The opportunities and challenges to the WTO accession: the case of Cambodia
Cambodia is one of the poorest countries in the world. The government has deployed many efforts to reintegrate itself into the international economy since the signing of the Paris Peace Accord in 1991. Following this accord, the government's strategies aim to open its economic and trade policies to boost its economy and development, which intends to reduce poverty. As part of this strategy, Cambodia became 148th member of the World Trade Organization (WTO) in 2004 approved at the Ministerial Conference in Cancun, Mexico (Simon & Carlos, 2005). Accession to WTO aims to foster free and fair international trade into the world markets, which is believed to accelerate its domestic economic, legal and institutional reforms to create stable business environments and attract more foreign direct investment (FDI). However, being a member of WTO means that most of external trade barriers will be removed. In this context, the accession of Cambodia to the WTO might be exceptionally beneficial for the country but it also poses great challenges for the country as well (EIC, 2003).
Therefore, the main objectives of this paper aim to highlight the opportunities and challenges facing Cambodia. This paper divides into two sections. Section one discusses three main opportunities of WTO accession: first, access to the world markets; second, access to dispute settlement mechanisms for trade issues and non-discrimination; third, improve better governance and credibility. Section two discusses four key challenges of WTO accession: first, commit in legal and judicial system reforms; second, compete in global markets; third, protect trade-related aspects of intellectual property rights (TRIPS); fourth, forgo high tariff on agriculture products and protect small farmers.
First, by accession to WTO, Cambodia can integrate its market access to the world economy, which may result in higher exports to the foreign markets and boost FDI inward for the country. This is the substantial milestones not only for the Cambodian economy but for all the Least Developed Countries (LDCs), which seek to leverage the benefits of trade. By this accession, Cambodia is treated by all the WTO3 members as a most-favoured nation (MFN), which cannot be discriminated against unfairly according to the principles and rules underlying the trading system. This provides superior market access in a wide range of products and a wide range of countries. For instance, the garment industry4 is one of the Cambodian key industries, which are the powerful stimulus to the Cambodian development. By this accession, Cambodia could protect its garment industry after the export quotas removal under the Multi Fibre Agreement (MFA) arrangements, which are applicable to the WTO members. After the removal, all exports, especially those to the United States (US) markets, will be subject to a high import tariff (EIC, 2003). For instance, about 50 percent of the garment exports have been delivered to the foreign markets, particularly the US. Thus, by accession to WTO could help to secure a lower tariff rate for the LDCs like Cambodia. Indeed, without a WTO membership, it could be difficult for the Cambodian garment export industries to cope competitively with the normal US tariff regime, particularly, after the quota system is removed. This means that a high import tariff imposed by the US might ensure a quick collapse of the non-competitive Cambodian garment industries.
From these observations, becoming a WTO member is very important for Cambodia to accelerate its economic development process and to raise the living standards of the people through market access to the world markets. Importantly, it also sends a strong signal to trade and investment partners about the future directions of Cambodia, which could attract more FDI inwards. Yet, it does not mean that integration into the global markets access brings higher exports and FDI inwards for the country. Many developed countries still maintain high tariff peaks barriers to protect policy, which close markets for the Cambodian export products.
Second, by accession to WTO, Cambodia can join the WTO dispute settlement mechanism5, which is an effective system for dealing with the disputes of international trade. This mechanism is widely recognized as one of the most critical and successful features of trade regime and is very crucial for offering security, safety and predication to the economic issues of the member countries. With suitable dispute settlement mechanisms under the WTO agreements, it would support small and vulnerable economies like Cambodia from any violations, which might be made by the big markets, particularly, from the developed countries. This mechanism is also considered as an important factor in upgrading the rights and obligations of the members under the agreements. This factor is very important for Cambodia to ensure current investment and attract more foreign direct investment for the country. Thus, by accession to this mechanism, the WTO members can shine the spotlight of international legal scrutiny on the protectionist practices of their trading partners. This means that it is significant for the developing countries like Cambodia, which typically lack the market size to exert much influence through more power-oriented trade diplomacy.
In addition, Cambodia can fully benefit from the rights accorded to all members under the WTO agreements such as non-discrimination by other WTO members known as MFN, and potential increase in FDI. For instance, the developed countries provide market opportunities for goods from the developing countries like Cambodia, with better terms and zero percent tariff rates, which could promote more investments, and thus create more local employments in the country.