News

• 17 March, 2023
• Posted by: EuroCham Cambodia

Dr. Deborah Elms is the Founder and Executive Director of the Asian Trade Centre and the President of the Asia Business Trade Association.

Concurrently, she is a member of APCO’s International Advisory Council, the G20 Trade and Investment Research Network, and the Advisory Board of the Trade and Investment Negotiation Adviser at the United Nations Economic and Social Commission for Asia and the Pacific. She is also a Research Associate at the New Zealand APEC Study Centre and a Senior Fellow of the Ministry of Trade and Industry Academy of Singapore.

Dr. Elms recently visited Phnom Penh to help lead a training on Trade Policy and Negotiations, hosted by EuroCham and ARISE+ Cambodia, where she taught trainees from the public and private sector how to analyze and utilize both regional and bilateral FTAs.
 

EuroCham: You are one of the top trade experts in the region, having worked in Singapore in a variety of executive and advisory roles for almost 20 years. What have been the major shifts you’ve seen in the region in that time, and especially in Cambodia?

Deborah: What distinguishes Asia and Southeast Asia in particular, is the amount of change that people have seen in their lifetimes. Because so much economic transformation has taken place in your lifetime, you are more comfortable with the idea of interdependence and market openness than in other regions. Because you have personally experienced change and you can see how and why connecting to more than your village or town has made a difference. So you’re much more supportive of efforts to continue integration than if you lived elsewhere.

Compared to Europe for example, you don’t have that same personal sense of drastic change through generations, the trajectory is much slower in most of Europe.

When I first visited Phnom Penh, everyone took me to see the first skyscraper being built, everyone spoke about it. And now they’re all over the city and it’s happened in a very short time. You’ve gone from incredible pride to the first 20-story building to blasé about 20-story buildings. Think about Europe, when was the last time anyone got excited about a 20-story building?
 

EuroCham: In your Talking Trade blog, you listed some potential obstacles to trade for the region in a post early this year. As you mention, we’d like to forget about Covid, but it lingers. What could be considered semi—permanent or permanent effects of COVID on regional trade?
 

Deborah: The focus is on supply chain, it has prompted a lot more discussions about supply chain reshuffling and sourcing. Some of these changes will be long lasting, but probably fewer than people imagine. At the end of the day for many companies the cost of shifting supply chain is too high. They’ll do the math and realize it was better where we are.

One of the things about globalization is that you’re able to source the best quality materials for the cheapest price, and this equation isn’t going away.

If you localize your supply chain, you might end up with more expensive but less quality goods. Logistics costs may not go down just because you’re sourcing closer to home. If you’re not well-connected with transport links, it doesn’t matter if it’s close, it will still be difficult and expensive.

In Cambodia, transport is costly and electricity is still very expensive. That is becoming a pain point that is a challenge, and if it’s difficult to use clean energy or solar panels, this is especially a problem. The fact that solar electricicty is difficult or expensive to use handicaps the economy and hurts the environment. I believe there needs to be some policies implemented to remedy this.
 

EuroCham: Much has been talked about the Asian Tiger economies – Singapore, Hong Kong, Taiwan, and South Korea. Some say Cambodia could be next. What are your thoughts on this?

Deborah: This depends on your time horizons. I think it will be awhile before Cambodia has the sustained economic growth that you saw in Singapore and Korea for example. I can imagine things that will grow quickly or could be leveraged to economic development but there’s also significant structural problems including transport, infrastructure, and the electric grid. You also need to have a mindset that economic development for the masses is a priority and create policies that match that.

Cambodia has potential. A lot of the population live in rural areas and a big jump would be helping subsistence farmers grow a little extra and put their food on the market. This unleashes a lot of economic growth. We also need to develop the market and find structures that allow people to pool and sell their goods. how do we get farmers, grow a little bit extra to put it on the market development of market structures to allow them to pull together and sell it in the market.

The economic conditions need to be created for this to happen. For example, you could focus on things like infrastructure. For food, we need a road for a pineapple to easily get transported from where it’s grown to where it’s eaten. Keeping food fresh is hard, but can we dry it or make jam? There could be a focus on lightweight, high-value goods, such as dried fruits and nuts.

EuroCham: Cambodia is unique in that is uses both USD and Riel. In a super-competitive region, neighbored with giants Thailand and Vietnam, how does this provide an edge for Cambodia?

Deborah: I’m not certain it gives an advantage but I think Cambodians by default end up focused on bigger markets because of the pricing of the economy in dollars. You can find places where you are cost-competitive and not cost-competitive and focus on bigger markets.

Another point is that, infrastructure for banking, finance, and insurance is built on USD and this allows you to take off-the-shelf products and services and offer them here. 

However, when you are dollarized the problem is that you import the US dollar market conditions, such as importing interest rates and inflation rates tied to the US dollar. This will inevitably create situations that sometimes favor the US and sometimes favor Cambodia.

EuroCham: What are three tangible ways Cambodia can use FTAs to their advantage in their future?

Deborah: FTAS are critical for the future because the trading economy in Cambodia has typically relied on preference programs awarded to LDCs. A way to secure a continued presence in the market is to have FTAs. Without these FTAs, the economic shock of graduation would be much larger.

You don’t need to have FTAs  with 180 countries. The problem for Cambodia is its main markets like the USA and Europe will not create a bilateral FTA with Cambodia. That’s a problem and you will have to find new customers or you will have to find a way to be more competitive in the marketplace. Other countries, like Bangladesh, will graduate as well, so you won’t have to compete with a Bangladesh receiving LDC benefits. However, tariffs on some goods going from 0 to 25-30 percent, that is going to be a huge price difference.

Textiles are not covered in preference programs like the GSP. Sometimes preferences may evaporate overnight while others have a phasing out structure, but you need to be ready for alternatives when things change quickly.

It seems unfair to take preference programs and cut them or exclude key sectors like the garment sector. Graduation should be a phased approach and focus on the important sectors. Oftentimes the preferences allow for phased out approaches in sectors that don’t necessarily benefit the country. In Cambodia, for example, it doesn’t make sense to continue to receive preferences on snow equipment that the country doesn’t produce but lose preferential conditions on garments, but this is sometimes the case.