WTO-Risks and Benefits of WTO to Cambodia’s Accession

Overview of the WTO

The World Trade Organization (WTO) is the successor to the General Agreement on Tariffs and Trade (GATT) and is the legal and institutional foundation of the multilateral trading system. It was established on 01 January, 1995 with the principal contractual obligations determining how governments frame and implement domestic trade legislation and regulations. In addition, it is the platform on which trade relations among countries evolve through collective debate, negotiation and adjudication. More significantly, the WTO has played a predominant role in the global governance, since it has effected to the people’s daily lives. Consequently, it has found itself at the centre of controversy in areas that are well outside the domain of traditional trade policy. And the WTO currently has a membership of 149 countries, the majority of which are developing countries.

The WTO was created with the following objectives: expending production of goods and services, enriching the standard of living of member states, and ensuring full employment. Therefore, in order to achieve this objective, WTO’s members have agreed to enter into “reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations.” In essence, the WTO’s framework was established based on four basic principles:

Transparency and predictability,

Nondiscrimination,

Trade liberalization or market opening, and

Special and differential treatment for developing countries. The main function of WTO including:

Administering the WTO agreements

Addressing trade disputes

– Cooperating with other international institutions which related to global economic policy-making.

– Acting as a forum for reviewing trade policies of member states.

Cambodia and the WTO

Why Cambodia Join the WTO?

The government of Cambodia has put the final proposal to the WTP for the membership on June 22, 2003 and then on September 11, 2003, Cambodia-WTO agreement was ratified by the government of Cambodia and the ministers of the WTO was approved Cambodia to become as a full membership. Ultimately, the Kingdom of Cambodia successfully to become a 148th WTO member on October 13, 2004 after nearly 10 years of negotiation with the other members. More over, Cambodia is the second less developed country to be the WTO member after Nepal. On the other hand, the presence of Cambodia joining the WTO was not noticed if there was not genuine evidence that the LDC like Cambodia has passed such a difficult negotiation with the full working party. While Cambodia joins the WTO, there are some potential costs and benefits emerge to Cambodia’s accession; so why Cambodia joins the WTO?

There are three main reasons related to the participation of Cambodia as the WTO membership. First of all,

WTO membership can protect Cambodia’s interests. Acting on behalf of its private sector, the Cambodian government will enjoy the full right to bring the emerged issues or concerns to the various mechanism of the WTO for resolution as well as a help. For example, if Cambodia feels that there is not fair in the trading system, the government of Cambodia can formally make a claim or complaint officially to the WTO. In addition, Cambodia can protect its interest through the rule-based multilateral trading system of the WTO, which its core aim is to ensure that market remain open and that access to them is not disrupted by arbitrary measure that restrict trade. Second, by joining the WTO, Cambodia has been offered and will be offered a new opportunity for comprehensive national reforms. The fact is that Cambodia is able to attract more Foreign Direct Investments, eliminate the poverty within the country, and access its economy into the world market and so on. Third, Cambodia decides to join the WTO because Cambodia wants to end its awful shadow after having civil war and genocide in the past. More significantly, Cambodia is trying seeking for its development and prosperity meaning that Cambodia wants to rely on itself rather than gaining aid from the Official Development Aid (ODA). Therefore, Cambodia tries to make lots of efforts to negotiate in order to become a member of ASEAN as well as the international level like the WTO.

In conclusion, the Cambodia’s process of joining the WTO is because Cambodia wants to ensure that

Cambodia can grow economically, politically, and socially alongside other countries in Asian region and beyond.

How Cambodia joins the WTO?

Because the accession process is a negotiation seeking to strike the right balance between the integrity of the rule-based, the WTO trading system acquires the country that want to be the WTO follow three key elements of the accession process that including:

Domestic reform: By joining the WTO, Cambodia as well as the other members needs to reform the laws, technical regulations, administrative procedures which include business registration, license and custom clearances in order to increase the competitiveness and the diversifications of the economy.

National consensus: It is very important to build the national support of consensus such as inclusion of parliamentarians, the civil society, and the media during the negotiation process. This indicates that it is transparency and openness during the negotiation process.

Preparing for post-accession: It needs to be done while the accession negotiation is still ongoing, for the WTO commitment will require the wide-ranging legislation and executive acts. Actually, there are transitional period for bringing the individual WTO agreement into effect and the member needs to illustrate that action is under way and progress being made. Draft laws and regulatory instruments have to be due regularly. That’s why it is considered as an important step, as can be seen in the case of less developed country like Cambodia established a large task force for the purpose, comprising more then a hundred senor official under the chairmanship of the minister of commerce.

Benefits of WTO to Cambodia’s Accession

Joining the WTO has marked as a milestone in bringing Cambodia’s accession to the prosperity in term of economic and social development.

There are several essential benefits gaining from the WTO to Cambodia’s accession. First of all, attending the WTO improves market access and sends a strong signal to the Cambodia’s trade and investment partners about the glorious future of Cambodia. On behalf of the WTO member, Cambodia cannot be discriminated against unfairly due to Cambodia as well as other members are under the core principles and rules of the trading system which has been set by the WTO. This provides Cambodia an opportunity access to the superior market as well as the global market in a wide range of products and a wide range of countries meaning that Cambodian goods cannot be discriminated against in export markets with respect to the same goods arriving from competing countries. Once they enter those export markets, Cambodian goods also cannot be treated any less favorably than the same goods produced locally. By this reason, Cambodia is able to expend its product efficiency. More significantly, Cambodia enjoys the treatment called “Most Fever Nation”. Through these preferential access scheme includes the Generalized System of Preferences (GSP), Everything but Arms (EBA), and particularly AFTA’s Common Effective Preferential Tariff (CEPT) provide duty-free and quota-free to the LDCs like Cambodia as well. Take the example of the mango; the product in which benefits from the preferential treatment; has zero tariff rates under the EBA scheme. Similarly, Cambodia can export the cashew nuts with zero tariff rates to China in accordance with the ASEAN-China “early-harvest” initiative and duty-free to most major market including U.S, Japan, EU, Canada, and Australia. Second, through the WTO, Cambodia is able to deal with non-tariff barriers. While Cambodia enjoys the preferential treatment in many markets, there are many technical barriers that Cambodia exporters have to overcome before their products enter the foreign markets according to the requirement of the market. These include rules of origin and the food safety standards. By doing so, Cambodian products will meet the environment and social standards, especially food safety standards. Fish and fish products, for instance, have to face stringent food safety standards while enjoying favorable tariff treatment. Hence, meeting this challenges push Cambodia must apply the WTO regulation concerning technical barriers to ensure that Cambodian products meet the food safety standard. On the one hand, as Cambodia imports the input more and more, satisfying rule of origin can be challenge. Therefore, in order to deal with this problem, Cambodia is establishing inquiry point to allow those in a foreign market to more quickly to understand Cambodia’s trade policies and market structure so that Cambodia is able to leverage trade “inquiry point” in oversea markets. Finally, as a membership of the WTO, Cambodia gains such a valuable benefits like ensuring the peace and stability under the commerce-base. The fact is that Commercial base accesses to the prosperity, increasing the people living standard, and especially reducing the corruption.

Last but not least joining the WTO on behalf of Less Developed Countries like Cambodia give more opportunities to Cambodia in expending her economic into global market as I have mentioned above.

Risks of WTO to Cambodia’s Accession

Joining the WTO, Cambodia does not gain only benefits on behalf of membership; but also faces some risks. Actually, there are many notable points can be seen as the risks of joining the WTO.

First of all, it is related to adjustment. Clearly there will be adjustment costs as Cambodia striving to open its market with competitiveness. This as can be seen exactly in the reality that the lack of commercial credit, logistics, poor infrastructure, networks, the lack of quality institutions are the evidence to state precisely that domestic firm of Cambodia cannot compete with one another. As the result, there will be imports displace some domestic production and this leading to the job lost in the short-run. One true example of this kind can be seen under the main problems which Cambodia is facing under the concept of the bad governance and the weakness of the government including the hidden cost, smuggling, and lack of control have discourage investor and restrain the possibilities the benefits from the WTO’s accession. Furthermore, there are a lot of promises in regulating the rules of law and making the new one including the implementation of those rules of law which Cambodia has to be done on behalf of the WTO member. Therefore, the longer Cambodia makes such an effort in playing these fields, the severe adjustment Cambodia faces.

Second, Cambodia is now facing the cost. It means that the obligations to reform both human and financial require Cambodia extend the expenditure. The fact is that Cambodia have enough workforce but those don’t have enough capabilities in using the new and modern equipments in the technology era, especially in both agricultural and industrial sector. In some cases, the government needs to procure specialized equipment and increase training employees in all sectors even the governance officials. That’s why Cambodia needs to spend more. Let take a look in the case of agricultural sector. As we know that Cambodia is the agriculture-base country and there is about 80% of Cambodians are farmer, so the main problem is that Cambodia’s agriculture is followed through the traditional mean. This will lead the agriculture sector doesn’t have enough characteristic to compete with the others like the one uses advance in technology for improving this sector. Hence, it is noticed that of the Cambodia’s export in agricultural field is in a little amount and this need to be improved. Another example can be illustrated in the case of industrial sector, especially in the garment sector. Cambodia faces a competition a long the job skill and quality of production. In fact, the industrial production doesn’t meet the standard yet, so it is the cause of pushing the competition with the foreign products. That’s why Cambodia needs to spend more. Finally, by joining the WTO, Cambodia faces the export opportunities. Actually, the export to the developed countries requires the standard as priority, but most of Cambodian products don’t meet these criteria yet. For example, the label of the product which is a necessary tool to increase the added value on the product is compulsory for developed countries, but most Cambodian products don’t have this like organic product.

Conclusion

Being the WTO member, Cambodia, in a broad sense, has been provided a framework of trade policies. Of course, although the WTO membership remains some constraints to Cambodia’s accession; it still offers the possibility chance to Cambodia improving its economy with the rest of the world through economic integration, particularly in a long run. Regarding the benefits and risks of Cambodia joining the WTO, in a short run, Cambodia will face some challenges with the developed countries, particularly the competition of product. Cambodia may impact from the inflow almost all kind of goods from the other countries, especially from the developed countries. In fact, Cambodia has mostly imported from China due to the product have goods quality and cheaper price compare to Cambodia. It is noticed that the labor cost and the advance of technology are important to improve productivity, that’s why Cambodia prefers import from China rather than produce by itself. Conversely, in a long run, Cambodia is granted the valuable opportunity for attracting and seeking more FDI due to the core framework of the WTO. At the same time, Cambodia will access to the competition with the others as well in term of extending market, increasing the productivity, and improving the quality of products. Therefore, to be able compete with the rest of the world; the government of Cambodia must play a major role in order to meet this opportunity, especially in the agricultural sector and garment sector which are the priority of Cambodia economy. As we can see from the beginning, because of its accession to the WTO, Cambodia faces some challenges including the implementation of the WTO provisions, the need of technical assistance and capacity building. Through these challenges, I would say that there should be some recommendations in order to achieve this opportunity. First of all, the government should provide the training session to all the ministries involving the WTO on specific issue of the WTO agreement. Second, Cambodia should be well prepared the notification on behalf of the WTO member in the agricultural field so that they are able to follow up the accession process. Finally, there should be included the involvement of civil society meaning that all business sector, NGOs and other civil organization that related to the agriculture should be got involve with each other for providing relevant information. Similarly, the government can do the same method to the garment sector as well. Hence, if Cambodia is able to fulfill these tasks, Cambodia will also able to provide indirectly the soft infrastructure to its citizen like education through the training program.

All in all, being the WTO member, Cambodia does gain many benefits in improving its new status which in a long run is more efficiency than in a short run.