• Since being accepted into the WTO, Cambodia has strengthened its GDP, made a number of regulatory gains, increased foreign direct investment, and improved its customs procedures.
  • But its economic base remains heavily dependent on foreign-invested garment companies, the WTO says.
  • It also suggests that Cambodia needs to improve business confidence and create an environment more conducive to investment by adopting reforms.
Clothing is Cambodias main export, accounting for around 65% of the country’s total in 2016

Clothing is Cambodia's main export, accounting for around 65% of the country’s total in 2016

Despite the massive economic gains made by Cambodia since joining the World Trade Organization (WTO) in 2004, it still faces a number of constraints including a narrow economic base largely dependent on the garment industry and its reliance on foreign investment, a new report says.

The WTO's second Trade Policy Review of the Kingdom found that since being accepted into the WTO it has strengthened its GDP, made a number of regulatory gains, increased foreign direct investment, and improved its customs procedures.

Cambodia also remains committed to the multilateral trading system and has become a voice for the least developed countries (LDCs), the report noted, having improved its WTO commitments by ratifying the Trade Facilitation Agreement.

Yet the review points out that while manufacturing is a priority activity for Cambodia, it remains heavily dependent on foreign-invested garment companies and informal enterprises.

During the review period, government policy was aimed at transforming the industrial structure from a labour-intensive industry to a skills-driven one by connecting to regional and global value chains. Yet tariff escalation remains pronounced in garments, with the average MFN applied tariff on textiles at 5.7% and 15% on clothing. Export tax rates affecting several manufactures are set at 5%, 10%, 15%, 20% or 50%.

FDI (foreign direct investment) inflows are currently valued at around US$2.3bn, thanks to Cambodia's liberal and investor-friendly regime, with a concentration in the garment, agriculture and financial sectors. Most of the FDI comes from Asia – mainly China, Vietnam, Hong Kong, Malaysia; the Republic of Korea, and the Separate Customs Territory of Taiwan, Penghu, Kinmen and Matsu (Chinese Taipei).

Trade and investment have become fundamental to Cambodia achieving its economic and social objectives. According to the report, the ratio of trade in goods and services to GDP increased to around 140% in 2016, compared with 127% in 2011.

Clothing is the country's main export, accounting for around 65% of the country's total in 2016. The largest single import category is textiles.

Despite this growth, there have been no significant changes to Cambodia's export procedures. Certain products, including garments, require export licences, certificates and permission letters, the report explains. Export taxes also apply to some products and Cambodia does not provide any export subsidies.

The government has also failed to strengthen rule of law and good governance, to promote transparency and to tackle infrastructure bottlenecks like high energy costs.

"Cambodia remains characterised by low road and water connectivity as its transport industry continues to face challenges including high merchandise transportation costs (in particular, shipping) and inadequate infrastructure despite an increase in ports capacity; railway transport remains of limited availability and performance due to slow progress in rehabilitation projects."

The WTO says Cambodia needs to quickly improve business confidence and create an environment more conducive to investment by adopting reforms that address diversification and competitiveness.

"These reforms would help Cambodia attain its economic and welfare policy objectives and further integrate into the world trading system," it explains.

Cambodia's Minister of Commerce, Pan Sorasak, says the review will help the country strengthen its trade-related policies by identifying its weaknesses, and provides Cambodia with an opportunity to undertake a comprehensive analysis of the economy and identify objectives where it should seek outside assistance.