhance SME’s
capacity to link with large enterprise and form a cluster” under the policy of
“development of industry and SMEs” of the second area.
Sixth, it is about extending the benefits of ASEAN industrial cooperation
initiatives in addition to the AICO26 Scheme to encourage regional clusters and
production networks. Related to the previous action, it is about providing the benefit
that those industries can get from regional clusters and production networks in the
purpose to encourage regional clusters. As a result, the benefit of clusters stated
clearly in the RGC’s poverty reduction in the second key policy of the second area,
which is “…introduction and implementation of a comprehensive package of
supporting measures such as clustering, enhancing technology transfer, increasing
access to finance, strengthening technical standards, establishing business
development counselling centers, promoting ‘one village one product’ movement,
improving regulatory framework, and strengthening institutional coordination”.
Seventh, it is about working towards establishing an effective network of
bilateral agreement on avoidance double taxation among ASEAN countries.
26 An AICO Arrangement is a cooperative arrangement consisting of a minimum of two participating
companies from two different ASEAN countries, which is not a legal entity but merely an "umbrella
association" under the scheme wherein the output of the participating companies will enjoy a
preferential tariff rate in the range of 0-5%. An AICO Arrangement should involve not only the
physical movement of products between the participating companies and countries but also resource
sharing/pooling and/or industrial complementation (ASEAN Secretariat, 2014e).
83
Currently, there is no action or policy in the RGC’s poverty reduction strategy
talking about the avoidance or elimination of double taxation. Most ASEAN
countries, according to Farrow and Jogarajan (2006), impose both underlying tax—
tax on actual earning—and withholding tax—tax on business profits in the form of
dividends interests, royalties and capital gains—in addition to the underlying tax,
which result in double taxation, in the purpose of penalizing the repatriation of
profits. Consequently, this kind of double taxation has been a disincentive to
investment (p. 5). However, there is some actions stated about tax policy and reform,
which are “rationalizing the current economic rents in order to revise tax policies to
increase fiscal space for investment in industrial sector” and “reviewing and
amending Law on Investment and Law on Taxation to reflect the current situation
and need of industries” under the policy of “strengthening the private sector and
promoting investment and business”, and the action to “review framework and
mechanism for SMEs development, which focuses on improving registration,
management, and monitoring processes that encourage industries in Cambodia to
officially register their business with relevant authorities, particularly with real tax
regime” under the policy of “development of industry and SMEs” of the second area
of the strategy. Even there is no consistent action or policy, but this action, when
implemented, will further encourage FDI to flow into Cambodia.
2.3.4. Liberalization
Even though Cambodia, in her poverty reduction strategy, aims to increase
more FDIs, no single policy or action mentioned about investment liberalization.
Looking at the specific actions some actions are consistent while others are not. First,
it is about extending non-discriminatory treatment, including national treatment and
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most-favored nation treatment, to investors in ASEAN with limited exception. This
action is consistent with the policy to “provide favorable treatment or privileges to
attract more QIPs” under the policy of “strengthening the private sector and
promotion investment and business” of the second area.
However, the other two actions are not consistent with the RGC’s poverty
reduction policies. First, for reducing and, if possible, removing restrictions to entry
for investments in the PIS dealing with goods, even though it is not consistent, no
policy in the poverty reduction strategy, as well as Law on Investment, mentioned
about restricting investment in the PIS—just those investment need to meet certain
requirement, for example to be qualified investment that is stated in Chapter 1
Article 1 of the Law on Investment (CDC, n.d.). Thus, this policy could help to
complement to the action to “attract FDIs” under the policy of “strengthening the
private sector and promoting investment and business” of the second area.
In contrast, the last action, which is about reducing, and if possible, remove
restrictive investment measures and other impediments including performance
requirements, is contradicted to poverty reduction strategy of Cambodia, as well the
Law on Investment in Cambodia. Any investments projects have to be reviewed by
the government, which has been stated in the action to “review existing investment
projects” and “review and change requirement for QIP approval” under the policy of
“strengthening the private sector and promoting investment and business” of the
second area. In addition, Law on Investment of Cambodia has stated clearly in
Article 1 of Chapter 1 that only investment project that obtained QIP is subject to be
under the protection of this law (CDC, n.d.). According to EuroCham Cambodia
(2014), the threshold for eligibility of investment for the QIP status ranges from
85
100,000USD to 8,000,000USD, depending on the type of investment. For example,
QIP status in the investment on garment, textiles, footwear, and hats production need
to have investment capital worth of 500,000USD or over (p. 18). Thus, such
requirement and performance cannot be reduced. Based on the interview with Mr.
Roth Vathana, this actions will affect Cambodia’s FDI unless preconditions on
investment from other ASEAN countries is set in order to reduce the short-term and
unreliable foreign investors (V. Roth, personal communication, June 13, 2015).
2.4. Freer Flow of Capital
Washington Consensus, advocated and enforced by the World Bank and IMF,
holds that growth is maximized when barriers to the free flow of capital and
commerce are eliminated (Weller, 2002). Supported this idea, Goldberg and Pavnick
(as cited in Santos-Paulino, 2012, p. 1) stated that “alongside trade, growing flows of
capital across national borders could significantly contribute to economic growth and
poverty reduction.” World markets are the source of technology and capital, which
all countries can benefit from higher international exchange, especially developing
and least developed countries (Santos-Paulino, 2012, p. 16).
2.4.1. Strengthening ASEAN Capital Market Development
Overall, strengthening capital market development is consistent with the
action to “strengthen securities market in order to mobilize financial resources for
industrial development” under the policy of “development of industry and SMEs” of
the second area. However, there are no consistent actions or policy in the poverty
reduction strategy of Cambodia with the five actions set by ASEAN to support this
policy. Even they are not consistent, they do not undermine the poverty reduction
strategy of Cambodia since those five actions mainly talking activities to enhance
86
capital market in Cambodia since capital markets in Cambodia just started in 2010;
thus, Cambodia needs support in term of technical support and capacity building
from ASEAN, especially the five elder ASEAN members, to promote the
development of financial sector, said the National Bank’s director general Ngoun
Sokha (as cited in Kun, 2012).
2.4.2. Allowing Greater Capital Mobility
Unlike the first policy, there is no single action or policy in the RGC’s
poverty reduction that mention about allowing greater capital mobility. However, it
does not mean that Cambodia restrict capital mobility. Unlike other ASEAN member
that still set barriers to restrict the free and out flow of capital, Ngoun Sokha (as cited
in Kun, 2012) stated that Cambodia welcomes the free flow.
However, this action is not subject to poverty reduction policies because it
share the same characteristic as the action to strengthen the transfer and repatriation
of capital, profits, dividends, etc. of the policy “investment promotion”, which has
been discussed in the part “free flow of investment”. In addition, Arestis and Caner
(as cited in Santos-Paulino, 2012, p. 9) warned that a higher degree of capital account
liberalization is associated with a lower income share for the poor even though, in
absolute term, poverty is reduced. According to Feenstra and Hanson (as cited in
Santos-Paulino, 2012, p. 14), removal of restrictions on capital flows, together with
trade liberalization, has enabled firms to outsource some stages of production to cost-
minimizing locations abroad, either through arm’s length imports of intermediate
inputs or by setting up their own production facilities in a host country. Therefore, it
could result in job losses.
87
However, this consequence can be compensate by improving investment
climate, which is mentioned in the second area of Cambodia poverty reduction
strategy. This action can reduce the outsourcing of the investors. As result, according
to Chan (2015), he found that investment climate in Cambodia is better than
Thailand, which is shown in the following table. In his analysis, Chan Sophal said
that “investors come to Cambodia because of the three major factors which are factor
number 1, 8 and 9” in Table 1 (Chan, 2015). That’s why Cambodia can eliminate the
negative impact of free capital mobility.
Table 1: Cost Structure of Industry
Cambodia Thailand
1. Labor Cost (Unskilled labor) Superior Inferior
2. Non input costs Inferior
- Raw material +/- +/-
- Operating costs (electricity, fuel, transportation,
infrastructure…) Inferior Superior
3. Capital cost Inferior Superior
4. Marketing network and experience Inferior Superior
5. Supporting services Inferior Superior
6. Industrial experience (first few years hard!) Inferior Superior
7. Economies of scale Inferior Superior
8. Tariffs waived by export markets (EBA…) Superior Inferior
9. Tax holiday for large or QIP projects Superior Inferior
(Source: Chan, 2015)
Moreover, allowing greater capital mobility, plus trade liberalization, in AEC can
solve the other inferior factors of Cambodia compared to Thailand. Prime Minister
Hun Sen said in the ceremony to launch Cambodia Trade Integration Strategy at the
Peace Place on February 18, 2014 that he strongly believe that FDI in 2014 and later
will continue to increase and the manufacturers base in China, Thailand or Vietnam
88
are now shifting to Cambodia (The Cambodia Herald, 2014). This can happens
because of the upcoming economic integration in ASEAN. Therefore, this policy
would affect negatively other ASEAN countries rather than Cambodia.
2.5. Free Flow of Skilled Labor
Gains form more open region-wide skill mobility are tremendous. Skilled
labor mobility can help address skills shortages and gap and unemployment for
youth, especially the well-educated, and promote growth in the economy and
increase inclusiveness (Sugiyarto, & Agunias, 2014, p. 2). According to Huelser and
Heal (2014), well-managed labor migration can bring considerable benefits to: (1)
migrant themselves in term of higher wages and opportunities to obtain skills and
experience, (2) host economies by addressing labor shortages and boosting growth,
and (3) sending countries through financial remittances and knowledge transfer (p.
3). These benefits are help to promote pro-poor growth since they are consistent with
the requirements of pro-poor growth that have been reviewed in the literature.
However, it is a fear that the unskilled workers who are mostly poor people
will be left out since when they talk about ASEAN integration, they talk about only
the flow of skilled workers (Khoun, 2014). According to V. Roth (personal
communication, June 13, 2015) free flow of unskilled and low skilled labor is still
allowed between country and country within ASEAN, for example Cambodia and
Thailand based on the MoU on Cooperation in the Employment of Workers in 2003
(UNIAP, n.d.). Additionally, the 2007 ASEAN Declaration on the Protection and
Promotion of the Rights of Migrant Workers require ASEAN countries to protect
migrant workers, both skilled and non-skilled (Migration News, 2014). In addition,
one researcher said that such free flow of skilled labor could result in side effect that
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would allow on movement of unskilled labor in ASEAN to be freed in the future
(Anonymous, personal communication, June 15, 2015).
In term of skilled job, most Cambodian youths fears that they cannot compete
with other skilled workers from ASEAN member states since they blame to the low
education system (Say, 2014). However, contradict to his view, economic analyst
Chan Sophal (as cited in Say, 2014) said that “there could be some people coming
from the Philippines, Malaysia, Indonesia, Vietnam or Thailand, but if we work in
our country and we know our language and English and have a specialized skills,
then our competitive level is very high”, so Cambodian youth should not worry too
much about job availability if they study hard and specialize on specific skill. In
addition, Chan (2015) questioned that even though there is free flow of skilled labor,
but will they come to Cambodia since this country has low income? Referring to
Figure 5, Cambodia has lowest average monthly wages compared to other six
ASEAN countries—excluding Brunei, Lao and Myanmar due to no data. As a result,
those skilled workers will be reluctant to come to Cambodia, agreed by H.E Sun
Chanthol (Brooke, & Muny, 2014).
(Source: ILO, 2014, p. 2)
$121 $183
$651
$215
$3,694
$391 $197
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
Cambodia
(2012)
Indonesia Malaysia Phillipines Singapore Thailand Vietnam
Figure 5: Average Monthly Wages in ASEAN (2013)
90
Optimistically, H.E Sok Siphana claimed that
“we are not competing, but we are collaborating with others countries since we are
host countries and we have things to offer them. Basically, we can work for them to
gain experience because we have the basic element; hence, we are able to reach
higher education in the future. In addition, it is not the first time we open our
economy—we have opened since we join WTO in 2004. Therefore, we can benefit
from AEC” (Sok, 2015).
In addition, AEC will only allow the free mobility of skilled labors in temporary term
only, not permanent term, across companies in the ASEAN region (Capannelli,
2014). So, even if they does steal Cambodians’ jobs, it is not permanent and
Cambodians can learn from them to build the skill.
In contrast to the view that skilled labors form other ASEAN countries would
steal the jobs of Cambodians, Simon Griffiths, associate director CBRE—a real
estate company, said that “skilled labors would left Cambodia for higher salaries
within ASEAN, which pose a challenge to real estate and construction sectors, as
well as other sectors in Cambodia” (Postplus, 2015).
Therefore, this policy produce mix result to the effort of the RGC to reduce
poverty in Cambodia. Of course, it is projected that Cambodia’s workers will not be
negatively affected form free flow of skilled labor and the unskilled and low-skilled
labor are not left out, but Cambodia’s companies and industries would face low
supply of skilled labors if Cambodian skilled labor choose to work in other ASEAN
countries for higher income. Optimistically, one researcher claims that free flow of
skilled labors would end the exploitation of SMEs and it would force them to provide
more income to their workers. Additionally, it is just a process that will be
implemented step by step, so those SMEs need not to worry much (Anonymous,
personal communication, June 15, 2015).
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There are two policy in this fifth core elements. First, it is about managing
mobility and facilitating entry for the movement of natural persons engaged in trade
in goods, services, and investment through facilitating the issuance of visas and
employment passes for ASEAN professional and skilled labor. In this policy, these is
no consistent policy or action with the RGC’s poverty reduction strategy. However,
this policy and action can help the Cambodia’s government to solve short-term
shortages of skilled labor in engineering, IT, and surveying (Chia, 2011, p. 234).
Supporting this idea, Chan (2015) stated that “free flowed of skilled labor is a
challenged for Cambodia, but can help to fill skill gaps in a medium term”.
Supporting this idea, Kevin Britten (as cited in Postplus, 2015) claimed that “there
might be increased opportunity for ASEAN training provider to enter the
[Cambodian] market”, which would solve the skills shortages in Cambodia.
Second policy is about harmonizing and standardizing. There are three
actions in this policy. First, it is about enhancing cooperation among AUN members
to increase mobility for both students and staff within the region. Improving such
cooperation will help to complement the action to “improve capacity of SMEs to
promote stronger and dynamic industries by providing scholarships to students to
study engineering and vocational training either in the country or abroad” under the
policy of “development of industry and SMEs” of the second area. Currently,
varieties of scholarship are provided by AUN Member Universities (AUN, n.d.). In
addition, ASEAN University Network/Southeast Asia Engineering Education
Development Network (AUN/Seed-Net), established in 2001 and consisting of 26
leading university from ASEAN and 14 leading university from Japan, aims to
improve and develop highly skilled human resources in the engineering field by
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proving scholarships to ASEAN students (ANU/Seed-Net, n.d., p. 1). Thus,
Cambodian student will gain more chance to get scholarships from AUN to study
abroad, especially in the field of engineering.
The second action is about developing core competencies and qualifications
for job/occupational and trainers skills required in the services sectors. It is consistent
with the action to “strengthen the quality of education and technical and vocational
training and the development of technical and soft skills for youths, particularly team
work, discipline and professional ethnics at workplaces via launching national
competency standards, monitoring and testing of competency, skill recognition,
development and contest to fulfill the demand of labor market” under the policy of
“strengthening and enhancing education, science and technology, and technical
training” of the third area.
The third action is about strengthening the research capabilities of each
ASEAN member country in terms of promoting skills, job placement, and
developing labor market information networks among ASEAN member countries.
Promoting skills, job placements, and developing labor market information are all
covered in the policy of “development of labor market” of the second area of the
poverty reduction strategy.
2.6. Priority Integration Sectors
In AEC, twelve priority sectors were identifies of accelerated economic
growth. According to Romero (2013), twelve priority sectors are agro-based
products, air travel (air transport), automotive, e-ASEAN (ICT equipment),
electronics and electrical goods, fisheries, healthcare services, rubber based products,
textiles and apparel, tourism, wood-based products, and logistics services. The RGC
93
has also identified priority sectors that Cambodia need to focus to develop the
economy in its Rectangular Strategy it the core documents of poverty reduction
policies. They are agriculture, livestock and farming and aquaculture, industry,
energy, construction and physical infrastructure, ITC (or ICT), healthcare and
environment (RGC, 2013, p. 68). Comparing these two sets of priority sectors,
ITC/e-ASEAN (ICT equipment), livestock farming and aquaculture/fisheries, and
healthcare/healthcare are the consistent priority sectors of AEC and Cambodia. In
addition, priority industry sector in Cambodia, according RGC (2014a), include, such
as, agro-processing, heavy industries, and manufacturing including machinery
assembly and assembly of electrical appliances, transportation equipment and other
consumable products (p. 7-8). Moreover, according to EuroChamp (2014), tourism,
garment and rubber are also the included in the priority industry sector of Cambodia
(p. 17), which the government seeks to promote further export (RGC, 2014a, p. 7).
Hence, they are consistent with agro-based product, electronics and electrical goods,
automotive, textile and apparel, tourism, and rubber based products. In addition, the
RGC also seeks to promote efficient and competitive logistic system including air
transport, which is one of actions supporting the policy of “developing transport and
urban infrastructure” of fourth area of the poverty reduction strategy. So, logistics
services and air transport are also consistent (See Appendix A.1).Therefore, all PIS
except wood-based products in AEC are consistent with the priority sectors of
Cambodia except environment and energy.
Those twelve priority sectors in AEC will be prioritized to promote free flow
and retain value-added that is mentioned in objective of the policy to “improve
productivity, diversification and commercialization of agriculture sector” of the first
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area of the poverty reduction strategy (RGC, 2013, p. 34). Thus, these twelve priority
sectors except wood-based products that are on the line with Cambodia priority
sectors except environment and energy will allow Cambodia to develop its priority
sectors through allowing free flow that would increase exporting and investment in
these sectors, which are the main ingredients to reduce poverty in this country.
According to Falby (2002), diversifying the economy and increasing exports are the
important elements in Cambodia’s poverty reduction strategy.
In this policy, there are two actions. First, it is about conducting a bi-annual
review to monitor the status, progress and effectiveness of priority integration
roadmaps to ensure their timely implementation. There is no consistent policy or
action in Cambodia poverty reduction strategy, but this action does not undermine
poverty reduction strategy since this action, given its nature, it just a monitoring
mechanism on the progress of implementation this policy.
Second, it is about identifying specific projects or initiatives through regular
dialogue or consolation with stakeholders, particularly the private sector. Such
consultation is on the line the action to “strengthen G-PSF in order to help addressing
challenges facing private sector” under the policy of “strengthening the private sector
and promote investment and businesses” of the second area since G-PSF, already
explained in the investment protection section, is a consultation forum between the
RGC and the private sector, which is conducted twice annually.
2.7. Food, Agriculture and Forestry
In this second core component of the AEC’s first pillar, the main focus is on
improving the standard and competiveness of ASEAN’s food, agriculture and
forestry (ASEAN Secretariat, 2008, p. 16-18). As a result, it helps to complement the
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most to the first area of poverty reduction strategy, which is to “promote agricultural
sector”.
There are three policies in this second core component. First, it is about
enhancing intra- and extra-ASEAN trade and long-term competitiveness of ASEAN
food, agriculture and forestry products through harmonization and application of
quality standards for food safety. This policy is consistent with the policy of
“improving productivity diversification and commercialization of agriculture sector”,
“promoting livestock farming and aquaculture” and “sustainable management of
natural resources” in the first area of the poverty reduction strategy in Cambodia. In
addition, it also consistent with the action to “reduce morbidity and mortality rates
cause by chronic non-infectious diseases related to food safety, drug use and climate
change” under the policy of “promotion of health and nutrition” of the third area.
However, for the specific actions, there are very few consistent actions with the
poverty reduction strategy of Cambodia because there are separated policies, such as
“Policy on the Promotion of Paddy Production and Rice Export” dealing with rice,
“Cambodia Natural Rubber Development Strategy 2011-2020” dealing with rubber,
Strategic Planning Framework for Fisheries 2010-2019 dealing with fisheries, and
National Forest Program 2010-2029 dealing with forestry. These documents are the
guidance policies that the RGC uses to “promote agricultural sector” in the first area
of poverty reduction strategy (RGC, 2013, p. 35-36, 41).
Anyway, it is possible to say that those ten actions are somehow pro-poor
growth policies since poverty reduction strategy of Cambodia mentions to “improve
agricultural productivity” and “promote agricultural diversification by, such as, using
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fertilizers pesticide, and high yielding variety seeds (form of biotechnology)” under
the first policy, “boost fish production to serve domestic consumption and export
market”, “promote the development of livestock farming policy and strategy”,
“enhance animal health and feed production” and “promote the adoption of the law
on animal health and production through strengthening the enforcement of sanitary
standards for animal product” under the second policy, and “manage forest in a
sustainable and equitable manner” and “strengthen the management and conservation
at fishery resources in sustainable manner” under the fourth policy of the first area,
which share similar characteristic with those ten actions except the action to
“harmonize the safety and quality standards for horticulture products” because the
poverty reduction strategy does not include horticulture. The reason is all most all
kinds of vegetable and fruit, and some of live plants such as mushroom spawn and
flowers are listed in Cambodia sensitive lists (ASEAN Secretariat, 2014a; Foreign
Trade, n.d.; & Saquandeekul, n.d.).
Second, it is about promoting cooperation, joint approaches and technology
transfer among ASEAN member countries and international, regional organization
and private sector. Five actions have been set out to support this policy. First, it is
about developing joint strategies on issue of related interest to ASEAN with
international organization and dialogue partner. No consistent action or policy is
mentioned in the poverty reduction strategy.
The second action is about promoting collaborative research and technology
transfers in agriculture, food and forestry products. It is consist with the action to
“improve agricultural productivity through promoting R&D and promoting the use of
97
quality seeds” and “promote agricultural diversification through launching a multi-
crop green revolution by intensifying cooperation with all stakeholders to transfer
knowledge and technologies to farmers, and promoting the use of agricultural
machinery” under the first policy, and “enhance R&D in fisheries” under the second
policy of the first area.
The third action is about establishing strategic alliances and joint approaches
with the private sectors in promoting food safety, investment and joint venture
opportunities, promotion of agriculture products and market access. It consistent with
the action to “promote agricultural diversification through launching a multi-crop
green revolution by attracting private investment and intensifying cooperation with
all stakeholders” under the first policy, and “encourage investment in medium and
large scale animal feed production” under the second policy of the first area.
The fourth action is about strengthening efforts to combat illegal logging and
its associated trade, forest fire and its resultants effects. The majority of the
population relies in access to forest productions, especially for food, fuel wood,
small-scale timber, and pole harvesting, resin tapping, fodder, traditional medicines
and spiritual purposes; thus it is very important to optimize the forest contribution to
poverty reduction and elimination and to the economy through forest management
and technology (RGC, 2010, p. 12). This action help to realize the action to “manage
forest and wildlife resources in in a sustainable and equitable manner” of the fourth
policy in the first area. In addition, in the same policy and area, it also complements
to policy to “strengthen the management of protected natural areas consisting of
protection of biodiversity, rain forests, and wetland areas”.
98
The fifth action is about strengthening efforts to combat illegal fishing. Illegal
fishing is a threat to fishery in Cambodia that deprive poor fishers of an essential
resources. Fishery sector has great potential to contribute to food security and
poverty alleviation in Cambodia (CRDB & CDC, n.d.) There is no such action in the
poverty reduction strategy of Cambodia, but if referring to the action to Strategic
Planning Framework for Fisheries 2010-2019 that is mentioned in the action to
“implement Strategic Planning Framework for Fisheries 2010-2019” under the third
policy of the first area, combating illegal fishing is implementing by the RGC
(MAFF, n.d., p. 4, 26).
Thirdly and lastly, the policy is about promoting ASEAN agricultural
cooperatives as a means to empower and enhance market access of agriculture
products, to build a network mechanism linking agricultural cooperatives, and to
fulfill the purpose of agriculture cooperatives for benefit of farmers in the region.
There is no action or policy in the poverty reduction strategy talking about strategic
alliance between agricultural cooperatives thorough bilateral, regional and
multilateral cooperation, which make the first two actions in this policy inconsistent.
However, the policy can be said to be pro-poor growth since the policy is said to
benefit to the framers in the region including Cambodia. 90 % of the poor in
Cambodia are living in rural area and most of them depend on agriculture for their
living, so it very important to improve agricultural sector (IFAD, n.d.).
For the last action which is about promoting direct investment and strategic
partnership with ASEAN agricultural cooperatives producers, consumers, and
traders, it is consistent with the action to “Promote agricultural diversification
99
through attracting private investment, intensifying cooperation with all stakeholders
to transfer knowledge and technologies to farmers” of the first policy in the first area.
3. Conclusion
In conclusion, all most all policies and key actions in (i) free flow of goods,
(ii) free flow of investment, (iii) free flow of capital, (iv) free flow of skilled labor,
(v) priority in integration sector, and (vi) food, agriculture and forestry are consistent
with the key policies and action in Cambodia’s poverty reduction strategy. Even
though some key policies and actions might negatively affect the poor, in overall,
policies in the first pillar of AEC are pro-poor growth. In addition, given the fact that
they are consistent, AEC would force and encourage the RGC government to
implement those policies that are similar with poverty reduction policies in
Cambodia. According to Mr. Roth Vathana, Cambodia has a lot of policies, but lack
of implementation. So, AEC would motivate Cambodian government to implement
those policies (V. Roth, personal communication, June 13, 2015).
Based on the analysis by Chan Sophal, Cambodia, in overall, will benefit
from AEC, as shown in table 2 (Chan, 2015).
Table 2: Analysis of Net Effects of AEC on Cambodia
Free Flow/Free Market Gain Loss Net
1. Goods (including intermediate goods) + - - - - -
2. Services (including tourism) ++ - +
3. Investment (including from non-ASEAN) +++ - ++
4. Capital ++ - +
5. Skilled Labor + - +/-
Total Effect +9 -7 ++?
(Source: Chan, 2015)
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However, according to Table 2, Cambodia tends to lose from free flow of
goods. However, such negative of free flow of goods would be a short term effect
since AEC will encourage and force the RGC to implement the SME development
policy that is mentioned in Cambodia Poverty Reduction Strategy since they are
consistent with the actions in Free Flow of Goods of AEC’s first pillar. It means that
if the RGC take serious action to implement SME’s development policy, the negative
effect of free flow of goods will be a short term one, agreed by Mr. Roth Vathana (V.
Roth, personal communication, June 13, 2015).
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Chapter 5: Conclusion and Recommendation
1. Conclusion
Poverty reduction strategy in Cambodia is most likely to be pro-poor growth
policy because it meets all the requirements that pro-poor growth, defined by OECD
(2006), should have. It promotes inclusive growth in Cambodia, as well as addresses
the needs of the chronic and transient poor. As a result, poverty rate in Cambodia is
decreasing remarkably.
Policies in the ‘single market and production base’ pillar of AEC can help to
reduce poverty in Cambodia given the fact that most of the policies and actions are
pro-poor growth since they are consistent with poverty reduction policies in
Cambodia. Improving agriculture sector, developing human resource and improving
the capacity, promoting private sector and non-farms jobs through urbanization, and
developing physical infrastructure, which are the four main area of poverty reduction
in Cambodia, are being further realized by implementing the first pillar of AEC.
With regard to free flow of goods, in overall, all policies except the policies
to “eliminate tariff barrier” and “eliminate NTB” are consistent with policies and
actions in Cambodia poverty reductions even some key actions of each policies are
inconsistent. For “elimination of tariff barrier and NTB”, even though it is not
consistent, it can bring the benefit to Cambodian people including the poor since it
appears to allow Cambodia to increase export in term of agricultural and non-
agricultural products.
In term of free flow of investment, two policies seem to post problem to
Cambodia’s poverty reduction strategy. First, in investment protection, strengthening
102
repatriation and expropriation can hamper to the national revenue, especially the job
opportunities to the poor. This action allows the investors to take the money freely
back to their countries and the government has to pay them if there is something
resulting from the issue in Cambodia such as strife happening and affecting to their
companies. Such action would encourage some investors to invest in short term to
find profit only; thus, the workers, especially the poor, will be mostly likely to face
unemployment when they move out. In addition, such protection and compensation
from the government will bring an advantage to the investors, which will reduce the
voice of workers. This problems would also exist in free flow of capital also in term
of “allowing greater capital mobility”. Second, liberalization could undermine the
effort of the RGC to attract QIPs due to the action to “reduce and remove investment
measures such as performance requirement”. Thus, if this action is implemented,
there is a chance that investors with poor performance will come to Cambodia.
Mentioned earlier, free flow capital would negatively affect the poor in term
of allowing greater capital mobility, but for investment only—not migrant workers.
However, giving the advantages Cambodia is having, this bad impact would happen
to other ASEAN countries rather than Cambodia. Anyway, strengthening ASEAN
Capital Market Development and integration will benefit to the action in Cambodia’s
poverty reduction since Cambodia has just established security market and needs
help form ASEAN countries that has developed their capital market to further
strengthen securities market—it is still weak now.
Free flowed of skilled labor is not mentioned in the poverty reduction
strategy. However, it seems not to bring any negative effects to the poor. In fact, it is
103
an opportunity for Cambodia’s workers, especially unskilled and low-skilled worker,
to learn from other skilled worker form ASEAN in order to improve their capacity.
In addition, harmonizing and standardizing policy help to complement some
important actions in the poverty reduction strategy of Cambodia.
Last but not least, the two components supporting the first pillar of AEC is
beneficial to Cambodia since the twelve PIS are consistent with Cambodia’s priority
sectors, except wood-based products. In addition, Cambodia’s sensitive list includes
only poultry, swine, vegetable, fruit and flowers, which are not directly included in
the PIS. For food, agriculture and forestry component, it is consistent the main policy
of Cambodia’s poverty reduction strategy, which is “to promote agricultural sector”.
However, horticulture that is mentioned in this components is the sensitive products
for Cambodia to allow free flow.
In the finding, free flow of services is not consistent with poverty reduction
strategies of Cambodia. However, this free flow allow Cambodia to strengthen its
services sector that is still poor. Importantly, it is beneficial to tourism sectors that is
one of biggest sectors in Cambodia.
Therefore, ‘single market and production base’ bring more benefits than
disadvantages to the effort of Cambodia to reduce poverty. Overall, it is possible to
say that ‘single market and production base’ pillar is pro-poor growth. Most of its
policies are consistent with the actions and polices to reduce poverty in Cambodia. It
helps to complement all of the four key areas of Cambodia’s poverty reduction
strategy and “promoting private sector, urbanization, and non-farms jobs”, which is
104
the second area, benefit more, comparing to other key areas, from AEC’s first pillar.
The list of consistent policies is summarized in appendix A.2.
Therefore, it is no doubt why Cambodia has done so well in implementing
AEC. According to Sun (2015), Cambodia is ranked fourth after Thailand, Singapore
and Vietnam on AEC Scorecard with the implementation rate of 86.1% during phase
I to phase III.
However, it seems that Cambodia tends to face consequences in free flow of
goods, even though, given the fact that, it enables more export and cheap imported
inputs. H.E Sok Siphnana (as cited in Path, 2013) said that Cambodia is not ready to
produce a lot of goods and material in the meantime. Supported this argument, Chy
Sila, a general director of CBM Corp and owner of Sabay Company said that because
some big brand companies having a lot of experiences of know-how and great
availability of capital, “competition is tighter than ever; we also need to be ready to
fail” (Path, 2013).
On the bright side, this would bring opportunity as well. Sooner or later,
Cambodia will lose, little by little, the special offer by EU (EIA) and US (MFN)
when Cambodia’s GDP get higher and higher (V. Roth, personal communication,
June 13, 2015). Thus, Cambodia need to improve the competitiveness of SMEs from
now on and AEC is the best platform to do so because Mr. Roth Vathana and another
one scholar said that AEC will implement its blueprint step by step that allows
Cambodia has enough time to prepare (Anonymous, personal communication, June
15, 2015; & V. Roth, personal communication, June 13, 2015). In addition, the RGC
will lose tariff revenue from imported ASEAN’s products. So, Mr. Roth Vathana
105
recommended that the RGC should improve domestic tax collection, especially on
luxurious products (V. Roth, personal communication, June 13, 2015).
ADB suggested that appropriate action, including domestic structural reforms
and bold initiatives for regional integration, ASEAN could triple their per capital
income by 2030 (Chheang, 2015). “Cambodia is using integration to undertake
reform” said by H.E Kao Kim Hourn and one anonymous researcher (Anonymous,
personal communication, June 15, 2015; & Kao, 2015). Supporting this idea, H.E
Sok Siphana (as cited in Postplus, 2015) said that “WTO was the first wave of
economic reform. Now that the trade barriers are down, I would say that AEC has
given Cambodia the impetus to move for a second generation of reform and
investment.” As a result, the RGC are investing and improving human resources
development, infrastructure investment and trade facilitation, agriculture, and
governance and public institutional capacity to prepare for AEC (Chheang, 2015).
So, it is possible to say that AEC encourages Cambodian government to reform by
focusing on the four aforementioned areas that will benefit to poverty reduction.
Therefore, H.E Kao Kim Hourn said that “integration is better than isolation” (Kao,
2015).
2. Recommendation
Given the fact that policies in ‘single market and production base’ pillar are
pro-poor growth, except some specific actions and policies, the RGC need to take
some actions to prevent the bad impacts that can directly and indirectly affect the
poor, which would slow down the poverty reduction effort of the RGC.
106
There are two areas that the government need to pay attention. First, in the
area of free flow of goods, the RGC needs to improve the capacity of SMEs in
Cambodia to produce more qualified products with competitive price compared to
other ASEAN’s SMEs. In addition, in the area of free flow of investment, in order to
avoid the bad impacts resulting from investment protection including repatriation and
compensation, investment climate in Cambodia needs to be improved in order to
prevent such things to happen. In term of liberalization of investment, the RGC needs
to carefully implement this policies since it can affect the effort of government to
choose QIPs.
The RGC has already produced good policies dealing with these bad impacts
already, which are listed in the aforementioned Cambodia’s Poverty Reduction
Strategy. For instance, the second area, “promoting private sector, urbanization, and
non-farms job”, contain some policies than can deal with free flow of investment and
free flow of goods problem such as “strengthening the private sector and promote
investment and business” because strengthening capacity of SMEs and promoting
investment climate are mentioned in this policy. Therefore, the government needs to
effectively implement this strategy since it contains the solution to solve bad impacts,
not only these problems being mentioned, but also other future problems.
Integrating into AEC, I believe that the poor in Cambodia would be able to
improve their living standards even though some bad impacts are resulted from the
first pillar of AEC because AEC is platform that encourages the RGC to implement
its poverty reduction strategy effectively.
107
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http://www.worldbank.org/en/news/press-release/2014/02/20/poverty-has-
fallen-yet-many-cambodians-are-still-at-risk-of-slipping-back-into-poverty
WTO. (2015). Technical information on rules of origin. Retrieved from
https://www.wto.org/english/tratop_e/roi_e/roi_info_e.htm
Zachau, U. (2014). And now for the really hard part. The World Bank. Retrieved
from http://www.worldbank.org/en/news/opinion/2014/02/19/and-now-for-
the-really-hard-part
126
Appendices
A.1. Summary of Cambodia’s Poverty Reduction Policy
Promote agricultural sector
Improve productivity diversification and commercialization of
agriculture sector
Improve agricultural productivity through strengthening
sustainability of extension services and market information,
promoting R&D, promoting the use of quality seeds, investing in
irrigation infrastructure, enhancing regulatory framework,
importing of agriculture inputs, and developing human resources
Promote agricultural diversification through launching a multi-
crop green revolution by providing a large-scale application of
fertilizers, high yielding variety seeds and pesticide for production
expand and export, attracting private investment, intensify
cooperation with all stake holders to transfer knowledge and
technologies to farmers, and promoting the use of agricultural
machinery
Promote commercialization by strengthening institutional
arrangements to promote trade and export
(Source: Ministry of Planning, 2014, p. 36-37; & RGC, 2014b, p.
33-35)
Promote livestock farming and aquaculture
Implement Strategic Planning Framework for Fisheries 2010-2019
to boost fish production to serve domestic consumption and export
market
Promote the development and implementation of livestock farming
policy and strategy
Enhance R&D in fisheries such as breeding, animal health and feed
production, and farming systems in livestock and aquaculture
sector
Promote the adoption of the law on animal health and production
to strengthen enforcement of sanitary standards for animal product,
prevent and combat the animal diseases outbreak, and protect
public health
Encourage investment in medium and large scale animal feed
production to support livestock farming by improving the
extension services system, animal breeding, and credit and market
access for farmers, proving incentive for private investment,
127
establishing modern slaughterhouse, and facilitating trade in
livestock
(Source: Ministry of Planning, 2014, p. 36-37; & RGC, 2014b, p.
35-37)
Land reform and clearance of mine and UXO
Promote the formulation of a comprehensive land policy
Promote the preparation of Law on Land Management and
Urbanization and Law on Agriculture Land
Speed up land registration and issuance of land titles via regular
process of land registration and implementation of the “Old Policy-
New Action”
Implement land reforms to cut down excessive land fragmentation
for maximizing land use and ensuring income to the farmer
Promote the creation of the database of land management and land
use to provide the basis for the proper planning of land use and
land classification in order to rationalize use of land and avoid
inappropriate use or conversion the land title
Guarantee transparent and efficient management, conservation and
use of land, and natural resources to ensure sustainability of the
environment and socio-economic development , prevent illegal
encroachment, intensify the drive for confiscation of economic
land concession in the case of violation of contract agreement or
law, and halt granting new economic land concessions.
Further use and distribute state land to the poor who have real
need, landless farmers, and uneconomical small landholding
framers
Provide tax-free of the land on household farms, and support the
farmers in enhancing productivity of land use
Solve land dispute in an effective, transparent and just manner
Clear mine and UXO out of the land to increase arable land and
secure safety of infrastructure development
(Source: Ministry of Planning, 2014, p. 36-37; & RGC, 2014b, p.
37-40)
Sustainable management of natural resources
Manage forest and wildlife resources in a sustainable and equitable
manner by implementing National Forest Program 2010-2029
Strengthen the management and conservation at fishery resources
in a sustainable manner
128
Intensify the implementation of necessary measures to ensure the
sustainability of the ecosystem to maintain quality of soil and water
to serve the agriculture sector
Cooperate with development stakeholders to regulate carbon
trading and other issues related to environment protection and
climate change adaptation
(Source: RGC, 2014b, p. 40-43)
Promote private sector, urbanization, and non-farms jobs
Strengthen the private sector and promote investment and business
Promote investment in modern and high value added industrial
sector to diversify manufacturing base
Encourage more investment in rural area to develop rural economy,
reduce the gap between rural and urban areas, improve welfare of
the people, and reduce migration from rural to urban area and to
abroad
Attract FDIs
Improve favorable investment and business climate
Maintain financial and macroeconomic stability to
guarantee foundation for industrial development
Rationalize the current economic rents in order to revise
tax policies to increase fiscal space for investment in
industrial sector to reflect
Review and amend Law on Investment and Law on
Taxation to reflect the current situation and need of
industries, and to promote local content
Review existing investment projects and provide
favorable treatment or privileges to attract more QIPs
Enhance the legal and regulatory framework such as
through reviewing of incentive provided to investment
and improving good governance and efficiency of public
institution including strengthening government in
concerned institution such as the CDC’s “one stop
service” process or “single window”
Review and change requirement for QIP approval, and
clearly define condition for cancelling issued license
Develop professional investment aftercare services
Provide and strengthen aftercare services such as to
address investor’s issues and concern related to their
investment projects
Attract and orient prospective investors to make their
investment in potential industries with firm commitment
129
and high professionalism to secure Cambodia’s status as
a desirable investment destination
Strengthen G-PSF in order to help addressing challenges
facing private sector
Strengthen the enforcement of law and regulations
related to EIA, and guarantee compliance with required
environmental and technological standards, particularly
to preserve the quality of water and surrounding
environment
Strengthen law and regulatory enforcement in WTO on
trade technical barriers
Skill training and labor recruitment
Short-term
Strengthen the general education system
Include soft skill needed by industry into general
education curriculums
Promote vocational and technical training programs
Strengthen education quality at the primary and
secondary levels
Establish more technical secondary schools, in both
formal and informal education system
Expand informal education system to equip factory
workers with basic knowledge and to develop their skills
and technical capacity
Create a system of equivalent certificate that enable
workers to go through competency testing and receive
certificates in their respective levels of informal
education
Strengthen labor recruitment process including the
provisions of labor market information and education
about their legal rights to reduce the cost of getting a job
Initiate the study on industrial relations in order to
prevent and solve labor conflicts to improve labor
productivity in long run
Medium to long-term
Promote the welfare of worker by promoting housing
policy enabling them to own house, to live with their
families, and to prevent frequent relocation, which
causes labor shortage
Strengthen tertiary education in areas related to
agriculture, sciences, technology, and engineering
130
Infrastructure for industrial development
Short-term
Improve physical infrastructure including road, power
and water supplies, and other supporting infrastructure
and facilities
Solve and eliminate electricity shortage by 2018 with
stable electricity and competitive prices
Improve the capacity and quality of energy transmitting
line to key industries areas
Study Cambodia’s long term energy needs and its power
development plan in accordance with its development
visions, and consider to build high capacity power plants
in order to supply electricity to strategic industrial
regions
Expand water supply in urban areas, industrial zones and
SEZs
Review all potential resources in the country to develop
heavy industry
Medium to long-term
Develop and maintain road transport particularly key
national road linking to ports and border exit points
along the Southern Economic Corridor to well connect
with Thailand and Vietnam, and develop new high ways
to strengthen transport and logistic capacity
Develop railway to link within Cambodia and with
neighboring countries
Develop maritime transport along the river to reduce
logistic cost
Promote air transport to link the region and the world in
accordance with ‘open sky policy’
Advocate infrastructure development such as road
access, drainage system, power and water utilities, and
crucial transport services connected to SEZs and other
industrial areas
Solve traffic jam at the outskirts of Phnom Penh by
building ring roads, feeder roads, and relief roads to
guarantee smooth traffic movement along Southern
Corridor
Establish coordinating mechanism to develop a
multimodal transportation and logistics system linking
all targeted industrial areas and regions
131
Modernize local enterprises, improve their innovation capacity,
and strengthen the links between local enterprises and domestic
industries to promote transfer of technology and knowledge to
increase productivity and to improve Cambodia’s attractiveness
and competitiveness
Promote more investment in physical infrastructure and SEZ to
facilitate and support business processes
Strengthen corporate governance to promote health and growth of
private sector and CSR
Address the challenges faced by private sector
Strengthen the monitoring and evaluation system in implementing
investment projects to guarantee compliance with stipulated
principles and conditions
(Source: RGC, 2014a, p. 15-18; & RGC, 2014b, p. 53-56)
Development of industry and SMEs
Expand industry base supported by increasing Cambodia
attractiveness to investor and promoting investment including
modernizing SMEs
Improve connectivity with regional production network to integrate
with and increase global value chains
Establish science and technology policy to increase R&D
capability for responding to the projected needs of national
development in the higher phase
Update SMEs development framework to make it consistent with
IDP in order to enhance SME’s capacity to link with large
enterprise and form a cluster by promoting entrepreneurship,
creativity, productivity, innovation and specialization through
introduction and implementation of a comprehensive package of
supporting measures such as clustering, enhancing technology
transfer, increasing access to finance, strengthening technical
standards, establishing business development counselling centers,
promoting “one village one product” movement, improving
regulatory framework, and strengthening institutional coordination
Promote industrial corridor development along the main national
roads to link Cambodia’s economic poles and connect her
economy with neighboring countries
Strengthen development process in extractive industry
Develop human resource in skill training for industrial sector
Develop industries in which sectors Cambodia could develop
comparative advantage
132
Encourage and facilitate urbanization
Industrial zoning and SEZs development
Launch a master plan for industrial zoning and development
in order to promote competitive SMEs and industries in
designated provinces through providing essential supports
including regulatory and administrative facilitation, technical
assistance for capacity building and business development,
provision of market access and information, basic
infrastructure, and support to foster better industrial relation
and community building
Promote spatial planning and urban development to
coordinate industries activities in order to enhance land use
planning, environmental management, residential
development, infrastructure development, and accessibility to
public health and education facilities
Transform and develop Phnom Penh city into an industrial
agglomeration
Provide sufficient cheap power supply to industries
Strengthen administrative and institutional capacity to
effectively manage SEZs operations in order to reduce their
costs in doing business
Develop guidelines on procedures and standard fees charged
to the investors for receiving public services in SEZs
Promote specialized SEZs in targeted priority industries such
as agro-processing and export
Strengthen the role of Conflict Resolution Committee at SEZs
in order to timely respond or address issues
Study the development of provinces having coastal areas into
extra industrial corridor
SMEs upgrading and modernization
Short-term
Review framework and mechanism for SMEs development,
which focuses on improving registration, management, and
monitoring processes that encourage industries in Cambodia
to officially register their business with relevant authorities,
particularly with real tax regime
Inform prospective and registered SMEs about available
support, benefits, and protection provided by the RGC
Facilitate technology transfer through study tour and training
Establish R&D fund managed by highly professional and
independent organization with an innovative business model
133
Strengthen capacity of standardization and conformity
assessment
Improve capacity of SMEs to promote stronger and dynamic
industries by providing special skill trainings to address skill
shortage in priority sector, and providing scholarships to
students to study engineering and vocational training either in
the country or abroad
Promote the capacity of higher education institutions to
support the development of adequate number of engineers and
technicians for SMEs and promote technology absorption by
SMEs
Promote activities promoting SMEs development such as
giving awards for technical skill contests
Encourage inter-professional organizations to share
information or knowledge and to dialogue with the
government in resolving their concerns and challenges
Enhance SMEs corporate governance
Medium to long-term
Promote development of private research institutions that are
specialized in SMEs issues and connect them with vocational
training centers to address SMEs challenges related to
productivity improvement such as planning and access to
technologies
Provide other support to SMEs in order to facilitates their
access to finance and new technology
Broker connection between SMEs and multinational
enterprises to help them access to capital, technologies and
markets
Created a government-run research institute fully offering
science and technology development, and provide appropriate
laboratory facility
Support capacity development of standard and measurement
to guarantee consistent volume, quality, safety, environment
and management
Enhance the capacity of national productivity center to
promote productivity and quality of SMEs
134
Export promoting and trade facilitation
Short-term
Encourage SMEs or manufacturing industries to export new
products by offering incentives to outstanding firms for their
innovative business model, volume of export, and new
products
Create export promotion agency that offers trading skills and
information on foreign markets and assists exporter to
participate in trade fairs
Establish policy-financing institutions that is responsible for
funding exporting industries in the priority sectors to reduce
uncertainty and export risks
Encourage the establishment of SMEs or industries
associations by sector in order to share knowledge and
enhance communication with the government
Encourage science and technology development with the
support from government including the investment in
equipment
Use the existing Cambodia Productivity Center to provide
service to SMEs
Strengthen the capacity of Cambodia Institute of Standard in
order to research and prepare national standard of service and
production by following regional and international standard
Strengthen the capacity of Cambodia Measurement Center to
prepare procedure for inspection, verification, calibration,
texting and adopted measurement tools using in the industry
Medium to long-term
Enhance trade facilitation through improving administrative
and regulatory processes and procedures, upgrading cross-
border transport and trade facilitation mechanisms,
implementing measures to reduce costs of doing business
across the board, and strengthening institutional coordination
Increase investment in both hard and soft infrastructure to
improve facilities and services for supporting industrial
operations
Implement regional integrations such as the GMS-CBTA and
ASW to integrate Cambodia into an efficient and effective
regional transport and logistic system
Strengthen institutional capacity in order to develop
standards, metrology and quality certification system
Improve the ASYCUDA to make it user-friendlier
135
Improve custom clearance procedure for the duty-free
importation of goods under QIP projects and make them more
effective through strengthening cooperation between CDC
and CDGCE and eliminating costs related to documentation,
trade facilitation and other informal fees.
Investment and financing
Short-term
Establish fund and later specialized bank for industries
Provide fund from the national budget to support
implementation of IDP activities
Develop mechanisms in order to issue government bonds and
securities to finance potential industrial projects
Develop other financial arrangement such as government
investment guarantee, risk sharing and credit guarantee
schemes to increase more accesses to finance of the industries
Develop legal and regulatory framework to make the
government participate in industrial development such as
through PPP
Medium to long-term
Strengthen securities market in order to mobilize financial
resources for industrial development including issuing
treasury bills and government securities to finance key
infrastructure projects to promote industrial activities
Strengthen national saving system through development of
money markets including interbank, pension fund and
insurance systems to channel national saving into the
development of industries
Technology transfer, innovation and industrial patent
Short-term
Transfer technology to handicraft
Strengthen the management of innovation and creative center
in order to promote invention and train industrial patent
Improve efficiency of industrial patent through cooperation
and partnership country and facilitate in registering
representative agency
Medium to long-term
Improve human resource in the purpose of R&D of industrial
technology
Cooperate and promote research activities and encourage
science, technology and innovation
136
Establish science and technology park that link to industrial
park and SEZ in order to provide research and lab services
Automate patent registration system
(Source: RGC, 2014a, p. 18-23; & RGC, 2014b, p. 56-59)
Development of labor market
Develop and implement a national employment policy to align the
employment sector to the demand of socio-economic development
Strengthen the Employment Forum coordinated by the RGC and
the stakeholders to improve labor market information exchange,
and to counsel and respond to changing market conditions
Expand employment services to job seekers, and enhance a broader
distribution of information on job opportunity within the country
and abroad to the public
Develop a sound labor market information system
Improve human resources and focus on technical capacity to
respond to the needs of socio-economic development, and
encourage private sector participation to promote higher
productivity and income for workers and employers
Improve educational, and technical and vocational training sectors
particularly in developing their frameworks and standards to
facilitate transfers of students from technical and vocational
training to higher education
Enhance labor conditions
Strengthen harmony in industrial relations between workers,
employees, and employers
Conduct regular studies in order to provide recommendations for
reviewing and determining minimum wages, and setting
mechanism to protect the interest of workers and employees in case
of factory bankruptcy
Strengthen the administration of recruitment of labor to work
abroad, and improve protection of rights, health, and safety of
Cambodia’s overseas workers
(Source: RGC, 2014b, p. 59-62)
Banking and financial sector development
Develop and coordinate implementation of policy and regulatory
frameworks especially in strengthening regulation and supervision
mechanisms, institutional and human resource capacity, to parallel
with Cambodia’s economic development and need of Cambodia’s
137
financial system to integrate with the regional and global financial
system
Develop a crisis prevention and resolution mechanism to establish
a national financial stability board
Strengthen and develop effective financial infrastructure such as a
payment system, introduction of money market or interbank
market, and promotion of the use of international best practices in
accounting and corporate governance
Promote financial inclusion
Put more effort in expanding microfinance services targeting the
poor and agricultural communities to promote the rural economy,
and further expand credit to SMEs
Expand the scope of compulsory insurance especially in life and
micro insurance by developing and improving regulatory
frameworks along with strengthening capacity of insurance
regulator
Improve security market by encouraging firms to launch IPOs in
market, while improving trading facilities, and considering the
need to issue government securities
Improve social safety net systems in order to make it centralized,
integrated, consistent and efficient
Develop and strengthen other components of the non-banking
financial subsector such as trust funds, real estate market and pawn
shops
Establish a financial center
(Source: RGC, 2014b, p. 62-65)
Developing human resource and improving the capacity
Strengthen and enhance education, science and technology, and technical
training
Build and develop a high quality and capable human resource with
high standard of work ethics in order to meet the need of socio-
economic development and to strengthen the competiveness of
Cambodia through developing and improving education policies
and strategies
Improve human resource in science and technology, especially in
the priority sectors that are agriculture, livestock and farming and
aquaculture, industry, energy, construction and physical
infrastructure, ITC, healthcare and environment through
mainstreaming scientific and technological knowledge and its
applications in the academic curriculums at all levels and
138
promoting R&D including the introductions of a research network
model linking universities, public institutions and industry
Enhance equal access to education by building more schools—
elementary schools in remote villages, at least one secondary
school in each commune subject to geographic conditions and at
least one university in each province—, deploying teachers to all
those schools by allowing them to work in their own villages and
communes, increasing amounts of dormitories, reducing the cost
incurred by parents, increasing spending budget for educational
institutions, and strengthening engagement of private sector and
concerned development partners. In addition, the government
needs to continue institutional development and capacity building
by developing legal framework, and strengthening the
implementation of laws, organizational structure and skills training
for education officials
Improve quality and effectiveness of educational services all levels
in the line with international standards and meet domestic
development needs through training the teachers, improving
curriculums, strengthening inspection and management capacity,
increasing teachers’ teaching ability by improving their motivation,
encouraging the study of foreign languages deemed important,
improving learning environment, expanding libraries and science
laboratories, increasing learning materials supply, and increasing
purification of parents, guardians and communities in education
Improve ethics, morality and behavioral values in the students by
promoting the role of religion in education. Promoting the
formulation and implementation of a national policy on education
and technical and vocational training is also very important in
order to improve productivity of the workers, address and reduce
youth unemployment, increase the income of the people, and
ensure equity
Strengthen the quality of education and technical and vocational
training and the development of technical and soft skills for youths,
particularly team work, discipline and professional ethnics at
workplaces via reforming the training curricula and programs,
strengthening national qualification standards framework,
launching national competency standards, monitoring and testing
of competency, skill recognition, development and contest to fulfill
the demand of labor market, and increasing employment
opportunities and using all the potential of Cambodia’s
demographic dividend, and creating plus creating appropriate
139
conditions for Cambodia’s workers to take up management and
leadership roles
Promote the implementation of National Policy on Youth
Development and the National Policy on Physical Education and
Sports through inspiring youths to join social movements and
sports activities that will improve their quality, capacity and
desired attribute for the development of socio-economic
development and smooth succession from the present to future
generations
Develop National Stadium and related sports facilities, and train
athletes and sportsmen in the potential fields of Cambodia in order
to prepare for the hosting of the SEA Game in 2023
(Source: RGC, 2014b, p. 66-70)
Promotion of health and nutrition
Develop and enhance health sector policies and strategies,
strengthen and improve regulatory framework particularly for
private health institutions at all levels, improve awareness among
physicians, health workers, and health staff and service users about
patient rights, promote partnerships with private sector in
delivering health services, and encourage the community to
participate in health sector development
Develop supporting infrastructure in health sector through IT
application and extension in order to strengthen the health sector
database system
Increase access to health services through expanding coverage and
outreach of public health service by bringing them closer to the
public through developing infrastructure in health sector such as
construction of referral hospitals, health center and health posts
based on geographic and demographic conditions, and provide
those buildings with facilities, equipment, medicines and medical
staff with appropriate skills
Improve equity in access to health services through expanding fund
and payment schemes for the poor, developing insurance system to
protect the poor form the risk of excessive health spending
Improve the quality of health services
Strengthen clinical techniques and management capacity of
physicians, medical staff and health officials through improving
quality of basic, advanced and specialized training, strengthening
enforcement of professional ethics, and deploying more physicians,
pharmacists, dentists, mid-wives, nurse and medical assistants to
all public health centers especially in rural areas
140
Increase awareness of hygiene and improve sanitary conditions
people in order to maintain good health and reduce prevalence and
spread of diseases
Improve reproductive, maternal and infant health through
improving quality and effectiveness of reproductive, maternal,
infant and children healthcare services
Reduce morbidity and mortality rates caused by major infectious
diseases for example HIV, TB, malaria and other tropical diseases
including newly emerged and re-emerged diseases with more
efforts on complete elimination of malaria by 2025, and morbidity
and mortality rates caused by chronic non-infectious diseases
related to, such as, food safety, drug use and climate change
Cooperate with development partners and other stakeholders in
order to improve public services, especially for important health
programs such as reproductive healthcare and women and children
nutrition programs
(Source: RGC, 2014b, p. 70-74)
Enhancing implementation of population policy and gender equity
Develop a policy for managing the people’s movement in
accordance with the implementation of strengthened land
management and urban planning, which focus on development of
Phnom Penh, and other key economic poles and urban areas of the
country by creating jobs in these communities, and linking satellite
cities and urban areas with important economic poles and centers
to from economic corridors
Develop human resources by strengthening their quality and work
ethic standards through implementing a variety of interconnected
measures in related sectors such as education, science, technology,
research, technical and vocational training, and health
Promoting the role of women and youth in the economy through
strengthening vocational training programs, equipping them with
technical and entrepreneurial skills, and empowering them
Promote the role of women in public sector through increasing
gender ratio in line ministry management and strengthening their
ability to pursue leadership at both management and technical
levels
Eliminate violence against women and fostering the culture of non-
violence to improve morality in the society and status of women
Enforce law to be more effective in measures against human
trafficking and sexual exploitation of women and children
141
Promote welfare and rights of children as stipulated in the
International Convention on Children’s Rights
Create favorable conditions for youth to become worthy successors
of the present generation and to enable their participation in
leadership and socio-economic development and protection of
society’s achievements by promoting youth to take up more
responsibility for development management at all levels
Mainstream gender in government initiatives and respond to the
needs of youth in national policy and development plans in all
sectors and at every level
(Source: RGC, 2014b, 78-81)
Develop of social protection system to protect the poor and to address
vulnerability
Improve the social protection policy framework and strategy
including “National Social Protection Strategy for the Poor and
Vulnerable 2011-2015” and other related document
Promote and develop a mechanism for institutional coordination
comprising harmonizing the existing intervention schemes, and
studying and analyzing target areas of protection, instruments and
implementation arrangement in the purpose of increasing efficient
use of resources and filling the gap in social protection for the poor
and vulnerable people
Implement and strengthen the national policy and law on disability,
promote the enhancement of rights and welfare of the disable
persons according to the United Nations Convention of the Rights
of Person with Disabilities, and improve the quality and efficiency
of the disability fund’s services
Protect elderly people through promoting the National Policy for
the Elderly People, strengthening the association of senior citizens,
promoting welfare programs for elderly people at community level
and care programs for seniors at family level, and improving
arrangements and processes in providing services to the elderly
people including provision of training for their care providers
Respond to disasters by strengthening mechanisms with focus on
victims’ protection during and after disasters through strengthening
relevant institutions and mechanism by increasing collaboration,
cooperation and coordination with all related stakeholders such as
national and international humanitarian aid agencies
Strengthen food security through various mechanism
142
Enhance the ID-Poor Scheme in order to provide free health care,
crop insurance, food for work, conditional cash transfer and social
assistance program
Provide three safety net programmes namely welfare payment for
specific vulnerable groups, scholarship for poor children in lower-
secondary schools, and health equity funds (HEFs)
Intervene in the health sector in order to improve the sanitary
conditions, prevent epidemics and other health risks, promote
wellbeing of mothers, infants and children by focusing on
correction of malnutrition, expansion coverage of the equity fund,
extension of voluntary health insurance schemes with more
attention on those in the formal economy
Create more job opportunities via support such as training and
retraining in technical, professional, and entrepreneurship skills
provided to the poor and the vulnerable people in order to help
self-employment of workers or facilitate their job search in the
market
Introduce a package of flexible measures according to prevalent
circumstances in the purpose of providing protection to the
vulnerable people during future economic crisis
Implement measures to distribute land through social land
concessions and grants to the poor who are either landless or with
limited land in accordance with RGC’s land reform policy
Reduce financial exclusion among the poor by enhancing financial
inclusion through expansion of coverage and intermediation of
microfinance and micro-insurance services at affordable process
and favorable terms and conditions
Expand occupational risk insurance and make arrangement to
implement health insurance scheme for workers, employees and
their dependents, and pension fund for workers and employees
(Source: Ministry of Planning, 2014, p. 35-36; & RGC, 2014b, p.
74-77)
Development of physical infrastructure
Develop transport and urban infrastructure
Step up the construction of national, provincial and rural roads,
paving target of 300-400 km additional roads per year, with asphalt
or concrete pavement
Direct attention to the repair and maintenance of the transport
system—especially roads—by strengthening mechanisms and
143
enhancing road repair and maintenance system, including effective
and strict enforcement of punitive measures against overloading
Focus on traffic safety by improving and enforcing the “Law on
Land Traffic”, including restricting enforcement of measures
against traffic violation, strengthening vehicle safety inspection
and the system for issuance of vehicle roadworthiness certificates,
strengthening the mechanism for issuing driving licenses, installing
traffic signs, facilitating traffic flow, improving professional ethics
and competence of law enforcement officers, and promoting public
awareness and distributing of information on traffic safety
Design and implement the Master Plan for Transport Infrastructure
Development to connect every parts of Cambodia with the
neighboring countries through developing multi-modal and cross
transport systems along with an efficient and competitive logistics
system in order to encourage investment, trade, tourism, and rural
development by focusing on railroad restoration and development,
development of airport and seaport infrastructure, assessment the
potential for investment inland waterway transport, finding of
alternatives to monopolistic transport services, and strengthening
of implementation of various cross-border agreements and
protocols signed by Cambodia
Prepare necessary policies and legal framework for the
management and development of infrastructure, which include
such as regulations addressing road standards and quality, and the
Law on Port and the Law on Road transport to ease the
implementation of Master Plan for Transport Infrastructure
Development
Prepare a Master Plan for Urban Infrastructure Development,
especially public transport in urban areas and connectivity of
production centers on the outskirts of municipalities, and main
economic poles in order to reduce traffic congestion, improve
national economic efficiency and competitiveness, improve
people’s welfare, and ensure environmental sustainability by
consistency with the framework of land management and urban
planning including National Policy on Housing, laws related to
land management, urbanization and construction, National Strategy
on Development of Municipal and Urban Areas, installation of
solid and liquid waste management system, and fire prevention and
fighting system
Encourage participation of the private sector in developing
transportation infrastructure through strengthening the “public-
144
private partnership” mechanism via promoting public private
partnership policy in Cambodia to attract and facilitate the
implementation of infrastructure projects financed by private sector
(Source: RGC, 2013b, p. 43-46)
Water resources and irrigation system management
Expand irrigation system through mobilizing public and other
resources to increase irrigation capacity, and focus on improving
standards and quality of irrigation infrastructure, effectiveness of
investment and construction of water storage reservoirs, and
development of a fully extended irrigation system in focus on the
adaptation to climate change
Enhance the effectiveness of irrigation system management by
emphasizing on strengthening policy and legal frameworks and
water use mechanisms, improving maintenance and financing
through formulation and implementation of a master plan for the
management of water resources and irrigation system, further
strengthen maintenance mechanisms, and repair and rehabilitate
irrigation systems including formulation and implementation of
legal arrangements related to the management of farmers and water
users associations, river basins and water quality, and human
resources and institutional developments
Improve institutional coordination in order to harmonize
development of irrigation infrastructure, hydropower and
transportation to increase effectiveness of investment and use of
water resources
Improve the sustainable use of water resources through vigorous
implementation of “Law on Water Resources Management of the
Kingdom of Cambodia” and other relevant laws
Enhance food management and prevention by developing water
release infrastructure, flood prevention dams, water storage
reservoirs and water diversion channels in order to reduce impact
from floods
Expand the coverage of clean water supply to the rural and urban
areas and encourage private sector to participate in this issue
Strengthen the monitoring, forecasting, and institutional
mechanism for distribution of timely and more accurately
hydrological and meteorological information in order to ensure
safety of cultivation and to prepare for adverse effect of disasters
Increase the involvement in international cooperation in the water
sector in order to ensure the sustainable and effective use of water
145
resources, and to address negative impacts of floods, droughts and
climate change
(Source: RGC, 2014b, p. 46-48)
Electrical power development
Expand the capacity of low-cost and hi-tech electricity production
particularly new and clean energy sources in order to strengthen
energy security and ensure efficient, safe, high quality, reliable and
affordable electricity supply and distribution
Encourage private sector to invest in electricity generation, and
transmission and distribution infrastructure by emphasizing on
technical economic efficiency and minimization of environmental
and social impacts
Speed up the implementation of the electrification strategy in order
to supply electricity to all villages in Cambodia by 2020
Support the rural electrification fund in order to provide equitable
electricity access for the population
Rationalize measures for electricity consumption by reducing
power tariffs during off-peak hours to serve production and
irrigation systems in order to enhance agricultural productivity and
boost up the development of industry and handicraft sectors
Increase the exploration and commercialization of the oil and gas
sector having enormous potential to guarantee energy security, and
proving valuable resources for Cambodian economic development
in the long term
Enhance Institutional capacity, human resources, and planning and
management of the energy
Involve actively in energy cooperation under the regional
framework
(Source: RGC, 2014b, p. 48-50)
Develop ICT
Prepare the national policy for the development of ICT sector with
greatest consideration of all social and economic aspects
Promote the adoption of the Law on Telecommunication and the
preparation of related laws such as those on Cyber-crime and e-
commerce, which is necessary for the effective management of the
ICT sector
Boost the implementation and preparation of additional regulations
for the telecommunication sector and ICT sector
146
Strengthen the role of supervisory institutions and improve
institutional coordination in order to develop and manage this
sector with transparency and efficiency
Prepare and implement the National Broadband Plan in the purpose
of helping promote innovation, human resource development,
competition, enhancement of economic productivity, and greater
participation from the public in socio-economic development
Expand the coverage and improve the efficiency of the backbone
infrastructure, especially by encouraging greater use of this
infrastructure and expanding to areas with high economic and
tourism potential, and remote areas without or with limited
telecommunication services
Promote human resource development in order to respond to the
fast growing modern technologies, and enhance public literacy
level in ICT in order to improve more efficient use and to derive
maximum benefit from this sector through strengthening all levels
of education curriculums, training government officials and
encouraging the private sector to participate in enhancing public’s
literacy in ICT
Further develop e-Government
Encourage private sector to invest in modern and state-of-the-art
technology including broadband internet, Cloud technology and
software development to improve the quality and efficiency of ICT
(Source: RGC, 2014b, p. 50-53)
147
A.2. Consistency of Policies in AEC’s First Pillar and Poverty Reduction
Strategy
AEC Policy Cambodia’s Poverty Reduction
1. Free flow of goods
Eliminate Tariff No Consistent policy
Eliminate NTBs No Consistent Policy
ROO Promote Private sector,
urbanization, and non-farm jobs
o Strengthen the private sector
and promote investment and
business
Attract FDI
Improve favorable
investment and
business climate
Promote local
content
Trade Facilitation Promote Private sector,
urbanization, and non-farm jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
o Develop and implement
a comprehensive trade
facilitation work
programme which aims
at simplifying,
harmonizing and
standardizing trade
customs, process,
procedures and related
information flows
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
SMEs upgrading and
modernization
Strengthening
capacity of
standardization and
conformity
assessment
Export promoting and
trade facilitation
Create export promotion agency
that offers trading skills and
information on foreign markets and
148
assists exporter to participate in
trade fairs
o Promote transparency
and visibility of all
actions and interventions
by all stake holders
within international
trade transactions
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Improve the
ASYCUDA to make
it user-friendlier `
o Establish a regional
trade facilitation
cooperation mechanism
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Enhance trade
facilitation through
improving
administrative and
regulatory processes
and procedures,
upgrading cross-
border transport and
trade facilitation
mechanisms,
implementing
measures to reduce
costs of doing
business across the
board, and
strengthening
institutional
coordination
o Establish Trade
Facilitation Repository
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
149
Create export
promotion agency
that offers trading
skills and information
on foreign markets
and assists exporter to
participate in trade
fairs
o Develop national level
measures to support and
ensure effective
implementation of
regional level initiatives
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Strengthen the
capacity of
Cambodia
Measurement Center
to prepare procedure
for inspection,
verification,
calibration, texting
and adopted
measurement tools
using in the industry
o Develop a
comprehensive capacity
building programmes to
ensure smooth
implementation of the
work programme
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Industrial zoning and
SEZs development
Promote competitive
SMEs and industries
in designated
provinces through
providing technical
assistance for
capacity building and
business development
Customs Integration Promote private sector,
urbanization, and non-farms jobs
150
o Development of industry and
SMEs
Export promoting and
trade facilitation
Improve custom
clearance procedure
for the duty-free
importation of goods
under QIP projects
o Modernize customs
techniques, guided by
simple and harmonize
customs procedures and
formalities in line with
international s via the
implementation of
regional models of
processing of cargoes
and shipments
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Improve the
ASYCUDA to make
it user-friendlier
o Establish ASEAN
Customs Transit system
to facilitate movement
of goods and means of
transport
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Infrastructure for
industrial
development
Establish
coordinating
mechanism to
develop a
multimodal
transportation
and logistics
system linking
all targeted
industrial areas
and regions
o Development of industry and
SMEs
151
Export promoting and
trade facilitation
Enhance trade
facilitation through
upgrading cross-
border transport and
trade facilitation
mechanisms
Implement regional
integrations such as
CBTA and ASW to
integrate Cambodia
into an efficient and
effective regional
transport and logistic
system
o Establish ASEAN
Customs system dealing
with special customs
regimes such as
Temporary Admission,
Outward processing and
Inward Processing with
the view to facilitate
integration of production
and supply chains
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Improve connectivity with
regional production
network to integrate with
and increase global value
chains
o Adopt international
standards and practices
to secure a uniform
system of tariff
classification, a
synchronized system of
value assessment for
customs purposes and a
harmonized system of
origin determination,
and information
exchange where
possible.
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Improve the
ASYCUDA to make
it user-friendlier
o Implement ASEAN e-
Customs
Promote private sector,
urbanization, and non-farms jobs
152
o Development of industry and
SMEs
Export promoting and
trade facilitation
Improve the
ASYCUDA to make
it user-friendlier
Development of physical
infrastructure
o Develop ICT
Further develop e-
Government
o Promote mutual
assistance for better
customs efficiency and
effectiveness
No consistent policy
ASEAN Single Window Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Implement regional
integrations such as
CBTA and ASW to
integrate Cambodia
into an efficient and
effective regional
transport and logistic
system
o Operationalize National
Single Window
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment and
business climate
Enhance the
legal and
153
regulatory
framework …
including
strengthening
government in
concerned
institution such
as the CDC’s
“one stop
service”
process or
“single
window”
o Standardize data
elements based on WCO
data model, the WCO
data set and UNTED
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Export promoting and
trade facilitation
Improve the
ASYCUDA to make
it user-friendlier
o Accelerate the
introduction of ICT for
digitalized processing
and exchange
Development of physical
infrastructure
o Develop ICT
Standards and technical
barriers to trade
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment and
business climate
Strengthen law
and regulatory
enforcement in
WTO on trade
technical
barriers
154
o Harmonize standards,
technical regulations and
conformity assessment
procedures through their
alignment with
international practices
where applicable
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
SMEs upgrading and
modernization
Strengthen capacity
of standardization and
conformity
assessment
Export promoting and
trade facilitation
Strengthen the
capacity of Cambodia
Institute of Standard
in order to research
and prepare national
standard of service
and production by
following regional
and international
standard
o Develop and implement
sectoral MRAs on
Conformity Assessment
for specific sectors
No consistent policy
o Improve technical
infrastructure and
competency in
laboratory testing,
calibration, inspection,
certification and
accreditation based on
accepted regional or
international procedures
and guides
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Infrastructure for
industrial
development
Improve
physical
infrastructure
including road,
power and
water supplies,
155
and other
supporting
infrastructure
and facilities
o Development of industry and
SMEs
SMEs upgrading and
modernization
Create a government-
run research institute
fully offering science
and technology
development, and
provide appropriate
laboratory facility
o Development of labor market
Improve human
resources and focus
on technical capacity
to respond to the
needs of socio-
economic
development
o Promote transparency in
the development and
application of standards,
technical regulations and
conformity assessment
procedures parallel with
the requirements of the
WTO Agreement on
Technical Barriers to
Trade and the ASEAN
Policy Guideline on
Standard and
Conformance
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment and
business climate
Strengthen law and regulatory
enforcement in WTO on trade
technical barriers
o Improve post market
surveillance systems to
guarantee the successful
implementation of the
No consistent policy
156
harmonized technical
regulations
o Develop capacity
building programmes to
safeguard smooth
implementation of the
work programme
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Industrial zoning and
SEZs development
Promote competitive
SMEs and industries
in designated
provinces through
providing technical
assistance for
capacity building and
business development
2. Free flow of services No consistent policy
3. Free flow of investment
Investment protection Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
SMEs upgrading and
modernization
Inform prospective
and registered SMEs
about available
support, benefits, and
protection provided
by the RGC
o Strengthen investor-state
dispute settlement
mechanism
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Strengthen G-PSF in
order to help
addressing challenges
facing private sector
157
o Development of industry and
SMEs
Industrial zoning and
SEZs development
Strengthen the role of
Conflict Resolution
Committee at SEZs in
order to timely
respond or address
issues
SMEs upgrading and
modernization
Encourage inter-
professional
organizations to
dialogue with the
government in
resolving their
concerns and
challenges
o Strengthen transfer and
repatriation of capital,
profits, dividends, etc.
No consistent policy
o Strengthen transparent
coverage on the
expropriation and
compensation
No consistent policy
o Strengthening full
protection and security
No consistent policy
o Strengthening treatment
of compensation for
losses resulting from
strife
No consistent policy
Facilitation and cooperation
o Harmonize investment
policies, where possible,
to realize industrial
complementation and
economic integration
No consistent policy
o Improve and simplify
procedures for
Promote private sector,
urbanization, and non-farms jobs
158
investment applications
and approvals
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment climate
and business climate
Review and
change
requirement for
QIP approval
o Promote distribution of
investment information
including rules,
regulations, policies and
procedures through one-
stop investment center
or investment promotion
board
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment climate
and business climate
Enhance the
legal and
regulatory
framework
through …
strengthening
government in
concerned
institution such
as the CDC’s
“one stop
service”
o Strengthen database on
all forms of investment
dealing with goods and
services to facilitate
policy formulation
No consistent policy
o Improve coordination
among government
ministries and agencies
concerned
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
159
Update SMEs
development framework
to make it consistent with
IDP in order to enhance
SME’s capacity to link
with large enterprise and
form a cluster by
promoting
entrepreneurship,
creativity, productivity,
innovation and
specialization through
introduction and
implementation of a
comprehensive package of
supporting measures such
as strengthening
institutional coordination
o Consult with ASEAN
private sectors to further
facilitate investment
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment climate
and business climate
Strengthen G-
PSF in order to
help addressing
challenges
facing private
sector
o Identify and work
toward areas of
complementation
ASEAN-wide as well as
bilateral economic
integration
No consistent policy
Promotion and Awareness
160
o Establish favorable
environment to promote
all forms of investment
and new growth areas
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment climate
and business climate
o Promote intra-ASEAN
investment, particularly
investments from
ASEAN-6 to CLMV
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
o Promote development of
SMEs and multinational
enterprises (MNEs)
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
o Promote industrial
complementation and
production networks
among MNCs within the
region
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Improve connectivity with
regional production
network to integrate with
and increase global value
chains
o Promote joint
investment missions
focusing on regional
clusters or groups and
production networks
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Update SMEs
development framework
to make it consistent with
IDP in order to enhance
SME’s capacity to link
with large enterprise and
form a cluster
o Extend the benefits of
ASEAN industrial
cooperation initiatives
Promote private sector,
urbanization, and non-farms jobs
161
along with to ASEAN
Industrial Cooperation
(AICO) Scheme to
further encourage
regional clusters and
production networks
o Development of industry and
SMEs
…introduction and
implementation of a
comprehensive package of
supporting measures such
as clustering, enhancing
technology transfer,
increasing access to
finance, strengthening
technical standards,
establishing business
development counselling
centers, promoting ‘one
village one product’
movement, improving
regulatory framework, and
strengthening institutional
coordination
o Work towards
establishing effective
network of bilateral
agreements on
avoidance of double
taxation among one
another
No consistent policy
Liberalization
Provide treatment,
without
discrimination,
including national
treatment and MFNs
treatment, to all
ASEAN investors
with limited
exception, but try to
minimize and, if
possible, eliminate
such exceptions
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Improve favorable
investment climate
and business climate
Review existing
investment
projects and
provide
favorable
162
treatment or
privileges to
attract more
QIPs
Reduce and, if
possible, remove
restrictions to entry
for investments in
the PIS dealing with
goods
No consistent policy
Reduce, and if
possible, remove
restrictive
investment measures
and other
impediments
including
performance
requirements
No consistent policy
(Could undermine policy of attracting
QIPs)
4. Freer flow of capital
Strengthening ASEAN
Capital Market Development
and Integration
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
Investment and financing
Strengthen securities
market in order to
mobilize financial
resources for
industrial
development
Allowing greater capital
mobility
No consistent policy
5. Free flow of skilled labor
Managing mobility and
facilitating entry for the
movement of natural persons
engaged in trade in goods,
services, and investment
163
o Facilitate the issuance of
visas and employment
passes for ASEAN
professionals and skilled
labors engaged in cross-
border trade and
investment related
activities
No consistent policy, but help solve
shortage of skilled labor
Harmonizing and
standardizing
o Enhance cooperation
among ASEAN
University Network
(AUN) members in order
to increase mobility for
both students and staff
within the regions
Promote private sector,
urbanization, and non-farms jobs
o Development of industry and
SMEs
SMEs upgrading and
modernization
Improve capacity of
SMEs to promote
stronger and dynamic
industries by providing
scholarships to students
to study engineering
and vocational training
either in the country or
abroad
o Develop core
competencies and
qualifications for job and
trainer skills required in
the priority services
sectors and other services
sectors
Developing human resource and
improving the capacity
o Strengthen and enhance
education, science and
technology, and technical
training
strengthen the quality of
education and technical and
vocational training and the
development of technical
and soft skills for youths,
particularly team work,
discipline and professional
ethnics at workplaces via
launching national
competency standards,
164
monitoring and testing of
competency, skill
recognition, development
and contest to fulfill the
demand of labor market
o Improve the research
capabilities of each
ASEAN countries in
terms of promoting skills,
job placements, and
developing labor market
information networks
among ASEAN countries
Promote private sector,
urbanization, and non-farms jobs
o Development of labor market
6. PIS (the 12 PIS) Consistent with Cambodia’s
priority sector except wood-based
product
Conduct a bi-annual review
to monitor the status, progress
and effectiveness of PIS
roadmaps to ensure timely
implementation
No consistent policy
Identify sector-specific
projects or initiatives through
regular dialogues or
consultation with
stakeholders, especially
private sector
Promote private sector,
urbanization, and non-farms jobs
o Strengthen the private sector
and promote investment and
business
Attract FDIs
Strengthen G-PSF in
order to help
addressing challenges
facing private sector
7. Food, Agriculture and Forestry Promote agricultural sector
Enhance intra- and extra-
ASEAN trade and long-term
competitiveness of ASEAN
food, agriculture and forestry
products through
harmonization and
application of quality
standards for food safety
Promote agricultural sector
o Improve productivity
diversification and
commercialization of
agriculture sector
o Promote livestock farming and
aquaculture
o Sustainable management of
natural resources
165
Developing human resource and
improving the capacity
o Promotion of health and
nutrition
Reduce morbidity and
mortality rates caused by
chronic non-infectious
diseases related to food
safety, drug use and climate
change
Promote cooperation, joint
approaches and technology
transfer among ASEAN
member countries and
international, regional
organization and private
sector
o Develop joint strategies
on issue of related interest
to ASEAN with
international organization
and dialogue partner. No
consistent action or policy
is mentioned in the
poverty reduction strategy
No consistent policy
o Promote collaborative
research and technology
transfers in agriculture,
food and forestry products
Promote agricultural sector
o Improve productivity
diversification and
commercialization of
agriculture sector
Improve agricultural
productivity through
promoting R&D and
promoting the use of
quality seeds
Promote agricultural
diversification through
launching a multi-crop
green revolution by
intensifying cooperation
with all stakeholders to
166
transfer knowledge and
technologies to farmers,
and promoting the use of
agricultural machinery
o Promote livestock farming and
aquaculture
Enhance R&D in fisheries
o Establish strategic
alliances and joint
approaches with the
private sectors in
promoting food safety,
investment and joint
venture opportunities,
promotion of agriculture
products and market
access
Promote agricultural sector
o Improve productivity
diversification and
commercialization of
agriculture sector
Promote agricultural
diversification through
launching a multi-crop
green revolution by
attracting private
investment and intensifying
cooperation with all
stakeholders
o Promote livestock farming and
aquaculture
Encourage investment in
medium and large scale
animal feed production
o Strengthen efforts to
combat illegal logging
and its associated trade,
forest fire and its
resultants effects
Promote agricultural sector
o Sustainable management of
natural resources
Manage forest and wildlife
resources in in a sustainable
and equitable manner
Strengthen the management
of protected natural areas
consisting of protection of
biodiversity, rain forests,
and wetland areas
o Strengthen efforts to
combat illegal fishing
No consistent policy, but combating
illegal fishing is talking in Strategic
Planning Framework for Fisheries
2010-2019
167
Promoting ASEAN
agricultural cooperatives as a
means to empower and
enhance market access of
agriculture products, to build
a network mechanism linking
agricultural cooperatives, and
to fulfill the purpose of
agriculture cooperatives for
benefit of farmers in the
region
o Strengthen strategic
alliance between
agricultural cooperatives
in ASEAN through
bilateral, regional and
multilateral cooperation
No consistent policy
o Establish business
linkages among the
potential agricultural
cooperatives within
ASEAN
No consistent policy
o Promote direct investment
and strategic partnership
with ASEAN agricultural
cooperatives producers,
consumers, and traders
Promote agricultural sector
o Improve productivity
diversification and
commercialization of
agriculture sector
Promote agricultural
diversification through
attracting private
investment, intensifying
cooperation with all
stakeholders to transfer
knowledge and
technologies to farmers