EU Statement at the Trade Policy Review of Cambodia, 21 November 2017

Mr Chairman, the EU would like to start by pointing out the importance and significance of Cambodia's accession to the WTO in 2004. In doing so, it was a pioneer for other LDCs at the time with regard to the working party negotiation process. Thanks to domestic reforms based on multilateral principles and increased access to third country markets while becoming a member, Cambodia has successfully integrated itself into the world economy. During the period under review, shares in GDP of goods export and import rose and, in absolute terms, the services balance improved. In short, WTO rules delivered on the economic growth and development for Cambodia.

Mr Chairman, the EU would like to highlight some of the positive issues that have emerged during the period under review.

First, we congratulate Cambodia's strong economic performance. Since the last review in 2011, real GDP has grown at an average annual rate of about 7%, with construction, manufacturing (mainly garments) and tourism-related services, being the main drivers of growth. The robust economic growth has been inclusive and widespread, with poverty levels declining (from 26% in 2011 to 14% in 2015) which also allowed Cambodia to graduate from low income to lower-middle income status in 2015. Prudent macroeconomic management has also resulted in moderate inflation, a stable exchange rate and a relatively low unemployment rate (0.3% in 2016[1]). However, we note that for the financial system, the expanding economy has resulted in rapid expansionary credit growth (+25.8% in mid - 2016 and +28% in 2015) which has raised concerns about an overheating of the economy and the formation of a construction and real estate bubble. These two sectors accounted for nearly 30% of real growth in 2015 and are projected to remain the second most dynamic driver of growth after the garment sector.

Second, the EU is pleased to note the improvements made in Cambodian customs procedures. The ratification of the WTO Trade Facilitation Agreement in February 2016 was an important step. The EU welcomes Cambodia's category A commitments notified to the WTO and would be very much interested, along the lines discussed in the last Committee on Trade Facilitation, to know when Cambodia intends to notify its needs for assistance related to its category C measures.

Third, the EU commends Cambodia's open and investor-friendly investment regime, offering incentives to various sectors under many schemes. FDI is concentrated in the garment sector, agriculture, construction and the financial sector.

As we do with all Everything But Arms beneficiary countries, we are closely monitoring Cambodia's compliance with its human rights and fundamental freedoms obligations. Regarding our bilateral trade relations, the EU is one of Cambodia's main trade partners. In 2016, the EU was Cambodia's main export destination with a value of around 4.6 billion EUR which represents an increase of more than 11.2% compared to 2015. Cambodia's exports to the EU are concentrated in clothing (74.7% export-share to the EU), footwear (11.4%), bicycles (6.2%) and rice (3.9%).

EU development cooperation in Cambodia is designed to support Cambodia's policies reflected in Cambodia's Rectangular Strategy and National Strategic Development Plan (NSDP). For the period 2014-2020, Cambodia has an indicative bilateral allocation of 410 million EUR focusing on three focal areas: 1) agriculture and natural resources management, 2) development of basic education/skills, and 3) reforms in governance and public administration.

In addition, the EU is also a donor of trade-related assistance in Cambodia which support has contributed to simplifying export and import procedures as well as the implementation of a programme of customs automation; the new programme ARISE plus Cambodia, co-funded by the EU, is expected to start implementation early 2018, in close coordination with the regional component of the same programme which is supporting ASEAN economic integration. We also note the customs reforms highlighted by the Discussant.

Mr Chairman, despite all these positive developments the EU would also like to raise a few concerns, some related to the questions we submitted earlier.

First of all, we would like to highlight the importance for Cambodia to improve the general business environment, i.e. promote good governance and transparency, and address weak institutional capacity by enacting and implementing legislation. We also encourage Cambodia to keep up its efforts to fight corruption.

Second, the EU would encourage Cambodia to pursue efforts to diversify its export products and markets and to improve its infrastructure.

Finally, while recognising steps made by Cambodia in the area of sanitary and phytosanitary (SPS) measures, the EU encourages Cambodia to continue efforts to further improve inspection and certification systems.

On behalf of the EU, I look forward to a constructive exchange of views during this review and I wish Cambodia's delegation the utmost success during its Trade Policy Review.

[1] Source: World Bank