WORLD TRADE ORGANIZATION  
ORGANISATION MONDIALE DU COMMERCE  
ORGANIZACIÓN MUNDIAL DEL COMERCIO  WT/IFSC/W/12/Add.2 
8 August 2002 
 (02-4271) 
Integrated Framework Steering Committee Original:   English/ 
 anglais/ 
 inglés 
 
DIAGNOSTIC TRADE INTEGRATION STUDY FOR CAMBODIA 
A Pilot Study prepared under the Integrated Framework for Trade-Related  
Technical Assistance to Least-Developed Countries  
Part C 
CAMBODIA 
Addendum  
 
 The attached document contains Part C1 (Sector studies - rice, diversified agricu lture, handicrafts, fisheries, garments, 
tourism, labour services) which was prepared under the Integrated Framework Pilot Scheme.    
 Part A (Overview) is contained in WT/IFSC/W/12 and Part B (Component Reports - Macro Assessment, Trade Policy, 
Trade Facilitation, Poverty Assessment) in WT/IFSC/W/12/Add.2. 
 
Comité directeur du Cadre intégré 
 
ÉTUDE DIAGNOSTIQUE SUR L'INTÉGRATION DU COMMERCE 
CONCERNANT LE CAMBODGE 
Étude pilote établie au titre du Cadre intégré pour l'assistance technique  
liée au commerce en faveur des pays les moins avancés  
Partie C 
CAMBODGE 
Addendum  
 
 Le document ci-joint contient la partie C1 (études sectorielles portant sur le riz, l'agriculture diversifiée, l'artisanat, les 
pêches, l'industrie du vêtement, le tourisme, les services de ma in-d'œuvre) de l'étude établie au titre du Programme pilote pou r le 
Cadre intégré. 
 
 La partie A (Exposé général) de l'étude est reproduite dans le document WT/IFSC/W/12 et la partie B (qui présente une évaluation macro-économique, traite de la politique commerciale et  de la facilitation des échange s et contient une évaluation d e la 
pauvreté) dans le document WT/IFSC/W/12/Add.1. 
 
Comité Directivo del Marco Integrado 
 
ESTUDIO DIAGNÓSTICO SOBRE LA INTEGRACIÓN DEL 
COMERCIO EN RELACIÓN CON CAMBOYA 
Estudio piloto elaborado de conformidad con el Marco Integrado para la Asistencia  
Técnica relacionada con el Comercio en apoyo de los Países Menos Adelantados  
Parte C 
CAMBOYA 
Addendum  
 
 El documento adjunto contiene la parte C1 (estudios sectoriales - arroz, agricultura diversificada, artesanía, pesca, vestido, 
turismo, servicios laborales) elaborado en el marco del Programa Piloto del Marco Integrado. 
 
 La parte A (panorama general) figura en el documento  WT/IFSC/W/12 y la parte B (evaluación macroeconómica, 
política comercial, facilitación del comercio, evalua ción de la pobreza) en el WT/IFSC/W/12/Add.2. 
                                                      
1 In English only./En anglais seulement./En inglés solamente. WT/IFSC/W/12/Add.2 
Page 2  
 
TABLE OF CONTENTS 
 
DIAGNOSTIC TRADE INTEGRATION STUDY FOR CAMBODIA............................................1 
PREFACE........................................................................................................................ .......................4 
I. I
NTRODUCTION ...........................................................................................................................6 
A. Background .................................................................................................................. .............6 
B. Household economic systems and poverty in Cambodia.......................................................9 C. Major economic sectors...................................................................................................... ....10 
II. R
ICE............................................................................................................................... ...........12 
A. Background .................................................................................................................. ...........12 
B. Overview of paddy production and rice trading system .....................................................12 C. Institutional issues and options for developing rice trade...................................................13 III. D
IVERSIFIED AGRICULTURE AND AGRO -PROCESSING ...............................................................18 
A. Background .................................................................................................................. ...........18 
B. Marketing and processing.................................................................................................... ..21 
C. Opportunities for market oriented production and processing..........................................23 D. Specific suggestion for action: An Incubator Project ..........................................................26 
E. Conclusion .................................................................................................................. .............28 
IV. H
ANDICRAFTS ...........................................................................................................................29 
A. Background .................................................................................................................. ...........29 
B. Initiatives from the Ministry of Women’s and Veteran’s Affairs ......................................30 
C. Strengths and weaknesses of producers................................................................................31 
D. Obstacles ................................................................................................................... ...............31 
E. Conclusion .................................................................................................................. .............33 
V. F ISHERIES ............................................................................................................................... ...34 
A. Background .................................................................................................................. ...........34 
B. Role of fisheries in Cambodia ............................................................................................... .36 
C. Industry structure, market participants, and trade issues............. ................... ..................36 
D. Promoting competitive market behaviour and improving resource utilization in 
the fisheries sector........................................................................................................... ........40 
VI. G ARMENTS ............................................................................................................................... .44 
A. Background .................................................................................................................. ...........44 
B. Market access for Cambodian garments ..............................................................................45 C. Returns from preference schemes and distribution of these returns .................................48 VII. T
OURISM ............................................................................................................................... ....58 
A. Background .................................................................................................................. ...........58 
B. Past, current, and projected rates of growth........................................................................61  WT/IFSC/W/12/Add.2 
 Page 3 
 
 
C. Developing institutional and social capacity to promote tourism.......................................62 
D. Sector specific initiatives to enhance tourism trade.............................................................65 VIII. L
ABOUR SERVICES ....................................................................................................................67 
A. Background .................................................................................................................. ...........67 
B. Opportunities and labour supply issues.................. ...................... ...................... ..................67 
C. Institutional and regulatory issues in labour exports ..........................................................68 
IX. L AND, MARKETS , PROPERTY RIGHTS AND REGULATORY PROCESSES .......................................71 
A. Recent developments in land use policies .............................................................................71 
B. Current land policies ....................................................................................................... .......72 
C. The 2001 Land Law ........................................................................................................... .....73 
D. Regulatory environment for business ...................................................................................74 E. Provision of public services and infrastructure ...................................................................75 
F. Lessons from sector studies for trade development.............................................................77 
REFERENCES..................................................................................................................... ................79 
 
 WT/IFSC/W/12/Add.2 
Page 4  
 
PREFACE 
 
 In August 2001, a team of consultants worked with Ministry of Commerce (MOC) officials in 
Cambodia conduct a diagnostic study of Cambodia’s trade policy issues and technical assistance 
needs.  The terms of reference for this study we re designed to support the Royal Government of 
Cambodia (RGC) in developing its Pro-Poor Trade Policy Strategy.  Ministry of Commerce officials 
involved are H.E. Sok Siphana — Secretary of State, In Vothana — Bureau Chief, M Sovichea — 
Deputy Bureau Chief, K Keomuny — Deputy Bureau  Chief, S Sophann — Director and S Samrath — 
Assistant Director. The team members were Ke lly Bird, Consultant — Trade Policy, Sandy 
Cuthbertson— Consultant, Team leader, Martin Desautels — Consultant WTO Accession, Curtis 
Hundley — Consultant sector studies on tourism a nd fisheries, Hiau Looi Kee — World Bank market 
access survey and analysis, Ray Mallon — Consulta nt sector studies on rice and labour services, 
Philippe Marciniak — IMF macroeconomic assess ment, Andrew McNaughton — Consultant sector 
studies on diversified agriculture and handicrafts, Maika Oshikawa — WTO sector studies on 
diversified agriculture, Sopanh a SA — IMF macroeconomic assessment, Isidro Solango — 
Consultant poverty assessment, Ieng Sovanarra — C onsultant sector study on garments and Geoff 
Wright — Consultant trade facilitation. The Wo rld Bank Task Manager is Ataman Aksoy. 
 
 Following this fieldwork, team members have  prepared drafts of the following reports. 
 
• Part A: Overview. 
• Part B: Component reports — macro assess ment, trade policy, trade facilitation, 
poverty analysis. 
• Part C: Sector studies — rice, diversified ag riculture, handicrafts, fisheries, garments, 
tourism, labour services. 
 
 This work in progress will be discussed at a workshop to be held in Cambodia on 19 and 
20 November 2001.  WT/IFSC/W/12/Add.2 
 Page 5 
 
 
GLOSSARY 
 
AEN Artisanal Enterprise Network ADB Asian Development Bank 
ATC Agreement on Textiles and Clothing 
CARDI Cambodia Agricultural Research Institute 
DOF Department of Fisheries 
EDC Enterprise Development Cambodia 
FCRMA Federation of Cambodian Rice Miller Associations 
FDI Foreign Direct Investment GDP Gross domestic product GMS Greater Mekong Subregion 
GSP Generalized system of preference 
GTC Green Trade Company 
ILO International Labour Organization 
ISO International Standards Organization ITC International Trade Centre 
LDC Least developed countries 
MAFF Ministry of Agriculture, Forestry and Fisheries 
MEF Ministry of Economy and Finance 
MFN Most favored nation MOC Ministry of Commerce MOT Ministry of Tourism 
MSWLVA Ministry of Social Welfare, Labour and Veteran Affairs 
MWVA Ministry of Women’s and Veterans’ Affairs 
NGO Non government organizations 
RGC Royal Government of Cambodia 
RMA Rice Miller Associations 
ROO Rules of Origin 
SEDPII Second Socioeconomic Development Program 
UNDP United Nations Development Program 
 WT/IFSC/W/12/Add.2 
Page 6  
 
I. INTRODUCTION 
A. B
ACKGROUND  
1. Rationale for sector studies 
1. The sector studies include practical examples of the policy, regulatory and institutional 
constraints to trade development; reviews of the impact on poverty of increased trade in specific sectors, and; examples of issues that need to be addressed to reduce barriers to increased trade and poverty reduction. Given that Cambodia’s economic system is dominated by household units, the 
sector studies focus on the constraints faced by ho useholds in increasing income generating activities, 
including potential opportunities that could result fr om reducing trade barriers.  The basic approach 
adopted in the sector studies is summarized in chart 1.1.  The approach, and the focus on poverty 
reduction, is consistent with government development priorities as outlined below. 
2. Government development strategy and priorities 
2. The government’s development strategy focuses on reducing poverty, from an estimated 
36 per cent of the population in 1999, to 31 per cent in 2005. This is a formidable challenge in a 
country with an annual population growth rate of 2.5 per cent, and the workforce increasing by 3.2 per 
cent per year (Royal Government of Cambodia (RGC) 2001).  The government aims to reduce 
poverty through:  (i) broad based, sustainable and equitable economic growth of 6-7 per cent per year; 
(ii) social and cultural developmen t; (iii) sustainable management and use of natural resources and the 
environment; and (iv) improved governance. The strategy also recognizes the potential benefits from 
developing regional and international trade and investment links.  
3. With 90 per cent of the poor living in rural ar eas, the generation of increased agriculture 
output and off farm employment are important to reducing poverty.  However, it is also important to recognize that industry and service sector output ge nerally increase at a faster rate than agriculture 
output in rapidly developing economies.  The same trend can be expected in Cambodia.  Unless the 
share of employment in non agriculture sectors incr eases, agriculture labour productivity (and thus 
wages) will increase more slowly than in other sectors and income  inequality, especially between 
rural and urban areas, will increase.  
4. Given that household units dominate economic activity, increased household and informal 
business activity will be important in increasing em ployment, but there is also need to remove the 
barriers to private investment in small and medium  enterprises.  Increased formal private sector 
employment has been pivotal in reducing povert y elsewhere in Asian economies by providing 
alternative higher productivity employment opportunities. 
3. Selection of sector case studies 
5. Seven priority sectors have been identified.  These sectors are: 
• rice 
• diversified agriculture 
• handicrafts 
• fisheries 
• garment 
• tourism 
• labour services. 
  WT/IFSC/W/12/Add.2 
 Page 7 
 
 
6. The analysis draws on established material and in some cases, considerable work has been 
done.  In other cases such as labour services and handicrafts, the work is preliminary (RGC 2001).  In 
addition to export development potential, the gover nment selected these sectors because they met pro-
poor objectives by providing opportunities for labour intensive employment creation and income 
generating activities in poor areas,  and because of the potential to  increase the value added of 
Cambodian exports.  The government intends to pr epare action plans for export development in each 
of these sectors drawing on existing and planned sector  analysis.  The preliminary sector analysis in 
this report focuses on rice, fish, tourism, agricultu re, handicrafts and garments where substantive prior 
analysis already exists.  WT/IFSC/W/12/Add.2 
Page 8  1.1 Framework for trade policies for poverty alleviation 
84% of the population
and 90% of the poor live
in rural households
Rice and fish are main
sources of food
This 84% of the
population produces
about 40% of GDPHouseholds
Opportunities
to incomealternative
such asAgriculture
Rice
Other crops
Tree
Fishing
Livestock
Forestry
Household
Handicraft
SME
Paid private employment
Domestic
Export
Manufacturing
Garment
Agro
Wood
Service
Marketing
Retail
Tourism
InformationConstrained
byLimited education
Low literacy
Poor development
Poor health
High mortality/morbidity
Many disabled
Poor water supply sanitation
Poorly defined property rights
Land registration disputes
Non transparent allocation of
large parcels
Landlessness
Poorly developed high cost
transport/communication
infrastructure
Weak regulatory institutions for
business
Undeveloped financial markets
especially in regions
Past social and political
instabilitySector
studies todevelop
optionsExpand economic
opportunities
Reduce formal
barriers trade and
Build institutions
Improve
processes
Achieve social
and political
stability
Enhance
Education
Health
Land
Labour
Infrastructure
Credit WT/IFSC/W/12/Add.2 
 Page 9 
 
 
B. HOUSEHOLD ECONOMIC SYSTEMS AND POVERTY IN CAMBODIA  
1. Structure of household economic activity 
7. The foundations of the Cambodian economy ar e household economic units, which employ 
and provide incomes for the majority of the populati on.  Cambodia is an agrarian economy with 80 
per cent of the workforce employed in the agriculture sector.  The production of rice, for household 
consumption and trade, is the major economic output for most of the 84 per cent of households located in rural areas.  Households supplement rice production with other economic activities such as 
fishing, production of vegetables, fruit and other cash crops, the gathering of forest products, and off 
farm employment.  The landless depend on gatherin g activities, on communal or State land, and paid 
employment.  
8. Some household members also earn incomes from: i) domestic private enterprise sector 
comprising mainly informal micro and small enterprises, but also a number of medium size 
enterprises are beginning to emerge; ii) foreign in vested private enterprises engaged primarily in 
garments, other light industries, and tourism, and ot her services; and iii) the public sector, including a 
(declining) State enterprise sector.  The domestic private sector is widely dispersed throughout the 
country, but employment by the larger private ente rprises, foreign invested enterprises, and State 
enterprises is concentrated around Phnom Penh and other urban centres.  
2. Summary profile of population and workforce 
9. The most recent (1998) census estimated there were 11.4 million people (51.8 per cent 
female) living in 2.2 million households in Cambodia .  Females head some 26 per cent of households.  
The population is very young, with 42.9 per cent aged between 0-14 years of age.  Fertility rates are 
high, with an estimated annual population growth rate of 2.5 per cent.  
10. The level of human development is low by  regional and international standards.  
Internationally, Cambodia was ranked 121st out of  162 countries in 2001 using United Nations 
Development Program’s (UNDP) Human Development Index.  In Southeast Asia, only Laos was 
ranked lower.  Infant and maternal mortality rates have declined in recent years, but remain amongst 
the highest in the region.  Life expectancy at birth is 54.4 years for males and 58.3 years for females.  
Only 37 per cent of the population are functionally lite rate.  Only 31 per cent of urban, and 13 per 
cent of rural, populations have completed school.  Less than 5 per cent of the population has 
completed the equivalent of high school education.   Addressing this deficit in human capital 
development is a major long-term challenge for the people, business investors and the government.  In 
the interim, analysis of export options and the form ulation of export development strategies need to 
the reality of low levels of human development a nd include measures to ad dress major bottlenecks. 
11. The government estimates that the workforce is growing by 3.2 per cent per year, with 
228,000 new entrants each year (RGC 2001). Open unemployment in urban areas was 9.2 per cent 
(12.2 per cent of females) in 1998, and open rural unemployment was 4.7 per cent (5.0 per cent of 
females).  On the other hand, more than 35 per cent of workers have more than one occupation.  Most 
(85 per cent) of workers are self employed (87 per ce nt of females and 79 per cent of males), with the 
remainder employed by the private sector (9 per cent of females and 10 per cent of males), and the 
State (2 per cent of females and 9 per cent of male s).  Only 11 per cent of the rural population earns 
wages, compared with 53 per cent in Phnom Penh.  
3. Poverty profile  
12. About 36 per cent of the population live in povert y.  Poverty incidence is highest (44 per cent) 
in households where agriculture is the primary source of income.  Some 90 per cent of the poor live in rural areas, and there is a strong correlation betw een poverty and remoteness from urban locations.  WT/IFSC/W/12/Add.2 
Page 10  
 
About three quarters of the poor are self-employed.   Income inequality is high relative to other 
Southeast Asian economies (Gini coefficient of 0.42), and is reported to be increasing.  Cambodia’s 
per capita income was estimated at US$238 in 2000 (compared with US$286 in 1996) the lowest in 
Southeast Asia.  Preliminary government studies su ggest that economic gr owth has helped reduce 
poverty, but that the proportional benefits to the rich  have been greater than the benefits to the poor 
(RGC 2000a).  Concern has also be en expressed that economic growth has yet to impact on many of 
those living far below the poverty line.  In summar y, growth has helped reduce poverty: the challenge 
in this report is to attempt to analyze options that  may ensure that growth more directly assists in 
reducing poverty.  
4. Why people are poor 
13. The Government’s Interim Poverty Reduction Strategy notes that people are poor because of 
inadequate human and physical resources, or the op portunity, to generate income and/or accumulate 
resources.  Cambodia’s recent violent history has resulted in many disadvantaged groups, including 
internally displaced people, retu rning refugees, disabled people, widows, and orphans.  Inadequate 
food supplies, poor health, physical disabilities, lack  of access to land, ins ecure land titles, lack of 
skills, inadequate information, and poor access to input and product markets generally disadvantage the poor.  Expanding higher productivity employment and other economic opportunities (paid and self 
employment) is crucial in reducing poverty.  Incr easing options will generall y require progress in 
improving the access of the poor to land, markets, information, capital and other inputs, as well as 
improving the economic and regulatory environmen t to attract increased private investment. 
C. M
AJOR ECONOMIC SECTORS  
1. Agriculture 
14. The agriculture sector (including fishing and fo restry) accounts for about 36 per cent of the 
gross domestic product (GDP) (1993 constant prices) compared with 46 per cent of GDP in 1995.  
About 80 per cent of the workforce is engaged in crop production, livestock production, fishing, 
hunting and forestry activities for subsistence and/or trade, mostly as part of household production 
units.  
15. Production of agricultural crops accounted for 50 per cent of agriculture sector value added 
in 2000.  Rice is planted on 90 per cent of the ar ea currently cultivated with annual crops, but the total 
area planted to rice is only 80 per cent of the area planted in the early 1970s.  Despite recent 
improvements, rice yields per hectare are amongst the lowest in the region.  Economic returns to 
labour from rice production are as low as $0.64 per da y, or less than half the rates generated from the 
production of other agriculture products such as vegetables, soybeans, mung beans, cassava, sweet 
potato, tobacco and cotton (NESDB, KURDI and TCJDS 2001).  The government aims to increase 
the production of annual crops by utilizing some of the 1.2 million hectares of agriculture land that is 
currently unused (RGC 2001).  It also envisages a major expansion of rubber plantations, and other 
industrial crops such as coffee, cashews, palm oil,  coconuts, sugar cane, and horticultural crops.  
16. Freshwater fish production provides the major source of dietary protein and cash income for 
many rural households, and accounts for about 27 per cent of measured value added in the agriculture 
sector.  The Tonle Sap, the Mekong River and its flood plains are important fishery resources.  The 
Tonle Sap — which is of additional major significa nce as the major breeding ground for fishing stock 
in the Mekong River and its tributaries — is under ec ological threat from destructive fishing practices, 
agrochemical pollution, and degradation of surrounding swamps.  
17. Livestock and poultry production accounts for 17 per cent of value added in the agriculture 
sector.  There is potential to increase livestock pr oduction (including eggs, poultry and pig meat) for 
export and domestic markets, and increase household protein supply, by reducing the above  WT/IFSC/W/12/Add.2 
 Page 11 
 
 
mentioned barriers to production, and by developing village based systems to reduce disease and 
improve animal health.  This would directly improve rural incomes, food security, and provide a 
growing domestic market for animal feeds produced from corn, cassava, fishmeal and other 
agricultural products.  Given that many farm househol ds use livestock as a bank or form of insurance 
(households sell animals when there is an unexpected need for cash), improved animal health could 
also help reduce the risk of poverty. 
18. Forestry and logging accounted for 7 per cent of measured value added in the agriculture 
sector in 2000, compared with about 20 per cent in 1994.  Log exports were the major source of 
export earnings during the 1990s, but forests were decimated by logging levels that the government 
estimates were four times the sustainable level.  While there is now a temporary ban on log exports, 
illegal log exports continue.  Improved forest management is considered a high priority.  The 
government’s medium term strategy is to introd uce and enforce sustaina ble forest management 
practices to support wood products, wood proces sing industries, and tourism.  Local community 
participation in forest management is seen as playing an important role in safeguarding forest 
resources and national parks.  This, in turn, will be cr itical in maximizing potential returns from forest 
areas, while protecting watersheds and tourism development opportunities.  
19. Government priorities for agriculture sector development include:  (i) improve food security 
through the expansion of rice production and other food crops;  (ii) add value to crop and livestock 
production by developing agro-processing indust ries;  (iii) increase income opportunities for farm 
households, particularly those headed by women, by diversifying crop production;  (iv) strengthen 
participatory processes in rural communities;  (v) ensure sustainable agriculture production through improved management of natural resources;  and (v i) increase the availab ility of rural financial 
services.  The relevance of these priorities needs to be reviewed on an ongoing basis.  Given that food 
self-sufficiency has been achieved and income-e arning opportunities provide alternative options for 
achieving food security, the need to focus specifically on expanding rice production could be 
reviewed.  
2. Industry 
20. Cambodia’s limited industrial base was largely destroyed during the recent conflict.  Industry 
has grown rapidly from a low base in recent years, with the share of industrial output (manufacturing, 
mining, construction, and energy and water supply) increasing from 13.9 to 35.6 per cent of GDP 
between 1995 and 2000.  Manufacturing output increased from 8.3 to 18.4 per cent of GDP due 
largely to rapid growth in textiles and garments (from 1.9 to 12.4 per cent of GDP between 1995 
and 2000).  Garment manufacturing has been a major source of growth in paid employment in recent 
years.  Following a decline during 1997 and 1998, the share of construction in GDP has increased 
since 1999. 
3. Services 
21. The share of services in GDP declined from 39.9 to 35.0 per cent between 1995 and 2000, 
mainly due to a decline in the share of trade from 13.4 per cent in 1995 to 10.2 per cent of GDP 
in 2000, and a smaller decline in the share of transport and communications.  Given the rapid opening 
up of the Cambodian economy since 1995, the reported decline in the share of trade, transport and 
communications in both GDP and value added in the service sector is somewhat surprising.  While the 
decline in share of GDP may be partly due to the rapid expansion in garments, it may also reflect 
relatively stronger growth in informal service se ctor activities because of economic distortions and 
administrative weaknesses that contribute to considerable informal trade and widespread smuggling.  
The shares of output contributed by hotels and rest aurants, finance, and real estate remained largely 
unchanged between 1995 and 2000.  Government de velopment strategies emphasize service sector 
development, especially tourism development, as an  important source of growth in paid employment. WT/IFSC/W/12/Add.2 
Page 12  
 
 II. RICE 
A. B
ACKGROUND  
22. Paddy production accounts for about 90 per cent  of the area cultivated for annual crops each 
year, and for 29 per cent of value added in the agriculture sector.  Most households are engaged in 
paddy production, and rice represents the major staple in household consumption.  There have been gradual improvements in pr oductivity and increases in cultivated areas over the last decade, and 
Cambodia has moved from a net rice importer to a net rice exporter over the last decade (JICA 2001).  
Most exports are unofficial.  Despite the net export status, food shortages persist in some areas 
because of weaknesses in infrastructure, trading arrangements, rural finance, information and low 
incomes.  The prospects for future increases in pr oduction are largely unknown.   This will depend on 
factors such as relative prices of  alternative crops and inputs, alte rnative employment opportunities, 
technical developments, infrastructu re, and technical limits resulting from the natural resource base.  
A recent JICA study presented a wide range of scenarios for future rice exports, from negligible 
levels, to 750 000 tons of exports by 2010 (JICA 2001).  Regardless of export levels, improved post harvest practices, and more consistent quality, coul d help reduce product losses and increase farm 
gate prices and incomes. 
23. Past government agriculture development strate gies and support services emphasized food 
security, with support services focusing on increasing output (especially rice output) in recent years.  
While quantities have increased, returns to househ old effort are constrained by poor quality and the 
limited alternatives to paddy production.  Quality problems are apparent at all stages of the rice 
production and marketing cycle.  This limits expo rt opportunities, and means that higher quality rice 
is imported to meet the demand of higher income consumers in urban areas.  Returns to labour and 
land from paddy production are low, and future development of the sector will depend on improving 
quality, reducing post harvest losses, and increasing yields. 
24. There are very close environmental inter re lationships between agriculture, fishing and 
forestry in Cambodia, and this directly affects options for trade development.  In particular, development strategies need to recognize that an y poorly managed increase in the use of agriculture 
inputs could have major adverse impacts on the Tonle Sap, and the inland fishing industry.  Attempts 
to increase farmer returns will need to focus on quality improve ments and reducing post harvest 
losses, while guarding against negative impact s of any increased use of chemical inputs. 
B. O
VERVIEW OF PADDY PRODUCTION AND RICE TRADING SYSTEM  
25. Most paddy is produced by rural household units, using low input technology, and with little 
contact with the market and market requirements.  The main inputs for most paddy production 
systems are land and labour, and the output per unit of  land and labour are amongst the lowest in Asia.  
Many farmers cannot read and have limited access to  information and agriculture support services.  
Rice seed is often self grown, or obtained from other farmers.  Thus, seed quality is variable and 
adoption of new varieties slow.  Seed varieties are often mixed, making it difficult to obtain quality 
consistency and difficult to achieve management pr actices suited to extern al markets.  Practices, 
which may have been appropriate for subsistence production, are proving less appropriate when 
producing for higher income urban and export markets.  Post harvest losses are high, and there are 
opportunities for reducing losses and improving quality at all stages, from husking, drying, transport, 
storage, milling, and polishing to final market ing.  Resolving these weaknesses could provide 
potentially substantial gains in terms of incr eased household incomes, poverty reduction, and 
increased export opportunities.  
26. Small family mills are found in most rice prod ucing villages, and they  generally mill paddy 
for local farmers in return for the rice bran, or a cash fee.  They also sometimes act as paddy buyers  WT/IFSC/W/12/Add.2 
 Page 13 
 
 
for larger mills.  Medium and large size mills are located in the major rice surplus areas and in Phnom 
Penh.  These mills usually purchase paddy, proc ess the paddy to milled rice, and than sell to 
wholesalers and retailers.  A fe w larger mills have their own wholesale and/or retail outlets.  A 
Federation of Rice Millers was recen tly established to represent the interests of Cambodian millers, 
and to increase valued added in domestic rice processing.  The Federation recognizes that rice millers 
interests are best served by assis ting farmers to produce quality rice to meet consumer needs, and has 
been studying options to encourage farmers to supply more consistent quality rice. 
27. Farm gate prices are squeezed by high transpor t costs due to poorly developed infrastructure, 
weaknesses in transport services, informal tax collections along roads and other transaction points, 
and high shipping costs.  Weaknesses in post harv est practices and rice millin g results in substantial 
quantities of (unmilled) paddy being exported to Vi etnam and Thailand.  Limited domestic milling 
capacity adds to marketing costs and further reduces prices paid to farmers.  These are deadweight 
losses to the economy.  Given the relatively small economies of scale in rice milling, there should be 
strong profit incentives to invest in improved post harvest processing to avoid these costs.  Past 
instability and financing problems were cited as reasons for limited investments to date. 
C. INSTITUTIONAL ISSUES AND OPTIONS FOR DEVELOPING RICE TRADE  
1. Human resources and technology transfer 
28. Low health and education indicators constrain labour productivity, the transfer of technology, 
and access to market information.  Lack of educa tion stifles innovation and partly explains the limited 
progress towards producing export quality rice and alternative higher value agriculture crops.  On the 
other hand, illiteracy should not be seen as a binding  constraint to increased quality and trade.  One 
investor noted that the rejection rate of corn grown under contract fell from 80 to less than 15 per cent 
in just four years, by using appropriate farmer tr aining and attractive incentives.  More broadly, this 
suggests a need to look at no n conventional mechanisms for transferring skills, technology and 
information to farmers. 
29. Adult literacy and skills training programs c ould help reduce the most immediate human 
resource constraints to improving household productio n systems, including rice production.  In the 
longer term, improved access to better quality, and more relevant, primary ed ucation is crucial to 
improving agriculture productivity.  Plans to impr ove education access and quality should consider 
options to include agriculture production and other life skills at all levels.  Increased current 
expenditure outlays will be needed to facilitate im provements in education and adult training pro-
grams.  Donors could assist by taking a flexible approach to financing current expenditure.  Options 
for encouraging non government financing of huma n resource development should continue to be 
encouraged, and lessons drawn from successful models.  
2. Land markets 
30. Efforts to improve security of land title can he lp encourage and facilitate investments in the 
rice sector, and more generally help ensure that land is allocated more efficiently.  The new Land Law 
provides an important opportunity to establish more  efficient land markets and more cost effective 
financial services.  Implementation of the governme nt’s new land law and land titling systems, will 
facilitate access to finance, re duce risks and thus provide greate r incentives to invest in crop 
production, storage and post harves t technology.  Efforts to stop the illegal private appropriation of 
State and community land and to develop land market s could help increase resource use efficiency 
and promote increased production of rice and other agriculture products.  The need for more efficient 
land markets is highlighted as an important concern at the end of this report. WT/IFSC/W/12/Add.2 
Page 14  
 
3. Agriculture support services and input supply 
31. The Ministry of Agriculture, Forestry and Fisheries (MAFF) is responsible for providing 
agriculture support services, including agriculture research and extension.  Past emphasis on food 
security has resulted in government support services and subsidies focused on increasing rice 
production, with little attention to improving quality  and post harvest technology.  Extension activities 
have been limited.  The government has recently  increased the priority and resources give to 
extension activities, including the dissemina tion of information via the mass media. 
32. Limited attention has been given to exploring options for diversification into non rice 
alternatives that might provide opportunities to incr ease returns to labour an d capital, and/or reduce 
seasonality in production and labour demand.  The diverse needs of a market economy suggest a need 
for a broader farm systems focus. A farm systems ap proach to improving agriculture support services 
could also help provide the sort of information that will allow more direct targeting of poverty 
reduction by increase returns to exiting farm syst ems, while also meeting household concerns about 
the need to limit food security risks. 
33. Fertilizers were provided on a subsidized basi s through a State owned marketing agency, but 
the subsidies and the agency have been abolished since 1999, and the private sector now supplies 
most fertilizers.  The Agriculture Material Bure au of MAFF is responsible for agriculture input 
quality standards.  In practice, many agriculture fertilizers and chemicals are smuggled into the 
country and there is little capacity to ensure quality standards.  While there are concerns that farmers 
are sometimes sold fertilizers with diluted nutrient c ontent, the need to maintain reputations as reliable 
suppliers will provide strong incentives to meet  quality standards as private suppliers become 
established and information systems improve. 
34. A government research institute, Cambodia Ag ricultural Research Institute (CARDI), is 
responsible for developing new rice varieties and s eed multiplication.  Of 34 varieties released by 
CARDI since 1990, only IR66 has widely spread to farm ers.  However, it has been difficult to sustain 
seed quality because of poor distri bution systems, and lack of farmer  information about the impact of 
seed quality on productivity and quality.  The Agricu lture Quality Improvement Project is supporting 
efforts to improve seed supply, develop seed cer tification, and develop and train farmer seed 
production groups. 
35. The government should regularly review in stitutional arrangements for support services, 
including analysis of any overlap in responsibilities between the separate ministries dealing with rural 
development, water resources, the environment, and agriculture, forestry and fisheries.  There is need 
to assess continuing central level resource ne eds in the context of decentralization efforts. 
36. The government could also learn from privately financed agriculture support services such as 
those implemented by an investor in animal feeds production using corn, and recent initiatives by 
another investor to provide the support farm househol ds to produce the high quality fragrant rice for 
the export market.  Options for encouraging more wi despread investment in such programs could be 
examined.  In this regard, it is important that supp ort being provided by external donors to develop the 
public agriculture extension and seed supply serv ices do not crowd out private initiatives.  In 
particular, the government could explore options for contracting out extension and seed supply 
services to the private sector on a competitive basis.  More systematic  evaluation of ongoing 
initiatives, including efforts to decentralize and devo lve government services, could assist in early 
identification of bottlenecks and acti ons to address these bottlenecks. 
  WT/IFSC/W/12/Add.2 
 Page 15 
 
 
4. Rural infrastructure 
37. Poor transport infrastructure, high fuel cost s (due to high taxes) and poorly developed 
transport services add to the costs of rice trade and to consumption costs, but reduce prices paid to 
farmers.  Informal fees that are reportedly collected at checkpoints on the road network exacerbate 
these costs.  While such fees are frequently reported, no concrete estimates of the costs of these fees 
are available.  Total transport costs account fo r 5–10 per cent of retail prices in Phnom Penh 
(Sik 2001). Railway and port services are generally provided by State enterprises with low levels of 
efficiency and informal fees (see section on the role of government in rice trade).  Increased private 
sector participation in all transport sub sectors, combined with an appropriate regulatory framework, 
is an option that could contribute to reducing transport costs. 
38. Only about 10–15 per cent of farmland is irrigated.  Institutional and resource constraints 
have resulted in poor operations and maintenance of irri gation facilities.  Government policy, since 
1999, is to transfer responsibility for the operations  and maintenance of irrigation facilities to capable 
water users association.  The priv ate sector is now encouraged to invest in the development of 
irrigation infrastructure and serv ices.  Given resource constraints, an immediate government priority 
should be to improve the management of existing schemes. 
39. There are plans to expand the Seila program.  This is a government program to decentralize 
decision-making, improve governance and to achieve more sustainable and cost effective 
development of community infrastructure projec ts.  The Ministry of Rural Development has 
established Village Development Committees (VDCs) in  up to half of all villa ges to encourage greater 
community participation in identifying formulatin g and implementing village  level infrastructure 
development.  Administrative decentralization is ex pected to be extended following the election of 
commune councils scheduled for February 2002.  These efforts are at an early stage and will require 
substantive capacity building at the all levels to f acilitate implementation.  Local level administrations 
could be an important force in attempts to remove remaining informal barriers to trade.  Efforts to 
facilitate information about the impacts of trade, and the costs of informal barriers to local communities, could facilitate that process. 
5. Information constraints 
40. Weaknesses in disseminating information on market prices and quality requirements, new 
varieties, and improved production and post harvest techniques is hampered by low literacy, 
weaknesses in internal communications, and limited access to mass media.  Information constraints 
are further constrained by weaknesses in qualit y standards that leave farmers vulnerable to the 
adulteration of agriculture inputs.  Similarly, th ere are limited opportunitie s for farmers to verify 
measures of weight or moisture content.  Farmer associations can help address such concerns, while 
also providing farmers with low cost access to information.  In the longer term, increasing 
competition, and the need to preserve reputations, pr ovides powerful incentives  for millers and traders 
to deal honestly with farmers.  High intern ational telecommunications costs limit access to 
international markets. 
6. Rural finance 
41. Despite market determined inte rest rate policies, and government commitment to developing 
market based financial services in rural areas, the rea lity is that few businesses (and very few farmers) 
in rural areas have access to formal sources of finance, and lending spreads are very high.  The lack of 
financing has been a major constraint to investment in improved post harvest processing and storage 
of rice.  Banks cite high costs of monitoring and rec overing debt in rural areas, and the time and high 
cost of foreclosing on land mortgages, as important factors contributing to high lending costs and a 
reluctance to expand to rural areas.  Banks will inevitably develop in urban areas first where cost 
structures are lower, and business opportunities more  diverse.  Informal money lender, families and WT/IFSC/W/12/Add.2 
Page 16  
 
non government organizations (NGOs) are the major so urces of rural finance, and will likely remain 
the most major source for most farmers for some  time.  Government efforts to encourage NGO 
supported rural financial services to be establishe d as formal micro finance institutions should be 
closely monitored to identify opportunities to extend successful micro finance programs.  
7. Rice marketing and processing services 
42. Current rice processing arrangements raise some important questions.  Why is paddy 
transported to Vietnam and Thailand for processi ng, and than re imported as milled rice for 
consumption?  Why have Cambodian (or Thai or Vietnamese) investors have been slow to invest in 
improved rice milling and processing capacity when th e levels of technology an d investment required 
to develop improved rice milling and polishing are not great?  Millers note a number of challenges 
including: 
• the large number of paddy varieties grown in each village and even on the same plots 
makes quality control and consistency difficult;  
• farmer awareness of improved post harvest technology remains weak.  Improved 
husking, drying and storage techniques are needed to reduce the ratio of broken rice, 
and moisture and pest damage and other losses; 
• high financing costs and difficulties in se curing medium term financing for new 
equipment.  Bank financing for operating costs (for example to buy and store paddy 
in the main harvest season (December to  February) for subsequent milling) is 
expensive and not readily available;  and 
• past instability meant increased investment risks, and made it costly to enforce 
contracts. 
 
43. More recently, there is evidence of investment s in new and improved rice milling capacity.  
At least one investor has combined major investments in a new mill with contract farming 
approaches, private extension and input supply services with the aim of producing high quality 
fragrant rice for export.  This investor had contracted 30 000 farmers to sow 20 000 hectares of paddy 
using high quality seeds.  Harvesting is due to star t November 2001.  Another (foreign) investor in a 
Cambodian animal feed processing factory used a simila r approach to reduce the rejection rate of corn 
offered for sale, from 80 per cent in the first ye ar of operation, to 10–15 per cent four years later 
in 2001.  In this example, higher prices paid for improved quality corn has proved to be a powerful 
incentive for farmers to increase the supply of quality corn. 
8. The role of government in rice trade  
44. Extensive government interventions in rice pr ocurement, pricing and marketing were largely 
disbanded during the 1980s.  Gove rnment fertilizer subsidies were abolished in 1997 and now most 
inputs are supplied by the private sector.  Input and output prices are set by market forces.  However, 
attempts to avoid taxes result in substantial smuggli ng of fuel, fertilizers and other agriculture inputs 
45. The government remains involved in food aid distribution, and the army purchases domestic 
and imported milled rice for soldiers and thei r families.  A state en terprise, Green Trade 
Company (GTC), has responsibility for purchasing rice on behalf of the State, including the purchase 
and storage of rice reserves required under the AS EAN Food Security Reserve Agreement.  GTC also 
engages in profit seeking activities, including trad ing activities.  Transport and other operating costs 
of GTC are reportedly much than private enterprises.  The World Food Program (WFP) and other 
donors buy domestic rice, as well as importing ri ce, for food for work programs.  Politicians and  WT/IFSC/W/12/Add.2 
 Page 17 
 
 
better off families also purchase rice for distributi on to the poor, especially during emergencies and 
election campaigns. 
46. There is need for better information on the effectiveness of current government involvement 
in rice procurement and distribution, including a study on options for introducing transparent and 
competitive bidding procedures for any government  rice purchases.  Demobilization may provide 
opportunities to monetize the part of soldiers’ salari es that is currently provided as rice and, thus, 
reduce government involvement in procurement decisions. 
47. Officially, the government has lifted all quotas  and tax barriers to exporting and importing 
rice.  However, exporters are legally required to obtain a permit before exporting rice.  The stated aim 
of this licensing is to ensure food security.  While  there are no official charges for licenses, exporters 
report that facilitation fees are requ ired to secure licenses.  The Ca mbodian Rice Millers Association 
has identified ‘irregularities’ as a major constraint to exporting rice from Cambodia.  Moreover, the 
current licensing arrangemen ts have limited impact on food secu rity as large quantities of paddy are 
smuggled informally.  Thus, existing regulatory ar rangements reduces comp etitiveness but does not 
achieve the stated regulatory objective.  On the contrary, existing arrangements encourage corruption 
and discourage the export of rice through formal channels.  According to some estimates, unofficial costs nearly double the cost of export procedures through official channels as shown in table 2.1. 
2.1 Cost of milled rice export procedures  
 Expense item Amount 
 US$/20ft container 
1 Expenses with proper receipts  
 Custom officer (tax free, but permit required) 0.00 
 Ministry of Commerce - licensing 0.00 
 Camcontrol (@ 0.1% of licensing fee) 36.00  Photo sanitary (if required @ US$0.5/ton) 10.00 
 Handling (storing into a container) 55.00  Subtotal 101.00 
2 Expenses without ‘proper’ receipts  
 custom officers (me kouy) 30.00 
 customs officer (inspector) 30.00 
 customs officer filling export documents 26.13  Camcontrol (inspector) 7.81  Photo sanitary (inspector) 10.00  Economic police 5.22  Border police 5.22 
 Handling, workers 26.13 
 Commission fees 40.00  Subtotal 180.51 
Source: EDC 2000,  
 
48. The total cost of export procedures add about US$14/ton to the cost of exporting rice.  The 
costs of unofficial exports of paddy have been es timated at US$10–15/ton of paddy. (Sik 2000, p.18) 
estimated that the total cost of this ineffective re gulation could be equivalent to 85–126 per cent of 
total government expenditure on the agriculture sector in 1999.  Reductions in formal and informal charges and barriers to rice exports would greatly increase incentives to invest in improved post 
harvest processing of paddy, could greatly increase  value added in the rice industry, and reduce the 
currently widespread smuggling of paddy across the Thai and Vietnamese borders.  A detailed review 
of the costs and benefits realized from privatizing all export handling procedures could greatly assist 
the government in identifying options to ensure more equitable distribution of the benefits of trade. WT/IFSC/W/12/Add.2 
Page 18  
 
9. Potential economic and poverty impacts of increased rice trade 
49. The potential economic gains from reducing inefficiencies in agricultural production trade can 
be substantial as was demonstrated in Vietnam during the late 1980s and 1990s.  Rapid expansion of 
trade in rice and other agricultural commodities cont ributed to the substantive poverty reductions in 
Vietnam during the 1990s. 
50. In Cambodia, most efficiency gains are to be realized from reforming the domestic 
production, processing and trade systems, rather  than from reforms at the border.  Resulting 
reductions in intermediation costs would benefit bot h producers and consumers.  While Cambodia is a 
net exporter of rice, and domestic rice generally reflects export parity prices, there is some market 
segmentation.  Higher quality paddy is exported,  while high quality milled rice is imported.  
Improving the quality of local rice could reduce the need to import high quality rice and, by reducing 
transport costs, would result in lower prices of high  quality rice in urban areas.  Increased domestic 
production of higher quality rice, in the absence of other efficiency gains, could result in reduced 
supplies and increased prices of lower quality rice.  
51. In localized areas where there are currently no opportunities to access other domestic and 
international markets, increased trad e opportunities would result in an increase in local rice prices.  
This would benefit those with adequate resources to produce surplus rice, but would increase costs of 
purchasing rice for those who lack the resources to  produce all household rice requirements.  On the 
other hand, improved access to trade and higher farm  gate prices would provide improved incentives 
for increased investment in production and this would generate increased employment.  Thus, 
households with rice surpluses would benefit, but it is not possible to be sure about the net affect on 
rice consumers. 
52. While it is possible that some of the poor (for example. those that are net consumers of rice) 
could suffer welfare losses from increased rice trad e, proposed improvements are expected to have a 
major positive net contribution to reducing poverty. 
 
III. DIVERSIFIED AGRICULTURE AND AGRO-PROCESSING  
A. B
ACKGROUND  
53. The small holder and household enterprise ch aracter of agriculture in Cambodia, the 
importance of rice, and the major constraints on agricultural production and agricultural marketing in 
general, have been described in the introduction to these case studies, and in the sector studies on rice 
and fish.  The majority of atten tion devoted to development of Cambodia’s agriculture in the past 
decade has been focused on rice, as the primary food  security concern.  Yet, the Cambodian landscape 
presents a variety of additional and alternative opti ons for increasing food production, and for gaining 
access for Cambodian products into international markets.  This chapter describes some of the 
opportunities and challenges for development of a di versified agriculture and agro-processing sector 
in Cambodia, responding as much as possible to current reality on the ground, and to the policy of the 
RGC that such a development should be affirmatively pro-poor.  
54. It is suggested here that technical and mark eting support (domestic and export), to existing 
micro, small and medium scale agro-processing enterprises in the private sector, and the creation of 
enabling trade mechanisms throughout the Cambodian economy, will help create a demand pull for 
increased production of higher quality farm produc ts.  Complimentary support to associations of 
farmers and other forms of producer organizations will provide the basis for coordinated responses to 
domestic and international market demand.  These efforts will contribute to employment generation, 
especially in rural areas, both on and off farm.  WT/IFSC/W/12/Add.2 
 Page 19 
 
 
55. Some ideas are offered for initiativ es to help make this happen. 
 Policy orientation 
 
56. Among the government’s primary macro policy objectives is the reduction of poverty, 
especially rural poverty.  As stated in  the draft Five Year Plan (SEDP II): 
‘Poverty in Cambodia is primarily a rura l phenomenon.  The overwhelming majority 
of the poor get their livelihood from agriculture, and the incidence of poverty is also 
much higher among farmers than among ot her occupation groups.  Approximately 
84 per cent of the population, and 90 per cent of the poor, live in rural areas, and 
agricultural activities are their main source of income.  At the same time, agriculture 
provides over 40 per cent of the GDP.  Ther efore, the Government's strategies for 
developing the economy and for poverty reduction demand a much stronger focus on agricultural development, which is th e most effective way to create more 
employment.  But more crop, livestock, fisheries and forestry production will only lift 
people out of poverty if specific measures are taken to protect and assist the poor and 
if the country's natural resources are managed sustainably…  (emphasis added) 
(Ministry of Planning 2000, page 99.) 
57. As seen in the previous sections, for agriculture the issues of social and physical infrastructure 
development are germane, but they are underlain by  more basic issues of social justice, rational 
planning, and long-term environmental stewardship.  An example is given in box 3.1.  The pro-poor 
trade development strategy is intimately linked to th e rest of Cambodia’s reform agenda in this way. 
58. The RGC priorities for the development of the ag riculture sector, as laid out in the SEDPII, 
require or are at least consistent with a smallholde r and micro-enterprise oriented development model.  
• Improve food security through the expansion of rice production and other food crops .  
As noted in the rice case study, there may be potential for expanded rice production.  
However, other food crops are also produced in a great diversity in Cambodia, mostly 
on a household and micro scale, in kitchen gardens and for neighbourhood markets.  
This is true both in rice growing areas, and on extensive upland areas where rice 
production is less appropriate.  There ar e some small commercial market operations 
close to urban areas, and some export-oriented production, but most farming in 
Cambodia is at the subsistence level.  Food security must be associated with people’s 
participation in the market economy.  Mark et orientation, and market responsiveness 
of farm production must somehow be grea tly increased if production is to be 
expanded.  Cambodian agriculture and most of its industry are presently smallholder 
and micro enterprise based, and it is with th at social and economic reality that a pro-
poor agricultural development program ought to begin. WT/IFSC/W/12/Add.2 
Page 20  
 
3.1 Agricultural development models 
In addition to rice production at the household level, the approach of the RGC to agricultural development is 
significantly concerned with the expansion of plantation agriculture, producing commodities for export in raw or 
primary processed form.  Rubber has been an important  export crop since colonial times, and the model of 
granting large tracts of land for production purposes to individual management units (state-owned, quasi-private, 
or private enterprises) remains very attractive to policy makers, in the current stage of transition from a 
command economy to one which is market-driven.  
 
Many large-scale agricultural concessions continue to be granted in Cambodia, for a variety of schemes (pulp-
wood, bamboo, palm-oil, cashew nut, maize, and soybeans), often to well connected individuals or firms and 
without environmental impact assessment, public participation or open bidding.  The problem of ‘land grabbing’ 
by locally powerful interests has been well documented (Cambodian Development Resource Institute (CDRI) 
2000).  The problem has been recognised by the government, as for example the recent Prime Ministerial order 
that agricultural concessions may not be larger than 10 000 ha (Some up to 30 000 ha are in place).  These 
practices will decline as the new Land Law (signed into law by the King in August 2001) and other legal 
reforms take effect.  
 
While land ownership amongst Cambodians is widespread, very few people have official land titles.  There is 
active transfer of land but there are also issues of land encroachment and disputes over transactions.  Unclear 
title and preferential allocation are major obstacles to poor people improving their incomes.  If they own land, 
they are inhibited from using it to best advantage including activities, which might involve employment of 
people who own either small parcels or no land.  If land subject to dispute, owners are reluctant to invest in it 
and they cannot borrow anyway.  Land, which is granted to preferred people, is also unlikely to be used to best 
advantage and it is reported that many plantation concessions are little more than spectacular schemes.  The 
important thing for both income generation and poverty alleviation is that human and land resources not be 
wasted.  The new land law is a good start and the next steps are to secure its widespread understanding and 
acceptance. 
 
• Add value to crop and livestock production  by developing agro-processing industries.  
Value added processing in response to market  demand is one of the keys to increasing 
the level of economic activity in rural areas.  Both large and small enterprises can do 
that.  This objective is of itself scale-neutral. 
• Increase income opportunities for farm households, particularly those headed by 
women, by diversifying crop production .  Increased income opportunities for farm 
and other rural households require increased opportunities to sell products that can be produced locally, from available resources.  In the Cambodian context, this means the 
creation of local, natural resourced as ente rprises, which maximize employment.  An 
affirmative orientation toward the needs of  female-headed households in particular 
requires that enterprises be local (close to homes and community institutions like 
schools and clinics). 
• Strengthen participatory processes in rural communities .  The creation of agro-
processing industries, at any scale, will require social mechanisms to assist farmers to 
improve the quality and quantity of their output.  They must acquire knowledge and 
become more self-reliant.  The contract farming operations that are emerging in 
Cambodia is one example of participatory processes.  The more they respond to and balance the needs of all particip ants, the more likely they are to be viable in the long 
term.  The delicate and democratic fostering of grassroots, producer and processor 
organizations, the application of the fa rmer field school techniques and related 
approaches, all offer some hope of success.  
• Ensure sustainable agriculture production through improved management of natural 
resources .  The move of the RGC toward dece ntralization and deconcentration of 
government affects natural resources manage ment, including agriculture, in a very  WT/IFSC/W/12/Add.2 
 Page 21 
 
 
direct way.  The new law on commune admi nistration, and its sub decrees, will place 
the responsibility for natural resources mana gement at the commune and provincial 
levels, with central institutions playing a s upporting role.  Sustainable management of 
natural resources therefore will require farmers’ associations and agribusiness 
associations to play a strong role in mana gement at the local (and indeed national) 
political levels.  Sustainable agricultural production systems also require 
environmental responsibility.  
 
• Increase the availa bility of rural financial services.  One of the impediments to the 
development of rural financial institutions in the country is the low repayment rate 
experienced by so many rural credit programs to date.  One not very successful approach to solve this has been to force th e creation of loan groups, so that members 
guarantee each other.  Experience with the new rice millers’ associations is now 
showing that the associations can themse lves provide a mechanism for selecting 
credit-worthy loan applicants, and for ensuring a high rate of repayment.  
Associations of small farmers and small rural enterprises may turn out to be similarly 
credit-worthy institutions.  
 
59. The RGC’s development policies are thus seen to  imply an attempt to build on the existing 
structure of the rural economy wherever possible.  That is not to say that there is no place for larger 
scale activity, but that may be expected to emerge  as the institutional underpinnings of a market 
economy become established.  Those underpinnings will include widespread understanding of the 
new Land Law so that land title is recognize and accepted as collateral and land parcels can be bought 
and sold and land holdings be consolidated or pa rtitioned as marketing and production requirements 
change.  It would also include institutional arrang ements, which ensured allocation of public land to 
private sector investors, which ar e transparent and open to all. 
B. M
ARKETING AND PROCESSING  
60. The structure and function of agricultural co mmodity marketing in Cambodia was reviewed 
in 1997 by a team in the MAFF Agricultural Marketing Office, supported by Food and Agricultural 
Organization (FAO) (MAFF 1997).  A team from th e International Labour Organization (ILO), with 
support from UNDP, carried out in 1999 a review of ‘Micro and Small Ente rprise Development for 
Poverty Alleviation in Cambodia’ (ILO 2000). 
61. Agricultural processing and marketing is largel y informal, except for the larger rice millers 
and the rubber and other plantation enterprises.  Agricultural products flow from small producers to consumers quickly and through short channels, given that storage and processing infrastructure is 
minimal.  Producers either bring commodities di rectly to local markets themselves, or sell to 
collectors (middlemen) who deliver to retailers in larger market centres especially Phnom Penh.  
Some wholesale enterprises exist, especially fo r commodities that may be transported to other 
provinces or exported to Thailand and Vietnam, but even these are informal enterprises, often without 
fixed operating locations or storage space. 
62. Agricultural products are traded within an d between provinces where local surpluses and 
deficits of rice, fruit, fish or other staples ex ist.  Commodity supplies and requirements are often 
seasonal, with many non rice crops being produced in the wet season. Net flows may reverse from 
season to season, as for example the import of oranges to Phnom Penh in February and export of 
oranges from Battambang to Thailand at other times of  the year.  Many commodities will be in glut on 
the markets for a short time, and then disappear to be replaced by others in season.  
63. Border trade in rice and fish has already been described in the relevant sector studies.  The 
pattern for other agricultural products  is similar.  At Poipet for example, produce is offloaded from 
trucks, subjected to formal and informal taxes and handling charges, and manhandled across the WT/IFSC/W/12/Add.2 
Page 22  
 
border, to where Cambodian traders are at the mercy of their Thai colleagues.  Here again it is the 
high value and high value added goods, which flow into Cambodia, and unprocessed or dried smoked 
and fermented products, which are exported. 
64. Cambodian markets display a broad range of lo cally processed agricultural products, for 
example milled rice, smoked dried fermented or salted fish, fermented cabbage and pickled 
vegetables; noodles, baked goods, and dried fruit.  Much of this material is from household and 
micro-enterprises, although a few larger processing oper ations do exist, in addition to the rice millers.  
A recent study of larger manufacturing enterprises in Phnom Penh showed 20 per cent of the sample 
to be food processors such as noodle manu facturers, small canneries, and bottling plants 
(MPDF 2000).  Unfortunately, that study was esse ntially confined to Phnom Penh, and the analysis 
did not provide a disaggregated description of these operations.  More detailed field study is required 
to identify and describe household level and larger op erations in other centres, and especially in rural 
communities.  
65. Data from the Ministry of Industry Mines an d Energy show 24 895 registered industrial 
establishments in 1998 of which 24 061 (96 per cent) employed less than 10 persons (micro enterprises).  It is not known how many unregist ered establishments there may be.  Earlier data 
suggest that about 11 per cent of rural households operate some kind of business from their homes, a 
figure that rises to about 20 per cent in Phnom Penh.  Of the 24 061 registered micro-enterprises, fully 
18 419 or 77 per cent were in the category ‘f ood, beverage and tobacc o’.  Among these many 
entrepreneurs there may be particularly fertile ground for business development support, aimed at 
both domestic and export markets. 
66. Cambodia has a well developed, largely inform al and micro or small scale agro-processing 
and trading system, peopled by economically ra tional participants who respond effectively to 
perceived constraints and opportunities.  The conclusi on is that Cambodia already has some of the key 
elements on which a modern production, processing,  and marketing system could be built.  Initiatives 
are needed both to remove the constraints, and to  enlarge the perception of  the opportunities.  An 
active commitment is needed from Government, to  enabling and supporting the leadership of the 
private sector 
1. Obstacles to expansion 
67. In the domestic and international trade of n on-rice agricultural commodities, the problems 
facing Cambodia are very much the same as described for rice.  The ILO study cited above also 
provided essentially the same list of constraint s on small and medium enterprise development in 
Cambodia.  
68. Transportation. The poor state of Cambodia’s transporta tion infrastructure has been described 
and acknowledged.  Considerable investment is now being made to improve critical road 
transportation, both at a national strategic level, and at the tertiary level of access to individual 
communities at some distance from main roads.  Emphasis on local and participatory transport 
planning approaches (for example, Integrated Ru ral Access Planning) will  help make transport 
infrastructure investments more efficient in term s of strategic priorities for local enterprise 
development especially agro-processing.  
69. Telecommunications infrastructure has until recently been  very poor in Cambodia.  However 
the coverage of Internet capable cellular telephone t echnology is now near complete nationwide.  This 
means that market, weather, pest outbreak, and other critical information can be made readily 
available, through dial up and even broadcast text messaging systems.  Radio and television coverage 
is everywhere and accessible.  WT/IFSC/W/12/Add.2 
 Page 23 
 
 
70. Energy costs in Cambodia are high, as electricity is almost entirely derived from diesel 
generating equipment and there is no national grid .  Recent research funded by the World Bank has 
begun the analysis of the existing informal electr ic generation industry in the country.  Clear 
possibilities have been shown for rural electrifica tion based on the already common relatively small 
scale (10KVA) rural utilities (battery charging and neighborhood lines) operated by the local private 
sector.  Some rural electric producers in Cambodia ha ve already added ice plants to their investment, 
with obvious implications for the potential of a vegetable processing industry. 
71. Information. Means are needed to get current market and technology information to producers 
and processors, in a form they can use.  Most Cambodian farmers and small business people have 
been living as if on a desert island for the past 30 years, cut off from an understanding of competitive markets game.  They do not know, for example, that in some countries, producers routinely organize 
themselves into associations of one kind or another, to share resources and indeed to influence prices 
where possible.  They do not know where to get information about technologies and methods required 
to meet customers’ quality expectations in a cost effective way.  The MAFF Department of 
Agricultural Marketing began planning for a ma rket radio service in 1997, but this has not 
materialized. 
72. Trust and Risk. Like most farmers, but painfully more so, Cambodian farmers are self-reliant 
survivors.  The Khmer Rouge social engineering experiment succeeded in severely damaging the 
social contract in the country, and attempts by authorities to induce farmers to form associations or 
cooperatives are greeted with suspicion.  People are reluctant to make the sorts of agreements 
necessary to implement any kind of future contra ct between buyer and seller, in the absence of 
effective means for dispute resolution.  Attempts to organize producers will need to proceed through 
private sector support mechanisms. 
73. Private Sector Capacity.  Private sector agencies capable of supporting business development 
in agro-processing and other rural based enterprise s are urgently needed.  The skills required for 
successful business development are not widely present in the population, to whom modern education and exposure to scientific knowledge are only just reappearing.  At least one Cambodian NGO is working in this particular field of human capital forma tion, but is itself only just beginning to develop.  
74. Credit. There has been considerable growth in th e capacity and coverage of microfinance 
institutions in Cambodia over the past several years, but access to financial services remains limited.  
There is an increasing focus on individual loan s for small business activitie s, which needs to be 
complimented with training in business development. 
C. O
PPORTUNITIES FOR MARKET ORIENTED PRODUCTION AND PROCESSING  
75. National agricultural statistics are presented in  the SEDPII for a limited number of crops 
entering larger markets, (rice, maize, cassava, sesame, sugar cane, soybean, mung beans, peanuts, 
tobacco, rubber, jute, cattle, pigs, poultry, and fish).  The usual impression is that there are not many 
non-rice options other than these few.  The Agricu lture Market study referred to the above lists a 
number of additional crops that enter domestic and international markets.  These crops include fruit 
— mango, jackfruit, durian, pineapple, banana, or anges, limes, various melons, and coconut — and 
leaf vegetables — especially cabbage, ka le, and water convolvulus, and gourds.  
76. However, an attentive walk through a few Camb odian farms reveals a wide diversity of crops 
that are grown for subsistence or local markets in ‘kitchen gardens’ or which are protected and 
utilized in common areas like roadsides and forest margins.  One finds an astonishing variety of 
vegetables, including leafy greens, especially, but not only brassicas, root s and tubers like taro, 
ginger, sweet potato and Irish potato, annual fruits like chilli, melons, ladyfinger, cucumber and other 
cucurbits, tree-fruits in profusion (more than 10 lo cal types), aromatic herb s and spices, traditional 
medicinal plants, and a number of small animals es pecially in the aquatic environment of the rice WT/IFSC/W/12/Add.2 
Page 24  
 
fields.  These crops and gathered items are funda mental to the food security of Cambodian rural 
households given the uncertainties and low yields of rice production.  Garden systems are usually 
designed to ensure at least some productivity in th e face of unpredictable weather and other sources of 
crop loss. 
77. Rice in Cambodia is largely a lowland crop.  Large areas of Kampong Cham, Kampong Thom 
(high population provinces) and parts of the north-western provinces are poorly suited to rice 
production but will support so-called upland crops.   These systems present significant opportunities 
for increasing and diversifying Cambodia’s agricultural and agro-industrial sector, a process, which 
has already begun.  The kinds of products and se rvices which can be derived from them are in 
growing demand as ‘specialty foods’ among both ‘nor thern’ and ‘southern’ partners in the global 
economy, particularly but not exclusively among more affluent consumers, who have effective 
demand for increased variety, year-round availabi lity and quality in their diets.  Moreover, the 
improvements in transportation infrastructure currently planned or actually under construction will 
link these areas to major urban markets in Thailand and Vietnam.  The challenge for Cambodia is to 
capitalize on these opportunities in  a structured way, to ensure  the biological and economic 
sustainability of the enterprises, and the equitable, indeed the affi rmatively pro-poor distribution of 
the benefits. 
78. At least for the next decade, successful micro,  small and medium agro-industrial enterprises 
in the rural areas of Cambodia will in large pa rt be based on such easily grown or familiar 
commodities, to which value can be added in relatively low cost work-places, using simple 
technologies (not primitive, but modern and appropri ate in design to small and medium enterprises).  
High value density products especially but not onl y frozen and dried fruits and vegetables, spices, 
juice concentrates, fragrances, essential oils et c, will be initially favoured until transportation 
infrastructure is improved.  
79. Most of the commodity examples given in box 3.2 are conventional, in the sense that 
technologies and approaches totally new to Cambod ia are not required. No one item will provide a 
magic bullet.  A program of support to a range of en terprises of this kind, which builds private sector 
capacity to overcome the identifie d constraints, will over time a ssist the modernization of the 
Cambodian rural economy and the off farm employment gains which that will bring.  WT/IFSC/W/12/Add.2 
 Page 25 
 
 
 
 3.2 Some specialty crop export opportunities  
 
Fresh, frozen and preserved Asian vegetables:   Vegetable producers in Australia, Thailand, and Vietnam 
provide high quality fresh, frozen and pickled vegetables to the Asian specialty food market worldwide.  Specialty products like baby corn, lady finger (okra), the Japanese bar-snack edomame  (boiled young soy 
beans in pod, eaten with salt) and many others may represent significant opportunities for Cambodian 
enterprises.  The Australian government’s Rural Industries Research and Development Corporation (RIRDC) has carried out research and published guidelines for producers and processors wishing to access such markets 
(see www.rirdc.gov.au).  
 Spices and herbs:   Cambodia produces black pepper, chillies, cinnamon, cardamom, betel, star anise, and 
other spices, plus a wide range of kitchen herbs including lemongrass, aloe vera, hibiscus, basil, and the many 
chi or salad herbs.  Dried chillies are a significant product for domestic and export markets.  Black pepper from 
Kampot Province was once a world-renowned Cambodian specialty and is currently undergoing a resurgence 
in planted area, both by smallholders and as an estate crop.  
 Fruit and juices:   The ‘Pursat Orange’ (mostly grown in Battambang Province) is prized by Cambodians for 
its fine flavour.  In the prewar time, there was a juic e concentrate factory in Battambang town, the shell of 
which still stands.  There is a seasonal diversity of fr uits (for example, pineapple, watermelon, guava, durian, 
jackfruit, papaya, kaffir lime) which farmers are now bringing back into production  Vegetable seed production:   Cambodia’s upland biotopes, especially in the northeast region and in Pailin 
(known here as Cambodia’s Chiang Mai) have the right climate and soils for the production of seeds for the 
many domestic vegetable crops which do not set seed well in the hotter lowlands.   
 
Oil seeds:   Cambodia now produces maize, soya, groundnut, sesame, and castor seed, almost all of which are 
exported unprocessed to Thailand and Vietnam.  Significant opportunities may exist for adding value through production of export quality sesame and soy oil, with by-products entering the local food industry.  Sesame-
based confections ( halewi ) may find niche markets in the Middle East.  Cambodia has an emerging production 
of castor seed, partly in response to a large volume contract between a Thai castor oil processor and a private Cambodian producers’ association.  
 
Essential oils:  Cambodia already markets internationally a reasonably good quality of ‘tea tree’ oil, a home 
remedy popular in Australia and elsewhere for muscle aches and skin infections and a source of turpene 
compounds for industrial synthesis of vitamin A and other materials.  Many candidate species of essential oil 
producing plants are already grown in Cambodia.  International markets are well developed and growing.   Varietal rice  – Specialty food shops in developed countries are now marketing many different varieties of rice, 
recognizing the flavor and texture qualities that are among the reasons why farmers all over the tropics prefer 
and preserve their indigenous varieties.  Rather than being limited to competing head-on with well-established producers of high-yielding, standard varieties, Cambodia could seek a position in this emerging specialty 
market. 
 Sericulture: Silk weaving is considered in the sub-section on handicraft exports.  Cambodia produces very 
little of the silk yarn which is used in traditional weaving, the majority being imported from Vietnam.  
Cambodia has its own indigenous varieties of silkworms, which produce very high quality fibre of a particularly beautiful natural golden color.  Attempts are underway to re-establish mulberry plantations and the 
related sericulture technology, which were a feature of the Cambodian economy before the war.  
 
 
2. Solutions 
80. Capturing these opportunities, and turning them in to development of an export oriented agro-
processing sector, will requi re coordinated support from the RGC,  strongly oriented toward enabling 
the private sector to develop and take the lead.  The systemic problems of governance and poor 
infrastructure, treated in this and th e other sections of this report, ar e not exclusive to the trade sector, 
and will have to be dealt with over time and with significant political will. WT/IFSC/W/12/Add.2 
Page 26  
 
81. Meanwhile the pro-poor strategy identifies the Ministry of Commerce (MOC) as the focal 
point in the trade sector.  Institutional capacity bu ilding is required to enable the MOC to carry out 
effectively its important role in promoting small-sc ale private sector initiatives.  Capacity is required 
to provide a number of services: 
• carry out a detailed overall market oriented agricultural and agro-industry sector 
analysis and strategic planning effort, in cooperation with concerned ministries and 
the private sector, using an integrated approach. 
• From the analysis, identify groups of ex isting agro-processing operations (for 
example, fish, soy and chilli sauce manufacturers), which might benefit from business 
development services, and provide those services.  Link these entrepreneurs with 
groups of producers. 
• Identify high quality ‘green’, Asian speci alty, and other niche markets for semi 
processed and finished agricultural produc ts and determine market requirements for 
quality, price, and availability. 
• In consultation with industry and other ministries, especially Agriculture and Health, 
examine the potential benefits of a natio nal Cambodian export quality brand identity 
scheme, with quality management programs for export commodities, taking into 
account all of the food chain, from ‘farm gate to consumer plate’.  Enlist assistance 
from organic, International Standards Or ganization (ISO), and other international 
quality certification programs and service providers.  
• Assess demand for an information service, for production and agro-processing 
investors, on opportunities and constraints in specific areas of the country, 
disaggregated to the district or even commune level.  
• Promote strategic partnerships between Ca mbodian and international private sector 
agencies, through government to government contacts and reaching down to industry 
associations and individual firms. 
• Develop trade facilitation services such as a trouble shooting help desk for sellers and 
buyers, global market intelligence serv ices, and investor support services. 
 
D. S
PECIFIC SUGGESTION FOR ACTION : AN INCUBATOR PROJECT  
82. Nothing succeeds like success.  For the dive rsification of Cambodia’s agriculture, and the 
development of a vibrant rural agro-processing industry, some success models are urgently needed, 
which identify and explore solutions to known constr aints and demonstrate what can be done.  A pilot 
project could provide both an opportunity for a more detailed opportunity analysis, and an ‘enterprise 
incubator’ capability, in which private sector pro duction, processing and marketing enterprises would 
be identified, nurtured an d launched.  This is not a new approach , being very effectively used in the 
high technology sector worldwide.  The effort should focus squarely on micro and small enterprises.  
Program efforts to date to provide project devel opment support to medium and large scale enterprises 
have not had much impact, due to the lack of activity at that scale, and to the recognized constraints, which discourage larger in vestment.  It will be important in the beginning to work with the situation 
as it is, among the existing participants. 
83. Components of the Incubator Project might include the following.  WT/IFSC/W/12/Add.2 
 Page 27 
 
 
 Identification and support of Interest Groups among sector participants 
 
84. As noted, a comprehensive analysis of the ex isting agro-processing industry in Cambodia is 
needed to identify interest groups of participants among household level micro, and small enterprises.  
The industry study cited previously indicated that a number of the food industry participants in Phnom 
Penh were in fact manufacturers of chilli sauce, su rviving in the face of heavy competition from Thai 
and Vietnamese imports.  This may be an example of  an interest group that could respond effectively 
to the kind of support which stimulated the formation of the Cambodian Rice Millers’ Associations 
and National Federation.  Dried ch illies are presently exported from Cambodia, probably to supply 
processing operations in other countries, as is the case for Cambodian rice.  Other examples could be given, and more information about the actual en trepreneurs and their operations is required. 
 Analysis of Cambodia’s comparative and pot ential competitive advantage in international 
agricultural commodity markets 
 
85. The International Trade Centre (ITC) has produced a powerful series of reports analyzing 
developing country opportunities, constraints, and strategies in accessing developed country markets 
for many products: coffee, banana s, pineapple, organic products, coconut, coir, cut flowers, 
handicrafts, and more (see www.intracen.org).  The reports represent the output of some months of 
intensive work by qualified professionals for each stud y, an intensity of effort not possible in the time 
and resources allowed for the present report.  A series of several such analytical studies might focus 
on items identified by the comprehensive survey, starting perhaps with chilli and other sauces, frozen 
vegetables, herbs and spices, cashew nuts and essen tial oils.  ITC Staff or other suitable consultants 
would work with teams of locally contracted personnel in carrying out the studies.  Results would be 
used to target the enterprise incuba tor program to high potential products. 
 Basic production resource assessments in target areas 
 86. Agro-ecological, economic, and social assessments of particular locations are a primary asset 
for targeting crop diversification and agro-processi ng enterprise development.  The Department of 
Extension of MAFF, under the Cambodia Agricultur e Extension Phase II (CAEPII) project with 
AusAID funding, has carried out preliminary studies in some places (for example, Kampong Cham 
and Kampot provinces).  However, CAEPII has cap acity building objectives in MAFF, which mean 
that results will take several years to have an impa ct.  The Incubator Project could provide a means for 
fast-tracking detailed assessments of resources and constraints in identified candidate areas, and for 
making this information publicly accessible for use by all private sector participants at low cost. 
 Support to organisation of production 
 
87. There are many social models for ensuring that processing facilities have a steady supply of 
produce as inputs, at prices and of a quality responsive to the demands of target markets.  Examples of cooperatives, contract farming, farmer producing and marketing associations, agricultural estates, and 
the open market, are all present in Cambodia.  As noted, contract farming operations, some quite 
large, have emerged in Cambodia, around tobacco a nd fragrant rice, and in castor seed production.  
Associations of primary producers and of processors, around specific product groups are another 
model.  Whatever the form, these arrangements can be successful when there is a means for information flow, and some kind of disciplined and democratic governance.  In general, these models 
work best when there is a basis of mutual intere st among all parties, and where there are satisfactory 
means of conflict resolution.  Imposition of social fo rms from above rarely works well, particularly in 
Cambodia with its historical and continuing abuse of  authority in public office.  The Incubator Project 
could introduce members of identified producer/proces sor interest groups to the possibilities, through 
training workshops and through study tours to su ccessful examples in Cambodia and in neighboring 
countries.  This approach has been a key el ement in the early success of the Rice Millers’ WT/IFSC/W/12/Add.2 
Page 28  
 
Associations, and appears to be having some positive impact on Cambodia’s Rural Electric 
Enterprises. 
 Setting standards and facilitating quality 
 
88. A key component of the strategy will be niche ma rketing, with the niche defined primarily by 
green quality criteria including: pure, natural, pesticid e free, certified organic, biodiversity sustaining, 
environmentally friendly, and health/vigor/longevit y promoting.  The global marketplace increasingly 
demands such attributes, and this demand represents  a significant opportunity.  Experience of other 
countries has been well reviewed by ITC, and th e specifics of Cambodia’s situation should be 
analysed, including possibilities for organic and ISO certification. 
2. National brand identity promotion 
89. Related to niche marketing is the development of a Cambodian identity in the market.  As 
Cambodian products begin to enter successfully into international markets, it may be possible to build 
their reputation by promoting a ‘made in Cambodia’  label identified with the green quality criteria 
mentioned.  The Incubator Project would assess such  a strategy in Cambodian terms, and if warranted 
prepare a plan for its implementation. 
3. Private sector extension and business development services 
90. Technical capacity to deliver many or most of  the services required is present in Cambodia, 
but it is not organized into an institutional ca pacity.  A fund for contracting in agribusiness 
development services on behalf of producer associ ations, processors, and other players selected under 
‘pro-poor’ criteria, would create effective demand for agribusiness ‘extension’ services and thereby 
induce a supply response to that demand.  Contracts would be let under normal procurement 
procedures.  The idea is to jump-start a professi onal services industry serving Cambodian micro and 
small agribusiness, contributing to the rapid development of both. 
4. Access to investment capital 
91. As suggested above, producer/p rocessor organizations may provide a means for identifying 
credit-worthy enterprises.  The Incubator Project co uld provide a financial leverage facility, offering 
loan guarantees or other means of encouraging investment in promising ventures.  
5. Export trade facilitation 
92. The Incubator Project could provide the necessary support to the Export Promotion 
Department in the Ministry of Commerce, to prov ide trouble shooting help desk services, government 
to government liaison, and internationa l promotion of Cambodian products.  
E. C
ONCLUSION  
93. The Cambodian rural economy is composed predominantly of semi-subsistence rice farms, 
and household and small enterprises employing less than 10 people.  There is a wide range of 
opportunities to build on this base, to diversify and expand agricultural pr oduction and value-added 
processing activity, with an orientation toward domes tic and international markets.  Constraints are of 
two classes: 
• the systemic ones, including poor infrastructure, governance issues especially 
informal taxes and transaction costs, access to  information, and access to capital;  and 
  WT/IFSC/W/12/Add.2 
 Page 29 
 
 
• specific constraints most importantly the la ck of effective support to the small scale 
private producers and processors, in particular extension services for non-rice 
production and business development servic es for agro-processing entrepreneurs.  
 
94. This review highlights the need to address di rectly the RGC’s poverty alleviation objectives, 
through employment generation especially in rural areas.  The suggested means is through 
encouraging the existing small-scale private sector to diversify agricultural pr oduction and to expand 
and develop agro-processing enterprises.  A numbe r of specific possibilities and approaches have 
been described.  The proposed Incubator Project could provide a mechanism for a more in-depth analysis of the sector, and the identification and nurturing of some initial successes.  
 
IV. HANDICRAFTS 
A. B
ACKGROUND  
95. Handicrafts offer considerable potential in the context of a pro-poor trade strategy.  
Handicraft production can be organised through household units to fit around the timing of seasonally 
driven activities such as rice planting and harvesting.   The rich tradition of handicraft production in 
Cambodia has yet to be brought to the attention of  international buyers.  However, many obstacles 
stand in the way of this happening.  Years of war an d civil strife broke the chain of traditional transfer 
of skill and design.  In addition, as these capa cities are slowly reassembling linkages between 
craftspeople and markets are virtually non-existent.   Box 4.1 summarizes material from a recent report 
on handicrafts in Cambodia. 
96. The demand for a greater variety of reasonably priced quality handicrafts for the burgeoning 
tourist trade is one clear market for further developmen t.  Many of the crafts being sold in the primary 
tourist markets for foreigners in Siem Reap  and Phnom Penh are imported from neighbouring 
countries. 
97. Local tourism is also expanding as Cambodians feel more secure travelling within their own 
country.  Up until very recently, Cam bodians have tended to stay close to home out of fear of security 
risks in the countryside. 
98. Opportunities also exist in export markets as these markets are exposed to the unique design 
characteristics of Khmer arts and crafts.  Small am ounts of handicrafts are already being exported to 
Europe.  Japan and the U.S. however exporters continue to be confronted by numerous obstacles in 
meeting the quantity, quality and cost demands of these markets. 
99. In order for producers to be able to take a dvantage of new economic opportunities and capture 
new markets the need assistance to expand thei r production capacity: upgrade the quality of their 
products to the standards demanded by potential buyers: and, overcome the many obstacles noted 
above. WT/IFSC/W/12/Add.2 
Page 30  
 
  4.1 Handicraft production in Cambodia 
 
Traditional handicrafts were once an integral part of Cambodian culture and entire families would be 
engaged in the production and sale of handicrafts.  Two decades of civil strife and social dislocation disrupted such cultural practices and values.  Production of high quality crafts ceased as the Cambodian 
people focused on mere survival.  Most examples of Khmer fine arts and crafts were lost during this period of 
disruption.  Today, most Cambodians are unaware of the richness of their own cultural heritage and have no appreciation of its uniqueness and beauty.  The tradition of handing down skills from generation to 
generation was also lost during the period of strife and now few young people have an interest in learning 
these skills.  Master craft makers still exist however in rapidly diminishing numbers.  
Handicraft production is generally viewed as a secondary source of livelihood in rural areas with priority 
given to rice production.  Thus, craft production is often set aside during the planting or harvesting periods.  Home or village-based craft production could, however, be a significant source of supplemental income.  In 
addition, in a country where a high percentage of households are unable to grow enough rice to feed their 
families for the whole year, alternative sources of livelihood are essential.  The Cambodian handicraft sector as a whole is faced with numerous problems.  Access to the means of 
production — raw materials, equipment, production skills and capital — is severely constrained.  In addition, 
awareness of potential markets and appreciation of the design and quality demands of these markets is extremely limited.  Most handicraft producers rely on traders or middle persons travelling through the countryside to get their products to markets.  Poor  transportation infrastructure, and until quite recently, 
security concerns.  are obstacles to accessing markets. Women producers in rural areas in particular have 
little direct contact with markets and thus limited information about market preferences or prices.  
As Cambodia opens up to increased tourism and interactions with the outside world there is a growing 
interest in the unique designs found in traditional Khmer arts and crafts.  Unfortunately, Cambodia’s capacity to recapture its lost traditions, much less respond to growing market opportunities, is extremely limited. 
Source: Cheng 1998. 
 
 
B. INITIATIVES FROM THE MINISTRY OF WOMEN ’S AND VETERAN ’S AFFAIRS  
100. In 2001 the export possibilities for crafts and cu ltural items were reviewed by the Ministry of 
Women’s and Veterans’ Affairs (MWVA) (Phavi and Urashima 2001).  Their review focused both on 
the needs of women, and on those of vulnerable groups particularly demobilised veterans.  A 
significant proportion of crafts people in Cambodia ar e women.  Most but not all of the issues in the 
sector affect both genders. 
 Women tend to be engaged in the production of crafts such as weaving, baskets, mats and 
clay pottery which are suited to home-based pr oduction, made mostly from locally available 
raw materials, and requiring relatively small amo unts of capital.  Products are most often sold 
to intermediaries, primarily men, who travel through the countryside buying up goods from 
small producers and take them to market centres .  This relative isolation of women from the 
market makes it difficult for them to access th e information and support needed to make their 
businesses a more sustainable source of livelihood (Phavi and Urashima 2001). 
 
101. The MWVA report discusses the possibilities and cons traints in five craft disciplines: silk-
weaving, silver products, basketry, clay pottery, and traditional food products.  In all cases the opportunities are generally the same: unique Cambodi an traditional designs suitable for discerning 
niche markets, some still living master crafts-peo ple who can teach the skills, and some existing 
mostly informal market channels including domest ic markets and exports to Thailand and Vietnam. 
102. The identified constraints include: 
  WT/IFSC/W/12/Add.2 
 Page 31 
 
 
• access to technology, in this case both to traditional methods being lost as older 
masters die off, and to modern refinements (for example, wood finishes, clothes 
fasteners) for higher quality and productivity; 
• high costs or scarcity of some raw materials; 
• high transport costs; 
• competition from imported goods, both in  local markets for utilitarian items like 
baskets, and in the tourist market in the form of non-indigenous handicrafts sold as 
souvenirs to visitors; 
• poor market intelligence and inability to appreciate and respond to market signals; 
• lack of institutional means for estab lishment and control of standards; 
• atomistic organisation of production, with consequent poor bargaining power for 
producers; 
• part-time nature of craft work, especially for women heads of households; and 
• limited access to capital. 
C. STRENGTHS AND WEAKNESSES OF PRODUCERS  
103. The survey team identified the following stre ngths and weaknesses of existing craft producers 
and these are listed in table 4.2.  
4.2 Strengths and wea knesses of producers 
Strengths Weaknesses 
Traditional Khmer designs Limited capacity to analyze the value of products 
Capacity of producers to adapt Low level of creativity and commercial appeal 
Basic market channels in place Shortage of techniques 
Access to some capital Poor workmanship and finishing 
Master craftsmen and women Low quality accessories 
Improvements in product quality Poor durability and reliably 
 Poor or no packaging 
 Little understanding of price vs. quality 
 Lack of cooperation between producers 
 
D. OBSTACLES  
104. In addition to the many weaknesses identified in  the capacity of producers and product quality 
noted above, handicraft producers also face a number obstacles related to: 
• access to raw materials 
• access to appropriate tools and equipment 
• access to technical support and training WT/IFSC/W/12/Add.2 
Page 32  
 
• access to credit 
• access to markets poor reputation 
• poor transportation infrastructure 
• complex export procedures 
• lack of a supportive policy environment. 
105. The strategy proposed by MWVA for development in the handicraft sector has as five 
elements:  
• regional specialization where traditional craf t specialties, available raw materials or 
other factors warrant; 
• integrated enterprise develo pment support through local centers, including business 
development services, and vocational training;  
• micro-credit facilities including risk-sharing and concessional terms for ramp-up;  
• market identification and development support; and  
• organized cooperation among ministries and agencies at the policy and program 
levels, for vocational training, cultivation or extraction of raw materials, trade 
facilitation, quality control, facilitati on of producer organization, etc. 
106. MWVA is currently negotiating with the German  Government for suppor t in pursuing several 
components of this strategy.  Key partner agencies include the private sector and NGOs, and the 
Ministries of Commerce; Culture and Fine Arts ; Agriculture, Forestry, and Fisheries; Rural 
Development, and Industry Mines and Energy. 
107. As for other dimensions of trade promotion for least developed countries, the ITC has 
published comprehensive analyses, guidelines and recommendations for development of the 
handicraft sector (ITC 1998). 
108. ITC also supports the Artisanal Enterp rise Network (AEN) whose website at 
www.craftscenter.org provides market and trend information, best artisanal product business practices, training programs for artisanal business development, and answers to frequently asked 
questions (FAQs). 
109. AEN’s  training for artisan entrepreneurs is based on a modular curriculum, teaching small 
business planning and management skills.  Written by entrepreneurs, the lessons and examples are 
based on business owners’ actual experiences running micro — small and medium-scale businesses.  The curriculum covers over 50 specific topics, grouped in the following modules. 
• Identifying the entrepreneurial traits  and specific talents needed for business success 
and learning how to hire the right people to form a management team. 
• Building the management team : How do micro- and small businesses get the support 
they need without hiring full-time personnel to provide it?  
• Product design and development : Making the case for, and teaching the principles of, 
Market-Driven Product Development.   WT/IFSC/W/12/Add.2 
 Page 33 
 
 
• Marketing  as an integral part of product develo pment and business growth strategy.  
• The science of costing and the art of pricing : for local, national, regional and 
international market opportunities;  
• Production : How to plan for it; how to maintain quality control;  
• Packaging and packing : the necessities to ensure safe shipment; value- added 
labeling and packaging; customer requirements.  
• Shipping : details of freight options; how to find a good freight forwarder; where to 
learn about all document ation requirements;  
• Preparing to enter (or making a better entry into) the international market : 
brochures, catalogs, trade shows, websites, promotion, evaluations of market options;  
• Managing financial and physical resources : budgeting, cash flow, capital, debt, 
equity, traditional and alternative sources of money, tax compliance, facilities and 
equipment;  
• Technology : what low-level technologies are ava ilable to increase productivity or 
profit margins; what new technologies need to be learned to communicate with 
foreign markets; the role of the Internet and the computer for small businesses;  
• Maximizing human resources : defining job descriptions and competencies needed for 
each job; salary and employee benefits; evaluating job performance and improving it; 
balancing teamwork and individual excellence; balancing work and family; shared 
ownership options.  
• Business relationships : between you and your vendors, wholesale and/or retail 
customers, sales representatives, ag ents, etc.; the importance of timely 
communications; what honesty means across cultures; etc.  
• Resources for continuing development : linking owners to institutions and sources of 
information and financing for growth 
110. Cambodian artisans face the same challenges as their colleagues elsewhere in the developing 
world, with additional difficulties created by the destruction of the past few decades (although they 
are not unique even in that respect).  Applying th e kinds of techniques and resources offered by ITC’s 
AEN to the Cambodian situation, may contribute significantly to advances in the sector. 
E. CONCLUSION  
111. The handicraft sector in Cambodia has much in  common with the agro-processing sector, in 
terms of its SME character and of its constrai nts and opportunities matrix.  Increased production 
activity and development of successf ul export oriented enterprises will require both improvements to 
the policy environment and direct programmatic s upport, to enable Cambodian producers to compete 
effectively with their counterparts in more advanced neighbouring countries.  Direct project 
interventions cannot substitute ov er the long term for a vigorous private sector working in a 
supportive and adaptive policy environment.  Still it is suggested that at this stage in Cambodia 
development support, by way of incubator projects to support capacity building, is necessary. WT/IFSC/W/12/Add.2 
Page 34  
 
 4.3 
Tabitha and certificates of origin  
 
Tabitha Cambodia is a non-profit non-sectarian Christian organisation whose purpose is to enable the poorest 
of the poor in Cambodia to recognise their inherent beauty as individuals and families.  With this 
understanding, people are encouraged to acknowledge their own inherent skills and abilities and to utilize these in ways that will enable them to recognise and change those areas of life that, they believe, keep them poor.    
Tabitha’s focus is on community development, through increasing family incomes and savings.  Tabitha’s 
tools are small personal savings programs based on quality of life ‘dream cycles’, support for micro-enterprise development, and cottage industry (handicrafts).  A more  complete description of Tabitha, its programs, and its 
handicraft products (silk weaving, children’s cloth toys , crocheting and embroidery, and silver ornaments and 
jewelry) may be found on the internet at www.tabitha.ca.  
At present, Tabitha is working directly with about 5000 families, some 40 000 people in total, in five 
Cambodian provinces.  Net annual program costs of Tabitha’s operations amount to about US$20 for each family, or $100 000 in total, including local staff salaries, operational costs, and the 10 per cent interest which 
Tabitha pays to participants in its savings programs (an encouragement to families for faith in their own 
abilities).  These program overhead funds come from donations from Tabitha’s international network of friends and supporters, and from profits on the approximately $300 000 worth of annual sales of handicrafts produced 
by Tabitha’s beneficiaries. 
 Tabitha has dealt successfully with many of the problems facing artisanal producers.  Raw materials are 
sourced centrally at wholesale prices.  Product quality standards are maintained through ongoing supervision 
and training by staff members, and by the growing self esteem of the producers. International export market access is achieved through several channels, including i) sales to tourists from shops in the capital Phnom 
Penh, in Siem Reap town, the site of the Angkor Wat temple, and soon from a shop in the Phnom Penh airport 
departure lounge; ii) sales to hotels; iii) an international network of volunteer sales people in Singapore, Canada, USA, Europe, Australia, and Taiwan, composed of people who have seen the value of Tabitha’s work 
and want to contribute; iv) international wholesalers and retailers, especially adherents of the fair trade 
movement; and v) direct sales through the internet. 
 With success and increasing visibility have come new challenges.  In the past, Tabitha’s shipments have been 
carried in suitcases as excess baggage by returning friends, or in lots too small to attract the attention of 
customs authorities in receiving countries.  At this time of writing, Tabitha has a larger US$40 000 shipment of handicrafts arrived in Canada and being assessed for import duties ranging from zero up to 100 per cent of 
value, depending on type. These duties would be mostly waived if the shipment were accompanied by 
appropriate Cambodian certificates of origin. However obtaining such documentation from the responsible Cambodian authorities, who are used to dealing with much larger garment manufacturers and other clientele, 
appears to cost nearly $1000 in official and unofficial service charges. Tabitha has appealed to the responsible 
Minister, and it is expected that a solution will soon be found. 
 This anecdote underlines the need for capacity building on both sides. Tabitha (and likely every other producer 
in the handicraft sector) needs help to learn how to navigate the complex rules and procedures which govern 
international trade. The RGC needs capacity building to enable it better to serve its whole range of clients 
 
 
 V. FISHERIES  
A. B
ACKGROUND  
112. For decades, the economic and ecological valu e of Cambodia’s fisheries resources has been 
recognised by the Cambodian people and their go vernment, regional governments, and development 
agencies.  Because of this recognition, developmen t and government agencies have financed dozens 
of studies of the fisheries sector and supported th e Department of Fisheries (DOF) to build technical 
capacity.  The studies consistently reaffirm the need to improve management of the fisheries sector so  WT/IFSC/W/12/Add.2 
 Page 35 
 
 
that the resources continue to serve as an important food source, generate foreign currency, and 
provide enjoyable livelihoods for millions of Cambodians.  
113. Nearly every research study has concluded that Cambodia’s primary fisheries stocks are being 
depleted and that modern agricultural practices, increased forest logging, and a growing population 
have combined to further degrade fisheries st ocks.  Previous and current government and 
development agency initiatives focus considerable attention on upgrading resource management.  
Among the several broadly based initiatives that were recently instituted, are the following. 
• In early 2001, the Prime Minister ordered approximately 56 per cent of the fishing 
areas under fishing lot management to  be released for public use.  
• The DOF was ordered to establish community  management of these public areas.  
• A sub decree on Establishment of Commun ity Fisheries was drafted to encourage 
communities to manage the fisheries resources through community-based 
organizations. 
• The leasing of special ‘research fishing lots ’, which were controversial due to the non 
transparent manner in which they were awarded, were cancelled. 
• The fees for middle scale fishing gear were cancelled for inland waters.  This reform 
was designed to eliminate unofficial taxation by local authorities. 
• Several coordinated projects began on the Tonle Sap Lake including; a UNDP-GEF 
project on sustainable resource manageme nt; a Capacity 21 project on awareness 
training and participatory practices; and an Asian Development Bank project on 
managing the resources for economic gr owth and development (UNDP-GEF 2001). 
114. Thus, there is support and effort currently being expended to nurture Cambodia’s fisheries 
sector and improve its economic value and financial return.  However, many problems remain.  The 
scale of the fisheries resource, its importance in the lives of so many Cambodians, and the scope of 
the economic and environmental problems mean there is a premium on identifying the pressing issues 
and tackling them. 
115. This report concentrates on how the various parties in the supply chain from the people 
catching fish through to wholesalers and retailer s, with support of government and development 
agencies, can be encouraged to participate in es tablishing a competitive market for fish and fish 
products.  With proper incentives and a reduction in irrational market interventions by government 
agencies, private sector participants can be encouraged to participate in the development of the sector, help preserve fisheries resour ces, and improve opportunities to alleviate poverty and promote 
international trade.  
116. The report identifies existing pr oduction, processing, transportation, marketing, and exporting 
participants and trade structures.  Some of th ese participants and related activities and trading 
structures are no longer functional in the emergi ng competitive market economy and some may be 
encouraging resource degradation.  The report then considers sector specific measures directed at 
developing the necessary technical and management  capacities, social relationships, and business 
linkages to promote competition and improve resource utilization.  
 WT/IFSC/W/12/Add.2 
Page 36  
 
B. R
OLE OF FISHERIES IN CAMBODIA  
1. As a source of food and livelihood 
117. Cambodia is the world’s fourth largest producer of freshwater fish, producing about 400 000 
tons of fish with a market value between US$150 and $200 million per year (Oxfam GB 2000).  More 
than 80 per cent of fish production comes from the Tonle Sap Lake, the Mekong/Bassac River basin, 
and other rivers and tributaries.  Marine fishing contributes about 10 per cent or 30 000 tons per year to production, and the balance comes from aquaculture, with annual production of about 13 000 tons. 
118. As a food staple, fish represents about 70 per cent of Cambodia’s animal protein intake, with 
consumption estimated at about 30 kilograms per person annually or about 300 000 tons in total 
(Infofish 2000).  Thirteen of th e twenty one Cambodian provinces are considered fishing provinces 
and more than three million Cambodian s, about 25 per cent of the population, live in the six provinces 
bordering the Tonle Sap Lake.  The fisheries in dustry seasonally employs an estimated 140 000 
persons, not including the tens of thousands of families who subsist on fish and other aquatic 
resources. 
2. As a source of export income 
119. The value of live and processed fish exports was estimated to be at more than $10 million in 
1998 with export of between 30 000 tons and 100 000 tons of freshwater and marine fish, which 
represented about 25 per cent of the total fish catch.   It is estimated that one half of the total are 
exported illegally.  Unofficial or illegal export chan nels do serve to generate income for some people, 
but as a rule, such channels are costly and ineffici ent.  One reason why exports happen through illegal 
channels appears to be to avoid official taxes and charges. 
120. It is estimated that 75 per cent of exports are delivered to Thailand as fresh, iced fish and 
seafood, and another 15 to 20 per cent are exported to Vietnam.  Due to a number of factors, including 
limited export experience, relatively few fish pr ocessing and packaging fac ilities, and poorly deve-
loped marketing capability, Cambodia is not benefiting  from value added exports.  Rather, it appears 
that Thailand and Vietnam, which possess better market knowledge, trade experience, and modern 
processing and packaging facilities, ar e reaping benefits by importing fresh, iced fish from Cambodia 
at very competitive prices, then further processing  and packaging them and marketing them to Asian 
markets located in Bangkok, Hong Kong, Malaysia, Singapore, Europe, and the United States. 
121. Table 5.1 lists the imports of Cambodian fish products in the respective countries, by value, in 
US dollars.  While the reported export quantities are imprecise, the values indicate the significant 
revenues to be realized through high value exports, especially live fish exports.  Currently, most of the exported fresh fish and seafood goes to Thailand, which is paying the lowest value per ton.  
C. I
NDUSTRY STRUCTURE , MARKET PARTICIPANTS , AND TRADE ISSUES  
122. A brief overview of the industry structure, par ticipants involved, and various trade issues 
follow.  The simplified diagram below depicts the primary linkages between main participants (see 
chart 5.2). 
1. Department of Fisheries 
123. The Department of Fisheries (DOF) has a staff of more than 1 500 and facilities located in 
each province.  It is headquartered within the MA FF in Phnom Penh and has the regulatory authority 
to promote and manage Cambodia’s  fisheries resources.  In addition to establishing industry 
regulations for the sector, DOF staff is responsib le for enforcing regulations, collecting fees from 
market participants, and controlling the smuggling of fish to neighboring countries.  The DOF obtains  WT/IFSC/W/12/Add.2 
 Page 37 
 
 
revenues from the sale of fishing lots, collection of fines and penalties, and by implementing donor 
and government funded fisheries resource management projects. 
 
5.1 Fish imports from Cambodia, selected countries 
Importing country Quantity Value Value 
 t US$ US$/t 
Hong Kong 648 6 137 820 9 472 Malaysia 173 2 632 849 15 218 
Thailand 3 342 1 224 989 367 
USA 280 1 063 464 3 798 Singapore 108 100 000 920 
 Source : Infofish 2000. 
 
5.2 Supply chain for fish exports 
 
Fisherman Trader Distributor Transporter Trader Exporter
DOF issues
licenses and
manages
resourcesSells to local
retailers orprocessorsPaysunofficial
road taxes
to transportExported
fish must be
sold through
KamfimexCollects 4 %
fee on all
fish
transportedin theprovince
RetailerProcessor
 
 Data source:  EDC 2001. 
 
2. Ministry of Economy and Finance 
124. The Ministry of Economy and Finance (MEF) coll ects a 10 per cent export tax on all fish 
exports.  As noted, the DOF is responsible for ensuri ng that the export tax is paid.  Cambodia is the 
only country in the region to levy an export tax on fish products. 
3. KAMFIMEX 
125. KAMFIMEX is the Kampuchea Fish Import and Export Company, a State owned enterprise 
managed by the MAFF.  KAMFIMEX is the sole licensed exporter of fish products.  It owns four 
processing plants that it leases to private sector enterprises, and manages all live fish exports at 
Pochentong airport, where it collects an export license fee of US$1 per kilogram, and Kompong Som port.  The existing export market arrangem ents specify that fish for export must  be sold to or through 
KAMFIMEX.  KAMFIMEX takes no physical possession, but instead resells the fish to licensed 
export agents or processing plants.  KAMFIMEX also sells one distributorship in each province 
through a competitive bidding process.   The distributorship entitles the holder to collect a 4 per cent 
fee on the value all fish exported through the province.   The fact that considerable export activity is 
reported to take place unofficially, and at low pric es, indicates that the fees and taxes imposed yield 
little in the way of marketing services. WT/IFSC/W/12/Add.2 
Page 38  
 
4. Fishermen 
126. Fishermen and fish companies are classified as small, medium, and large scale, depending on 
size of catch potential and type of equipment used.  There are three categories of fishermen and fish 
companies for inland fisheries, and other classifications for marine fisheries. 
127. Small scale fishers  are family scale fishermen (1–3 pers ons) who fish primarily for family 
subsistence.  They pay no fees to the DOF and are pe rmitted to catch fish throughout the year in areas 
outside fishing reserves and fishing lots.  The numbers of small scale fishers is increasing annually as 
the population grows and as alternative livelihoods become scarce.  
128. Medium scale fishers are extended families and village leve l partnerships (3–6 persons) that 
catch fish for income and processing using non-industrial fishing methods.  They pay an annual fee to 
the DOF (no details on these fees were obtained) and are limited to 8 or 9 months of fishing per year.  
There are few restrictions on the type or size of fish medium scale fishers can catch.  Due to the 
annual fee structure, their incentive is to catch as many fish is possible during the fishing season. 
129. Large scale fishers  are more sophisticated organizations (50–80 persons) that, in general, 
have improved production and processing methods, and better access to marketing and trade 
information.  Still, many use existing inefficient tr ansport and trade structures to export lower value 
fish to Thailand and Vietnam.  Large scale fishers lease fishing lots (20 to 350 km
2), which are 
awarded through a competitive bidding process every two years by the DOF.  At an average lease 
price of between $30 000 and $70 000, it is estimated that these fees represent an income of between 
$2 and $4 million for the DOF.  There are few restrictions on the type or size of fish large scale 
fishers can catch.  Due to the large fee structure, th eir incentive is to catch as many fish is possible 
during the fishing season. 
130. Marine fishers own boats to catch fish or raise fish and shrimp in Cambodia waters located in 
the Gulf of Thailand.  More than 4 000 Cambodia n owned boats are registered and licensed by the 
DOF (no details of the fees were obtained).  Th ai fishermen can also purchase fishing licenses for 
Cambodia waters, but accurate information on these sales was not obtained.  Marine fish catches are 
significantly under reported and nearly the entire catch is sold to Thai traders at sea.  It was reported 
that some Cambodian marine fishers are required to sell their catches at less than market prices to 
licensed processing facilities in Kampong Som for the privilege of obtaining an operating license. 
5. Traders 
131. Traders are the middlemen and w holesalers that facilita te trade primarily by providing capital 
and market access to fishermen at every level in the trading system, both for inland fisheries and marine fisheries.  The services they sell to fishermen include access to price information and better linkages to transporters, processors, and markets.  Studies have concluded that profit margins for 
traders are very high relative to other market par ticipants.  Traders who export must follow export 
market arrangements and sell all fish to KAMFIMEX.  Traders who distribute to the domestic market, 
and who transport fish through a province, pay the pr ovincial distributor a 4 per cent fee.  Traders 
who purchase and sell fish within the same pr ovince in which they are purchased, pay only 
transportation costs.  There do not appear to be official barriers to assuming a role as trader, but 
unofficial barriers may exist. 
6. Transporters 
132. Transporters own the trucks and boats that transport fish from the fish landing sites located 
alongside the lake or marine shorelines to proc essing facilities and markets in Cambodia and export 
points in Thailand and Vietnam.  Most fish exported to Thailand are transported in pickup trucks piled high with fish and ice.  Up to 50 per cent of the fish spoil before they reach their destination due to  WT/IFSC/W/12/Add.2 
 Page 39 
 
 
poor cold storage facilities, poor road infrastructure, and inefficiencies associated with unofficial road 
taxes and license fees.  Transporters pay a registration fee to the DOF and pay a series of unofficial 
road taxes from the landing s ite to final destination. 
7. Distributors 
133. Distributors are licensed by DOF to serve as midd lemen. One license is sold in each province 
for a term of five years through a competitive bidding process. The licenses are reported to cost up to 
$50 000 each.  They entitle the distributor to establish an office and collect a 4 per cent fee on all fish 
exported through the province.  There are no services provided for this fee.  Between 20 and 50 per 
cent of fish are smuggled across bor der areas to avoid distributor fees. 
8. Processors 
134. There are four major fish processing facilities in Cambodia.  All are owned and leased by 
KAMFIMEX, the State owned fish export company.  One facility is leased to Cambodians and the 
other three, located in Kampong Som, are leased to foreign investors who export high value shrimp 
and processed fish to Hong Kong.  The processors hold export permits issued by KAMFIMEX.  
135. There are no fish processing facilities located n ear the production sources on the Tonle Sap or 
other river areas.  Due to the huge fish spoilage factor, most domestic fish processing is performed in 
local villages by small and medium scale fishing fa milies and in the provincia l cities and Phnom Penh 
by small-scale enterprises.  About 50 per cent of th e freshwater fish is processed into low value dried 
fish and salted fish or converted into low value fish paste or fish sauce. 
136. Cambodia has robust retail markets located in all major provincial cities and throughout 
Phnom Penh.  The specific supply chains for the ma rkets were not examined in detail for this report, 
but it is assumed that fish are supplied by trader s to retailers on a whol esale basis.  Retailers, 
consumers, and small-scale processors who live near fishing areas can also purchase fish directly from 
fishermen at the landing site, but the scale and scope of direct purchases is not well documented. 
9. Export markets 
137. KAMFIMEX is granted sole authority by MAFF to  control fish exports.  KAMFIMEX has no 
direct competitors in Cambodia for fish exports.  Of ficial export points are located in the northwest (to 
Thailand), southeast (to Vietnam), Pochentong airport, and Kompong Som port.  KAMFIMEX has 
offices and distribution facilities at these locations  or licenses others to perform the processing, 
marketing, and export delivery functions.  Private sector exporters of live fish from Pochentong 
airport, pay a US$1 export license fee plus a 10 per cent MEF imposed fisheries export tax.  
138. A recently released research study by Enterprise Development Cambodia (EDC) concerning 
the export process in the northwest was made available for this report (EDC 2001).  The export location is the city of Poipet that connects to Arrany aphatet, Thailand.  On the road leading to Poipet, 
a distributor who is licensed by the Governor of Banteay Meanchevy province, instead of DOF, collects a fee of 4 per cent of value from each fish transport truck passing on the road to Poipet.  The 
office of KAMFIMEX is a little further up the road.  
139. All fish destined for export must be sold to KAMFIMEX.  KAMFIMEX does not take 
physical delivery of the fish, but instead licenses five export traders to purchase all the fish and 
transport them across the Thai border to the Arra nyaphatet fish market.  In most cases, the fish 
transported to the KAMFIMEX office are reloaded onto other trucks with fresh ice.  The export 
volumes are large.  Export traders and Thailand Department of Fisheries agents interviewed for the 
recent study stated that 90–100 tons of exported fi sh are delivered every day during the fishing season WT/IFSC/W/12/Add.2 
Page 40  
 
(November through April).  There is no other legal method of exporting fish to Thailand than through 
KAMFIMEX. 
140. The Arranyaphatet fish market is located just in side the Thai border.  There seems no logical 
reason why Cambodia’s freshwater fish market is located in Thailand.  Because Thailand does not 
allow Cambodian transport trucks to deliver the fi sh to the market, the fish are unloaded from the 
transport trucks, re-iced and placed in pushcarts that hold about 3 tons.  Fish are pushed across the 
border to the fish market and sold to Thai fish traders.  
141. According to reviewed reports, the average price for these exported fish is about 35 cents per 
kilo, which is about one fifth the retail price for the same fish in  Phnom Penh.  In addition to the 
cumbersome procedures involved in crossing the border, export traders must also pay official and 
unofficial fees totally about $75 for each push cart for fish to Cambodian and Thai authorities on 
either side of the border.  Chart 5.3 provides an ex ample of the export trade system used for exporting 
fish to Thailand through Poipet. 
 5.3 Fish exports through Poipet  
 
Fisherman
delivers to
landing siteTrader
transports to
distributorDistributor
collects 4% fee
with no serviceTrader sells to
Kamfimex for
export without
physical deliveryKamfimex ‘sells’
fish and license
to export to
trader
Export trader sells to Thai
wholesalers who deliver to
Bangkok for export or the
Thai domestic marketExport trader transports fishacross Thai border - pays
fees of $25 per tonExport trader pays 10% exporttax to Cambodia MEF
 Data source: EDC 2001. 
 
 
142. No information about the export of fish at the Vietnam border was reviewed for this report.  
In addition, little information is available concerning fish exported from the Kompong Som port, 
except that the three KAMFIMEX leased processing firms export only about 1 200 tons of fish and 
shrimp annually, primarily to Hong Kong.  
D. PROMOTING COMPETITIVE MARKET BEHAVIOUR AND IMPROVING RESOURCE UTILIZATION IN 
THE FISHERIES SECTOR  
143. Promoting competitive market behaviour and improving fisheries resource utilization is a 
national agenda. Any measures implemented to pr omote and improve the competitive market for the 
fisheries sector are equally applicable in like form  to other resource sensitive sectors.  Promoting 
competitive behaviour and rationalization of scarce  resources supports the government’s pro-poor 
development policies and its stated intention of  transforming the Cambodian economy from a 
command economy evidenced by state owned enterprises and inefficient distribution systems, to a 
competitive market economy where the role of govern ment is to enable markets, not control them. 
1. Significant inhibitor to competitive mark et performance in the fisheries sector 
144. The most significant hindrance to developing a vibrant and competitive fisheries sector is the 
depth of intervention by government agencies in nearly every aspect of every market transaction.  The 
level of government intervention that permeates the fisheries sector proportionately diminishes the 
attractiveness of the sector to private sector investment.  The rents charged by these many  WT/IFSC/W/12/Add.2 
 Page 41 
 
 
interventions decrease the profit potential to such a de gree that private sector participants are unlikely 
to invest in the modern production, processing, tr ansportation, and trade technologies necessary to 
create a sustainable fisheries industry.  Examples abound, from the auctioning of short term fishing lot 
rights, to selling market functions such as distributorships, to operating a State owned fish export 
monopoly such as KAMFIMEX to control all exports.  
2. Strengthening the private sector 
145. Development agencies have proper ly invested billions of dollars  in Cambodia to rebuild the 
infrastructure and instil technical capacity in government ministries.  Few of these funds have been 
invested in developing a sustainable market econo my where government agencies promote, enable, 
and encourage efficiently operated and managed priv ate sector firms, business associations, and civic 
organizations that are essential to a strong market economy.  
146. Instead, government agencies, due to their rational need to finance their operations, are 
encouraged to support themselves through direct market interventions, invasive regulations, and 
revenue seeking regulatory enforcement, all of which are highly evident in the fisheries sector.  These 
practices will not only continue to inhibit developm ent of a competitive and vibrant fisheries sector, it 
will continue to encour age degradation of the fisheries resources. 
3. Building a competitive fisheries industry 
147. Private sector businesses, similar to government institutions, road and telecommunications 
infrastructure, and the general landscape sustained si gnificant damage during 30 years of civil war.  
The social relationships and fabric necessary to tr ansact business deals and the trust required between 
market participants to promote expanded trade activ ities are broken and need financial and technical 
support to be developed.  This will take considerable time and effort.  
148. Examples of successful private sector initiatives exist.  They demonstrate that rebuilding the 
social contracts in a relatively short time is possible in Cambodia.  The most notable example of how 
quickly private sector transformation can take place is the development of the Federation of 
Cambodian Rice Miller Associations (FCRMA).  In 1 997, a UNDP initiative that ended in 1999 with 
the formation of the EDC set out to support private sector development.  EDC encouraged rice millers 
to meet together and discuss common problems and solutions.  Few rice millers had ever talked to 
each other during the previous years and the distrust between these businesspersons was obvious even 
to the casual observer.  
149. By facilitating business level discussions, exposi ng rice millers to new milling technologies 
and operating practices in neighbouring Thailand,  and encouraging upgrading of the industry and 
quality standards, more than 350 rice mills have now formed nine Rice Miller Associations (RMAs).  In February 2001, the Associations formed the Federa tion.  One of the first orders of business for the 
Federation was to promote the organization and fac ilitation of rice farmers, since without a linkage 
and partnership with rice farmers, th e rice millers realized they coul d never effectively obtain higher 
quality products.  A next order of business was to develop quality standards for the industry, 
marketing linkages and export channels.  The success of the RMAs and FCRMA speaks volumes 
about how relatively quickly the level of working relationships can develop and effectively function 
in Cambodia. 
150. The facilitation techniques an d organization efforts promot ed by EDC do not follow the 
traditional development project model; one of in tentionally establishing working groups or 
associations to serve some preconceived developmen t objective.  To the contrary, participants are 
simply encouraged to participate in a group discussion with other sector participants and determine for themselves after the discussion if they perceive  value in creating long-term business relationships 
and linkages.  Development agency support for these efforts must extend for at least three years, since WT/IFSC/W/12/Add.2 
Page 42  
 
experience has shown that partic ipants take a longer-term view  when they realize there is 
sustainability of the organization. 
151. Recently, various proposals have recommended that government agencies and government 
staff promote the formation of private business associations, and in the case of the fisheries sector, 
community fisheries councils.  Experience has s hown that, in general, government staffs of a 
transitioning economy (command economy to compe titive market economy) are unlikely to have the 
financial resources, technical knowledge, or require d mindset to build private sector institutions.  
Decreeing the development of a market economy is not possible, and the development community 
should discourage these activities, at least in the s hort and medium term.  Instead, initiatives to 
develop the private sector are best managed with the support and leadership of the private sector itself, 
along with professional facilitation services  from neutral, non-government agencies. 
152. Resource management, production systems, processing techniques, transport methods, 
marketing skills, and export market functions are linked in a variety of obvious and not so obvious 
ways.  Therefore, initiatives proposed  to assist one market function of the fisheries sector are likely to 
affect other market functions.  Therefore, a holistic  methodology in developing a competitive fisheries 
industry is the recommended approach.  
4. Sector specific initiatives 
153. For the fisheries sector to become competitive and market responsive, and for the fisheries 
resources to be managed more effectively and efficiently, a rapid transformation, rather than a gradual 
transition may encourage results that are more tangible.  A new set of values and business operating 
practices need to be integrated into the evolving Cambodian culture if a market economy is to develop 
during the next decade.  Individual enterprise ma nagement skills as well as sector level business 
capacities need to be developed.  
154. Competitors in a market economy operate with common understandings, work from a 
generally understood set of business ethics, rules,  and structures and normally agree on self 
governance and accountability for their industry, and accept responsibility for their collective 
interests.  A transformation of this nature in Cambodia will require the commitment and partnership 
of the public and private sectors as well as an equally significant commitment of long-term financial 
and technical support from development agencies. 
155. The following specific initiatives are suggesti ons only and require further analysis and 
discussion with market and resource management  participants, developm ent agencies, and the 
government. 
• Develop a long-term collective vision for the fisheries industry that promotes efficient 
resource utilization and promotes export trad e.  This pro-poor vision should be 
developed through a facilitated public and private sector partnership of interested 
government ministries, such as DOF, MEF, and MOC, and private sector 
organizations, such as local fisheries councils and fish transport and export 
associations.  
• Develop a comprehensive strategy for developing a profitable, private sector driven 
fisheries export sector.  Strategy develo pment will require participation and support 
from fisheries resource management intere sts, fishers at all levels, government 
ministries, and private sector participants at all market levels of the fisheries trading 
system.  From a well-defined strategy, speci fic objectives can emerge that continually 
place emphasis on private sector driven initiatives.  WT/IFSC/W/12/Add.2 
 Page 43 
 
 
• Decrease government intervention in the marketing channel and stop the selling of 
market functions.  This critical and necessary step may need a short period of 
transition, but should be accomplished as quickly as possible.  There will likely be 
both public and private sector special in terest lobbying to transition State owned 
enterprises, such as KAMFIMEX, into privat e sector enterprises.  Selling the assets, 
such as the warehouses, production facilities,  and vehicles, in a transparent manner is 
absolutely necessary.  But selling and maintaining functions, such as a monopoly for 
exports or distributorships that simply collect fees and offer no services will only 
further inhibit competitive sector and industry development.  
• Support the development of private sect or institutional capacity.  From the 
development of local community level organizations and working groups to 
enterprise and sector private business associations, private sector firms need to 
receive sustained support to upgrade their or ganizational, technical, and management 
capacities.  Support can be provided indivi dually through curriculum developed for 
technical and management schools or even more effectively through the development 
of sector specific organizations, private business associations, and working groups. 
• Support the development of private-public sector partnerships to improve technical 
and business management capacity.   To effectively develop an understanding of their 
inter related roles in a market economy,  one where government staffs enable and 
support the private sector rather than compete with and eliminate it, training in 
market economy principles and practices sh ould be provided to a broader range of 
government staffs and private sector firms.  While partnerships cannot be forced, 
there appears to be willingness for profes sionally facilitated fo rums where private 
sector firms and fishermen have the opport unity to share their viewpoints with those 
of the government representatives. Further research is needed to identify the best 
forum in which to provide such informatio n, but workshops, trade fairs, and local 
community meetings would seem appropriate venues.  It is recommended that 
development agencies fund selected demonstration projects to determine the long-
term viability of such an approach. 
• Provide neutral facilitation to rebuild th e relationships between private sector 
participants and develop private-public se ctor partnerships and working groups .  
There is a critical lack of experience for communities, private sector participants, and 
government to collectively solve issues in a democratic and participatory manner.  
Until this experience can be develope d and demonstration projects can be 
successfully presented as models, neutral facilitators should assist in accomplishing 
these initiatives.  Development agencies can support these efforts first through 
technical assistance and then advanced facilitation training  for private sector based 
business development service providers. 
• Develop an effective market demand and price information system for all participants 
in the fisheries sector .  Market economies work best with an efficient and timely 
source of market and price information.  As a pro-poor strategy, the development of a market and price information system will assi st individual fishers to better negotiate 
with traders and other market players.  Improved information systems will also assist 
participants to make better resource alloca tions.  A system of data collection and 
dissemination is essential to the co ntinued development of the industry. 
 WT/IFSC/W/12/Add.2 
Page 44  
 
VI. GARMENTS 
A. B
ACKGROUND  
156. Cambodia’s export performance since 1997 has been  remarkable.  Total exports rose from a 
negligible $51.3 million in 1992 to $1.1 billion by 2000. Export of garments explains most of this 
growth.  Table 5.1 charts the performance of the garment industry since 1994.  Up until 1995, garment 
exports were almost non-existent.  With increa sed stability, relatively low wages and with no 
quantitative restrictions to the EU and US market s, and reflecting the fact that some neighbouring 
countries were close to using all of their quota, fo reign investors shifted thei r production to Cambodia.  
Consequently, garment exports jumped from US$24 .2 million in 1995 to US$79.4 million in 1996, 
tripled to $227 million in 1997 and by 2000 garment exports were $965 million, accounting for 87 per 
cent of total exports in that year.  While the rate of growth has been unusually rapid, this pattern of 
manufacturing exports — dominated by labour intensive products such as garments — is typical of a 
labour abundant economy such as Cambodia.  Inde ed, this pattern of export composition characterized 
the very early stage of development of the manu facturing export sector of several neighbouring 
countries including Malaysia and Indonesia.  
157. In a developing country such as Cambodia where labour is abundant and concentrated in the 
rural areas, expansion of labour-intensive modern se ctors is critical to absorb unskilled workers at the 
earlier stages of industrialization.  Going on experi ences in other Asian countries, as incomes increase 
the share of employment in agriculture is likely to drop.  The choice of technologies in traditional 
industries will change as the rising cost of labour together with technological advances, encourages 
new methods.  Typically, job oppor tunities expand in services a nd industry, as employment in 
agriculture and the informal sectors declines and workers move to urban areas and the formal sector.  
Given the large supply of unskilled workers in Cambodia this process will continue for many more 
years. 
6.1 Cambodian garment industry, 1994–2000 
Year No. of 
factories No. of 
employees Exports 
  US EU Total 
  TotalQuota 
itemsNon-
quota  
1994 7 8 024 - - - 4 4 
1995 20 18 703 1 - 1 27 27 
1996 24 24 015 2 - 2 75 79 1997 67 51 578 99 - 99 112 227 
1998 129 79 231 360 - 360 76 378 
1999 152 96 574 585 434 83 58 553 
2000 186 122 644 749 520 229 221 985 2001 na na 480 a 282 a 198 a na na 
 a  Data refers to the first 7 or 8 months of 2001. 
 Source :  MOC 2001 
 
158. The garment and footwear and tourism sectors have been the engine of growth in the 
economy and largest generators of employment in the formal sector over the last four years.  In 2000, there were about 200 garment factories in Phnom Penh employing more than 120 000 workers, of 
which most are young women (table 6.1).  Some estimates put the number of workers in 2001 at 
160 000 (CRDC 2001).  Earnings of garment workers are high relative to other job opportunities in 
Cambodia and even compared to garment workers in competing countries such as Bangladesh and 
Indonesia.  While reliable data on wages or earnings of other workers are scarce, the data that does 
exist suggests that workers in the garments sector are relatively highly paid compared to most other 
workers in both the formal and in formal sectors and the civil service.  To the extent that export 
expansion of garments has created relatively high wage jobs for some workers, ‘wage inequality’ will  WT/IFSC/W/12/Add.2 
 Page 45 
 
 
emerge.  However, the process of shifting workers ou t of low paying jobs in the informal sector to 
higher paid jobs in the formal sector will make mo re and more workers better off compared to the 
opportunities they currently face. 
B. MARKET ACCESS FOR CAMBODIAN GARMENTS  
1. United States access 
159. In the case of the US, exports from Cambodia  are restricted in certain categories and by 
import tariffs.  The surge in garment exports (especi ally of woven trousers and knitted shirts) to the 
US market triggered the US government to impose volume restrictions on 12 categories of 
Cambodian exports in 1999 on the grounds that this  level of exports was disrupting the US garment 
market (see table 6.2).  The quota agreement is in itially for three years ending in December 2001.  
Apparently, negotiations for a new agreement have  not yet begun and a one-year extension of the 
existing agreement may need to be considered until a new one is agreed.  Under the current 
arrangement, quantitative restrictions applying to Cambodia are eased by 6 per cent per annum during 
the agreement period, 1999 to 2001.  
160. Additional easing of quantitative restrictions on Cambodian exports is linked to progress on 
labour standards.  According to this agreement, up to a maximum of 14 per cent quota increase is 
possible if Cambodia ‘substantially complies with  labour standards’ including those set out in 
Cambodia’s labour laws and the four core ILO conventions.  The ILO defines ‘internationally 
recognized core labour standard s’ as covering four elements: 
• freedom of association and the effective recognition of the right to collective 
bargaining; 
• the elimination of all forms of forced or compulsory labour; 
• the effective abolition of child labour; and 
• the elimination of discrimination in re spect of employment and occupation. 
161. Following on from an assessment of Cambodia’s labour standards, the US government eased 
restrictions by 9 per cent in 2001.  The US did not commit to the full increase on the basis that it did 
not make substantial progress in respect to the core  labour standard of freedom of association and the 
right to recognize and bargain collectively.  However, the basis for this decision is not well 
documented.  The condition ‘substantial compliance’ with labour standards is vague and open to 
non-transparent assessments.  Evidently, several US buyers had criticized the US government’s 
assessment of Cambodia’s labour standards for the 2000 quota for its apparent lack of transparency.  In the opinion of one large US buyer, ’the level of  secrecy in the assessment fuels the perception that 
the 1999 adverse decision was based more on politics a nd protectionism than on facts’.  The lack of 
transparency in Committee for Implementation of Textiles Agreem ents (CITA) decisions is now 
being partly addressed through an ILO Garment Mo nitoring Project in Cambodia.  In conjunction 
with the Garment Manufacturer Association of Cambodia and the Cambodian Government, the ILO 
monitors 185 factories for compliance with Cambodia’s labour laws and ILO core conventions.  
162. This process began in June 2001 and the first report will be published on the ILO website in 
October.  This report will be used as input into the US government’s assessment of labour conditions 
in Garment factories and quota determination.  So urces of funding for the ILO project are the US 
Government ($1 million), Cambodian Governme nt ($200 000) and the Cambodian Garments 
Producers Association ($200 000). WT/IFSC/W/12/Add.2 
Page 46  
 
163. An argument often used to allay concerns about the lack of market access of least developed 
countries (LDCs) to industrial country markets is  that garment quota arrangements and preferential 
schemes such as generalized system of preferences (GSP) are especially designed to help these 
countries sell their products in industrial country markets.  There is evidence, however, that the US 
garment quota arrangement has restricted Cambodia’s export growth to the US.  In this regard, there 
are two important notes.  First, it is important to note that while the US made Cambodia a beneficiary 
under its GSP regime, this scheme specifically excludes textiles and garments from the list of goods 
that are subject to low or zero tariff rates.  Thus, Cambodian garments (both quota and non-quota 
garments) are therefore subject to the higher MFN tariff rates, averaging 17 per cent for Cambodian 
export garments.  Second, the annual easing of the quota of up to 20 per cent during the agreement period is less liberal that it first a ppears.  In fact, the largest annual relaxation in quota restrictions so 
far has only been 15 per cent in 2001 — the guaranteed 6 per cent annual increase and a 9 per cent 
increase for progress on labour standards. 
164. The 15 per cent easing of quota restrictions in 2001 falls short of the annual increase in 
Cambodia’s exports of these items to the US in the few years leading up to the quota restrictions 
(table 6.2).  Further, quota utilization rates for so me of the major categories are high indicating that 
quotas on these items are binding.  Table 6.2 reports the quota and utilization rates for each category 
from 1999 to 2001.  In 2000, four of the 12 categories had relatively high utilization rates of which 
two of these categories (338/339 and 347/348 and 647/648) are by far the largest quota items.  In 
response to ceilings on export expansion in these items, Cambodia’s garment producers increased 
exports to non-quota items.  Evidently, total exports in non-quota items increased from US$82.6 million (or 16 per cent of total garment exports to the US) in 1999 to $229 million (31 per cent of total garment exports) in 2000.  For the first 7 to 8 months of 2001, exports of garments not 
covered by quota amounted to $198 million or 41 per cent of Cambodia’s total garment exports to the 
US.  Rapid growth in the non-quota items indicate that Cambodian firms remain competitive against 
US production and other competing imports of these items, even though Cambodian exports are 
subject to MFN tariff rates.  
6.2 Cambodia’s exports to the US markets  
Category Quota Utilization rate  
              $              % 
 1999 2000 2001 1999 2000  
331/631 (Dzs-Prs) 1 300 000 1 281 945 990 093 92 65 
334/634 (Dzs) 180 200 197 030 208 852 96 73 
335/635 (Dzs)  68 900 82 680 83 989 50 67 
338/9   (Dzs) 2 900 000 2 956 000 3 071 350 99 99 
340/640 (Dzs) 795 000 1 001 700 969 105 63 75 
345   (Dzs) 99 640 125 546 121 461 57 104 
347/8 & (Dzs) 3 600 000 3 427 800 3 685 620 100 96 
647/8   
352/652 (Dzs) 636 000 541 961 494 833 60 43 
438   (Dzs) 96 300 108 703 100 127 96 69 
445/446 (Dzs) 116 600 133 320 129 043 52 48 638/639 (Dzs) 954 000 1 043 100 1 105 686 88 87 
645/646 (Dzs) 171 952 301 507 260 743 14 43 
Total value of garment exports 
covered by quota (US$million)  434 520 282
 a   
Total value of garment exports not 
covered by quota (US$million) 83 229 198 a   
% share of total exports to US (16%) (31%) (41%)   
Total exports 517 749 480a 
 a First 7 months of 2001. 
 Source :  MOC 2001. 
  WT/IFSC/W/12/Add.2 
 Page 47 
 
 
165. In response to domestic pressure, large in ternational buyers now carry out their own 
continuous assessments of labour conditions in their suppliers’ factories.  In addition, the international 
accounting firm PriceWaterhouseCoopers carries out a regular Social Compliance Audit for several 
large US and UK buyers.  This scrutiny has the effe ct of raising or consolidating worker returns and 
conditions for those workers with jobs but there have also been some perverse effects on the most 
vulnerable workers in Cambodia — young women.  In recent years, foreign media has accused a 
number of Cambodian garment factories of using ch ild labour.  A British do cumentary screened in 
2000 accused a Cambodian garment factory of employing child under the age of 14 years.  As it 
turned out, the girl was 18 years and there were counter-allegations that the journalist paid the young 
women to make the claims (see Asia week, 22 December 2000).  The result of these accusations, and pressure from their major buyers, has had the effect of encouraging factory managers to dismiss workers and reject job applications from women who are believed to be under 18 years of age, even 
though the legal working age in Cambodia is 15 year s.  This means that a large segment of the labour 
force is excluded from participating in the most productive and relatively high paying jobs in 
Cambodia and to prevent them from escaping poverty. 
2. European Union access 
166. Cambodia’s second major destination for garments is the European Union.  In 1993, the EU 
established trade relations with Cambodia on a MF N basis; that is tariffs applied to Cambodian 
exports were no less favorable than exports fr om other countries.  There were no additional 
restrictions on Cambodian exports, because at the time Cambodian exports were negligible.  
However, with exports to EU rising and especially concerns over third country garment exports entering the EU under fake Cambodian rules of origin (ROOs) certificates, a new agreement came 
into force in April 1999.  This agreement promis ed not to restrict market access for Cambodian 
garment exports for three years; that is, Cambodian  exports have access to the EU without duty or 
quantitative restrictions.  Garments to the EU su bsequently increased from $51 million in 1999 to 
$221 million in 2000. 
167. Special incentive arrangements covering labour  and environmental protection also applied, 
which provided for an additional preferential margin awarded based on compliance.  As of 
5 March 2001, the ‘Everything but Arms’ amendment to  the EU GSP scheme grants unrestricted duty 
free access to all products originating in least deve loped countries excluding arms.  While the scope to 
offer additional margins no long er applies compliance, internat ional labour and environmental 
standards is a general requirement of GSP status. 
168. However, unrestricted access to the EU requires Cambodia to observe stringent ROO 
requirements.  One of the conditions for GSP access to  the EU market is that Cambodia has to observe 
a ‘full makeup’ rule of origin when exporting to EU destinations.  This means that to qualify as being 
of Cambodian origin, garments have to be proce ssed in Cambodia from yarn in the case of knitted 
items, or from uncut fabric in the case of all ot her items.  The Cambodian government implemented 
this ROOs by requiring exporters to prove that loca lly generated value added was greater than the cost 
of imported fabric or yarn.  In principle this restrictive ROOs was relaxed when Cambodia joined 
ASEAN in 1999, which now permits garment producer s to source fabric and other textile products 
made in other ASEAN member st ates under the EU cumulative origin provisions of the EU-ASEAN 
bilateral trade agreement and, thus , retain its GSP concessions.  Ho wever, the Cambodian government 
continued to require exporters to prove that locally generated value added was larger than the cost of 
fabrics.  This unnecessary strongest ROOs requir ement mainly came out of the government’s concern 
that third country exports using fake Cambodian la bels could undermine Cambodia’s ‘preferences’ to 
the EU.  The government has recently relaxed this requirement and now only requires exporters to 
present the ASEAN fabric suppliers’ GSP certificate as  proof that the fabric originates from another 
ASEAN Member State (see box 6.3). WT/IFSC/W/12/Add.2 
Page 48  
 
169. Another constraint on exports to the EU comes from a policy of the Cambodian Development 
Commission itself.  The CDC prohibits garment producers without its approval from participating in 
the EUs outward processing trade.  Outward processing trade involves EU firms ship and cut parts to 
low cost countries for assembly and subsequent re-export to the EU.  The CDC is of the view that this 
trade will not develop the local industry.  
 6.3 Documentation procedures for garment exporters 
As part of the licensing process the exporter must obtain a Certificate of Processing from the Ministry of 
Industry, Mines and Energy as proof that the garments are made in Cambodia.  Ministry officials will visit the factory to verify origin.  In the next step, exporters obtain a Certificate of Temporary Authorization to Export 
from the GSP division at the MOC.  Officials do not carry out verification of origin at this stage.  The stated 
purpose of this is to speed up export facilitation.  Both Camcontrol and Customs carry out a pre-shipment verification of exports at the factory premises and issue a certificate of inspection.  Containers are then permitted 
to leave Cambodia before the Certificate of Invoice or Origin is issued.  All documents are sent to the GSP 
division at MOC for issuance of Certificate of Invoice if garments are exported to the US and Certificate of Origin if exported to EU.  Exporters supply detailed cost and price data to GSP for calculating local content. 
Based on these calculations, the GSP division issues the appropriate Certificate of Origin.  For exports to the EU, 
Form A is issued if the shipment satisfies the EU ROO (and therefore entitled to GSP status in EU market) and Form N if garments do not satisfy required ROO (thus, subject to MFN rates from EU).  Under the EU bilateral 
agreement with ASEAN, fabrics sourced from other ASEAN member countries are treated as local content.  In 
this case, the garment exporter is only required to produce a copy of the fabric supplier’s GSP certificate as proof that the fabric originates from ASEAN.  If the fabric  is sourced from non-ASEAN/EU suppliers, then the 
garment producer must observe the ‘full makeup’ rule.  The MOC implements this rule by requiring garment 
producers to prove that locally generated value added exceeds the cost of imported fabric. If exporting to the EU, the exporter must also obtain an export license form the Department of Foreign Trade at MOC.  The Minster of 
Commerce must sign both the export license and the GSP from on the same day.  The Cambodian government 
continues to insist that garment producers meet EU ROOs and have an export license even though they are not required if the garment producer is not requesting GSP. 
 
Overall, the documentation process is cumbersome compared to other exporting countries such as Indonesia.  
There appears to be no reason why the Ministry of Industry, Mines and Energy participates in the approval process.  Camcontrol’s functions essentially duplicate Cust oms area of responsibility.  This process is costly and 
time consuming. As it is heavily dependent upon the physical inspection of shipments by three agencies, and is 
thus very much open to abuse by petty officials.  One reason for this elaborate licensing procedure was in 
reaction to EU and US concerns about third-country garment exports arriving at their ports using forged Cambodian certificates.  Apparently, just after the US bilateral agreement with Cambodia came into force, about 
700 forged Cambodian certificates were submitted by US importers to clear shipments at US ports, which had in 
fact originated from China.  This problem has been largely addressed with the recent introduction of the electronic visa identification system to the US (known as ELVIS) and EU.  Under this system, the MOC 
electronically transfers information on certified shipments of garments to the US customs, which is then able to 
identify fake Cambodian exports arriving at US ports. According to MOC officials, since this system was implemented early in 2001, US custom complaints about fake shipments have virtually ceased.  A similar system 
has been implemented for exports to the EU.  
 
 
 
C. RETURNS FROM PREFERENCE SCHEMES AND DISTRIBUTION OF THESE RETURNS  
1. Impact on export revenues of preferential access 
170. Returns from exporting to restricted markets are attractive for current exporters because they 
mean access (albeit restricted) to the US market where prices are much higher because of restrictions 
which all exporters to the US face.  Thus, while US consumers lose and garment-producing countries 
lose in general these losses are offset to some exte nt in those garment-producing countries that secure 
some access.  The size of this offset is determined  by the prices on the US and EU market, the duty 
applied, the prices that would be received on ot her next best markets and quantities sold on this 
preferred market.   WT/IFSC/W/12/Add.2 
 Page 49 
 
 
171. This value is sometimes called a rent.  Estimating the value of this rent is not easy, as it 
requires comparison with the actual prices producer s receive for their exports under the restricted 
access arrangement with prices they face in other ne xt best markets — that is, the prices they would 
have received for products sold under quota.  However, with some strong assumptions and simple 
manipulation of existing data from the quota auction it is possible to make illustrative estimates of 
quota rent value.  According to data from MOC, to tal exports under quota were $520 million in 2000 
(or utilized quota).  Assume that the government au ctioned 10 per cent of this amount, this would be 
equivalent to $52 million of the utilized quota.  According to MOC, revenue received from quota 
auctions in 2000 was $4.5 million or 8.7 per cent of export quota auctioned.  Assuming quota rent to 
the US is approximately worth 8.7 per cent of quota exports to US of $520 then the imputed value of the quota rent to the US would be $45.2 million  
172. Does access to preferential, but not quota markets, have a rent value? For the EU market a an 
estimate of the value of access at zero tariff w ould be the quantity sold at duty free prices multiplied 
by the MFN rate.  In 2000, exports to the EU were $221 million.  The average EU MFN rate is about 
8.8 per cent.  Thus, the maximum ‘rent’ possible would be $19.9 million ($221 million times 8.8 per cent).  The question then becomes: what proportion of exports to the EU was subject to zero tariff? It 
appears that this could be a relatively small share around 10 per cent and that most exports to the EU 
are subject to the MFN rate.  If this is the case, the ‘rent’ on the EU market would be around 
$2 million.  Again, this exercise warrants further de velopment.  The initial estimate of rent also raises 
the question of treatment of garments sold on the US market out of quota and at MFN prices.  In this 
case as other competitor countries still face quot as, Cambodia’s access at MFN rates would be of 
extra value depending on the price raising effect of quotas inhibiting exports from other countries.  
Taking these qualifications and unknowns together it appears that the value of rent is at least 
$45 million and more depending on the value of preferential access. 
2. Other impacts of preferential access 
173. While these returns, or rents, ap pear to be a valuable consideration, this apparent ‘good deal’ 
needs to be qualified as follows. 
• Preferential access can encourage specialization in products where there is no 
comparative advantage. 
• The allocation of the benefits of preferential access can create inefficiencies, which 
hurt competitiveness. 
• Granting of preferences depends on the existence of continuing protection in 
developed country markets. 
 
 Specialization in activities unsuited to the economy 
 
174. An example where preferential access has en couraged continued production in inefficient 
areas in the preferential access the EU accorded Caribbean banana production.  In this case, Caribbean 
countries produced bananas, not because they were suited to doing that, but mainly because of the 
preferential access (see box 6.5).  In Cambodia’s ca se, it appears clear that garment production is well 
suited to the present stage of development. 
175. The success of the garment industry in Cambodia  is a barometer for attracting other Foreign 
Direct Investment (FDI).  Typi cally, the garment industry is one of the first manufacturing export 
sectors to develop in a low-income country.  In pa rt, this is because much garment production relies 
on low cost labour, but also because of the percei ved high risks of operating in developing countries 
that often delay other types of investments, especial ly those that require significant outlays in capital 
and or human resources.  In particular, one of the long-term benefits of the garment industry for WT/IFSC/W/12/Add.2 
Page 50  
 
Cambodia is that it acts as a platform for creating a pool of productive workers for new FDI.  There 
are early indications of this already happening as demonstrated by the recent entry of footwear 
producers in Cambodia.  For these reasons, fore ign investors watch the success of the garment 
industry before deciding to invest in that country.  In other words, success breeds success.  Investors 
are particularly concerned about government regulati ons and ‘hidden’ taxes that increase the costs of 
doing business in a country and uncertainty in the policy framework.  WT/IFSC/W/12/Add.2 
 Page 51 
 
 
 6.4 The benefits and risks of preferential arrangements 
The growth of Cambodia’s garment industry is remarkable and well known.  That an industry could grow from 
virtually zero activity in 1996 to some 200 factories and 150 000 jobs in 2001 would be little short of spectacular in 
any country let alone one which during the period in question went through a period of political upheaval, and is widely considered to have run down infrastructure, poor if not corrupt administration and a poorly educated labour 
force.  People might draw several lessons from this experience.  One is that despite all the problems that go with 
being a developing country, the obstacles to rapid development in Cambodia are not overwhelming.  That would be 
a sensible lesson.  A second lesson might be that this rapid development only happened because of trade preferences, and that in this case the trade preferences from the US and Europe were useful forms of aid.  
 
This would be a surprising conclusion and not in accord with the general experience with preferential trade arrangements, which generally shows them to have a range of effects.  Consider for example of preferential quota 
restricted access accorded by the EU to imports of bananas from Caribbean countries.  The main effects of this 
policy are as follows.  First, quota restrictions drive up the EU common price doubling the world price.  Second, the EU imports many bananas (40 per cent of all internationally traded bananas) so it costs EU consumer a fortune — 
about $2 billion a year due to the higher prices.  Third, not much of this $2 billion reaches recipient countries — 
about $150 million a year — so if you think of it as aid it is very expensive aid.  Fourth, one reason why so little aid gets through is that it is appropriated along the way — in the first instance by large buyers and eventually by being 
built into marketing and production cost structures.  Fifth, other banana producing countries — mainly developing 
countries in South America – suffer (loses of $149 million per year) because their access  to the EU market remains 
restricted.  The Mauritius sugar story is another example of  trade preferences going wrong.  Mauritius sugar exports 
have preferential access to the EU.  As a result Mauritian sugar producers receive prices that are on average double 
the world price. But far from being a blessing for the Mauritian industry, these preferential arrangements have directly led to a high cost and ossified industry. In order to allocate the ‘benefits’ of the preferential access Mauritius 
has enacted laws which restrict the way land and labour is used. And the Mauritian sugar industry is returning at a 
loss. It also appears to be imposing costs on other industries.  
Currently Cambodia is a poor country.  Wages are low.  This should be one basis for its capacity to attract 
investment and ideas from abroad. While the minimum wages and other costs arising from ‘appropriate compliance’ 
with labour standards might be a way of redistributing some of the value of preferential access to some labour in the short run, in the long run, there is a risk that Cambodia will become a high cost producer in one of the areas where it 
is most likely to have a comparative advantage at this stage of development. If the lessons from other developing 
countries are a guide, this is a real risk.  One of the issues worrying policy makers in Cambodia is what will happen in 2005 when restrictions of major 
developed countries on garment imports are phased out.  When this phase out was negotiated as part of the Uruguay 
Round Agreement on Textiles and Clothing (ATC) it was expected that it would be a boom to developing countries such as Cambodia. No longer would the costs arising from the intricacies of quota allocation involving arcane 
definitions of ROO and the like be borne.  Demand for garments would grow as prices in the US and Europe fell and 
uncompetitive production in these countries ceased. And demand for other goods which might also be produced by developing countries might also grow as consumers started to spend some of the money saved by having access to 
cheaper garments. 
 
So 2005 and the loss of preferential access is not necessarily a matter of doom and gloom for Cambodian garment producers (Van Sou Ieng 2001).  It will only be that if Cambodia has come to have a cost structure built around 
preferential arrangements and so is unable to compete in unrestricted markets.  Given the relative youth of 
Cambodia’s garment industry, flexible production and low cost structures ought to be within reach.  Perhaps a bigger risk is that the relatively slow adoption of the ATC and the propensity of the major importers to adopt other 
barriers to trade, will mean that come 2005 restricted market access arrangements will still exist. 
 
Sources: A. Stoeckel and B. Borrell, Preferential Trade and De veloping Countries: bad aid, bad trade, Rural Industries Research  
Development Corporation (RIRDC) 2001. 
Van Sou Ieng 2001, The Future of the Garment Industries Post 2005, Globalisation Conference Business and Law Perspectives, 
Ministry of Commerce, Phnom Penh, 27 June 2001. 
 
 
 Effects on efficiency 
 176. There are concerns that inefficiencies in so me existing institutional arrangements — such as 
relatively high minimum wages, restrictions on work  shifts, unofficial taxes — as well as regulatory WT/IFSC/W/12/Add.2 
Page 52  
 
compliance costs are raising the cost structure of the garment sector.  While legal minimum wage 
rules may benefit existing workers in the short- term, they can put expanded employment in the 
industry at risk, if preferred markets cease to exist by  creating a cost structure that is only viable with 
preferences.  Further, by putting in place permanen t institutional rigidities the development of other 
potential export sectors is also at risk for the same reasons. 
177. One way of looking at how these inefficiencies raise costs is to examine how the rents from 
the preferences estimated above are allocated among different stakeholders.  In principle, distribution 
of rents among different stakeholders is not undesirable if the allocation is done in a way that is low 
cost whereby few or no inefficiencies are created. One common example of this low-cost way of 
capturing rents is the competitive auctioning of quotas.  Indeed, governments in many countries competitively auction rights to fisheries and log quot as.  This approach has th e advantage of capturing 
rents and discouraging inefficiencies.  However, if rent appropriation activities raise costs of doing 
business in the economy then this woul d adversely affect competitiveness.  
178. In Cambodia, both low cost and high cost ways of capturing garment quota rents exist.  In this 
construction, three stakeholders are capturing the quota rent; government including government officials; workers and garment producers.  The Government has implemented a flexible quota system for these categories whereby about 80 per cent of the quota has been allocated to firms operating in 
Cambodia in 1998 based on their past export performa nce and production capacity.  Up to ten per cent 
can be allocated to exporters as a reward for current export performance and compliance with the 
country’s labour laws.  The remaining 10 per cent or more is auctioned to garment producers through 
competitive bidding carried out under the auspices of the MOC.  The gene ral view among garment 
producers and industry analysts is that the auction is done in a transparent manner. 
179. Three different taxes apply.  These taxes are in part fees for services but to some extent may 
also capture rent.  They include:  
• the visa fee amounting to $10 million on exports to the US; 
• minimum turnover tax on quota exports to US amounting to $5.2 million;  and  
• Camcontrol inspection fee of 0.1 per cent amounting to $.53 million on imports of 
fabrics and exports of garments. 
180. Based on this approach, the total rent captured  by the government amounts to $20.23 million 
or 44 per cent of our estimated rent value. The bureaucracy also captures rents in the form of ‘unofficial’ or ‘hidden’ taxes and facilitation payments.  According to recent reports, these 
bureaucratic costs are around $70 million (CLDRC 2 001). This would mean that bureaucratic costs 
completely swamp quota rent.  Another estimate  of bureaucratic costs is based on the Trade 
Facilitation section, where it was estimated that informal costs of exporting garments amounted to 
between $110 and $150 per container consisting of $30 000 (f.o.b.) worth of garment exports, plus 
formal costs of $138 per container.  At say informal  costs of $130 per container the estimate of total 
informal trade facilitation costs to the garment sect or would be around $4 million. Clarification of 
these widely different estimates requires further study. 
181. A second group that benefits from the rent is garment workers.  The government increased the 
minimum monthly wage from $38 to $50 (including the additional $5 monthly bonus for full attendance).  Assuming 120 000 workers the additional cost of the increase in minimum wage would be $17.3 million.  This could be considered as to  a transfer from producers to workers.  However, 
some of this transfer was gathered  in by job brokers.  Evidently, to secure a job garment workers must 
pay job brokers, usually security guards or shop stewards.  According to one survey of garment 
workers, 50 per cent of all workers paid an average fee of $38 in 1999 to secure their jobs (CDRI  WT/IFSC/W/12/Add.2 
 Page 53 
 
 
2000).  The same survey found that 57 per cent of these workers had to take out a loan (from informal 
lenders) to pay the fee (see box 6.6 sharing the benefits of market access).  
182. While garment factory owners condemn such a practice, according to the survey, no workers 
were willing to make a complaint to the owner in fear  of reprisals from brokers.  However, since the 
regulation of minimum wages and bonus system has been increased, a young person seeking a job in 
the garment factory in 2000 must find up to $120 as  a payment to security staff or a shop steward.  
In 2000, more than 30 000 new jobs were created in the garment sector.  Assuming that 50 per cent of 
these new workers had to pay a fee of $120 to brokers to secure their jobs, then the capture of rents by 
these brokers could have been $1.8 million, and as  much as $3.6 million if all 30 000 new workers 
had to pay a fee.  In any case, the $120 brokerage fee is equivalent to 84 per cent of the increase in the annual minimum wage of garment workers in 2000, i ndicating that brokers were capturing the bulk of 
the additional rent designated for new workers in 2000. WT/IFSC/W/12/Add.2 
Page 54  
 
 6.5 Sharing the benefits of market access 
Bon San is a 20 year old Cambodian woman from Preah Vihear Province in the north of Cambodia. She is one of 
120 000 young people who have come to Phnom Penh to work in Cambodia’s garment industry since garment 
exporting took off in 1997.  At least 75 per cent of these young people are women.  Bon San’s life is difficult — she has not been home to see her family since coming to Phnom Penh twelve months ago. She shares a small 
room with two other women in a house not far from the factory.  She works six and sometimes seven days a 
week.  The work is boring and repetitious.  And because Bon San works on a piece rate system, she is under 
constant self applied pressure to perform.  
Bon San is a hard worker, she has a good attendance record and occasionally works overtime. When the factory 
is busy she earns around $70 a month. Conditions in the factory are good, the lighting is adequate, there are fans for cooling and there is a medical centre on site.  To secure the job Bon San’s family paid $30 to the factory shop 
steward.  Since then her wages have risen following the regulation of minimum wages and a bonus system.  Now 
a young person seeking a job in a garment factory must find $120 as a payment to security staff or a shop steward.  This fee, plus transport and living for a month without salary, is way beyond the means of most 
families in Bon San’s village.  For them, the investment to get a family member into garment work is now as 
forbidding as it would be for an American family to send a child to an Ivy League school.  
Bon San is sometimes confused about whether she owes her relative good fortune to the Singapore company that 
owns the factory, or to its manager or to the various inspectors that regularly visit.  Some of these inspectors are from the Ministry of Social Affairs, Labour, Vocationa l Training and Youth Rehabilitation.  Others are from the 
Project on Monitoring the Working Conditions in the Garment and Textile Factories and others again are 
representatives of big name US buyers. These people seem very concerned about her welfare and from time to time ask if she is happy and whether she has any problems with management?  
 
Bon San sometimes thinks what a pity it is that these caring people have not been to her home village to insist on such good conditions for the young people there. It is in villages like this where over a million young Cambodian 
people live in real poverty. Their chances to get work are erratic and seasonal and might involve spending days 
up to their knees in water bending over to plant paddy. One of Bon San’s brothers works on a fishing boat.  The 
hours are long and the work is dangerous. Another brother stokes boilers in a brick works.  It is a long time since Bon San has heard from him and she sometimes worries that he has been maimed or killed.  She also worries 
about her 17 year old younger sister Povi. Povi spends about half her time either planting or harvesting rice.  The 
rice is for family consumption and Povi barely knows what money is for. When she is not working in the fields, Povi spends most of her time sitting and waiting on a cane bench in the open area under her family’s house. Povi 
would gladly come to work with her elder sister and at 17 years she is legally entitled to do so. But since a 
foreign TV program claimed a leading garment producer was employing people younger than 16 years, producers have steered well clear of anybody under 18 years old.  
 
What about Bon San’s puzzle as to why she, who is relatively well off, gets inspected so much when others much worse off never get inspected at all?  One explanation for this puzzle is that Bon San’s wages and working 
conditions are part of a deal.  Her employers gets restricted access (for goods they produce out of Cambodia) to a 
protected and therefore high priced market, provided that Bon San and her workmates enjoy good wages and 
working conditions. Is that a good deal for Bon San?  The answer in the short run is probably yes.  But it is not such a good deal for Povi, who has no real job. If Bon San’s bosses had lower costs, that is, could pay lower 
wages, and run night shifts without paying double time they might be able to better compete on non preferred 
markets and so invest more, expand output and employ young people like Povi.  And in the long run, the good wages and working conditions would not be so good for Bon San either if preferential markets were to go and 
producers were to move out of Cambodia because costs of operating were higher than in other countries. 
 
 
183. There are also regulatory compliance costs that reduce rents accruing to producers. Many of 
these costs are difficult to quantif y. For example, garment producers incur costs (for example, staff 
time) to obtain appropriate documentation to export including the complicated, cumbersome process of obtaining certificates of ROO for exporting to the EU and US markets.  The cost of monitoring 
labour standards in garment factories is another co st of regulatory compliance imposed on garment 
factories, as garment producers are required to cont ribute funding to this project.  Under the US-
Cambodian garment agreement, the ILO is resp onsible for monitoring labour standards in the 
Cambodian garment industry.  To this end, the Cambodian Garment Monitoring Project in Phnom  WT/IFSC/W/12/Add.2 
 Page 55 
 
 
Penh was established jointly between the ILO,  the Cambodian government and the Cambodian 
Garment Producers Association.  The Cambodian government contributes $200 000, the Cambodian 
Garments Producers’ Association contributes the same amount and the US government provides 
funds up to $1 million for the project.  This can be  seen as not so much transfer of rents but a 
dissipation or waste of rent.  It is frequently the case that buyers or agents in importing countries 
gather some rent.  
184. This allocation of rents may be sustainable in the short-run while existing producers have 
preferential access to the EU and US markets and suffic ient rents exist.  However, the quota system is 
due to be disbanded in 2005 and garment producers will have access to the US market on equal terms 
with all other competitors, thus any current rents will be dissipate d through competition in the US 
market.  The most efficient competitors will gain market share and employment at the expense of less 
efficient producers.  The prefer ential trade arrangements, resulting labour policy outcomes, and other 
inefficiencies may risk future growth in the ga rment industry as well as other potential labour-
intensive, export growth sectors by creating a rigid, high cost structure that is only viable with 
preferential schemes.  
185. Cambodia’s minimum wage of $45 per month (for garment worker) based on a 48 hour 
working week is higher than those in most other competing countries in the region (for example, 
Bangladesh, India, and Indonesia), but below rates prevailing in more developed neighbouring 
countries such as Thailand (table 6.7).  There is tentative evidence that minimum wages are pushing 
up market wages in the garment sector.  The mini mum wage makes it difficult for managers to use 
pay schemes as a means for promoting productivity .  For instance while piece rates are still common, 
in some cases some workers elect to simply take the minimum wage.  Yet, piece rate systems provide 
opportunities for efficient workers.  Consequently, managers need to supplement the minimum 
guaranteed wage with additional incentive schemes.  According to a recent survey, average monthly 
wages are about $61, although evidently garment workers can earn up to $80 per month with over 
time. 
 
6.6 Working hours and wages in the garmen t industry in selected Asian countries 
Country ration  Year Legal hours 
of workMinimum wage 
set by lawAverage salary 
per monthHourly wage  
rate Minimum wage 
to average wage
   %
Malaysia 1995 48 none 296 1.42 na
China 1997 40 12-39 191 1.14 6-20Philippines 1999 48 130 182 0.88 71
Thailand 1999 48 93-109 106 0.51 88-103
Sri Lanka 1998 45 29-37 63 0.31 46-59Cambodia 2000 48 50 a61 0.29 82
Vietnam 2000 48 45 60 0.29 75India 1999 48 6-54 57 0.27 11-95Indonesia 2000 40 43 b46 0.25 94
Bangladesh 1996 48 12-76 40 0.19 30-90
 a for purposes of this table, the $5 full attendance bonus is included in the minimum wage rate.  b Minimum wage 
in Jakarta.  
Sources : Cambodian Development Res earch Institute, US Department of Labour  and Bureau of In ternational Labour 
Affairs and the Indonesian Department of Manpower 2001. 
 
186. There are growing concerns in the private sector that relatively high minimum wages and 
other labour market restrictions risk reducing long-term competitiveness of the Cambodian economy 
with potential negative effects on modern sector em ployment growth and therefore poverty reduction.  
For example, firms are normally only permitted to ope rate two shifts per day.  If one shift happens to 
fall between 10pm and 5am, then the wage rate is double the normal rate.  Excessive restrictions on WT/IFSC/W/12/Add.2 
Page 56  
 
operating night shifts could create inflexibility in  the production and serv ice sectors.  This is 
particularly important in the garment sector where factories often have to meet short deadlines for 
delivery, particularly during the peak season.  Nigh t shifts are also an integral part of the service 
sector, particularly the tourist and catering industries.  However, managers complain that these 
restrictions make it costly to provide over time and employ additional workers for night shifts.  
Labour laws in most other countries, including many developed nations, do not restrict firms from 
operating a night shift. 
187. Experience of other countries that have im plemented relatively high minimum wages show 
that there are both short term and long term effects on employment growth and poverty.  In the short 
term, one effect is to raise wages for people who have  a job.  Another short-te rm effect is to create 
opportunities for people allocating jobs  to charge fees as discussed in section 4.  In the long term, 
however, relatively high minimum wa ges risk reducing the competitiveness of the modern economy, 
by making the country’s production high cost so that it is only profitable to operate in restricted 
markets and thus vulnerable if those markets go.  In early stages of development, low cost labour is a 
powerful source of comparative advantage.  Tampering with the price of this labour by way of minimum prices has frequently spoiled this source of comparative advantage.  The experience of several Latin American countries demonstrates that setting minimum wages above market clearing 
wages leads to greater segmentation of the labour market into a protected high paying formal sector 
characterized by relatively slow employment growth  and increasing concentration of workers in the 
low productive and paying informal sector (see box 6.7).  
  WT/IFSC/W/12/Add.2 
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 6.7 Effects of minimum wages on employment: evidence from other developing economies 
There are two clear and divergent views on the impact of minimum wages on labour markets in developing 
economies.  One view is that minimum wages redistributes resources in a welfare enhancing way, and as such 
have the potential to reduce poverty, enhance productivity and foster growth.  The other view is that minimum 
wage intervention leads to depressed wages where most of the poor are found - in the informal urban sector and in the rural sector.  
 
If these are the divergent views, what is the evidence?  A number of developing countries have applied 
minimum wage legislation.  These ‘experiments’ provide a growing body of evidence that setting minimum wages close to or above the market-clearing wage does have an adverse effect on employment growth in the 
modern sector and can undermine efforts to reduce poverty in the long term.  Recent research in Latin 
America, for example, shows that setting relatively high minimum wages has created a protected high paying formal sector characterized by relatively slow employment growth and increasing concentration of workers in 
the lower paying informal sector.  Relatively high minimum wages increase the cost of structure of the labour-
intensive industrial sector thereby making it internationally uncompetitive and, thus, reducing long-term economic growth.  In contrast to the Latin American experience, many Asian labour markets are relatively 
flexible - particularly with respect to wages.  Malaysia and Singapore do not have minimum wage legislation.  
Korea has a minimum wage rate for workers as a social safety net policy, but this is set well below market wages.  Consequently, there are relatively small differentials in wages, labour costs and productivity between 
modern and quasi-traditional sectors.  Much of the mode rn sector is internationally competitive because they 
use the country's most abundant resource, labour, more intensively.  Relative to per capita income, a high share of labour is involved in the modern sector compared to many Latin American countries.  
 
Mexico and Columbia are two countries that have contrasting wage policies.  Columbia implements a high minimum wage policy whereby minimum wages are around 50 per cent of unskilled workers' market wages.  
Mexico has adopted a more flexible approach, whereby minimum wages are set well below prevailing market 
wages (about 30 per cent of average wages of blue collar workers).  A recent study found substantial unemployment effects of minimum wages in Columbia, where the impact is greatest on low skilled employment.  A 10 per cent increase in minimum wages reduces employment by 3 per cent for unskilled 
workers and 2 per cent for skilled workers.  In contrast, minimum wages had no impact on employment in 
Mexico because minimum wages there are too low to have any effect.  Recent evidence for Indonesia suggests that minimum wages are beginning to adversely effect employment.  Indonesia has had a minimum wage policy since the early 1980s; however, it was not until the early 1990s that the government began to vigorously 
implement the wage policy.  A recent study estimated the effect of rapid increases in minimum wages on 
different types of workers and found substantial unemployment effects for women, young people, and unskilled workers.  A 10 per cent increase in the minimum wage reduced employment of women and young 
workers by 3 per cent; unskilled workers by 2 per cent and factory workers fell by 1.4 per cent.  
 These findings have important implications for poverty reduction strategies.  While in the short term, increases 
in minimum wages benefit those workers who have jobs, in the long term, high minimum wages reduce 
employment opportunities in the modern sector, crowding workers in low productive, low paying jobs in the urban informal sector and the rural sector.  The workers most affected by high minimum wages are those that 
are most vulnerable to poverty such as women, especially single women heads of households and young 
women, and unskilled workers.  
 
 
 3. Positioning for unrestricted market access 
188. The barriers to imports of garments and textiles that confront all countries wishing to export 
to the US and the EU are scheduled for dismantling by 2005.  One of the adjustment problems 
looming as that happens will be the need for firms th at have depended on those barriers to adjust.  
This obviously includes domestic firms attempting to operate labour intens ive activities in wealthy 
high wage countries.  Paradoxically adjustment migh t also be a problem for exporting countries which 
have had cost blowouts because of the way preferential access has been allocated. 
189. Cambodia faces a choice at this early stage of its economic development: Should it go the 
East Asian or Latin American route in terms of  the structure of output, employment, wages and WT/IFSC/W/12/Add.2 
Page 58  
 
income.  The choice will be mainly determined by policies related to trade in goods and services.  
However, policies towards labour ca n also be important, as in the case of Latin America illustrates.  
International experience suggests that it can take deca des to reverse the political processes that lead to 
the creation of a small, elite and protected work for ce, which inhibits modern sector job expansion.  
To some extent, Cambodia’s approach to labour poli cy is constrained by its exchange rate system.  
Cambodia is a highly dollarized economy and is like ly to remain so for some time yet.  With a 
dollarized economy, Cambodia does not have the optio n to devalue its currency  whenever there is an 
external shock to the economy.  Adjustment in the economy will need to come through prices 
including wages.  This is what happens in Hong Kong.  A vigorous implementation of minimum 
wages would slow wage and price adjustment and as a consequence unemployment persist.  This 
problem has characterized the Argentinean economy during the last three to four years.  
190. While the government is concerned about providing basic protection of workers, raising 
wages independently of output and productivity is not a proven recipe for investment and growth.  
The interests of all those workers outside the mode rn sector is threatened by attempting to push 
increases in wages more quickly than productivity increases in the modern sector especially given 
competition in highly competitive export markets.  
191. The greatest improvement in the incomes and welfare of workers will come through 
providing them with more productive jobs through the growth in both modern and informal sectors.  
Raising productivity in agriculture is important for employment and wage improvements.  However, it 
is the transfer of workers out of these sectors into more productive activities, many of which are 
associated with modern sector growth, which offers  the prospect of greatest improvements in incomes 
and poverty decline.  It is important to have policies for supporting a gr owing and internationally 
competitive modern sector in an employment friend ly development strategy.  Both domestic and FDI 
are important in this context. 
 
VII. TOURISM 
A. B
ACKGROUND  
192. Cambodia is one of only four LDCs in the World with tourism income exceeding 
US$100 million per year.  Located in the center of the fastest growing tourism region in the world, 
Cambodia is positioned to gain from tourism through: 
• long term employment opportunities for a young, growing population; 
• constant demand for high quality handicrafts and locally produced goods; 
• year round demand for Cambodian grown fresh fr uits and vegetables to supply hotels 
and restaurants; and  
• permanent and growing tax base from whic h to support infrastructure development, 
finance Ministry of Tourism (MOT) touris m promotions, and expand private-public 
sector partnerships. 
 
193. Tourism is a re-emerging industry rather than a new one for Cambodia.  During the 1950s and 
1960s, along the southern shorelines near Kompong Som and Kompot, Cambodia was a popular year 
round tourist destination.  Thirty years of civil war destroyed most of the infrastructure connecting 
tourist destinations and all but eliminated the social capital and hospitality skills required by a fast growing tourism industry.  On a more positive note , the closed borders resulte d in the preservation of 
much of Cambodia’s natural beauty.  Dozens of Khmer temples remain hidden in the jungles, 
untouched for centuries, and Cambodia’s vast forests are considered the best in Southeast Asia.   WT/IFSC/W/12/Add.2 
 Page 59 
 
 
194. More recently, Cambodia has experienced tourist growth rates averaging nearly 30 per cent 
for each of the past two years.  While most of this  sudden growth can be attributed to the release of 
pent up tourism demand.  Cambodia’s innovative privat e-public sector partnerships have facilitated an 
effective supply response.  Recent decisions by the government, with the support of airlines and 
tourism related businesses, have created economic in centives for local and foreign investors to build 
hotels, establish tour and travel agencies, ope n a variety of restaurants, and bring modern 
transportation to Cambodia.  The open skies policy encouraged regional airlines to fly directly to 
Siem Reap and allowed the magnificent temples of  Angkor Wat to become available to a much 
broader set of tourists.  
195. The tourism business in Asia, especially the Greater Mekong Subregion (GMS) is highly 
competitive, and strong and capable competitors surround Cambodia.  For example, in 2001 
Cambodia expects about 500 000 tourists (MOT 2001).  Thailand, with 50 years of tourism 
experience, a skilled work force, world famous beaches and entertainment, and internationally 
recognized tourism promotions, is expecting more th an 5 million tourists and continued 10 to 15 per 
cent annual growth rates. 
1. Extent of economic leakage 
196. Economic leakage is high in Cambodia, as it is in other LDCs that lack an industrial and 
agricultural supply industry.  It is estimated that up  to 75 cents of each tourist dollar is returned to 
Thailand or Vietnam to import fresh vegetables, fruits, flowers, handicrafts, paper products, and 
furniture (Jameison W. 2001).  National and local initiatives aimed at improving the production of 
high quality agricultural and handicraft supplies w ould help retain the economic value of tourism.  
The development of a smallholder agricultural indus try to produce high quality vegetables, fruits, and 
flowers supplied to hotels and restaurants, and th e development of a high quality handicrafts industry 
are two fundamental industries that would help retain  and spread the economic benefits of tourism to 
a much broader constituency, provide cash incomes,  long term rural based employment, and ensure 
that the maximum portion of each tourist dollar remains in Cambodia, thus increasing the in country multiplier effect and benefit to the economy. Alr eady Cambodian entrepreneurs are exploring ways of 
better marketing handicrafts involving such things as  packaging handicrafts to a consistent standard 
and establishing of handicraft villages. 
197. There is concern among tourism commentators that Cambodia’s growth rates are not 
sustainable and may begin to stabilize or decline soon.  They say that Cambodia is one of the most 
expensive package tour destinations in Asia and th e price to service quality value is low relative to 
other GMS countries.  Some observers are concer ned about having 570 000 tourists arrive in 2001 
without promotion or coordinated efforts by the MOT and private sector firms.  The fear is that the 
industry will become complacent and fail to improve service quality or expand destination choices.  
Complacency could result in the loss of focus nece ssary to continuously encourage private sector 
investment, build long term social capacity and service skills, improve service quality, and promote tourism with a passion.  
198. How appropriate such concerns are only time will tell.  Until now there has been a remarkably 
effective supply response facilitated by good airpor t infrastructure, an open skies aviation policy and 
apparently few barriers to entry for tourism suppor t services such as buses, hotels, restaurant and 
internet services. 
2. Focus of this report 
199. The research for this report included a lengthy  literature review and interviews with MOT 
officials, private sector businesses, and tourism industry experts.  Volumes of preparatory analysis 
and planning materials have been produced for Cambodia’s tourism sector because of UNDP 
technical assistance in 1996 and more recently , the Asian Development Bank’s (ADB) TA 3454 WT/IFSC/W/12/Add.2 
Page 60  
 
Tourism Project focused on building institutional pl anning capacity at the Ministry of Tourism.  
ADB’s current project is broad in scope.  Some  of the key components of its approach are: 
• poverty alleviation through the formation of pro-poor development strategies and 
action plans; 
• gender mainstreaming and social equality; 
• revenue capture by local communities; 
• shareholder involvement in planning; and  
• systematic development of private-public sector partnerships. 
 
200. The ADB project identifies critical links in the tourism value chain, along with the 
institutional needs of the MOT, and defines the need for private-public and stakeholder partnerships.  
The objective of this report is to identify how international trade linkages and private sector 
participation can enhance tourism development,  enhance the economic benefits, and assist 
development agencies, the Cambodian government, and private sector firms to promote pro-poor trade policies and developm ent practices.  The report presents se ctor specific initiatives to further 
develop business linkages, build social capa city, and promote competition and cooperation. 
3. Industry snapshot 
201. Table 7.1 provides a snapshot of the value Cambodia receives from tourism.  If current 
growth trends continue, the tourism sector, which is supported by many service industries, could 
become Cambodia’s leading contributor to GDP growth. 
7.1 Selected tourism statistics 
Statistical Category Published data 
Tourist arrivals expected in 2001 570 000 
Growth rate from 2000 30% 
Annual growth rate expected for years 2001-2005 MOT ~ 30% 
ADB < 15% 
Estimated tourism related employment 30 000 jobs 
Direct tourism related wage income $115 million 
Estimated economic im pact $650 million 
Tourism related businesses 2,423 
Direct tourism related investments $900 million 
Direct tourism related taxes paid $50 million 
 Source : MOT 2001. 
 
202. The tourism products currently  offered in Cambodia are: 
• cultural heritage tourism 
• handicrafts, and 
• festivals and events. 
203. Products, which are proposed to be developed, include: 
• village tourism  WT/IFSC/W/12/Add.2 
 Page 61 
 
 
• eco and nature based tourism 
• adventure tourism, and 
• coastal zone tourism. 
B. PAST, CURRENT , AND PROJECTED RATES OF GROWTH  
204. Cambodia’s tourism industry experienced a relatively high average annual growth of 10 to 15 
per cent from 1995 to 1999.  For 2000 and 2001, tourist arrivals have grown by 30 per cent each year.  
MOT officials project tourist arrivals  will continue to grow at a 30 per cent annual rate, resulting in 
1.2 million tourist arrivals by year 2005.  The AD B consultants interviewed for this report estimate 
tourism growth of 8 to 15 per cent per year for each  of the next five years, resulting in 745 000 tourist 
arrivals by 2005.  To provide relevance, an eight per cent growth rate is about twice the average 
tourism growth rate of Asia and about four ti mes the average worldwide tourism growth rate. 
1. Can growth at these rates continue? 
205. The two fairly well developed tourist destinati ons in Cambodia are the capital of Phnom Penh 
and the temples of Angkor Wat located in Siem Reap.  Phnom Penh is currently under utilized as a 
tourist destination and already possesses the hotel, re staurant, and travel agency capacity to host about 
one million visitors per year.  Service quality is low and continuous invest ments are required to 
develop human resource capacity an d tourism infrastructure; improv ing service standards will take 
considerably more concerted efforts.  
206. Hotel operators in Phnom Penh report that occu pancy rates are lower now than they were 
before the events of July 1997.  As a result, several medium quality hotels recently closed.  
Restaurants in Phnom Penh complain of only mode rate profitability, but to ur and travel agencies 
report a profitable and lucrative tourist business. 
207. Tourism commentators believe continued 15 to 30 per cent growth rates will soon begin to 
stress the service capacity of the hospitality industry in Siem Reap, and the road and other 
infrastructure capacity of Angkor Wat.  As of 2001, Siem Reap has or is currently completing 
7 200 hotel or guestrooms, and will require only about 500 more rooms before 2005 to meet a 30 per 
cent growth rate.  Occupancy rates at most hotel s and guesthouses were reportedly 30 per cent or 
lower, except during the four high season months from January to April.  The number of international 
and domestic flights arriving in Siem Reap is alre ady capable of supporting ab out one million tourists  
208. While it may be structurally feasible (that is, hotel rooms and airline seats) for Cambodia to 
support tourism growth of 30 per cent, a few indu stry commentators feel that institutional service 
quality levels may already be beginning to deterior ate.  This is a primary concern because once 
tourists begin to experience low service quality wh ile paying premium prices they will not return and 
will tell others not to visit.  Recent data, obtain ed from discussions with hotel operators and members 
of the private-public sector working group, suggest that the average lengths of stay and expenditures per day have already begun to decline in Siem Reap  and that many tourists are choosing to skip 
Phnom Penh entirely.  Therefore, while the numbers of  tourists are increasing at double-digit rates, 
the time and money each tourist is spending in Cambodia appear to be decreasing. 
209. If Cambodian tourism firms and supportive government agencies collaborate to address 
service quality issues promptly, begin to build a to urism supply chain that in corporates supplies from 
local cost efficient producers, and diversify and prom ote tourist destinations to such categories as eco 
village, and adventure tourism, then perhaps acceler ated rates of growth may be manageable and 
attainable.  WT/IFSC/W/12/Add.2 
Page 62  
 
2. Priority issues for tourism trade development 
210. The following list of priority issues was identified in literature searches, through interviews 
with tourism commentators, and in papers prepared  by the Private-Public Sector Tourism Working 
Group.  
• A dearth of tourism related data and analysis from which to plan and invest inhibits 
the government from effectively planning initiatives that ensure continued industry 
growth and inhibits investors and private sector businesses from increasing tourism 
sector investments and improving human resources.  An effective tourism 
development strategy, defined through private-public sector collaboration and based 
on accurate and timely analyzed data, will better ensure that government and private 
sector investments are based on informed decisions.  In addition to a need for an initial in depth tourism study, there is an equally important need to develop a 
systematic process for continuous data coll ection through tourist arrival and customer 
satisfaction surveys. 
• A serious deficiency in capable, trained,  and skilled local staff within the MOT and 
the private sector indicate improvements to the sector will be slow and service quality 
levels will remain below those of competin g countries.  In order to effectively 
facilitate, encourage, and enable the private sector to grow the industry, staff at MOT 
must be at least as skilled and knowledgeable  as their private sector counterparts.  
Without a pool of skilled hospitality employees, the private sector will find it difficult 
to improve service quality and expand the industry. 
• Ineffective promotion of Cambodia in intern ational and regional markets and lack of 
coordinated promotions initiated through private-public sector partnerships risk having the tourism market stagnate once the existing pent up demand is exhausted.  
Whether the current double digit growth is an autonomy or not, continuous and 
innovative development and marketing of tour ism products to the world traveler is 
essential to improving Camb odia’s competitive position. 
• Limited international and intra national air, land, and waterway routes into Cambodia 
from neighbouring countries and between dest inations within the country reduces the 
diversity of tourists, inhibits cross regional tourism, and fails to encourage investment 
in eco, village, and adventure tourism site s where local Cambodian’s can benefit most 
from the expansion of specialized tourism products.  
• Low level of locally produced food and handicrafts products to support the tourism 
industry creates an economic leakage of tourist dollars that inhibit rural economic 
development and reduce economic benefits to a broader constituency of beneficiaries.  
 C. D
EVELOPING INSTITUTIONAL AND SOCIAL CAPACITY TO PROMOTE TOURISM  
211. In reviewing the volumes of development pl ans, interviewing tourism specialists, and 
discussing issues with tourism related firms, it ap pears obvious that there is a severe shortage of 
institutional capacity and social capital from which to  manage current levels of tourism, much less a 
base from which to quickly expand.  Improved international and regional trade and resulting 
economic benefit depend on well-develo ped business and social linkages. 
212. Most of these linkages are created through the efforts of private sector organizations, such as 
working groups and sector specific trade and business associations.  The government’s role is to 
facilitate and support the development of these organi zations, promote international and regional trade  WT/IFSC/W/12/Add.2 
 Page 63 
 
 
relationships, and promote national interests.  Development agencies, the government, and private 
sector firms can assist by facilitating the development of these institutions. 
213. Rather than analyze and present specific capacity shortfalls of which there are many, it is 
more helpful to first define the roles performed by  participants in robust tourism industries of other 
countries.  From that basis, one can identify initia tives to encourage tourism sector participants in 
Cambodia develop the necessary institutional and social capacities from which a robust tourism 
industry can emerge.  Although there is no one best method for developing tourism, experience has 
shown that a few fundamental institutions and social structures are required before an economic 
activity, such as tourism, can become sustainable.   Development agencies should consider if the 
initiatives they fund are complementing these roles of inhibiting their development Public Sector Roles. 
214. Tourism related government institutions usually serve as  facilitators, coordinators, 
stimulators, catalysts, and supporters of the tourism and hospitality industry.  These institutions create 
incentives for tourists to come to a destination and for private sector participants to invest in 
businesses and products that satisfy customer dema nd.  Among the functions of the public sector are: 
• promotion of tourism products to international and regional markets; 
• management of a national tourism image, internationally and regionally; 
• development of trade linkages nationall y, internationally and regionally; 
• facilitation to ensure economic and social be nefit is equitably shared by all members 
of the population; 
• incentives for the private sector to broaden and diversify tourism products and satisfy 
continuously emerging customer demand; 
• encouragement for developing private-public sector partnerships and private sector 
business associations; 
• adoption of equitable license systems and enforcement methods with written receipts 
for all fees paid a nd services rendered; 
• development and promotion of education ca mpaigns on the value of tourism, tourist 
safety, proper disposal of litter, person al and food related hygiene, and improved 
supply of health services;  and 
• development of inter ministerial working groups that ensure that tourism issues are 
addressed at a national level by the Minist ries of Interior, Health, Public Works, 
Finance, and others.  These include safety and security, health, tr ansport, taxation and 
other key issues. 
 
215. In Cambodia, the MOT is the government institution most responsible for guiding 
developing, and managing development of the tourism sector.  The MOT employs about 900 persons, 
of whom 300 are full time staff, an d has offices in all 23 provinces. 
1. Private sector roles 
216. The role of tourism related private sector businesses, sector specific working groups, and 
private business associations is to develop structures to self regulate the industry through codes of 
conduct, quality standards, and grading systems.  The functions of private sector firms includes: WT/IFSC/W/12/Add.2 
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• investment in tourism products, such as hotels, restaurants, and transportation systems 
that ensure a positive tourism experience and repeat business; 
• establishment of conflict resolution proced ures to ensure customer satisfaction and 
positive working relationshi ps among participants; 
• privatization of regulatory monitoring and enforcement through the development of 
liability insurance and other risk sharing practices; 
• promotion of tourism at the local level,  business to business linkages at an 
international and regional level, and diversified product development; 
• development of private business associations and stakeholder working groups to 
ensure businesses and stakeholders are collaborating to identify and solve problems; 
• promoting and actively encouraging private-pub lic sector partnerships to the benefit 
of society, the industry, and individual businesses;  and 
• development of human resource capacity and continuous improvement of service 
quality that is based on customer expectations. 
 
217. At least three sector specific private business associations have been formed in Cambodia.  
The Tour Guide Association located in Siem Reap  and the Hotel Owners Association and Cambodian 
Association of Travel Agents located in Phno m Penh.  Associations offer a mechanism for 
representing tourism related interests and concerns  with local and national government agencies.  
With proper facilitation and encourag ement, private business associations have the capability to 
establish quality standards and classification systems, as well as self regulating the industry, enforcing 
codes of conduct, promoting training, coordinating services, and improving marketing and information exchange.  These associations should  be strengthened to achieve these objectives. 
2. Private-public sector partnerships 
 
218. Institutionalizing systematic consultations betw een private and public sector institutions can 
have positive, long-term effects.  In addition to promoting a sel f-regulated privat e sector, these 
partnerships can assist government institutions, which in Camb odia generally lack experience in 
competitive markets, to understand the interconnections between good governance and economic 
growth.  These partnerships assist in developing industry standards with the customer perspective and 
long term customer satisfaction in mind, wh ile relieving the government of the burden of 
enforcement. 
219. For example, by jointly developing with private associations a professional code of business 
ethics and conduct, a template fo r fair trade practices, and quality standards, government institutions, 
such as the MOT can focus on promotion that is mo re important and linkage activities.  They can be 
confident that the tourism sector will develop effici ently and without the constant need for oversight 
by government institutions.  Among the essential functions of the private-public sector partnerships 
are: 
• regularly scheduled and facilitated communication between government institutions 
and private sector business interests; 
• efficient dissemination and collection of customer satis faction surveys and tourism 
data;  WT/IFSC/W/12/Add.2 
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• methods for discussing issues of self regulation and enforcement; 
• development of tourism boards, marketing boards, and other tourism institutions that 
require coordinated private and public sector participation;  and 
• development of a tourism industry ombudsman institution so that tourism customers, 
tourism businesses, and government institu tions have effective dispute resolution 
mechanisms. 
 
220. The tourism related private sector business es in Cambodia have taken on an increased 
presence through the formation of the Tourism Working Group.  This is a private-public partnership 
that meets monthly and is chaired by the MOT. Part icipants of the partnership who were interviewed 
for this report felt that the partnership has been ve ry successful at identifying and solving tourism 
related problems.  
D. SECTOR SPECIFIC INITIATIVES TO ENHANCE TOURISM TRADE  
221. Tourism in Cambodia has experienced phenomenal growth in that past decade.  The rates 
have exceeded all expectations and are several times the average annual growth for any Asian 
competitor.  While there is a limit to how long double digit growth can continue without running up 
against human resource, infrastructure, environment or institutional barriers, that  is no reason to stop 
promoting the wonders of Cambodia to an  even broader international audience. 
222. Tourism growth has risen so fast for so long that neither the government nor the private sector 
have been able to build the required capacity to su stain the growth and keep quality high.  Rather than 
identify the shortfalls that have resulted, this repo rt has presented a template from which participants 
and the development community can contribute to th e industry.  The roles of the private and public 
sectors are mutually exclusive in many components and interdependent in others.  The ability of the 
participants to develop the proper mix of interests, create partnerships that are properly focused, and 
continually develop new products and services will  be the determining factor in how Cambodia’s 
tourism trade benefits the country and helps to alleviate poverty.  
223. The government should strive to become a f acilitating, coordinating, dynamic agent for 
change that promotes partnerships, understandings, and self-governance through a set of standards 
developed by private sector firms with support of pu blic sector institutions.  These skills will require a 
change in mindset and actions, but will set in motion the confidence building necessary to encourage continued tourism sector investments by the private sector in physical as well as human resources.  
The development community’s role is also essential.  The manner in which the community invests 
scarce financial and technical re sources will have a determining ef fect on how well all participants 
can fulfil their roles.  
 
1. Initiatives to enhance tourism trade  
224. The following sector specific initia tives are recommendations that require further analysis and 
discussion with tourism sector working groups, ADB tourism advisers, development agencies, and the 
government. 
• Perform a detailed market and tourism impact analysis for Cambodia.   T o  m a k e  
informed decisions, private sector participants need accurate data from which to 
weigh alternative business choices, and government agencies need accurate data from which to analyze the economic impacts of va rious tourism promotions and initiatives.  
For example, with accurate data, one would have a rational basis upon which to 
determine whether the current growth patterns can continue, whether or not it is cost WT/IFSC/W/12/Add.2 
Page 66  
 
effective to improve and re open the Sihanoukville  airport, or if village and eco 
tourism are the appropriate tourist draws for Cambodia.  Only after a broad survey is 
conducted and data is gathered and analyzed can the private sector and government 
begin to make informed decisions about how best to enhance tourism trade.  
• Support private sector institutional development.   The private sector needs help to 
develop its social capital, management skills, and technical capabilities (Working 
group 2000).  From the development of local community leve l organizations and 
working groups, such as th ose necessary for village an d eco tourism plans, to 
enterprise and private sector business associations, the private sector needs to receive 
sustained support to upgrade their organizational, technical, and management 
capacities.  Support is most effectively delivered through sector specific organizations, private business associations, and working groups.  
• Support the development of private-public sector tourism related partnerships.   In 
general, the experience of Cambodian government agencies working with private 
sector firm in an egalitarian manner is limited and requires professional and 
independent facilitation.  To effectively ga in an understanding of their role in a 
market economy, a role where government staff enable and support the private sector 
rather than control all economic activity, re lationships need to be facilitated.  Once 
relationships are developed, private-public sector partnerships can collaborate on the 
priority issues of tourism promotion, human resource capacity development, 
economic leakage, and improved trade linkages and destination development.  
• Improve and promote trade linkages with regional (GMS) countries.  Improved trade 
in proportionately related to market access.   In conjunction with market and tourism 
impact analysis, private-public sector partnerships should work to improve GMS land, air, sea, and water access routes, en courage ever more direct flights into 
Cambodia, and improve overall travel convenience and safety.  More overland and 
water border crossing, visa capable entry points and a corridor across the region 
should improve trade and draw more visitors to rural Cambodia.  
• Promote the development of agricultural products and handicrafts supply chains for 
the tourism industry.  Market and tourism impact analysis will include analysis of 
trade flows and economic leakage.  This will lead to the development of strategies to 
promote smallholder development in delivery of high quality agro-industry and 
handicrafts products to the tourism industry.  The development of locally grown fresh fruit and vegetable suppliers an d a high quality handicrafts sector will help to ensure 
that more of the economic value from tourism is accessible to more Cambodians. 
• Promote sustained improvement of human resource skills.  Human resource 
development is a serious constraint to tourism trade development and to improving 
service quality levels.  Few training courses for the hospitality industry are offered in 
private or public sector education institutions.  The solution is unlikely to be for the 
MOT to develop tourism training institutions  and train the private sector in how to 
manage tourism attractions, operate hotels, and provide culture tours, as has been 
proposed. 
• Enhance the investment, land, and tourism laws to promote private sector pro-poor 
investments.   The objective of this broad initiative is to involve the private sector in 
the development of laws and regulations that promote investment in Cambodia’s 
tourism industry in a manner that spreads more benefits to more Cambodians.  The 
initiative would assist in removing barriers to foreign investment, openly  WT/IFSC/W/12/Add.2 
 Page 67 
 
 
communicate laws and regulations to investors, provide a simple and general 
licensing system for all tourism operator s, and shift issuance, inspection, and 
enforcement of licensing functions to a private-public organization. 
 
VIII.  LABOUR SERVICES  
A. BACKGROUND  
225. The export of labour has been an importan t option for reducing poverty and improving 
household livelihoods in many Asian economies, including the Philippines, Sri Lanka, Thailand and 
Vietnam.  Remittances from export workers are an important source of forei gn exchange earnings for 
these countries.  While these remittances have come  at some considerable cost in terms of family 
disruption, there have been long-term benefits in the form of developing skills, contacts, business 
networks, and linkages to markets and information. 
226. Cambodian government policy is to encourage incr eased official labour exports to (i) improve 
the living conditions of the people ;  (ii) enhance professional sk ills;  (iii) absorb unemployed and 
underemployed labour, and;  (iv) raise State revenue s (Article 1 of the Anukret on the Export of 
Khmer Labour to Work Overseas, N. 57 29 July 1995).  Official labor exports from Cambodia have 
been limited to less than 1000 people to work in manufacturing industry and plantations, and as 
maids, in Malaysia. Another contra ct was recently signed to supply about 1200 construction workers 
to Greece. 
227. There is also considerable unofficial migration of workers, mostly to Thailand, but also to 
Malaysia. Estimates of unofficial migration to Th ailand range from 50 000 to 100 000 workers. 
Unofficial labour exports are the only option for some poor rural communities to earn income during 
period of economic hardship.  On the other hand, the unofficial nature of these exports leave workers vulnerable, and they frequently have to pay a large portion of their wages to facilitate access to such 
work.  There are also unofficial imports of Vietna mese into Cambodia who work in trading activities, 
fishing, wood processing, machinery, construction, and the entertainment and commercial sex 
industries.  
228. A variation on labour export is for foreign based businesses to outsource the production of 
goods and services by Cambodian workers. Many garment manufacturers effectively involve the 
export of Cambodian labour, with most other inputs being provided, and the final product sold, by 
foreign interests.  With new information technology , there are also emerging opportunities for labour 
services such as data processing, technical support services, and computer animation and 
programming to be subcontracted to workers in fore ign countries.  This is an emerging source of 
employment growth in countries such as India, the Philippines, and Vietnam.  Such employment in 
Cambodia has been limited to minor cases of data entry, but with supportive training and information 
technology policies, such employment  could increase in the longer term. 
B. O
PPORTUNITIES AND LABOUR SUPPLY ISSUES  
229. The ratio of active workforce pe r/hectare of cultivatable land is relatively low in Cambodia 
compared with other regional economies.  Population pressures are much greater in countries such as 
the Philippines and Vietnam, which are major exporters of labour as shown in table 8.1.  This 
suggests that the pressure for exporting labour in Cambodia might be less than elsewhere in the 
region, or at least, a greater poten tial to develop alternatives options.  
230. However, with 36 per cent of the population living  in poverty, the reality is that higher wage 
rates in neighbouring countries provide strong incen tives and potential economic benefits to look for WT/IFSC/W/12/Add.2 
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employment outside of Cambodia.  A recent DAN su rvey identified major differences in casual daily 
rates for unskilled labour on the Thai side of the Cambodian border as shown in table 8.2. 
 8.1  Population Densities in Southeast Asia 
Country Active population (million 
people 15-64 years) Active population/km2 
of total land Active population/ km2 
of cultivatable land 
Cambodia 6 32 105 
Lao PDR 3 11 151 
Vietnam 40 124 511 Indonesia 98 54 233 
Philippines 30 102 270 
Thailand 36 71 170 
 Source :  DAN 2001. 
 
231. A major constraint to labour exports is high illiteracy rates, poor education levels, and health 
indicators, which rank amongst the lowest in the region.  Many of the skills demanded by labour 
importing countries (for example construction, maid , tourism services) are in short supply in 
Cambodia.  Indeed, workers are frequently imported from Vietnam and elsewhere to make up for 
skills shortages in Cambodia. 
 8.2 Wage comparisons, Cambodia and Thailand 
In Cambodia April-May 1999  In Thailand April-May 2000 
Type of Work Wages 
(US$/day) Type of Work Wages 
(US$/day)  
Fishing 0.5  Construction 3.7 
Hunting/gathering 0.5  Porter 6.1 Firewood collection 0.7  Agriculture 2.2 
Agriculture 0.8  Food production 3.9 
Construction 1.6  Garments 3.5 Small trade 1.5  Fishing 3.2 
Motor bike taxi drivers 1.9  Shop worker 4.8 
Handicrafts 0.8    Other 0.9  Other 4.0 
Source : DAN 2001. 
 
C. INSTITUTIONAL AND REGULATORY ISSUES IN LABOUR EXPORTS  
1. Official exports 
232. The Ministry of Social Welfare, Labour and Veteran Affairs (MSWLVA) is responsible for 
the regulation of labour exports, and cooperates with the Ministry of Interior with regard to issuing 
passports for export workers, and with the Ministry  of Foreign Affairs an International Cooperation 
for the management.  
233. A company wishing to export labour must apply to MSWLVA for permission, and 
MSWLVA is required to respond within 45 days (A rticle 2 of the Anukret on the Export of Khmer 
Labour to Work Overseas, no. 57, 29 July 1995).  The regulations appear to be directed at labour 
broking companies who enter contracts directly with workers on behalf of the enterprises that require 
export labour.  The regulations specify that labour conditions for export workers are specified in 
contracts agreed between workers and the expo rting company (that is, the exporting company 
employees the workers) in line with government regulations (but contracts must be approved by the 
MSWLVA).  Each laborer is required to provide co pies of a security clearance, medical certificates, 
qualifications (if any), passport, and labour license.  Export workers are subject to Cambodian tax  WT/IFSC/W/12/Add.2 
 Page 69 
 
 
laws.  Labour exporters are required to deposit with MSWLVA a surety fund of US$100 000 within 
7 days of official authorization to export labour.  This surety may be reduced when an employer 
directly hire workers to work rather than through an agent.  The surety is set aside to be used to 
compensate workers in the event the exporting company fails to implement any provisions of the 
work contract.  Unused funds are returned to the labour export company at the expiry of the contract 
and the return of the workers.  The labour exporter is required to cover MSWLVA expenses on 
official duty to inspect the working conditions and the living accommodations of the workers, and to 
provide unspecified remuneration and service fees to  MSWLVA for document preparation.  This later 
condition could substantially increase labour export costs and if regularly enforced would act as a 
major disincentive to the export of small groups of workers. 
234. Only two companies have so far been licensed to export labour.  Both companies are licensed 
to export house cleaners to Malaysia.  One compa ny, Human Resource Development, has also been 
licensed to export plantation and industry workers to Malaysia.  Less than 1 000 workers have been 
exported at this stage, well below initial expe ctations.  The other local company, Cambodian 
Consulting Associates, has signed a contract with a foreign company to supply about 1 200 workers to assist in construction associated with the 2004 Olympic Games in Greece with salaries ranging from $400 per month for construction workers to $1 800 per month for an engineer.  
235. Some reasons given as constraints to increased exports of workers include: 
• poor levels of basic education and foreign language skills; 
• declining demand for export labour — and increased supply from competing 
economies — because of the Asian economic crisis; 
• concern by foreign employees that Cambodian workers were receiving an inadequate 
wage because of high margins between wages paid by foreign employers and salaries 
received by workers because of high govern ment regulatory compliance costs and the 
lack of competition; 
• initial difficulties and costs caused by complex regulatory and administrative 
requirements resulting in high costs of secu ring passports and other official permits; 
and 
• poor pre-training (language and basic work skills) of initial groups of Cambodian 
workers reduced their effectiveness. 
 
236. Assessment of the relative impacts of these constraints warrants further analysis.  There is a 
prima facie case for good regulations to protect work ers rights and maximize long-term benefits, and 
an important role for government support in ne gotiating bilateral agreements to open up new 
opportunities.  There is considerable  regional experience in developing  labour markets that should be 
tapped in formulating government policy and regu lations to develop Cambodian labour exports, and 
protect the interests of workers and labour exporting agents.  
2. Unofficial labour exports 
237. Despite the risks and fees, working in Thaila nd without proper documentation remains the 
most attractive economic option for many of the poorest Cambodians.  In some cases labour 
brokers/guides travel to Cambodia looking for worker s for factories, plantations, fishing boats, and 
construction companies.  In addition, many Cambod ians regularly travel to Thailand to engage in 
border trade, and some of these people end up finding employment in Thailand.  Cambodians account 
for a large proportion of sellers in many Thai border markets.  Most such workers young 
(17-35 years) and are typically employed in plantations, factories, farms, households, and in the WT/IFSC/W/12/Add.2 
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commercial sex industry.  Females are most likely to immigrate temporarily for seasonal work.  Males 
are more likely to take longer-term work.  Day pa sses can be obtained at the Thai border without a 
passport for at a cost of 10 Baht (about $0.23), but additional informal facilitation charges are also 
often reported.  Higher wages can be obtained in Ba ngkok and other cities, but workers report paying 
brokers/guides up to 3 000 Baht for such employment.  Wages and opportunities for Cambodians to 
work are reported to have declined ma rkedly since the Asian financial crisis. 
238. There are reports that some Thai factories ha ve withheld part of total wages owed to 
Cambodian workers, threatening to report workers th at complained to the authorities.  The incidence 
of such actions is reported to have increased since the onset of the Asian financial crisis.  However, 
many illegal immigrants are still willin g to accept such risks, because of the limited alternatives in 
Cambodia.  A recent DAN study found that most lo ng term migrants reported long term positive 
outcomes from their experience, including being able  to meet short term food requirements, buy land, 
open a small business, renovate housing, and purch ase motor bikes (DAN 2001).  Migration was also 
seen as positive in developing construction, tailoring and other skills. 
239. While their illegal status leave such immigrants vulnerable to exploitation, attempts to control 
such migration would greatly reduce the options av ailable to the poorest segments of society and 
increase their vulnerability to poorly paid immigration officials.  An alternative option would be to 
encourage increased information flows, and to provide mechanis ms for illegal workers to raise 
concerns (for example. including through the press and NGOs) and to disseminate information on 
risks and safeguards to potential illegal workers in Cambodia.  
240. In the longer run, the governme nt might facilitate Thai and othe r investors to relocate labour-
intensive businesses to the Cambodian side of the bo rder to take account of lower labour costs.  An 
improved regulatory framework for business, reducti ons in ‘red tape’, improved infrastructure 
(possibly concentrated in industrial zones), and im proved health and education indicators are needed 
to attract such investors. 
3. Improving options for labour export 
241. Further recovery from the regional economic demand could result in a recovery in demand for 
unskilled and semi skilled export workers.  Areas fo r further action to increase national gains from 
labour exports include the following. 
• Improved human resource development, in cluding adult education that focuses on 
literacy, basic work and life sk ills, and foreig n languages. 
• Improve the regulatory framework to ensure that export worker rights are protected, 
while also ensuring that regulations do no t stifle competition and the entry of new 
labour export companies.  Donor support could help ensure that lessons from other developing countries are reflected in the regulatory framework for Cambodian 
workers. 
• Reduce formal and informal costs paid for government labour inspections, passports, 
labour licenses and other labour export permits. 
• Provide mechanisms for export workers to air their concerns about administrative 
procedures, and any failure to honor contract provisions. 
• Continue efforts to reach bilateral agreem ents for temporary migration of Cambodian 
workers.  Disseminate information to more developed countries on the impacts of increased temporary migration of workers in reducing poverty, transferring 
technology, and developing the economy.  WT/IFSC/W/12/Add.2 
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• Facilitate the relocation of businesses to th e Cambodian side of the border to take 
account of lower labour costs in Cambodia, while also benefiting from the better 
infrastructure in Thailand. 
 
IX. LAND, MARKETS, PROPERTY RIGHTS AND REGULATORY PROCESSES 
242. The development of an effective system of prope rty rights and contract enforcement is crucial 
to the development of a competitive market econom y.  Clarity and certainty about the enforceability 
of property rights facilitates the use of land as co llateral for investments in land and land related 
businesses, and can facilitate financ ial sector development.  With land use rights being the major asset 
for most domestic private investors, streamlining of administrative arrangements for protecting and 
transferring land use rights should be a high priority ar ea for reform.  There is also need to address the 
broader issue of contract enforcement, and the constraints to the development of efficient factor markets for capital and labour. 
243. The development of efficient land markets has been constrained by the slow pace of land 
titling, and increasing land disputes as land pr ices increase and community and State land are 
appropriated for private purposes.  Official transf ers of private land use rights are constrained by 
cumbersome and time-consuming administrative arra ngements.  The large number of disputes, and 
the long time taken for courts to resolve disputes ra ises concerns about land tenure security.  There are 
also concerns about the lack of transparency in aw arding large areas of forest and other agricultural 
land for commercial use, that were previously us ed by poor communities for subsistence foraging 
activities.  The administrative allo cation of land administrative, rather  than market based, can have 
negative consequences for resource use efficiency and equity.  Full ownership rights to land are limited to a small proportion of residential land. 
A. R
ECENT DEVELOPMENTS IN LAND USE POLICIES  
244. The government reintroduced private property rights in 1989, and instructed that land rights 
established before 1979, that all land belonged to th e State, and any prior rights to land use were no 
longer valid.  Private entities were able to use and sell the land provided by the State for residential 
and productive purposes.  Residential and productive  land was redistributed to people.  Other land 
was retained by the State.  The 1992 Land Law crea ted ownership rights for residential properties, and 
recognized State public land and State private la nd.  State private land could be released as 
concessions.  The 1993 Constitution recognized land ow nership rights in a broader sense.  A recent 
national Land Policy Workshop (17–18 July 2000) identified some key regulatory and administrative 
problems arising from existing arrangements, including: 
• Land use planning and enforcement mechanisms remaining weak, and this constraints 
natural resource management and urban planning. 
• There is frequent encroachment onto protect ed areas, illegal logging, ‘land grabbing’, 
and loss of rights to subsistence uses of  natural resources.  This constrains the 
sustainable exploitation of forests, fisheries and water.  
• Land administration remains weak and in consistent.  Land users and potential 
concessionaires cannot be cer tain that no other claims will exist over land.  Land 
disputes take a long time to resolve.  
• There are no clear guidelines governing land acquisition and distribution.  
Administrative discretion provides opportun ities for corruption and inefficient land 
allocation.  Capacity to enforce concession agreements is weak.  WT/IFSC/W/12/Add.2 
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• Land markets are constrained by overlappi ng and fake titles.  Systematic land 
registration has only been piloted.  Cadast ral mapping that shows the location of land 
could help prevent duplication and overlapping land rights.  
• There is ambiguity about the roles of different government agencies in land 
administration with no appropriate mechanisms for coordination. 
• The demarcation between 'private State' and 'public State' property remains unclear.  
The awarding of concessions, leases or transfers of State private land is constrained 
by current legislation.  
• There are persistent claims that the disenfranchised are being disposed of land 
because of the lack of legal safeguards. 
• The process of issuing titles is slow and mo st private entities do not have formal title 
to land.  
• Most of the population has a poor understanding of their legal rights and 
responsibilities.  Without such understa nding, the legal framework provides little 
protection. 
• Many people do not obtain land titles in order to avoid land transfer taxes.  
B. C
URRENT LAND POLICIES  
245. The government issued a land policy statement in April 2001.  Stated policy objectives of 
land policy are to (i) strengthen land tenure securi ty and land markets, and prevent or resolve land 
disputes;  (ii) manage land and natural resources in an equitable, sustainable and efficient manner, 
and; (iii) promote land distributio n with equity.  These policy objectives are to be achieved by 
focusing on improvements to land administration; land management, and; land distribution.  The main proposed initiatives in each of these areas is given below: 
• land administration: 
• enact the land law, complementar y laws, and related legislation; 
• the Council for Land Policy, guided by the Supreme Council for State 
Reform, will promote and monitor land policy implementation; 
• create an inventory of, and classification system for, State land; 
• implement a nation wide land registration system; 
• resolve land disputes through the local Administrative Commission, the 
Provincial/Municipal Land Dispute Commission, and the courts; 
 
• land management: 
 
• develop land use plans for priority areas; 
• coordinate land use planning with natural resource management;   WT/IFSC/W/12/Add.2 
 Page 73 
 
 
• decentralize land management and planning to local and provincial 
authorities operating under national land use guidelines and supervision; 
• land distribution: 
 
• using consultative process implement pilot projects to create a land 
distribution strategy for needy groups; 
• prevent illegal land acquisition and land concentration. 
246. Land issues are an important focus of the government’s reform program.  The Interim Poverty 
Reduction Strategy states that land policy refo rm is one of the six key areas for promoting 
opportunities in order to reduce poverty (RGC 2000a).  The SEDP II recognizes  that land reform is a 
crucial determinant of the prospects for economi c growth and poverty reduction (RGC 2001). 
C. THE 2001  LAND LAW 
247. The draft 2001 Land Law extends private ownership rights to non urban land, delegates land 
administration from the central to provincial/ municipal level, provi des for official certification of 
land ownership, creates a single land registry auth ority, removes the need fo r administrative approval 
of land transactions, requires all land transactions to  be registered, protects private rights to transfer, 
prohibits foreign ownership, recognizes communal management rights of indigenous and ethnic 
communities, includes provisions for use of land as security, dispute resolution mechanisms, and 
provides remedies for violations of the law. This provides a basis for substantive improvements in 
land use efficiency.  Resulting improvements in la nd administration could also facilitate property-
based taxation to finance local public services and infrastructure.  However, much remains to be done 
in terms of issuing implementing regulation, and in  developing institutional capacity, in order to 
generate tangible benefits. 
248. Effective implementation of the Land Law also  requires new, or revised, legislation on 
forestry, water resources, and fisheries.  Drafts of these laws have been prepared and are being further 
developed in consultation with civil society.  The Land Policy Council, established in 
December 2000, is responsible for providing guidance to ensure consistency in legal concepts, 
administrative arrangements and enforcement mechanisms among these laws and other related 
legislation.  
249. Implementing regulations will need to address a broad range of issues, including land title 
registration agency; land registration procedures; mortgages and procedures for foreclosure; the 
transfer of State property; expropriation; leasing;  resolution of disputed land claims; land transfer 
taxes; survey and mapping sta ndards and professional conduc t; recognition of indigenous 
communities as legal entities, and; guidelines related to land concessions. 
250. Support is being provided by a number of don ors to facilitate Land Law implementation.  
ADB is providing technical assistance in support of  drafting implementing regulations dealing with 
the issuance of concessions.  The governments of Finland and Germany are proving institutional 
support to assist reforming land registration, including land surveying, mapping and planning.  The 
World Bank is working with the government to formulate a Land Administration Project with 
components for (i) land policy development;  (ii) legislative framework and policy dissemination;  
(iii) institutional development, capa city building, and training;  (iv) implementation of accelerated 
land titling;  (v) development of land registration system, and;  (vi) strengthening land dispute 
settlement mechanisms. 
251. While informal enforcement arrangements, incl uding reputations and sanctions, are important 
at all stages of development, investors require mo re formal contracting institutions as economies WT/IFSC/W/12/Add.2 
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develop and the scale of business activity increase s and contracting becomes more complex.  Such 
arrangements are important in (i) encouraging longer  term investments;  (ii)  facilitating entry of new 
participants;  (iii) providing access to formal fi nancial institutions; and (iv) providing timely 
information on failures.  The need to develop mech anisms that are more formal is particularly 
important for Cambodia because the protracted period of violence and the relatively recent collapse of 
most major institutions mean that ‘business networ ks’ and the informal ‘rules of the game’ that 
facilitate informal contracting are relatively less developed.  On the other hand, the scope to utilize the 
judicial system is also constrained by institutional w eaknesses.  This reinforces the need for regulatory 
simplicity.  Given weaknesses in public institutio ns, opportunities for using non-judicial arbitration 
arrangements could be explored. 
D. R
EGULATORY ENVIRONMENT FOR BUSINESS  
1. Need for improved regulation 
252. Investors note that frequent institutional and regulatory changes leave businesses vulnerable 
to ad hoc  interpretation of the changing (and sometimes inconsistent) legal and regulatory framework 
by bureaucrats in administrative agencies.  Such difficulties are compounded by ambiguities in the 
roles, responsibilities and accountability of government agencies.  In some sectors, attempts to 
regulate in excessive detail result in unnecessary tr ansaction costs, reduce competition, and increase 
opportunities and incentives for corruption.  Moreov er, ambiguous and inconsistent regulations often 
result in outcomes counter to stated policy objectives.  Specific examples are discussed in the sector 
studies. 
253. Improvements in the regulatory framework co uld help promote increased investment and 
trade, and thus increase employment.  Efforts to develop a regulatory environment conducive to 
business development are constrained by (i) limi ted institutional capacity and/or commitment to 
analyze and promote regulatory reform;  (ii) the in fluence of vested interests; and (iii) inadequate 
involvement of those most affected by regulatory reform.  Inadequate stakeholder consultation also 
means that the public support needed for efficient en forcement of laws has not adequately developed.  
The net result is a regulatory framework for business that: 
• imposes significant disincentives to business investment;  
• changes frequently; 
• is poorly and/or inconsistently enforced; 
• does not provide the institutional basis needed to support an efficient, equitable and 
competitive market economy; 
• often appears to be adjusted to extr act rents from profit making entities; and 
• imposes unnecessary transaction costs that inhibit investment and trade, and limits 
opportunities for disadvantaged gro ups to break out of poverty. 
 254. An improved regulatory environment will only genera te benefits if it is enforceable, and will 
only be enforceable if there is strong stakeholder support for regulations.  A key step to improving the 
regulatory framework is to improve regulatory proces s to improve stakeholder participation, to reduce 
the costs of compliance, and to facilitate enforcement.  WT/IFSC/W/12/Add.2 
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2. Improved regulatory processes 
255. Finding the appropriate balance between the risk of not regulating, and excessive regulatory 
costs, is a critical challenge for policy makers.  Good regulations should: 
• be necessary (to achieve clearly identified policy goals) 
• be clear, simple and practical for all stakeholders 
• be effective & equitable (benefits should justify costs) 
• be enforceable and have a sound legal basis 
• facilitate and encourage (rather than stifle) innovation 
• have the support of the main stakeholders 
• be compatible with international practices. 
 
256. A trend in developed countries is to require re gulatory impact assessments.  Australia requires 
regulation impact statements for ‘ All reviews of existing regulations, proposed new or amending 
regulation or proposed treaties which will directly or indirectly affect business, or restrict 
competition .’ (Productivity Commission 1998-99). Some transition economies (for example.  
Hungary) and some Asian economies (for example South Korea) include regulatory impact assessments as elements of their reforms proces s (for example, see OECD reports on regulatory 
reform in Hungary and Korea).  Some key principl es for improving regulatory processes are described 
in the following box. 
E. P
ROVISION OF PUBLIC SERVICES AND INFRASTRUCTURE  
1. National and regional linkages 
257. While more than 50 per cent of total public investment during the period 1996–2000 was 
directed to improving transport and communications  infrastructure, poor transport infrastructure 
remains a major constraints to trad e development.  Flooding caused major damage to infrastructure 
during 2000, and maintenance of all roads is constrained by lack of operations and maintenance 
resources.  Poor enforcement of axle load limits and other regulations add to these problems.  Further 
improvements in infrastructure, through public and private investment, plus institutional strengthening 
to improve sector regulation and planning remain im portant priorities if the benefits from increased 
trade are to reach most rural populations.  The fo cus of past efforts has been on rehabilitation of 
damaged infrastructure.  The government is now aiming to develop a longer-term strategic approach 
to sector development and is receiving support from ADB to formulate a transport development 
strategy to identify options to accelerate transport development,  and to promote private sector 
participation and competition in providing transport infrastructu re and services.  
258. Pro-poor trade development requires that rural producers be integrated  with urban markets, 
urban producers need to be able to trade with rural areas, and rural and urban populations need to 
access international markets.  This requires invest ments in infrastructure in urban centers and rural 
towns, and in transport linking rural towns to domestic and internatio nal markets.  Rural 
electrification and water supply improvements can facilitate commercial development via impacts on 
new commercial opportunities, greater productivi ty, human development, and consumer demand.  
With appropriate infrastructure, areas of concentrated populations in rural areas can provide the scale 
economies needed for the competitive development of  commercial business.  Coordinated efforts to WT/IFSC/W/12/Add.2 
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reduce the informal barriers to integration of rura l town economies with higher income domestic and 
international markets are needed to maximize the returns from such investments.  
 9.1 Some principles for improving regulatory processes 
1. Simplify regulatory and compliance systems 
• use simple language and minimize provisions. Make it easy for users and the public to understand. 
• aim for less regulatory agencies with broader responsibilities. 
• consider options for self regulation. 
• help business comply by making it easier and less costly. Analyze, document and publicize information on 
regulatory objectives and systems. 
• streamline regulatory agencies and systems (one stop shops, simple forms with clear instructions, use new 
information technology where appropriate).. 
• encourage a service provider mentality in regulators. 
• procedures should be consistent and transparent, with no duplication of responsibilities 
 
2. Consult with stakeholders during reforms 
• consult to ensure that reform is needed, and to info rm stakeholder on the goals and strategies of reform. 
• encourage the formation of business and consumer groups to represent the interests of key stakeholders. 
• encourage open and informed public discussion to explain the benefits of reform, and to counter interest 
groups that may resist reform. 
• learn from international experiences. 
 
3. Make regulatory agencies accountable for regulations  
• regulatory agencies must be accountable. If not, regulatory complexity will increase, reforms will not be 
sustained, and further reform will be needed. 
• establish clear and transparent performance indicators, appoint stakeholders to management boards of 
regulatory agencies, build in formal consultative mechanisms, publish annual performance reports. 
 
4. Closely monitor impact of regulatory reform 
• regularly review existing and proposed regulations to ensure that they are consistent with good regulation 
from the perspective of the user as well as the regulator. 
• require regulatory impact assessment as part of the regulatory approval, reporting & review processes. 
• introduce automatic review processes by setting time limits on business regulations (‘sunset provisions’). 
 
Source:  Modified from OECD 1998, Repor t on Regulatory Reform, OECD, Paris. 
 
2. Human resource development 
259. Infrastructure development needs to be coordina ted with efforts to develop vocational skills 
that match market demands, and to improve basic edu cation and health standards.  In the longer term, 
sustainable improvements in labour productivity  will require improvements in the delivery of 
education and public health services, including impr oved water supply and san itation.  Adult literacy 
and skills programs should include information on income generating opportu nities.  Given resource 
constraints, the private sector should be encouraged to invest in education, especially in vocational 
and higher education. 
3. Access to information, markets and technology 
260. Given high illiteracy rates, telecommunications , radio and television have a relatively more 
important role in the dissemination of business information. While the domestic mobile 
telecommunications network is efficient and relativ ely inexpensive, interna tional telecomm unications  WT/IFSC/W/12/Add.2 
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costs are higher than in competing countries.  While access to Internet and Email communications is 
presently limited, this is expected to become in creasingly important.  Cumbersome procedures to 
secure business visas to most developed countries constrain access to information, technology and 
international business networks.  The government should review telecommunications pricing and 
competition policies, and work with external agenci es to reduce barriers to travel by Cambodian 
business people.  
261. Major investments are now being made to impr ove physical transport infrastructure linking 
Cambodia with Thailand and Vietnam, as well as to improve sea and air access to international 
destinations.  These developments could greatly reduce transport costs an d increase the competitive-
ness of Cambodian products on export markets.  However, the full benefits of such developments will only be realized if people and goods can move across border at minimal cost.  
262. While detailed discussion of trad e facilitation is included in a separate section, it is important 
to highlight the major potential impact of trad e facilitation on options for sector development and 
poverty reduction.  Many border areas have rela tively high incidence of poverty.  Improved 
facilitation of trade and the movement of people sh ould result in an expansion of service activities 
(hotels, restaurants, entertainment and transport), handicrafts and agro-processing at border crossings 
and along major transport links.  
263. Most regulatory constraints to cross border trad e are already circumvented in practice, but the 
informal arrangements that facilitate this impose deadweight costs to the economy and the Cambodian 
people.  High costs stifle information flows, reduce networking opportunities, and constrain the 
development of trade and export labour.  In addition to better regulations, efforts to streamline 
procedures, to share inspection activities, and to in troduce electronic processi ng of border controls are 
potentially important in reducing such costs.  
264. Past instability has been a major constraint to i nvestment.  Instability increases risks.  Periods 
of instability have been followed by declines in in vestment from the domestic private sector, foreign 
investors, and by external donors.  Instability also greatly increases the risks and transaction costs of trade.  Recent developments indicate considerable success in moving towards greater economic and political stability.  Investors are also looking for greater stability and predictability in the regulatory 
and institutional environment for business.  The earlier proposals regarding regulatory processes 
should help in this regard. 
F. L
ESSONS FROM SECTOR STUDIES FOR TRADE DEVELOPMENT  
265. Cambodia has made solid progress in recent y ears to reduce the regulatory and institutional 
barriers to business investment and economic inte gration.  The foundations  are being laid for new 
models to for addressing business and trade constraints that involve major stakeholders in the reform 
process.  Some of the major policy changes to pr omote increased trade are already in place.  Less 
progress has been made in developing some of  the key institutions needed to facilitate the 
development of an efficient market economy that is competitive in international markets.  Further 
institutional development is needed to: 
• protect land and other property rights a nd develop efficient factor markets;  
• establish a regulatory environment that  facilitates business investment;  
• accelerate the provision of public services and infrastructure;  
• facilitate domestic and in ternational trade; and 
• reduce instability, increase predic tability and reduce corruption. WT/IFSC/W/12/Add.2 
Page 78  
 
 
266. Institutional weaknesses constrain economic growth and exacerbate inequalities in income 
distribution.  Well-connected individuals and State enterprises can use their networks to facilitate 
contract enforcement and to secure favorable ad ministrative decisions.  Discretionary and opaque 
decision-making generally favours larger or bett er-connected investors with had better access to 
decision makers.  Institutional weaknesses limit th eir opportunities for inform al enterprises to expand 
and/or move into the formal sector.  This constr aint the emergence of a dynamic small and medium 
enterprise that typically play an important role  in processing industries, developing new labour 
intensive export industries, and generating increase d paid employment.  Institutional weaknesses are a 
particular problem for groups with limited re presentation in government decision-making.  WT/IFSC/W/12/Add.2 
 Page 79 
 
 
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