Labor Law

Presented by the Ministry of Commerce, Royal Government of Cambodia to the 6^th Consultative Group (CG) Meeting,
Government Palace, Phnom Penh, 19-21 June 2002

Cambodia’s “Diamond Opportunity”: Cambodia-Thailand Joint Economic Development….

The Governments of Cambodia and Thailand are in the final stage of adopting the Thailand-Cambodia Joint Development Study (TCJDS).¹³ The TCJDS identifies joint development strategies which are sector specific, i.e., tourism, agricultural and industrial sectors. These are defined through the assessment of comparative advantages of Cambodia and Thailand taking into consideration the concept of mutual benefits from social and economic cooperation between the two countries.

Through this bilateral economic cooperation Cambodia can secure another source of regional development support to help sustain overall economic growth. Using Cambodia’s GSP and taking advantage of existing infrastructure facilities in neighboring countries, Cambodia is envisaging setting up 4 Export Processing zones as soon as possible next to Thailand’s border in Poipet, Koh Kong, and Pailin.

100,000 jobs, US$ 60,000,000 of annual wages, and 500,000 people (about 5% of the entire Cambodian population) fed.

Under the TCJDS 3 Co-Production areas would be located within these cross-border economic zones and would be jointly operated by the two countries. The possible sites for such a proposal are in three areas, 1) Aranyaprathet-Poipet, 2) Ban Laem-Kamrieng or Ban Pakkad-Pailin and 3) Hat Lek-Koh Kong.

1. Aranyaprathet-Poipet Industrial Estate. The total investment requirement is $91,210,000. The private sector is expected to provide the entire investment costs. 280 factories will start operating in the Poipet Industrial estate each creating 200 job opportunities. At full capacity the investment will generate more than $ 33 million of annual wages. The Poipet Industrial Estate covers 6 km2 located in Cambodia about 7-10 kilometers from Aranyaprathet. Land use within the industrial estate is organized into 12 zones, namely areas designated for: (i) industrial factories, (ii) offices, (iii) truck parking, (iv) container yard, (v) probationary goods storage, (vi) power generator, (vii) telephone and Telecommunication center, (viii) garbage and industrial waste disposal plant, (ix) water treatment facility, (x) water reservoir, (xi) park and recreational area and (xii) residential area.

2. Ban Laem-Kamrieng or Ban Pakkad-Pailin. Ban Laem-Kamrieng and Ban Pakkad-Pailin are two possible sites for the establishment of the co-production area on the Chanthaburi side of the border. The total investment requirement for the Ban Laem Industrial estate is $80,493,000 while that of Kamrieng industrial estate is $86,493,000. The private sector is also expected to provide the entire investment costs for both industrial estates.

3. Hat Lek-Koh Kong. Cambodia has commenced the development project for an export-processing zone within the proposed cross-border economic zone, which would be able to accommodate the establishment of industrial factories in the very near future. The special zone covers a land area of approximately 225 hectares. This site has the highest priority over the other two sites, namely Aranyaprathet-Poipet which is second in term of priority and Ban Laem-Kamrieng or Ban Pakkad-Pailin third. Preparation of the industrial zone will be completed in around 2 years and will have all the necessary support facilities such as customs office etc. in place and ready for operation by that time. Cambodia will require foreign businesses to invest and establish factories in such an industrial zone. This would be a good opportunity for existing factories in Thailand to operate a branch in Cambodia to take advantage of the GSP status that Cambodia enjoys. The Koh Kong industrial zone already promises adequate on-site infrastructure such as power, water, roads and telecommunications. Total investments for the Koh Kong industrial estates amount to $62,634,000 to be funded by the private sector. 140 factories will start operating in the Koh Kong Industrial Estate each creating 200 job opportunities. At full capacity the investment will generate more than $ 17 million of annual wages.

Aside from bilateral agreements to promote trade and investment, Cambodia like other LDCs in the region understands the potential benefits of joining regional initiatives including regional trading arrangements (RTAs) in which they are members in one or more of them.¹⁴ These regional and bilateral agreements are increasingly seen as "fast-track" approaches to free trade. Moreover, Cambodia views them as "building blocs" or "stepping stones" for a wider trade liberalization strategy leading ultimately to the accession to the WTO.

Cambodia became the 10th member of ASEAN when it joined the regional grouping in April 1999. Under the Agreement on the CEPT Scheme for AFTA, Cambodia has committed itself to a gradual reduction in almost all of its tariff rates to 0–5 per cent on imported goods from other ASEAN members by the year 2010. Moreover, during the 3rd ASEAN Informal Summit in November 1999, Cambodia as well as Laos, Myanmar and Vietnam agreed to eliminate tariffs for essentially all products by 2015. (ASEAN-6 will eliminate their tariffs by 2010).

Benefits to be derived from the ASEAN 10 are numerous and include access to a market of 500 million people,¹⁵ access to import fabrics from ASEAN countries to produce garments for the EU market while meeting the requirements in the Rules of Origin under the EU GSP Scheme, increased investor confidence, strengthened Cambodia's position in negotiations with big countries or organizations, and capacity building initiatives aimed at narrowing the development gap among ASEAN members like the Initiatives for ASEAN Integration (IAI) for 2002-2008.¹⁶

Through the ASEAN framework, Cambodia stands to gain from the deepening of economic cooperation with ASEAN dialogue partners such as China, Japan, Republic of Korea, Australia and New Zealand (CER), EU and US. During the ASEAN + China Summit in Brunei last year, ASEAN and China Leaders have agreed to establish ASEAN-China Free Trade Area in 10 years with the Agreement on ASEAN-China FTA to be concluded first in 2004.

In 1992, when the six member countries¹⁷ first entered into the program of economic cooperation, their vision of the GMS Program was to see a subregion that is more integrated, prosperous, and equitable. The GMS Program, though informal and guided only by a general set of principles and institutional arrangements, was able to strengthen economic linkages and acted as a catalyst for resource mobilization. It has also had a peace dividend which, while contributing to greater trust and better relations among the member countries, may be one of its most significant accomplishments.

The GMS Program Strategic Framework focuses on what is achievable through subregional economic cooperation covering eight priority sectors, both "hard" infrastructure (i.e. transport, telecommunications, energy, tourism) and "soft" sectors (i.e. environment, human resource development, trade, and private sector investment).

Under the GMS Program, a series of feasibility studies led to the implementation of the first ten infrastructure projects, with overall investment amounting to US$2 billion. Among these was the upgrading of the Phnom Penh-Ho Chi Minh City Highway and the East-West Corridor Project connecting northeastern Thailand, Lao PDR, and central Viet Nam. Investment in transport infrastructure was complemented by improvement of the regulatory framework. A framework agreement has thus been signed by Cambodia, Lao PDR, Thailand, and Viet Nam to facilitate the cross-border movement of goods and people. The agreement covers such issues as customs procedures, rights of cross-border passage for vehicles and drivers, vehicle and load specifications, insurance provisions, and transit or user fees. In addition, significant progress has been made concerning trade in energy, and in establishing a telecommunications network for the subregion. Two hydropower projects amounting to US$ 380 million were breakthroughs, both in terms of bilateral partnership (between Lao PDR and Thailand) and private sector participation. GMS countries are also promoting power-sharing arrangements on a multilateral basis.

Most important of all, the GMS Program has served as a catalyst for GMS countries to initiate new cooperation agreements. Examples are: the opening of new air routes and international airport designations in the subregion (e.g., Siem Reap, Luang Prabang); and the Quadripartite Agreement on Commercial Navigation along the Upper Reaches of the Mekong River. Bilateral agreements also include: Lao PDR's access to Sihanoukville Port in Cambodia.

…. All in all, what is more important – with this trade and labor clause linkage - Cambodia was able to develop a new image: that of a country free from sweatshop, free from child labor, a stable country… In a nutshell, Cambodia is now providing a safe haven for all the world's famous brand names: a safe and sound sourcing place.

Statement H.E. Mr. CHAM Prasidh, Minister of Commerce at the Asia Global Sourcing Exhibition and Conference 2002, Jakarta, February 14, 2002

Trade and investment initiatives have been closely coordinated with ASEAN and ESCAP, so as to avoid duplication of efforts and to focus on local impediments. The GMS Business Forum was recently established to promote private sector participation in the GMS. Cambodia is honored to host this year 3 major GMS events: - the Donors Coordination Meeting, September 2002; - the 11th GMS Ministerial Conference, 23-25 September 2002; and the Mekong Summit of Heads of Governments, 3 November 2002 to mark the 10th Anniversary of the GMS Program.

The objective of the Government is to enter the WTO and reap the full benefits of global market access. Cambodia, like other 28 countries, which are seeking accession to the WTO, looks to the WTO as an opportunity to underpin their own liberalization efforts and to counter discrimination so that they can compete more effectively in the international market place. On achieving membership Cambodia will be guaranteed access to the trade concessions negotiated in eight rounds of trade negotiations over 50 years, including reduced tariff and non-tariff barriers to their exports. Cambodia will receive the benefits of the rule of international trade law, in the application of permissible measures such as anti-dumping or safeguards. The phasing out of textile and clothing restraints, and the first steps towards liberalization in agriculture and services should be of particular advantage for Cambodia. Moreover, Cambodia will have access to the new, strengthened dispute settlement mechanism to enforce its rights. Finally, Cambodia will be able to participate in the process of development of the rules and their interpretation as well as in future negotiations.

Deepening Regional Integration: Considering the process of acceding to the Bangkok Agreement…

The Bangkok Agreement belongs to the first generation of RTAs, and is the only “regional” trading arrangement in Asia and the pacific with a market potential of around 2.5 billion people with an average GDP per capita of $798. From the entry into force of the Bangkok Agreement in the mid-1970s up to 31 December 2001, only five countries have become members of the Bangkok Agreement, namely Bangladesh, India, Lao PDR, Republic of Korea, and Sri Lanka. Recently the dynamics changed when China formally acceded to the Bangkok Agreement (BA) in 2000, becoming the Agreement’s sixth full member. Recognizing the changes that have taken place in the multilateral trading system in recent years, and the fact that several regional trading arrangements offer broader coverage than the BA, Bangkok Agreement members have recently initiated a process to modernize and revitalize the Agreement including the establishment of a Ministerial Council to provide political backing to the Agreement and the launching of the Third Round of negotiations, where members have agreed to substantially deepen and widen the concessions offered. China’s accession to the BA and its implementation of its concessions on 1 January 2002 has provided the Agreement and the revitalization efforts with a major boost.

With membership open to all developing countries that are ESCAP members, Cambodia has the opportunity to accede to the Agreement. Concessions granted to Cambodia under the BA will help boost Cambodia’s exports to BA countries. ESCAP has done a preliminary market analysis which has shown that Cambodia’s export structure is highly complementary to major BA markets¹⁸ and as such there are great export opportunities for Cambodia in the BA region, in particular the huge markets of China, India, and the Republic of Korea.

The BA provides different types of opportunities than ASEAN, and in different countries. With a more flexible liberalization schedule, there is more scope (and time) for domestic industries to adjust to changing competition patterns. Especially for a country like Cambodia, benefits from export opportunities will far outweigh obligations.

The governments which have applied for WTO membership have taken an important and very serious policy step which will permanently change their economies. It will mark the maturity of the reform process begun in the last decade in almost all emerging economies. Cambodia is no exception. As the country makes substantive progress in the WTO accession process, there is conscious recognition of the strong linkages between trade liberalization and domestic reforms. Trade openness creates efficiencies and, therefore, incentives and pressures for policy makers to pursue virtuous policies, either because they face the threat of capital flight or because they have found themselves in international agreements, implicit or explicit that provide a check on their policy.

Similar to the IPRSP process, trade issues were marginalized in the early development of the Government’s first Governance Action Plan (GAP). The GAP is a rolling strategic framework that provides for a consistent and transparent approach to coordinate efforts better, in what were then eight priority areas of reform such as judicial and legal system, anti-corruption and public finance.¹⁹ The GAP outlines the Government's strategy and program of actions to further good governance as the backbone to sustainable development, social justice and poverty alleviation. To date, GAP initiatives have focused on strengthening or creating institutions and processes necessary for the State to apply principles of good governance within its jurisdiction, and to acquire the requisite levers of governance. In the follow up to the GAP which will focus more on empowerment, trade mainstreaming has been recognized and given its rightful place in the overall package of economic and legal reforms. The envisaged GAP II will incorporate a section on trade, commerce and investment.

Legal reforms have moved to center stage as an important priority on the development agenda of Cambodia. These are being undertaken to foster development of a vigorous private sector, to respond to the requirements of the regionalization and globalization of world trade and to make the Government more accountable to its own citizens. The economy is becoming increasingly complex: urbanization rates increasing, the labor force shifting from agriculture into light manufacturing and services, markets expanding, and the enterprise sector growing. Cambodia’s recent membership in ASEAN and its impending accession to WTO require economic strategies that are more adaptable to the changing environment. Against this backdrop Cambodia must learn the lessons from Asia’s unprecedented historical evolution, from the perspectives of industrialization, urbanization, and the increasing division of labor, which have altered society, economy, and politics. All these changes also demand a legal framework that will provide flexibility for market agents, stable institutions to enforce contracts and property rights, and enhance the predictability, transparency, and accountability of state actions.

The reform of the Rule of Law will also advance the fundamental aspects of good governance where public institutions and officials are held accountable to the people for decisions made or actions that damage the nation or individual rights, where a rule-based decision-making system operates in a predictable manner, where information on public sector decision making, policies, actions, and performance is available to people in a transparent manner, and where public officials facilitate and promote an environment in which people can participate meaningfully in the development process.

Moreover, as Cambodia is now pursuing market-oriented policies, opening up our industries to international competition, attracting foreign direct investment, liberalizing our trade in goods and services through the removal of barriers and developing rules in new trade-related subject areas, it is therefore vital that the ASEAN legal commitments and the uniform rules embodied in the WTO legal instruments are applied or set as a norms in all legislative initiatives of the Government.

With all these competing forces at play there is a clear need now, and to a far greater extent than has been the case at any previous time since 1993, to develop a coherent legislative program which sets out the purpose and objectives of the legislative reform program as a whole, as well as the purposes and objectives of each of the individual pieces of legislation. Such a program was developed and revised several times to respond to the political necessity of the accession to the WTO. Moreover progress in the legal and judicial reform, though still slow, is beginning to show signs of renewed energy, with the restructuring of the Council for Legal and Judicial Reform.

Within this larger scheme of economic development Cambodia views policies and legislation related to protection of Intellectual Property Rights as important instruments in the economic, social, scientific and technological, short and long-term development strategy of the country. This is evidenced by a series of activities aimed at fulfilling these goals, namely membership with WIPO in 1995, the Paris Convention in 1998, the ASEAN Framework Agreement on Intellectual Property Cooperation in 1999, bilateral agreement on Trade Relations and Intellectual Property Rights Protection Agreement with the United States of America in 1996. In the near horizon term is Cambodia’s intent to join the Bern Convention and the Patent Cooperation Treaty.

On the legislative development front, the Law on Marks, Trade Names and Acts of Unfair Competition was adopted and promulgated into law on 17 February 17, 2002. A draft Law on Patents, Utility Model Certificates and Industrial Design was approved by the Council of Ministers on 12 October 2001 and submitted to the National Assembly for adoption. A draft Law on Copyright and Neighboring Rights was also adopted by the Council of Ministers on March 2002 and submitted to the National Assembly for adoption.

As part of the accession process Cambodia has also set out a very ambitious national legislative agenda for the years 2002, 2003 and 2004 to implement the WTO requirements. Under this National Legislation Implementation Action Plan, more than 40 draft laws or regulations are planned to be adopted in order to complete the Cambodian legal framework of Cambodia. Among those are various intellectual property laws like the draft Law on Geographical Indications Including Appellation of Origin, the draft Law on Plant Variety Protection, the draft Law on Layout Designs of Integrated Circuits, and the draft Law on Protection of Undisclosed Information.

….Linking Trade and Labor Standards: Making Cambodia as a Sound and Safe Sourcing Place for World Textile and Apparel

The year 1996, when Cambodia signed a bilateral Trade Agreement with the USA and a Textile Agreement with the European Union, saw the birth of the garment industry in Cambodia. With a permanent MFN status from the USA secured, investors started to move in and build their garment factories and to export in the most intensive way. As the industry grew at an exponential rate of 2,000 to 5,000% per year, the USA hurried to impose quantitative restrictions on Cambodia's garment exports in 1998. Negotiations lasted almost a year with the US attempting to incorporate in a textile agreement a linkage between trade and labor standards. The negotiations were not easy when the records showed that no country in the world has ever agreed with the US position regarding this linkage between trade and labor standards. The reason is very clear: no one trusted the US altruism, some people might agree that there could be some genuine interests from the US aimed at protecting the workers rights in sourcing places but everybody sees this linkage as a clear attempt to create another technical barrier to trade.

Nonetheless, Cambodia agreed to the linkage and created a precedent in the annals of textile negotiations. The main reasons were very obvious:

· Cambodia believed that linking trade with the implementation of labor standards will going to be the most efficient internal mechanism for a developing country to ensure that foreign investors are not exploiting our local workers. Effectively, the power of the Minister of Commerce to deny the issuance of export documents to any manufacturer because of his/her violation of the Cambodian Labor Law has so far never failed to force him/her to take corrective measures. Without that intervention, the implementation of the Labor law would be ignored by the foreign investors who would prefer paying $100 or $200 penalties and continue to infringe the Law by firing any worker he/she disliked.

· The linkage of trade issues with labor issues was not a "stick" with which the USA could use to bar entry of Cambodian exports to the US market. It was a "carrot" to reward Cambodia when working conditions improved in the textile and apparel sector. There have been enough assurances and re-assurances from the US side that this carrot is a "real" one and not a "virtual" one.

· The ILO monitoring system using ILO will offered enough assurances that it the mechanism would not be biased or used for hidden political agendas.

· Cambodia was also very confident that American buyers would certainly set up their own rules (Code of vendor Conduct) to ensure that they were not buying from any "sweatshop" and thus would help the Government of Cambodia to enforce its Labor Law in the most appropriate manner.

According to the 1999 U.S.-Cambodia Textile and Apparel Agreement, the U.S. wais required to make an annual determination whether working conditions in the Cambodia textile and apparel sector substantially comply with the labor law and internationally recognized core labor standards and if so, to increase the quotas by 14% for the following agreement year. For the last 3 years the US granted only a 9% quota increase reward despite many substantial improvements in labor conditions have been made. This is a situation that raised eyebrows and made people wonder whether the US was really sincere in their commitments.

In retrospect, the Cambodian experiences in the garment sector will be hard to duplicate or copy in another country because for the following reasons:



	IMPLEMENTING THE INTEGRATED FRAMEWORK “IF” IN CAMBODIA

IMPLEMENTING THE INTEGRATED FRAMEWORK “IF” IN CAMBODIA

IMPLEMENTING THE INTEGRATED FRAMEWORK
“IF” IN CAMBODIA