Prospects for Multilateral Trade Regimes in ASEAN and the Potential Impact on the Mekong Region

H.E. Mr. Sok Siphana
Secretary of State for Commerce, Cambodia

Excellencies, Distinguished Guests, Ladies and Gentlemen

First of all, allow me the opportunity to express on behalf of the Royal Government of Cambodia my sincere thanks to the Asia Society, Dow Jones and the Government of the Socialist Republic of Vietnam for the invitation and the warm hospitality extended to me and my delegation.

On this challenging and broad topics of regionalism and globalism, one can no doubt say that they have become one of the central topics of contemporary trade policy. Some observers believe that the proliferation of regional arrangements in recent years threatens, or even undermines, the multilateral system that has been constructed so painstakingly throughout the past half century. Others believe that regional liberalization provides a positive, even a necessary, spur to global liberalization during the present era. This said, regionalism is in fashion. It seems that every month brings news of a yet another agreement among a group of countries, or between one group and another, to strengthen their economic links, particularly by removing barriers to trade and investment among themselves.

Around our region alone I can mention the ASEAN Free Trade Agreement, the ASEAN-China Framework Agreement on Comprehensive Economic Cooperation, the ASEAN-Japan Economic Cooperation: Closer Economic Partnership, the ASEAN-Korea Economic Relation: East Asia Study Group, the ASEAN-India Economic Cooperation, the ASEAN-CER Economic Partnership, the GMS Economic Cooperation Program, and the list goes on not to mention the proliferation of bilateral arrangements including recently President Bush’s Enterprises for ASEAN Initiatives (EAI) where the US pledged to start bilateral free trade negotiations with each ASEAN member which is a WTO member and to support those which are not yet members of the WTO for their early accession. In the medium term horizon are the prospects for future ASEAN-China FTA, ASEAN-Japan FTA, and ASEAN-India FTA. In the long term there is the prospect for ASEAN Vision 2020 which calls for the creation of an ASEAN Economic Region – at the 8th ASEAN Summit, it was proposed that the ASEAN Vision 2020 be re-packaged to include a new goal of ASEAN Economic Community. At the global level, there is a recent trend to speed up the accession of the remaining non-WTO GMS countries (Cambodia, Lao PDR, and Vietnam) into the WTO.

As a regional grouping, the message is clear that deeper integration will bring substantial tangible economic and political benefits to the region and to each member country. And I quote the statement of Samdech Prime Minister Hun Sen, Chairman of the 8th ASEAN Summit last November 2002. He said:

“Sustained socio-economic development in the face of rapid globalization is a great challenge facing ASEAN. Our strategy to address this challenge is regional integration. ASEAN must seize and build upon opportunities for closer cooperation and mutual benefits with our partners, especially through enhanced trade and investment links and bold, unified strategies for growth. We agreed to intensify actions to ensure the integration of the broader Southeast Asian market. Faster integration will require actions on tariffs in schemes such as the ASEAN Integration System of Preferences allowing Cambodia, the Lao People’s Democratic Republic, Myanmar and Viet Nam to gain tariff-free access to the more developed ASEAN markets by 2003, seven years ahead of the agreed target of 2010.

We stressed the importance of harmonized products and streamlining customs procedures. The liberalization of intra-ASEAN trade in services requires strengthening transport links, interconnecting telecommunications, increasing the use of information and communications technology and liberalizing investment within ASEAN.”

ADB President Tadao Chino during the first-ever Summit of the Greater Mekong Subregion (GMS) Program of Economic Cooperation held in Phnom Penh last November 2002 stressed the need to prepare for subregional, regional, and global changes. He stated:

“In an increasingly globalized world, subregional cooperation helps countries to boost exports, create jobs, and raise incomes. Such cooperation can help countries maximize the benefits and minimize the risks of globalization. By the end of the decade, the GMS countries will be even more closely connected. At the same time, the subregion’s role as a strategic bridge between East and Southeast Asia, as well as between South and East Asia, will become increasingly important. Expansion of the WTO, and new regional trade initiatives will create enormous opportunities – but also bring about some challenges.”

Looking at one of the questions raised in this panel, namely to what extent will the ASEAN Free Trade Agreement contribute to greater economic integration, and will barriers really come down across the entire region, I am encouraged at the various initiatives that ASEAN have undertaken, the most prominent of which is the ASEAN Competitiveness Study which touched on how ASEAN can develop competitive advantage as an integrated region, how it can maximize complementarities and develop competitive clusters. Initial recommendations pointed to the acceleration of deeper economic integration – starting by fast-tracking two sectors (electronics and consumer goods) supported by empowered ASEAN institutions (policy definition and technical decision-making, independent and public monitoring of progress, and professional dispute settlement process with binding rulings). The long-term prospect is also good with leaders considering at the last 8th ASEAN Summit the idea of an ASEAN Economic Community as an end goal for the Roadmap for the Integration of ASEAN and Vision 2020.

Excellencies, Ladies and Gentlemen

The recent China’s accession to the WTO has brought a new dynamism in the global market. Needless to say that the effects are felt much closer to home. What role will China play in the development of the Mekong region? Will the China-ASEAN Free Trade Agreement provide an extra boost to ASEAN's newest members? I believe the answers to these two questions are a yes. At their Summit in November 2000, the Leaders of ASEAN and China agreed to look at measures to further enhance economic cooperation and integration between the two sides, including the possibility of establishing a free trade area between ASEAN and China. The decision by the Leaders to look into these two issues was a natural response to a number of important global and regional developments during the course of the past decade.

ASEAN-China trade totaled US $39.5 billion in the year 2000. ASEAN’s share in China’s foreign merchandise trade has been continuously on the rise, increasing from 5.8 per cent in 1991 to 8.3 per cent in 2000. ASEAN is now China’s fifth biggest trading partner. Meanwhile, the share of China in ASEAN’s trade has grown from 2.1 per cent in 1994 to 3.9 per cent in 2000. China is now the sixth largest trade partner of ASEAN.

The establishment of an ASEAN-China FTA will create an economic region with 1.7 billion consumers, a regional GDP of about US $ 2 trillion and total trade estimated at US $ 1.23 trillion. We believe that the removal of trade barriers between ASEAN and China will lower costs, increase intra-regional trade and increase economic efficiency. Psychologically and politically the ASEAN-China FTA will create a sense of community among ASEAN members and China. It will provide another important mechanism for supporting economic stability in East Asia and allow both ASEAN and China to have a larger voice in international trade affairs on issues of common interest.

Challenges wise there would be intensified competition in each region’s domestic market given the similarity in industrial structures. There would also be the need for adjustments to be made by enterprises, particularly the small and medium enterprises. The preferential reduction of trade barriers would bring with it some loss of tariff revenue, to name just a few.

For Cambodia our export structure is very similar to China. In the garment and footwear sector because our higher cost of production and our lower productivity, we are concerned that the liberalization under global context will provide negative impact on Cambodia’s textiles sector. However, at the regional context, the impact on Cambodia’s export could be different. We are considering exploring on expanding the areas of trade complementarities in particular in textiles, wood and wood products, plastics, rubber and agricultural products. For that purpose, China has extended, effective from 1 January 2004, a special and preferential tariff (SPT) treatment - with tariff rates reduced to zero percent - to nearly 300 export products produced from Cambodia in order to support the economic development of Cambodia and enhance the economic and trade relations between the two countries.

Excellencies, Ladies and Gentlemen

Speaking of opportunities and challenges of regionalism and globalism I believe that in the multitude of these bilateral, regional and global agreements ultimately the one question that a particular country should ask itself is whether, and to what extent, these arrangements are consistent with, and supportive of, its domestic policy objectives.

In the case of Cambodia, we have embraced the globalization process as part of our outward looking economic development strategy. It has paid off dearly so far as exemplified by the phenomenal growth of our trade, our employment creation, and the ensuing impact on reducing poverty. From no industry in 1996, we were able to build, with the help of a US bilateral Trade Agreement and an EU Textile Agreement, a thriving garment and footwear industry exporting more than US$ 1 billion for the last 3 years and employing nearly a quarter million Cambodian workers. However, as Commerce Minister Cham Prasidh has ably put at the 2nd Working Party in February 2002, “…we do not rush to enter the WTO just for the sake of being a member, but to be in a position to play a more active role and to benefit from the world trading system. Without bringing back to Cambodia the benefits of globalization, the whole preparation process that we have so far undertaken would be jeopardized by opposition forces to globalization, which are still on the wait-and-see position in Cambodia.” With the impending expiry of the Multi-Fiber Arrangement (MFA) in January 2005, Cambodia will loose its competitive edge, or at least its level playing field, in the garment export sector, not to say the prospect for loss of thousands of jobs.

Speaking about WTO accession, Cambodia has the historic opportunity to be the first LDC to enter the WTO since its transformation from the GATT nearly eight years ago. We are due to return this April to Geneva for, hopefully, our last Working Party to review our accession report. On a parallel track we are accelerating the conclusion of our bilateral negotiations with key WTO trading partners and thus paving our way to our accession at the next WTO Ministerial Meeting in Cancun, Mexico. This said Cambodia must make substantial domestic reforms to meet the stringent requirement of the WTO. Moreover it must make significant investments in enhancing administrative capacity and building market-supporting institutions in order to receive any economic benefits from implementing trade-related regulatory reforms.

Cambodia is quite conscious of the central role of legal and judicial reforms in the overall development agenda of Cambodia. While Cambodia has established an ambitious National Program of Legislation of more than 40 new laws in order to meet the requirements for WTO accession, we foremost believes that these are being undertaken to foster development of a vigorous private sector to better respond to the requirements of the regionalization and globalization of world trade and to make our Government more accountable to our own citizens.

Several progress were made in the legislation process in our efforts towards WTO rules compliances: Adoption of key intellectual property rights laws like the Law on Marks, Trade Names and Acts of Unfair Competition, the Law on the Protection of Patents, Utility Model Certificates and Industrial Designs, the Law on Copyrights. In field of investment, the adoption of amended Law on Investment, the Insurance Law, the Land Law, the Law on Corporate Accounts, Audit and Accounting Profession, the Forestry Law, the Electricity Law.

In the pipeline for adoption are the Business Enterprises Law, the Insolvency Law, the Secured Transactions Law, the Commercial Arbitration Law, the Customs Law, the Tourism Law, the Negotiable Instruments and Payment Transactions Law, the Civil Code, and the Civil Procedure Code.

In the field of administrative and judicial enforcement, we have seen that with the enactment of the Trademarks Law Cambodia was able to enforce and protect intellectual property rights of well-known marks belonging to multinationals like British American Tobacco, Sheraton, and McDonald, etc.

In recognition of the strategic value of financial sector development, the Government adopted the Financial Sector Blueprint for 2001 2010 outlining a long term vision and strategy for sequencing policy reforms to develop the financial system over the next 10 years. The Blueprint addressed key policy issues and proposes reform agenda in the banking and nonbanking sectors, contractual savings, and interbank/ money and capital markets, as well as the basic infrastructure to underpin the development of the financial sector.

Cambodia has signed the investment protection agreements with more than 10 countries including, Switzerland, Thailand, Malaysia, China, Indonesia, Singapore, Korea, Germany, France, USA.

The tasks are mind-boggling but as an LDC we just cannot afford to do everything in a short timeframe despite all the efforts and political will so far displayed. Besides the time factor, there is also the cost factor. Currently Cambodia has no real experiences in the implementation issues and is uncertain as to the costs – financial and social – for implementing trade-related regulatory reforms and making these new laws and institutions fit into its development strategies.

Caught on the one hand with the difficult prospect of confronting the internal adjustment shocks when complying with the new trade rules and commitments and faced on the other hand with the minimal current or potential capabilities to become a major player in the world market – quite the opposite of China –, we can only plead to WTO members to refrain from insisting on "WTO-plus" obligations and ask for a few reasonable schedules of commitments on goods and services from Cambodia. It may not be by trying at this stage to get the most of concessions from a small country like Cambodia that WTO members will get something substantial for their countries, it shall be instead at the new round of trade negotiations kicked off at Doha that more important and more substantial gains should be sought. On this note, I would not want to miss to express my profound thanks to our ASEAN and GMS friends for their unwavering support for our accession. A special note of thanks also goes to President Bush’s Enterprises for ASEAN Initiatives (EAI) where the US pledged to support for their early accession those ASEAN countries which are not yet members of the WTO, here I mean Cambodia, Lao PDR, and Vietnam.

Excellencies, Ladies and Gentlemen

So far I have focused on the broad opportunities and challenges of regionalism and globalism, I have talked about dollars number and rate of growth, but the picture would not be complete if I don’t touch upon another aspect, which are the “invisible" factors rooted in cultural values and attitudes. These mental models were the chief obstacles that impede, or the chief elements that promote, the creativity and efficiency necessary for competitiveness and economic growth.

Successes or failures of countries in the Mekong region will depend to a large extent on their ‘Competitiveness’ paradigm. As Michael E. Porter in his famous book, The Competitive Advantage of Nations, eloquently put it: “…Countries that improve their standard of living are those in which firms are becoming more productive through the development of more sophisticated sources of competitive advantage based on knowledge, investment, insight, and innovation.” But the ‘Competitiveness’ paradigm should not stop at the firms level. It should extend to the political leadership at the national level also.

Within this perspective, I would venture to say that Cambodia is a good example of country that has, despite its dramatic past and existing shortcomings, emerged as a vibrant economy thriving on the above concept. From the early days of national rebuilding from the ashes of genocide, to capitalizing on its comparative advantage based on cheap labor and exploitation of natural resources, to embracing controversial value-added labor-textile export linkages – thus creating a precedence in the annals of textile negotiations, to defining new dynamic strategic value-adding alliance with its neighbors Thailand and Vietnam, to optimizing its national branding as the Seventh Wonder of the World new tourism destination combined with our open skies policy, to capitalizing on a highly interactive form of Government-Private Sector Dialogue, to projecting the value as a new organic agricultural country, to protecting intellectual property rights, and to revolutionizing the concept of trade mainstreaming for poverty reduction and economic development. In sum Cambodia with this ‘Competitiveness’ paradigm in place is prime to ride the trend of regionalism and globalism.

Thank You.