Component report-Part B-10-Dec-01

As pointed out in the chapter on trade policy, the tariff structure has important implications for the government’s export led economic development and poverty alleviation strategy. Due to high tariffs on semi processed and consumer goods, Cambodians are required to pay above international prices for basic needs, unless smuggling of imported goods circumvents these high prices. Table 4.9 shows the current tariff structure for the main categories for which detailed information on household consumption is available. Although for rice (the main single consumption item in households’ budget) the tariff is only 7 per cent, for the different types of meat, for dairy products and for prepared and preserved vegetables, the tariff is above 30 per cent. Regarding non-food items, the average un-weighted tariff for clothing and footwear is 28 per cent. For fish the tariff is 18 per cent, which rises the domestic price above international level, but at the same time there is an export tax of 10 per cent that plays in the opposite direction. Since there is no detailed information on consumption of different types of fish, for this exercise it was assumed that there is no change in the tariff rate for fish and fish products.

This section makes an assessment of the impact of a reform that sets all tariffs to 7 per cent (see the chapter on trade policy for the rationale of such an uniform and low tariff level). Following above equation 3, households’ change in net income after the tariff change is given by:

where, is the tariff level i of good z (rice, other food, and non-food consumption

items), in moment j (0= before tariff reform, 1=after tariff reform). Since this simulation does not imply a change in the tariff of rice –it is already at 7 per cent — the first term of the right hand side is zero. The second term of the right hand side captures the fact that although most of the household are net consumer of the good and benefit from the lowering of tariff, some households could be net producers of the good and lose from the change in tariff. As indicated for the simulation of a change in the price of rice, by keeping quantities consumed and produced constant, the calculated change in net income table 4.9 underestimates gains — because demand would increase for those goods that are now relatively cheaper-- and overestimates loses — because production is expected to diminish after the change in price. That is to say, by applying the framework described in equation 3, we are obtaining a lower bound of favorable changes that may affect poor people, and an upper bound for the negative changes.

Consumption item	Share in total consumption, average for Cambodia	Current tariff level
	%
Rice (all varieties)	15.6	7
Other cereals and preparations (bread, maize, other grains, rice/wheat flour, noodles, biscuits, etc.)	2.6	19
Fish (fresh fish, shrimp, crab, fermented, salted and dried fish, canned fish, etc)	8.9	18(*)
Meat (pork, beef, buffalo, mutton, dried meat, innards)	5.0	35
Poultry (chicken, duck, and other fresh bird meat)	3.2	35
Eggs (duck egg, chicken egg, quail egg, fermented/salted egg, etc)	1.4	33
Dairy products (condensed milk, powdered milk, fresh milk, ice cream, cheese, other dairy products, etc.)	0.9	33
Oil and fats (vegetable oil, pork fat, rice bran oil, butter, margarine, coconut/frying oil. Etc)	1.3	7
Fresh vegetables (trakun, cabbage, eggplant, cucumber, tomato, green gourd, beans, onion, shallot, chili, etc.)	4.3	7
Tuber (cassava, sweet potato, potato, traov, jampada, etc.)	1.4	7
Pulses and legumes (green gram, dhall, cowpea, bean sprout, other seeds, etc.)	1.0	7
Prepared and preserved vegetables (cucumber pickles, other pickles, tomato paste, etc.)	0.8	34
Fruit (banana, mango, orange, pineapple, lemon, watermelon, papaya, durian, grape, apple, canned and dried fruit, etc.)	2.8	7
Other fruits and seeds (coconut, cashew nut, lotus seed, peanut, gourd seed, other nuts)	1.2	12
Sugar, salt (sugar, jaggery, sugar products, including candy, and salt, etc.)	1.4	11
Spices and seasoning (fish sauce, soy sauce, vinegar, garlic, ginger, coriander, red pepper, monosodium glutamate, etc.)	1.7	16
Tea, coffee, cocoa	0.8	24.5
Non alcoholic beverages (drinking water, sugar cane juice, syrup with ice, bottled soft drink, fruit juice, etc.)	0.8	35
Alcoholic beverages (rice wine, other wine, beer, whisky, palm juice, etc.)	1.6	35
Tobacco products (cigarettes, mild tobacco, strong tobacco, etc)	2.2	26
Other food products (fried insects, peanut preparation, flavored ice, ice, other food products)	1.0	22
Food taken away from home (meals at work, school, restaurants, snacks, coffee, soft-drinks purchases outside home)	2.9	(**)
Prepared meals bough outside and eaten at home	0.8	(**)
Total food	64.0
Textiles and footwear	2.9	28

(*) There is also an export tax of 10 per cent on fish.
(**) The effect is going to be indirect, through the tradable contents of these mostly non-tradable final goods.
Source: MOC 2001

Table 4.10 presents the results for this simulation. The lower prices due to tariff reduction imply and improvement of 4 percentage points in average household purchasing power. Most of this impact is coming from reduced prices in food items (3.5 per cent of per capita household expenditures) and a smaller part from reduced prices on clothing and footwear (0.5 per cent of per capita household expenditures).