MINISTRY OF COMMERCE

ASEAN AND INTERNATIONAL ORGANIZATION

DEPARTMENT

Cambodia’s Rice Export Promotion

in Post-WTO Accession

UNDER

TARP PROJECT SUPPORTED BY AUSAID

Research Team Leader: Mr. CHAN Bonnivoit

Research Team Member: Mr. KANN Viseth

Mr. YEM Sophal

Mentor: Mr. Michael YOUNG

2007

TABLE OF CONTENTS

A. Introduction………………………………………………………………………………..1

B. Current structure of Cambodian rice exports (Mr. CHAN Bonnivoit, Mr. YEM

Sophal)……………………………………………………………………………………...3

1. International trade in rice……………………………………………………………………………..3

2. Past pattern of Cambodia trade in rice………………………………………………………………..6

3. Current patterns of Cambodian trade in rice (Thailand, Vietnam, USA and EU)……………………6

4. Export quantity and rice markets in South Korea, China, Japan and USA…………………………..8

C. Cambodia competitiveness for trade in rice (Mr. CHAN Bonnivoit)………………...11

1. Resource and factors endowments related to trade………………………………………………….11

2. Macro economic indicators affecting trade in rice: Price and Exchange rate………………………17

3. Policies promoting rice producers…………………………………………………………………..18

4. Policies on trade liberalization for trade in rice……………………………………………………..20

5. Cambodian rice trade policy under WTO Agreement on Agriculture (AOA)……………………...21

6. Cambodia commitments to regional trade arrangement and bilateral trade agreements……………25

7. Cambodian rice trade facilitation……………………………..……………………………………..28

D. Market access of Cambodian rice export (Mr. KANN Viseth)………………………..29

1. Multilateral commitments under the WTO Agreement on Agriculture……………………….........29

2. The Doha development agenda……………………………………………………………………...30

3. Current WTO agriculture negotiation……………………………………………………………….31

4. Preferential market access and ASEAN + arrangements……………………………………………31

5. Tariff and non-tariff barriers………………………………………………………………………...34

E. Domestic constraints and market linkage (Mr. YEM Sophal)………………………...42

1. Organization related rice production………………………………………………………………..42

2. Rice processing and quality issues…………………………………………………………………..44

3. Farm-market linkages……………………………………………………………………………….45

4. Transportation and warehousing costs……………………………………………………………...46

5. Rice Marketing……………………………………………………………………………………...47

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F. Political or instrumental options to promote the rice export (Mr. CHAN Bonnivoit,

Mr. YEM Sophal and Mr. KANN Viseth)………………………………………………48

1. Domestic competitiveness………..…………………………………………………………………48

2. Domestic constraints and market linkage…………………………………………………………...51

3. Market accesses……………………………………………………………………………………..52

G. Conclusion………………………………………………………………………………..53

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ABBRAVIATION

AFTA ASEAN Free Trade Area

ACFTA ASEAN-China Free Trade Area

AMS Aggregate Measures Supports

AOA Agreement on Agriculture

AQSIQ General Administration of Quality Supervision, Inspection and Quarantine

ASEAN Association of South East Asian Nation

CARDI Cambodian Agricultural Research and Development Institute

CCC China Compulsory Certification

CCIB China Conformity Inspection Body

CDC Council for Development of Cambodia

CEDAC Centre d’ Etude et de Development Agricole Cambodgien

CEPT Common Effective Preferential Tariff

CIF Cost, Insurance and Freight

CLMV Cambodia, Laos, Myanmar and Vietnam

CSE Consumer support estimates

CSQ Country Specific Quota

DDR Doha Development Round

DF & QF Duty Free & Quota Free

EPA Economic Partnership Agreement

EU European Union

FAO Food and Agriculture Organization

FOB Free on Board

GATT General Agreement on Trade and Tariff

GDP Gross Domestic Products

GTC Green Trade Company

HS Harmonized System

HYV High Yielding Varieties

ICC International Chamber of Commerce

IMF International Monetary Funds

IPM Integrated Pest Management

ITC International Trade Center

JICA Japan International Cooperation Agency

KIEP Korea Institute for International Economic Policy

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MAFF Ministry of Agriculture, Forestry and Fishery

MFN Most Favored Nation

MMA Minimum Market Access

MOFCOM Ministry of Commerce (China)

MOWRAM Ministry of Water Resource and Meteorology

NFIDCs Net-Food Imported Developing Countries

NDRC National Development and Reform Commission

NGO Non Government Organization

OECD Organization for Economic Cooperation and Development

PSE Producer Support Estimates

RCB Registered Certifying Body

RGC Royal Government of Cambodia

ROCB Registered Overseas Certifying Body

SAC Standardization Administration of China

S & D Special & Differential

SGS Societé General de Surveillance

SPS Sanitary and Phytosanitary

SRI System of Rice Intensification

TBT Technical Barriers to Trade

TIFA Trade and Investment Framework Agreement

TRQs Tariff Rate Quotas

UNCTAD United Nation Conference for Trade and Development

URAA Uruguay Round of Agreement on Agriculture

USAID U.S. Agency for International Development

USDA United States Department of Agriculture

US United States

VAT Value-Added Tax

WFP World Food Program

WTO World Trade Organization

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TABLES

Table 1 Import and export of rice and fertilizer 1993-1999……………………………………6

Table 2 Cambodia’s annual rice export………………………………………………………...7

Table 3 Cambodia’s annual rice import………………………………………………………...8

Table 4 Area Cultivated, Yield and Production of Paddy: 1993-2004……………………….13

Table 5 Agricultural productivity in Cambodia is the lowest in the region (2003)…………...13

Table 6 Land size and profit…………………………………………………………………..14

Table 7 Estimated production cost of Neang Mali……………………………………………15

Table 8 Labor productivity in rice sector between Cambodia, Vietnam and Thailand……….15

Table 9 Goods subject to import licensing……………………………………………………29

Table 10 Schedule of tariff rate of new members of ASEAN………………………………….26

Table 11 ASEAN and Korea FTA preferential tariff rates for ASEAN-6……………………...32

Table 12 ASEAN and Korea FTA preferential tariff rates for Cambodia, Laos and Myanmar..33

Table 13 List of rice products with tariffs in China, Japan, South Korea and USA……………35

Table 14 Allocation of MMA for 2005-2014, Country calendar specific quota……………….36

Table 15 Paddy to milled rice conversion rate…………………………………………………45

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FIGURES

Figure 1 World rice trade………………………………………………………………………..5

Figure 2 Producer support estimate and Consumer support estimate for South Korea…………9

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A. Introduction

Rice plays an integral role in the economy of Cambodia. Over 80 percent of Cambodian

farmers cultivate rice, primarily through traditional farming practices. For most of these farmers, rice is

the major source of income and sustenance and thus is of critical importance in the formulation of any

type of agricultural policy.

Now the rice production in Cambodia has increased rapidly in the last year decade due mainly

to improved productivities and area expansion. Cambodia has developed into a net exporter of rice and

nearly all exports are unofficial border trade with Vietnam and Thailand. Cambodia is currently a

competitor in the world rice market in the sense that it exports paddy rice for milling in Vietnam, which

is then re-exported onto the world market.

As food security concerns, are becoming resolved, attention is shifting to seed selection and

post harvest practices to increase productivity and deliver more consistent quality for storage and

processing. Furthermore, Cambodia has a high potential to further increase rice production as well

export because it still has a lot of idle land that can be converted to cultivated area and there is room to

increase productivity and export through increased use of appropriate technology, improved irrigation

systems, reformed and managed domestic legal framework, and liberalized the market access etc.

But the rice sector still faces yet a number of important constraints in Cambodia. Agricultural

productivity remains low compared to other countries in the region, with yields averaging barely 2

tones per hectare. Economic returns to labor from rice production are much lower (less than half) than

rates generated from production of vegetables, soy beans, mung beans, cassava, sweet potato, tobacco

and cotton.

On the input side, land use is a key issue for rice and for agriculture generally. About 1.2

million hectares of agricultural land is currently unused. A new land law was legislated in 2001 to

clarify title, resolve disputes and build the foundations for efficient land markets and for using land as

collateral in financial transactions. Much needs to be done to bed this law into everyday practice. It

needs to be disseminated throughout the country and understood, supported and implemented by

individuals and local administrators.

Transport costs are high partly because of the nature of the terrain and the quality of roads

where the solutions lie in planning and building transport infrastructure. It is also a causing that some

areas are become a food exporter while others are reported to be in food deficit.

A Federation of Rice Millers has recently been established with a view to building relationships

with farmers to provide them with the information, capacity and incentives to deliver more consistent

quality rice. There has been extensive research and development in rice through a government research

institute like Cambodia Agricultural Research and Development Institute (CARDI). While many

varieties have been produced, dissemination throughout the country has been limited. The research

emphasis is now switching from yield to quality and to post harvest management. Farmer extension

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services provided by the RGC and NGOs are reasonable because of lack on the resources and capacity,

and there is an important policy question regarding the best way of transferring information to farmers.

Few rural businesses including farmers have access to formal sources of finance. Branch

banking is still expensive, incomes are low and collateral is not well specified. Farmer processor

contracting is emerging as a basis for credit security. Fertilizer subsidies were abolished in 1997 and

now most inputs are supplied by the private sector. The government remains involved in food aid

distribution in which a state enterprise, Green Trade Company (GTC) is responsible for purchasing rice

on behalf of the state including the purchase and storage of rice for food security purposes. While no

formal quotas or taxes apply to rice exports, exporters are required to obtain a permit. No official

charges apply to these licenses but ‘facilitation fees’ are apparently required. Such ‘irregularities’ are

reported to be a major constraint on exporting rice from Cambodia.

The rice processing and distribution sector faces a number of key constraints. Milling

technology is often outdated, resulting in high levels of broken rice. Furthermore, millers are

fundamentally constrained by a lack of working capital that limits their ability to purchase paddy from

farmers and update machinery. This contributes to the unofficial export of paddy to regional markets

such as Viet Nam and Thailand and prevents Cambodia from capturing the value-adding and creating

the jobs for the domestic people from rice milling. The lack of capital also perpetuates the low levels of

technology implicit in the sector. Institutional and infrastructural constraints also impede the sector.

High costs in the provision of credit dampen private investment by farmers and millers, forcing farmers

to seek unofficial sources of credit from moneylenders, often at usury interest rates, and millers to delay

or reduce investments. Poor infrastructure, in the form of roads and irrigation dampen production

incentives and reduce market access. Unofficial costs, in the form of checkpoints and port fees,

unnecessarily raise the costs of rice for Cambodian consumers and lower the competitiveness of a

bourgeoning, high-value niche export market.

The membership of Cambodia in the WTO will affect policy in two areas: First, steps will have

to be taken to bring Cambodia’s legal and institutional framework into conformity with WTO rules.

Second, Cambodia will be called upon to make commitments on market access in area of trade in good

and trade in services. Of course, Cambodia has access to the markets of our ASEAN neighbors, which

consist of 550 million consumers, but economic conditions and products are alike and these create some

difficulties for Cambodia to export as much as possible to these market. Furthermore, Cambodia wants

to extend and integrate its economic into the world economic system. Therefore, it is necessary for

Cambodia to look through the WTO membership at the world market as a whole to find better

comparative advantages for its products, especially in the US, EU, Japanese, South Korea and Chinese

markets. The agreement on agriculture provided many benefits to Cambodia. The agreement required

member countries to eliminate non-tariff barriers, transfer them into tariff barriers and gradually reduce

them. As a least developed country, Cambodia may maintain import tariffs on agricultural products and

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high levels through accession negotiations. This factor provides a better possibility for Cambodia to

expand its export agricultural products and attract investment in this area as well. WTO Agreements

and the result of the current WTO negotiation provide an S & D to least developed Counties with longer

time to prepare to implement WTO agreements, technical assistance to upgrade the commercial legal

framework and capacity, and DF & QF to adjust the production- and trade structure.

Although facing some problems as described above, Cambodia is still expected to play a more

important role in the global market in the next decade when improved yields and area expansion will

efficiently reduce the costs of its exportable surplus, and other components and constraints related to the

rice export will be effectively improved. Therefore, it would seem that the improvement or some

changing of policies and instrumental options to promote Cambodian rice export is very significant for

the challenges described above. Regarding to the issues faced and the WTO membership of Cambodia,

our research project aims to develop the policy or instrumental options in order to promote Cambodian

rice trade in the time of its WTO post-accession. Base on the aim of the research, our research will try

to identify the Cambodian competitiveness for trade in rice, the market accesses of Cambodian rice and

the constraints of Cambodian trade in rice, and the last and significant objectives of the research project

is trying to find out a political framework or instrumental options to be implemented in promoting the

rice export.

Relating to our objectives, the research project will separate in 5 components. For the first

component we will try to identify the structures and conditions of Cambodian trade in rice which show

only the current picture of the Cambodia rice export and import. Second component is a significant

component for the research project because of concerning with the research of current production

structure and trade structure of the rice sector of the country. Otherwise it can be said that we will try to

assess the Cambodia competitiveness for trade in rice. The third will be assessed the market accesses of

some countries like USA, Japan, China and South Korea which we select as our exporting targeted

countries for Cambodian rice export in the future. The forth component will be analyzed the current

constraints of Cambodian trade in rice which can be occurred by the nature and the failure or mistake of

the implementations and planning. The last one which plays a significant role in the research project

will try to identify or to improve the political framework or instrumental options in order to promote

and to strengthen Cambodian rice exports for the future.

B. Current structures of Cambodian rice exports (Mr. CHAN Bonnivoit, Mr. YEM Sophal)

1. International trade in rice

World rice export

The world rice market is characterized by the small share of trade relative to total production.

Even though rice production is around 400 million tons, only about 25 million tons are traded

internationally (6 percent of total production). Most of rice production in the world occurs in Asia and

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in most Asian countries rice produced is consumed domestically. Moreover, the US is the only major

exporter that is not in Asia.

Exports from many of the major rice producers are projected to increase as demand for rice

rises and nominal prices strengthen. Thailand is projected to remain the world’s largest exporter, but

with export growth - projected around 2 percent a year - slower than in the 1980’s. India is expected to

eventually recover from its recent drop in exports from its peak of 4.2 million tons achieved in 1995,

with exports starting to expanding again by 1999, and then reaching nearly 3.3 million tons by 2005.

India is projected to rank number 3, after Thailand and Vietnam from 1998 to 2004, and then overtake

Vietnam as number 2 after 2004. Vietnam also is expected to remain a large exporter - ranking number

2 from 1997 through 2004 - but exports are projected to dip below those of India after calendar 2004.

Burma is projected to expand exports after 1997 - and except for 2000 - through 2005. Similarly,

Pakistan is projected to generally expand exports after 1998, rising from 1.5 million in 1999 to over 1.6

million by 2005. Both countries will slip slightly in importance as India’s importance rises. Only

Australia, China, and the United States are likely to be viable long run sources of japonica rice to meet

Japanese and South Korean import requirements under the UR agreement. At the same time, new

exporters such as Cambodia and Myanmar might start to play a more important role in the world rice

export.

World rice import

In contrast to exporters, there are many importers, each with a small share of total imports.

Importers are distributed in many different parts of the world. In addition, rice import growth will be

fueled by the needs of China, Indonesia, the Middle East, and Central America and the Caribbean.

Indonesia is expected to be a steady net rice importer, but its imports are projected to decrease over time

as consumption growth slows and yields continue to rise. China is also projected to be a net importer of

rice. Developing countries, particularly in Asia, will continue to account for the bulk of the gains in

import demand (Figure 1).

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Figure 1: World rice trade (Source: Economic Research Service / USDA, 2005)

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2. Past pattern of Cambodia trade in rice

Exports of rice from Cambodia have increased in recent years. Between 1990 and 2000

official exports of rice and paddy have been minimal (Table 1). These data do not tell the whole story,

as there are disparities in export statistics collected by different government agencies involved in

regulating the export trade. JICA identified two exporters who exported 54,000 tones of rice in 2001-

2002 when official exports only identified 6,000 tones of rice in total.

While production has been increasing over this period, the low level of exports has meant

that, firstly, reliance on food aid has been dramatically reduced. Secondly, the amount of rice available

for domestic consumption has increased, potentially increasing the number of calories available.

Thirdly, surplus production has been diverted from domestic mills to foreign mills through unofficial

exports of paddy into Thailand and Viet Nam. It estimates that in 2001 approximately 10 percent of the

rice marketed domestically was exported officially (nearly 60,000 tones), and 33 percent of the paddy

sold by farmers was exported unofficially (over 450,000 tones). The majority of the rice is exported by

private firms, who provide high-quality, single variety rice to niche markets in Europe, North America,

the Middle East, Singapore, Malaysia, China and Australia. Cambodian rice obtains a price premium

above standard Thai rice of around US$80-90/tonne.

Imports of rice into Cambodia are small but significant. The major official imports of rice

have been food aid rice imported under supporting of the World Food Program. These were 44,000

tones in 2001, substantially up on previous years. In addition, up to 120-135,000 tones of Thai Jasmine

rice are imported unofficially for urban consumers in Seam Reap, Phnom Penh and the surrounding

areas.

Table 1: Imports and Exports of Rice and Fertilizer - 1993-1999

Port Flow Item 1993 1994 1995 1996 1997 1998

1999

White Rice 18640 11622 6573 - - - - Imports

Fertilizer 10954 - 245 - - - -

Phnom Penh Exports Paddy - - - - - 16615 -

White rice 10449 18867 36685 23540 6952 16615 10889 Imports Fertilizer 23898 28438 29809 8839 - 24043 - Sihanouk Ville

Exports Paddy - - - 2611 - - -

White Rice 29089 30489 43258 23540 6952 16615 10889 Imports Fertilizer 34852 28438 30054 8839 - 24043 -

Total Exports Paddy - - - 2611 - - -

Source: Japan International Cooperation Agency 2001

3. Current patterns of Cambodian trade in rice (Thailand, Vietnam, USA and EU)

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Rice Exports

Since Cambodia's accession to the WTO on 13 October 2004, the Government takes the effort

to formalize the country's largely informal trade activities and create the legal, and reform the

administrative frameworks necessary to ensure greater trade facilitation. This is to enable the country to

take greater advantage of its newfound access to international markets. The range of products which

Cambodia has available for export is limited, but to widened participation in international trade it is

likely to come only through the export of rice (Cambodia’s Pathways to International Trade-www.

aseanfocus.com). Cambodia has exported rice more than 1 million tons every year ( Cambodian Prime

Minister in the occasion host Vietnamese Prime Minister ), primarily in exporting form through

informal cross-border exchanges with Thailand and Vietnam, while Cambodian producers and rice

millers cannot effectively compete with the highly efficient and subsidized rice markets of neighboring

countries. Cambodia rice trade is fluctuated. It depends on the amount of surplus rice productions.

Cambodia has produced a surplus amount of rice reaching as much as 500,000 tons every year since

1995.

Despite the national rice self-sufficiency achieved by the country since 1995/1996, Cambodia

has officially exported very little rice. The key destinations of rice earlier exported by Cambodia are

Singapore and other ASEAN countries. More recent export destination points include Hong Kong and

Europe, although there are no current statistics available on how much (Table 2).

Table 2: Cambodia’s Annual Rice Exports (Volume and Value) Year Exports

Volume (in ‘000 tons) Value (in million US$) 1995 - - 1996 5.6 0.93 1997 3.6 0.95 1998 0.6 0.15 1999 2.2 0.45 2000 0.6 0.18 2001 1.5 0.48 2002 3.8 1.69 2003 3.0 1.46

Source: International Rice Research Institute, Rice Facts, 2005

Rice Imports

Even though Cambodia has reached a rice self-sufficient level and became a rice exported

country, Cambodia still continues to import milled rice to fulfill the needs of domestic consumption.

Most rice imports of Cambodia are actually food aid, free import duties, brought in by donor agencies

and international organization for humanitarian purpose. Outside of food aid, principally come from

Thailand and Vietnam (Sik Boreak, op cit). High-income urban consumers in major urban centers such

13

as Phnom Penh and the expatriate communities around the country are said to have a preference for the

Thai jasmine rice varieties. A proof to this is the fact that supermarkets and groceries in Phnom Penh

and Siem Reap carry a large number of imported Thai rice brands in their shelves. Restaurants in key

urban centers are known to mix Thai rice varieties with local varieties to improve overall fragrance and

eating quality. There are no available officials statistics on how much of the formal imports came in as

food aid and which portion comes as commercial imports.

Table 3: Cambodia’s Annual Rice Imports (Volume and Value) Year Imports Volume

(in ‘000 tons) Value (in million US$)

1995 81.0 24.50 1996 26.0 7.57 1997 27.6 2.80 1998 39.2 7.40 1999 36.4 7.90 2000 60.6 8.94 2001 53.3 7.51 2002 123.6 11.02 2003 77.1 6.20

Source: International Rice Research Institute, Rice Facts, 2005

4. Export quantity and rice markets in South Korea, China, Japan and USA

South Korea: South Korea, a major food-importing country, has tried for more than three

decades to strengthen its own agricultural production and avoid imports. The two major goals of South

Korean agricultural policy are self-sufficiency and parity between farm and urban household incomes.

The Government uses strong producer price incentives and import barriers to achieve these dual goals.

Domestic production of rice, barley, corn, soybeans, and tobacco is subsidized to varying degrees. High

import barriers protect rice, barley, vegetable, fruit, and livestock farming. Imported inputs such as

wheat, feed grains, oilseeds, hides, and cotton, however, are allowed easy access.

The Organization for Economic Co-operation and Development (OECD) calculates producer

support estimates (PSEs) that measure the proportion of farm output value attributable to government

support. For South Korea, the aggregate PSE for major farm commodities is always over 50 percent.

The consumer support estimate (CSE) is always negative, representing an implicit tax on consumers

caused by government programs that support producers. As a percentage, it represents the size of this

implicit tax relative to consumer expenditures on foods. The aggregate CSE for South Korea is highly

negative, suggesting that the implicit tax is equivalent to more than 50 percent of consumers'

expenditures on major foods.

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Figure 2: Producer Support Estimate and Consumer Support Estimate for South Korea

Today, Korea produces close to five million tons of milled rice for consumption annually.

Farmers produce more than 170 varieties of short grain rice, and over 1,900 different rice brands exist

in the domestic rice market. Rice consumption per person rose sharply throughout the 1960s and 1970s,

but has fallen in recent years due to changes in eating habits. Faced with the current problem of

declining rice consumption among its population, the Korean government has tried to revise its

domestic rice policies to support farm incomes while simultaneously encouraging farmers to reduce the

areas where rice is planted. Despite the pattern of government practices in the past, both international

and domestic pressures are currently pushing the rice market to liberalize. In 1994, the WTO set Korea

on a 10-year path in which Korea was scheduled to gradually increase the level of rice imports. In turn,

the Korean government began changing domestic policies to prepare the rice market for liberalization

by encouraging farmers to reduce production and plant higher quality varieties. In 2004, Korea received

a 10-year extension to continue the Minimum Market Access Import Quota for imported rice (seeing

more at the component 3 of the research).

China: The Country has the world’s largest agricultural economy and one of most varied. The

nation stands first among all others in the production of rice, cotton, tobacco, and hogs and is a major

producer of wheat, corn, millet, tea, jute, and hemp. This wide range of crops is possible because of the

country's varied climate and agricultural zones. China participates on a large scale in international

agricultural markets, both as an exporter and as an importer.

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China Custom’s figures show that China’s imports of rice in calendar year 2002 dropped by

nearly 20 percent to 240 TMT. Nearly all rice imports are Thai fragrant rice. Thai fragrant rice is mostly

consumed in Southern China. Demand elsewhere is limited. Many locally bred fragrant rice varieties

are finding their way onto the domestic marketplace. As quality of domestic rice varieties improves,

Thai rice is becoming less competitive. Accordingly, the full tariff-rate quota for rice imports was far

from being filled in 2002. Traders expect this anemic import volume for Thai fragrant rice to continue

in 2003, if, as they expect, the current gap between Thai and local fragrant rice prices continues. Trade

in figures per Imports, 2002 MY ended up showing Thailand as biggest source of 232,484 mt. It is

followed by Taiwan of 5,000 mt, Laos of 200 mt, Myanmar of 150 mt, Hong Kong of 28 mt. 3 mt were

imported from Netherlands, 2 mt from Germany, while US, Philippines and Vietnam did not conclude

business with China in MY 2002. In contrary Indonesia and Japan MY 2002 are on Buyers list for

Chinese rice. Exports figures show Ivory Costs as biggest consumer of Chinese rice with 739,676 mt.

Followed by Indonesia with 243,349 mt, Russia with 217,348 mt, Cuba with 216,282 mt, Japan with

101,625 mt, North Korea with 73,130 mt, South Korea with 70,775 mt, Libya with 62,998 mt,

Kazakhstan with 44,884 mt. All other countries are showing 213,042 mt exported quantity. In total, we

have 1,983,109 mt.

Japan: Rice has long been one of Japan's most protected domestic markets. A combination of

restricted market access, high tariffs, and farming support via subsidies and production controls

contributes to a situation in which the Japanese consumer pays around 12 times more per kilogram of

rice than US consumers. While often criticized as an unfair burden on the Japanese consumer, more

people in government are now beginning to realize that the Country has gone out on a limb with its rice

policy and that the nation's notoriously inefficient rice farmers can't continue to be supported forever.

For 2004 alone, the Japanese government is said to have spent some Y5.283 trillion (US$47 billion) on

support for the farming sector, at a time when the Government is striving to reduce public expenditure

in other areas and hiking taxes. A recent OECD (Organization for Economic Cooperation and

Development) report recently showed that around 1.4% of gross domestic product (GDP) goes toward

agriculture support in Japan, and that a massive 80% of rice farming receipts is derived from

government payments.

Recently, Japan relies most heavily on domestic subsidies, although quota and tariff policies are

also in effect (Seeing more at the component 3 “Market Access of Cambodian Rice Export” of the

research). The most recent information available indicates that the Japanese government directly

subsidizes rice production by as much as $1.82 billion (206 billion yen) (Fukuda, Dyck, & Stout, 2003).

Japanese subsidies come via a number of different government programs. The most direct subsidy

program, called the Japanese Rice Farming Income Stabilization Program, was implemented in 1998.

The Income Stabilization Program allows for rice farmers to claim payments equal to the difference of

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domestic rice prices and a predetermined standard, should the market price fall. In 1999, such payments

totaled $815 million (92.7 billion yen). On a per-hectare of production basis, Japan’s subsidy is

enormous, over 12 times that of the US and EU subsidies combined. Figure below illustrates the export

and the market of rice in Japan.

United State of America: For nearly a century, one of the primary goals of agricultural policy

has been to protect farmers against unprofitably low market prices while maintaining an abundant and

stable food supply for consumers. For commodities like rice, which is severely impacted by

interventionist policies enacted by foreign governments, the need for US policy to provide a stabilizing

balance to markets and a reliable planning horizon for producers is especially great. The USDA has

administered various price-and-income support programs for rice farmers for decades, and the Farm

Security and Rural Investment Act of 2002 (2002 Farm Act) continues to provide rice producers with a

safety net based on direct payments, counter-cyclical payments, and marketing loan benefits.

The domestic market is the primary outlet for U.S. rice, accounting for almost 60 percent of

total use. As recently as 1980, the bulk of US production was exported (63%), but in recent years

domestic use has grown sharply (up nearly 36% since 1990) while growth in exports sales have lagged,

resulting in a slow but steady decline in the proportion of total production exported. Although export

sales have been declining modestly as a proportion of total US rice production, exports nevertheless

remain an important market for US rice and contribute significantly to a positive US trade balance and

the total value of agricultural exports for rice producing states. With total US rice exports valued at over

$1 billion in 2003 (down from $1.1 billion in 1999) this accounts for nearly 3% of the total value of all

US crop exports, with Arkansas alone accounting for $452 million in foreign sales, or 45% of all US

rice exports.

C. Cambodia competitiveness for trade in rice (Mr. CHAN Bonnivoit)

1. Resource and factors endowments related to trade

Cambodia is richly endowed with land, as well as substantial natural resources, notably forests

and fisheries, and a wide variety of natural habitats and ecosystems, including upland and lowland

forests, freshwater wetlands, and diverse riverside areas which provide a big advantage for the rice

producers as well the rice suppliers of the Country. In the last decade, the contribution of agriculture to

overall economic growth has come largely through accumulation of factors of production-land and

labor-as part of intensive and extensive growth of activity, with only modest improvement in

productivity from very low levels. Rice production is also still the overwhelmingly predominant crop

for the agricultural economic of the Country, but some diversification and regional specialization may

be emerging as farmers take the advantages from the agro-ecological characteristics of different

agricultural systems and of market opportunities of the Country.

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Land allocation patterns

The proportion of rural households lacking land for cultivation has risen from 13 percent in

1997 to 16 percent in 1999 and 20 percent in 2004. This rise in landlessness is relatively rapid given

that distribution was more-or-less equal (relative to household labor) when land was formally allocated

to households in 1989. A significant proportion of the landless have never owned land, because they

returned from refugee camps in 1993-94 and newly formed households headed by young married

couples. Population growth leads to smaller plot sizes in densely populated areas, and a proportion of

households sell land, either as a deliberate strategy to raise money to invest in non-agricultural

activities, or less positively to meet critical consumption needs. Finally, a small important component of

total landlessness is due to land grabbing. The problem is exacerbated by the interconnected problems

of unclear property rights (as much as 80 percent of rural households that owned land were without land

titles in 2004), and this ambiguous legal status of ownership is notwithstanding for the increasing value

of land in many parts of the country.

Rice growing seasons, cropping, intensity, harvest area and yield

The main types of paddy production systems are upland and lowland rain fed rice, deep water

floating rice and dry season rice. Wet season rice is grown from May to December while dry season rice

is grown from December to March. Dry season rice is usually improved varieties of rice like IR66 and

grown only for cash income purposes. In contrast, wet season rice is usually traditional varieties

cultivated for subsistence and food security purposes. Even though traditional wet season varieties have

a lower yield, they fetch a higher price as the quality and taste is better than the dry season improved

varieties.

There has been improvement in rice yields per hectare, with wet-season yields growing by 14

percent over the last five years (specifically, to account for annual climatic fluctuations, we calculate

average yields for two periods 1997/98 – 1999/00 and 2003/04 -2004/05). Despite the improvement,

Cambodia still has one of the lowest levels of rice yield among East, Southeast and South Asia (Table 4

and 5).

Table 4: Area Cultivated, Yield and Production of Paddy: 1993-2004

TOTAL

Year Cultivated Area

‘000 has.

Harvest Area ‘000

has.

Ave. Yield

Tons/ha

Production

‘000 tons

1993 1,856.6 1,823.6 1.31 2,383.4

1994 1,924.0 1,494.6 1.49 2,223.5

18

1995 2,086.0 1,924.0 1.79 3,447.8

1996 2,170.9 1,864.0 1.83 3,404.0

1997 2,076.0 1,928.7 1.77 3,414.9

1998 2,094.7 1,962.6 1.79 3,509.9

1999 2,157.6 2,079.5 1.94 4,029.6

2000 2,157.5 2,079.4 1.94 4,049.9

2001 2,241.0 1,903.2 2.07 4,099.0

2002 2,137.1 1,994.7 1.92 3,822.1

2003 2,314.2 2,242.0 2.1 4,710.9

2004 2,346.9 2,108.8 2.0 4,170.3

Source: Statistical yearbook 2005-Page223

Table 5: Agriculture productivity in Cambodia is the lowest in the region (2003) Crop yields (kg/ha.)

Items Rice Maize Cassava

Cambodia

China

Lao PDR

Vietnam

Indonesia

Thailand

Malaysia

2,150

3,849

3.316

4,634

4,538

2,455

3,178

2,111

3,485

2,333

3,225

3,252

3,913

-

6,318

16,249

19,762

14,066

14,902

17,552

9,737

Source: FAO, World Development Indicators.

Classification of rice farming households and returns

Rice covers most of the cultivated area (84 percent) and makes major contributions to

agricultural GDP (22 percent) and to agricultural exports too. The average farm size among the rural

poor in Cambodia is 1.5 ha. However, 40 percent of the rural population lives of less than 0.5 ha -

sufficient to meet only about half of the per capita (milled) rice requirement of 165kg/year (Table 6).

Table 6: Land size and rice profit

Indicator Cambodia

19

Average landholding size

Average size of cultivated rice land (ha/household)

Average household size

Size of cultivated rice land by the poor (ha/household)

Rice production gross margin on labor ($/ha)

Rice production gross margin, including labor (US$/ha)

1.71

0.99

5.3

less than 1 ha

49

147

Source: Goletti, Bhatta, Srey, 2002 and ACI, 2002.

Return per hectare of rice ranges between US$100 and US$250 for the farmers. For the poor,

rice provides a smaller share of total income than for the average rice farmer. Most of the poor in the

country grows traditional rice varieties that, unlike modern high yielding varieties (HYVs), can thrive

on poor land with few modern inputs. These varieties usually fetch higher prices than HYV rice,

because their quality is better and local consumers prefer them. Poor households depend on paddy for

three-quarters of their (gross) annual revenue from agriculture. Even at the provincial level, it is evident

that except in Kampong Cham (and Phnom Penh), revenue from rice constituted three quarters or more

of total agricultural revenue in the provinces.

Rice production input and costs

Production of rice constitutes approximately 50% of the overall value adding activity. Such

activities are segmented into 6 areas: land preparation; seed; transplanting; fertilizer/manure; agro

chemicals; and harvesting (Table 7). As Table 7 indicates, fertilizer and manure account for the highest

cost during the production phase. For premium fertilizer, farmers must pay approximately 1,000

Riels/kg. On the other hand, cheaper variety of fertilizers are also readily available through local traders

costing anywhere from 700 – 800 Riels/kg. Interviews with farmers suggest that cheaper fertilizers tend

to be relatively ineffective and maybe contributing to anywhere from 25 – 35 percent reduction in yield

per hectare. If farmers had access to high quality fertilizer, this would contribute a savings of about $15

per ton, which would translate to a 31% increase in profits for small holder farmers.

Other highest production cost associated is land preparation. As most small and medium

farmers do not have their own tractors, they must hire tractors from local service providers. On average,

farmers must pay 50,000 Riel/ha (approximately $12.5) to a local service provider for land preparation.

In addition, proper land preparation requires the services of a tractor twice. Consequently, farmers are

required to pay on average approximately $25/ha to an outside service provider to assist in the

preparation of land. In addition, rising fuel costs has had a substantial impact on the cost of land

preparation. Land preparation costs constitute nearly 16 percent of the total cost of farming. The only

alternative left for a farmer to prepare land properly is to purchase oxen to plow the soil. However,

according to one farmer, accessing financing through local micro-credit institutions is prohibitive.

20

Transplanting continues to be done by hand as automated equipment is far beyond the reach of

an average farmer. In addition, the plot size of many farmers is so small that it would not warrant

mechanization. This means that farmers are dependent on temporary labor to complete the

transplanting. It is estimated that transplanting takes 25 men per hectare with an average wage rate of

approximately 6,000 Riel per worker and day.

Table 7: Estimated Production Cost for Neang Mali in Kampong Speu (Per Ton) Labor Input Riel Total $ Total % Total

Land preparation

Seed

Transplanting

Fertilizers/manure

Ag Chemicals

Harvesting

Drying

Milling

Interest payment

Total

% of Input

-

-

80,343

9,641

-

32,137

13,390

3,320

-

138,832

39 %

56,776

16,604

-

94,339

-

-

-

45,600

8,227

221,546

61 %

56,776

16,604

80,343

103,980

-

32,137

13,390

48,920

8,227

360,37

-

$ 14.19

$ 4.15

$ 20.09

$ 26.00

-

$ 8.03

$ 3.35

$ 12.23

$ 2.06

$ 90.09

-

16 %

5 %

22 %

29 %

0 %

9 %

4 %

14 %

2 %

100 %

-

Source: Global Development Solutions, LLC.

While farm labor continues to be inexpensive in Cambodia, labor productivity has remained

relatively low when compared to regional competitors (Table 8). Low labor productivity can be partly

attributed to the absence of training and support institutions to assist farmers, as well as poor access to

financing that enable farmers to access proper farming implements and install irrigation system.

Table 8: Labor Productivity in Rice Sector between Cambodia, Vietnam and Thailand Items Cambodia

Kampong Speu

Thailand

Central

Productivity

Differential

Yield/hectare (tons)*

Labor input (person days/ha)

Labor productivities

1.87

43

43.49

2.91

47

62.35

- 43 %

* Thailand: Total labor input equal to 155.5/ha using a wage rate of $ 3.33/day.

21

Infrastructure, agricultural technology and input service

The area recognized as receiving irrigation is estimated to be about 44.48% of the cultivated

area (2,253,000 hectare) in Cambodia (Rasmei Kampuchea Daily, No. 4167, 2007). This is land

irrigated in the classic sense of canals or pumps conveying water directly to fields from the sources. The

irrigation can be classified in three types: (1) wet season supplementary irrigation for rained lowland

rice, (2) supplementary irrigation for dry season flood recession rice, and (3) irrigation of dry season

lowland rice. Only 3 percent of poor households owned the water pumps necessary to distribute

irrigation in 2004, whereas 12 percent of richer households had water pumps (World Bank, 2006).

Examination of transportation maps of Cambodia give the impression of an extensive network

of roads, railways and river systems through which many goods are transported. However, decades of

war and a lack of investment in infrastructure has turned many of these into merely lines on a map and

during the dry season much of the river network becomes impossible to water transport. While

transportation volume by road is increasing with the help of up-graded road conditions, transportation

by vessels is increasing through port rehabilitation for imports and exports. Ox-carts are used in rural

areas to transport paddy for short distances and over roads that would otherwise be impassable.

Transportation between the farm house/field to collectors or mills is usually via ox-carts, mechanized

carts (tractor plus cart), or small trucks. Similarly, tractors and small trucks are used over short to

medium distances within districts (village to local town/rice mill). Within urban areas, transport of rice

is most often by truck and motorcycle. Most traders and millers do not have their own transport, hiring

transporters to move shipments of rice or paddy.

Most credit among farmers is used in the provision of inputs, primarily fertilizer. A small

amount of credit was used for rice purchases in deficit periods. Loans for inputs are received from

microfinance services, friends, relatives, and moneylenders. In a survey of rice farmers, JICA found that

18 percent had borrowed money from MFI sources. It seems that the rural area of Cambodia is having

so much lack of the financial sources or credit providers. In some cases, the renting of equipment for

production, such as threshing machines, will be made in exchange for payment in paddy at harvest

(World Bank, 2002). JICA also reports the use of rice banks organized by NGOs in rural areas. Rice

banks receive contributions of surplus paddy from farmers and NGO purchases, which then lend paddy

to farmers in deficit periods to be paid back at harvest at 10-20 percent interest.

A Federation of Rice Millers has recently been established with a view to building relationships

with farmers to provide them with the information, capacity and incentives to deliver more consistent

quality rice. Agricultural extension services provided by the Government and NGOs also still fail to

meet the demands of farmers especially cash crop producers, and there is an important policy question

regarding the best way of disseminating market information, technology etc. to the farmers.

Organic rice and bio fertilizers used rice

22

In Cambodia, the usual practice of rice planting is aerial spreading, where farmers spread a lot

of rice seeds into a rice paddy. The System of Rice Intensification (SRI) was introduced to farmers in

Cambodia in 2000 by the Centre d’Etude et de Development Agricole Cambodgien (CEDAC). The

main innovation with SRI is that farmers transplant one to two seedlings per clump in a vegetable-like

plot. After 15 days, the young seedlings are transplanted to a rice paddy in a square pattern or a straight

line. But SRI compared to the traditional methodology requires so much time to take care the plant and

needs good quality of soil. In such case, it is very disadvantage for the farmers using this methodology,

because those farmers can’t go to find other jobs to fulfill their income for their livelihood.

A variety of fragrant rice, Neang Malis, is cultivated free of chemical pesticides and fertilizers

in a carefully selected area in central Cambodia where rich soils provide an optimal growing

environment. Nearly 80,000 families are contracting with Angkor Rice Company (2004) to grow Neang

Malis. Angkor Rice distributes high quality Neang Malis seed to contract farmers, who are not allowed

to plant their own grains. During the growing season, Angkor Rice staff regularly visit the rice paddies

to provide additional instructions and support to the contracted farmers. Only rice lots that meet the

company’s high standard will be processed at the rice mill so that only the best rice is marketed.

2. Macro economic indicators affecting trade in rice: Price and Exchange rate

Price effected rice exports

The price policy for goods, include rice products, and services in Cambodia were determined

freely by the market, except for electricity and water. As for the future use of price controls, it is still a

matter of to be addressed by the Government of Cambodia.

The rice price tends to show a seasonal fluctuation pattern: decreasing during main harvest

season (November to January) and increasing during the wet season, although the range and pattern of

fluctuation varies every year. The paddy and rice prices fluctuate also in parallel in each production

area, possibly indicating that margins are due to technical factors (transportation and processing) rather

than any strategic market behavior of participants. Price differences between provinces are small and

that the correlation between Cambodian prices and Vietnamese and Thai prices is high. Vietnamese

prices are highly correlated with the IR prices in Takeo province. Prices for Somaly and Domaly in the

Northern provinces follow the Thai prices as there is a substantial amount of export of Somaly and

Domaly paddy into Thailand.

Prices for paddy rice and rice have reportedly been on the rise in recent years due to increased

local demand and an upward trend in global rice prices. Based on a recent survey, prices for MY

2005/06 main crop paddy rice were in a range of 500-600 Riels/kilogram (approx. US$ 150/ton).

Wholesale prices for milled white rice are currently 900-1,500 Riels/kilogram (approx. US$ 350/ton).

Exchange rate effected rice exports

23

In Cambodia, the official exchange rate is a floating exchange rate and is free of policy

distortions. Thus, the exchange rate is not a source of protection on rice production. In addition, the

border rice price is typically calculated at the official exchange rate, although when this is not at

equilibrium, a shadow exchange rate should be used to capture the effects of an overvalued or

undervalued exchange rate on the production present in an economy (Sadoulet and de Janvry 1995).

The retail price for rice in Phnom Penh fluctuated with the US$ exchange rate until September- October

2000 when the relationship was broken (JICA, 2001). The border rice price is also adjusted to take into

account whether the product of interest is an import or export. If the product is an import, the c.i.f.

import price should be adjusted by adding handling and transport costs from the border to market and

subtracting marketing margins and transport costs from the farm level to the market. If the product is an

export, the f.o.b. export price should be adjusted by subtracting handling costs, marketing margins, and

transportation costs from the port to the farm (Tsakok 1990). Nonetheless, significant gaps exist

between domestic prices of rice and accepted international prices, due to high costs of production, poor

infrastructure, and fragmented markets.

3. Policies promoting rice producers

Land Law

Over the past decade, the Government has constituted a system of economic concessions by

providing 70-year leases covering 889,399 hectares of land to 49 private companies. Ostensibly

motivated by a perceived need to commercialize agriculture, in practice, few (only about 10) are

operational. But now the Government is in the process of canceling a number of non-operational

economic concessions. It is proposed that these lands be transferred to landless (and land-poor)

households under a system of social land concessions (established by Decree in 2003). Although the

motivations for this policy are primarily, as the name suggest, social or distributional, there is a strong

economic rationale too.

In particular, Cambodia has made significant progress in addressing the weaknesses in land

allocation procedures, particularly the establishment of legal and regulatory frameworks and roles and

responsibilities for land administration and management in order to support the rice producers in the

country too. In particular, progress has been made through:

1. Establishment, in 1998, of the Ministry of Land Management, Urban Development and

Construction to lead the government’s efforts on the land reform agenda;

2. Establishment of the Council of Land Policy, in 2000, with membership of 13 ministries, to

guide the preparation of land policy formulation;

3. Adoption of a national land policy by the Council of Ministers in May 2001;

4. Enactment of a new Land Law in August 2001; and

5. Adoption of several sub-decrees under the Land Law, including systematic and sporadic land

24

titling, land registration, Cadastral Commissions for out-of-court land dispute resolution, and

social concessions for land distribution.

In addition, several other sub-decrees are still under preparation and expected to be adopted by

end-2004/2005, including management of economic concessions; state land management; and

recognition and registration of indigenous people land rights (World Bank 2005).

Improved Infrastructure, agricultural technology and input service

The Ministry of Water Resources and Meteorology (MOWRAM), established in 1998, is

responsible for all irrigation development in Cambodia. MOWRAM in Phnom Penh has responsibility

for technical aspects of large scale systems while small and medium scale projects are the responsibility

of the provincial department of the concerned province. Provincial technical staffs are also involved in

surveys and in the formation of Farmer Water User Groups and Communities. Irrigation developments

are classified according to size into:

· Small scale – less than 200 ha irrigated area;

· Medium scale – from 200 to 5,000 ha and,

· Large scale – greater than 5,000 ha.

The goal of the MOWRAM is now to increase the irrigated area from 20 to 24 percent of the

cropped area from 2002 to 2007. The investment is estimated at US$ 880/ha for irrigation rehabilitation

including infrastructure and farmer community organization costs. The total investment required will be

US$ 52 million per year (including drainage and flood control). The current irrigation project portfolio

of MOWRAM totals about US$75 million for short to medium term investment (until 2006). There is a

short-term financing gap of US$ 81 million.

Cambodia will ensure now that research centers and extension systems be oriented towards

small-scale farmers. To the extent that resources are available, the research centers will be set up in

each specific agro-ecosystem including rain-fed lowland, upland, annual flooded agro-ecosystems.

Research will be linked with a decentralized extension team based in the rural areas. Farmer-managed

trials and demonstrations will become one of core extension activities. Research and extension systems

will go beyond increasing the effectiveness of the use of agrochemicals and improved seeds and will

put emphasis on the use of improved tools and management practices (e.g. plant, water, soil and

nutrient management). Priority will be given to diversification and intensification of sustainable

agricultural production with few external inputs as well as to cost-effective management practices.

MAFF and CARDI have put emphasis on researches to produce quality seeds and on seeds quality

controls, and with some NGOs they also have responsibility to provide the extension services to the rice

producers.

Cambodia is concerned with the widespread use of agrochemicals, which may contribute to

increased production but at a higher cost on imported inputs, especially fertilizers and pesticides. The

25

broader and longer-term effects of use of agrochemicals should be considered in the assessment of the

costs and benefits. Where appropriate and economical, MAFF will help promote such better methods of

production as the System of Rice Intensification (SRI), which allows for increased production with

reduced use of agrochemicals. The RGC is concerned that dangerous pesticides are still used in

Cambodia. Farmers continue to use extremely toxic and banned pesticides, including DDT. In addition,

to the enforcement of the sub-decree on agricultural material standards, the RGC with the development

partners is carrying out the public education programs (e.g. Integrated Pest Management (IPM)) to

ensure that farmers and consumers are aware of pesticide and agrochemical hazards.

4. Policies on trade liberalization for trade in rice

Removal of internal rice restrictions

Cambodia’s rice trade policy has been changing from a planned economy model into an open

market model since Cambodia joined Association of Southeast Asian Nations (ASEAN) in 1999 and

World Trade Organization (WTO) in 2004. Cambodia no longer implements any quantity restrictions

on rice imports and exports. Current import duties on milled rice are 7 percent plus a 10 percent of

value-added tax (VAT). VAT exemptions on agricultural inputs were generally available to farmers,

although estimates of revenue foregone by the Government were not available due to lack of statistical

data. Farmers’ exemption from land and income taxes, and turnover tax or VAT on own produce at the

first point of scale, was an important element of Cambodia trade liberalization in the rice sector. But

plantation-type agricultural entities were subjected to VAT. However, on the marketing side, Cambodia

does not offer any price support or intervention programs for paddy or milled rice.

Cambodia has a measures or food security policy to establish a national reserve of rice or

putting a distribution in place for poor or disaster-affected citizens. But the government remains

involved in food aid distributions and the army purchases domestic and imported milled rice for soldiers

and their families. A state enterprise, 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

ASEAN Food Security Reserve Agreement. GTC also engages in profit seeking activities, including

trading activities. The World Food Program (WFP) and other donors buy domestic rice, as well as

importing rice, for food for work programs. Politicians and better off families also purchase rice for

distribution to the poor, especially during emergencies and election campaigns.

Rice export promotion and relaxing and removal of rice export quotas

Before 1995, the RGC imposed the export permit of rice to ensure the National food security

and to make sure that the food requirement of the population is adequately met. Since 1995, Cambodia

freely allows the export of rice with minimum restrictions. Export permit requirement was earlier

26

imposed but was lifted in July 2001. However, exporters are legally required to obtain a permit before

exporting rice. The stated aim of this licensing is to ensure domestic food security.

Pre-shipment inspection of exported rice was effected by CAMCONTROL, a body under the

Ministry of Commerce. CAMCONTROL inspected all exports without exception. The registration

requirements for exports were the same as for imports, and that the 15,000 Riels fee applied to each

import/export declaration. Aside from a token fee of US$4 per export or import declaration is being

charged by the customs department. No export duties are charged on milled rice. But the Cambodian

Rice Millers Association has also identified ‘irregularities’ as a major constraint to exporting rice from

Cambodia. The costs of unofficial exports of paddy have been estimated at US$10–15/ton of paddy (Sik

2000, p. 18).

Abolishment of fertilizer-and pesticides import restrictions

From 1 June 2005 Cambodia eliminated quantitative restrictions on the importation of

fertilizers, pesticides and other agricultural inputs as described above and established a WTO-consistent

method of registration and review of imported agricultural chemicals requirements related to the safe

storage and domestic distribution of these products would apply only to domestic distributors or to

importers using bonded storage prior to domestic distribution. From January 2007 Cambodia would rely

on the provisions of TBT agreement to regulate domestic and international trade in these items.

Till now Cambodia does not produce or export pesticides but imports predominantly from

abroad with legal and illegal permissions from Viet Nam, Thailand, China, Malaysia, France, Singapore

and Taiwan etc. However, a system has been also established to register pesticides in Cambodia as well

as to collect or record data on pesticide importation. Here, few data were recorded in some institutions

of government. The legal statistic recorded by MAFF is below.

Pesticide imported 2005 2004 2003 Total

Commercial products (Tons) 84 42.274 47.500 173.774

5. Cambodian rice trade policy under WTO Agreement on Agriculture (AOA)

Tariff policies

Cambodia’s customs tariff was specified at 8 digits. The tariff nomenclature comprising 6,823

tariff lines in 2001 conformed to the 1996 version of the Harmonized System (HS) at the six-digit level.

All rates were ad valorem. A present, only MFN rates of duty existed, except for CEPT (Common

Effective Preferential Tariff) products originating within ASEAN. In reforming its tariff structure,

Cambodia had reduced the number of tariff bands from 12 to 4 at present (0, 7, 15 and 35 percent). The

high tariff rates of 40, 50, 90 and 120 percent have been abolished. The simple average applied rate of

27

duty had amounted to 16.4 percent in 2001, and the objective was to achieve an average tariff level

below 15 percent by 2003/04.

The rice products are protected through higher tariff rates than for other agricultural products.

Exception of the rice seed having tariff rate 5 percent, an average tariff rate of other rice products is 40

percent while the trade-weighted average tariff on other agricultural products is approximately only 17

percent, but compared with developed countries this is not significantly. While Cambodia was reducing

its import duties, excise taxes were being increased to ensure that the tax reform would be revenue

neutral.

Non-tariff measures

Tariff rate quota: Cambodia did not apply tariff rate quotas at present for any importing goods,

including rice import. But although Cambodia had not resorted to tariff rate quotas sofa, Cambodia

would reserve its right to implement such quotas depending on the outcome of the negotiation and

would respect WTO disciplines on tariff rate quotas.

Quota: Cambodia applied also no quantitative restrictions (quotas) on importing goods.

However, a limited licensing system had been established for the protection of human health, consumer

interests, national security, and to protect the environment. Products subject to import licensing are

enumerated in Table 9. The system was not designed to restrict the quantity or value of agricultural

imports, except for pesticides which was already described at above paragraph.

Table 9: Goods subject to import licensing Description Government Body in charge of import licensing

Pharmaceuticals and medical material Ministry of Health, Department of Drugs and

Food

Agricultural inputs Ministry of Agriculture, Forestry and Fishery,

Department of Agricultural Legislation

Weapons, explosives and ammunition Ministry of National Defence

Gold, silver, precious stones and articles thereof National Bank of Cambodia

Vehicles, aircraft and parts, ships and boats, and

other machinery for military purpose

Ministry of National Defence

Source: WT/ACC/KHM/21

Anti-Dumping, Countervailing Duty and Safeguard: According to Cambodia’s legislation

agenda, the law on anti-dumping and countervailing measures and the law on safeguard measures are

currently in the process. Cambodia would not apply any anti-dumping, countervailing or safeguard

measure for any importing goods until Cambodia had notified and implemented appropriate laws and

28

regulations in conformity with the provisions of the WTO agreement on the implementation of Article

VI, on subsidies and countervailing measures, and on safeguards. After such legislation was

implemented, Cambodia would also only apply any anti-dumping duties, countervailing duties and

safeguard measures in full conformity with the relevant WTO provision.

Technical Barriers to Trade (TBT): Cambodia’s standardization system was at an early stage of

development. The current system was largely voluntary, but mandatory standards were applied to some

products when deemed necessary to protect national security, prevent deceptive practices or to preserve

human, animal and plant life or health. Cambodia ratified the ASEAN framework agreement on mutual

recognition arrangements. Imported goods were subject to the same inspection process as domestically-

produced goods, and Cambodia would extend any conformity assessment agreements, in particular

those foreseen under the ASEAN, to all members of the WTO. Sub-Decree on industrial standards No.

42/ANK/BK of 15 May 2001 and a Sub-Decree on Meterology to be adopted during 2003 provided the

basic rules and procedures for adopting new standards, technical regulations and conformity assessment

procedures.

Sanitary and Phytosanitary Measures (SPS): Cambodia will fully implement the WTO

agreement on the application of sanitary and phytosanitary measures no later than 1 January 2008.

During this period, existing measures regulated by some laws and would be applied on a non-

discriminatory basis, providing for national treatment and MFN treatment to all imports.

Government Procurement: Government procurement was carried out through either (i)

international competitive bidding (ICB); (ii) domestic competitive bidding (DCB); (iii) international

shopping (IS); (iv) domestic canvassing (DC); or (v) direct purchase or direct contracting (Dcon). ICB

and DCB contracts were advertised publicly and open to all interested bidders, and the last tree methods

did not require open public competition, but participation of foreign bidders was not prohibited. Till

now Cambodia does not intend to join the plurilateral agreement on government procurement.

Export subsidies of rice products

Cambodia does not have any kinds of subsidize for its agricultural exports, including rice

products, although under the Agreement on Agriculture, other least developed countries are not required

to undertake such a commitment. According to Senior Minister Cham Prasidh, the government is

committed to a really free trade environment: “We are a pragmatic country; Cambodia cannot afford

farm subsidies which are not good thing for long-term competitiveness. The government does not

believe that the subsidy is a good strategy for sustainable development of the agriculture sector, while

the international trend calls for the elimination of the subsidy”. The government does not extend export

credits, export guarantees or insurance programs for rice and other agricultural products.

29

Although Cambodian does not grant any kind of direct export subsidies, but the Country does

use preferential tax incentives to attract investments which will export 80% of their produced goods into

foreign markets. The 1994 Law on Investment, amended in 2003, grants incentives and privileges

including the exemption, in whole or in part, of customs duties and taxes to qualified investment

projects (QIP), which refers to investment projects that have received a Final Registration Certificate

issued by the Council for the Development of Cambodia (CDC). The investment law provides an

import duty exemption for construction materials, production equipment and production inputs used by

export QIPs and domestic QIPs. Supporting QIPs are also entitled to the exemption, but the QIPs are

required to pay customs duties and taxes on the production inputs for the quantity that has not been

supplied to the export industry or directly exported after review.

Domestic support of Cambodian rice products

As e key economic sector, agriculture plays an important role in the development and economic

stability of the whole economy. Domestic support for the agriculture sector is important for both

protecting the livelihoods of the farmers and increasing the competitiveness of the agriculture sector in

the international market. With Cambodia’s WTO membership, the domestic support to the agriculture

will have to be compatible with AOA. The different domestic support measures for agriculture sector of

Cambodia that are permissible in AOA are showed below.

- Green Box policy covers many Government service programmes including general services

provided by governments, public stockholding programmes for food security purpose and domestic

food aid. The Green Box also provides for the use of direct payments to producers which are as

decoupled income support measures, income insurance and safety-net programmes, natural disaster

relief, a range of structural adjustment assistance programmes, and certain payments under

environmental programmes and under regional assistance programmes. And Cambodia will be allowed

to give as much “Green Box” subsidies as it wants.

Regarding to the Green Box policy, the Cambodian Agricultural Research and Development

Institute (CARDI) established by RGC is being currently played a big role for agricultural research for

Cambodia, provided support to the development of research management capacity and extended its

result to the farmers, farmer’s associations and agri-businesses. Ministry of Agriculture, Fishery and

Forestry is also providing extension services to the farmers throughout the Country.

The Government of Cambodia has also provided seed to farmers affected by natural disasters

and distributed diesel fuel free of charge to be used by farmers in the operation of irrigation water

pumps in emergency drought situation. In addition, for the “Green Box” measures, the Cambodian

farmers are exempted from the agricultural land tax and income taxes which were classified as

decoupled in come support. VAT exemptions on agricultural inputs also were generally available to

30

farmers, although estimates of the revenue foregone by the Government were not available due to lack

of statistical data.

- Blue Box, referred to “Blue Box” measures are direct payments under production limiting

programmes, certain government assistance program to encourage the agricultural and rural

development in the developing countries, and other support on a small scale (“de minimis”) when

compared with the total value of the product or products supported (less than 5% in the case developed

countries and 10 % in the case of developing Countries). The “Green Box” and “Blue Box” subsidies

are exempt from inclusion in the aggregate measures supports (AMS) which are widely considered as

distorting form of the domestic support. Till now, Cambodia still hasn’t any statistical data for these

supports to the farmers, although the Government of Cambodia has involved much kind of such

supports to encourage the agricultural and rural development, and other small scale supports including

in providing credits with the low interest rate to rice producers, in supporting improved seeds and

irrigation systems etc.

- Amber Box covers all price support measures that are provided by the Government and have

been the most important type of policy measure within the non-exempt category. Price support can be

provided either through administered prices (involving transfers from consumers) or through certain

types of direct payments from the Government. For the purpose of Current Total AMS calculations,

price support is generally measured by multiplying the gap between the applied administered price and

a specified fixed external reference price (“world market price”) by the quantity of production eligible

to receive the administered price. Till now, the Government of Cambodia does not have any kind of

these price support measures for its agricultural producers.

6. Cambodia’s commitments to regional trade arrangement and bilateral trade agreements

Cambodia commitments under AFTA

The ASEAN Free Trade Area (AFTA) was established in January 1992 to eliminate tariff

barriers among the Southeast Asian countries with a view to integrating the ASEAN economies into a

single production base and creating a common market of 500 million people. The Agreement on the

Common Effective Preferential Tariff (CEPT) Scheme for AFTA requires that tariff rates levied on a

wide range of products traded within the region be reduced to no more than five percent. Quantitative

restrictions and other non-tariff barriers are to be eliminated. Although originally scheduled to be

realized by 2008, the target of a free trade area in ASEAN was continuously moved forward.

Cambodia joined ASEAN on 30 April 1995, and subsequently committed also to implementing

CEPT for the realization of AFTA on 1 January 2000. The Cambodian CEPT Package includes a total

of 6,821 tariff lines, comprising 3,114 items in the Inclusion List (45.65% of total tariff lines), 3,523

tariff lines (51.65% of total tariff lines), in the Temporary Exclusion List, 134 tariff lines (1.96% of

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total tariff lines) in the General Exceptions List and 50 tariff lines (0.73% of total tariff lines) in the

Sensitive List. Currently, for CEPT Package Cambodian rice products are put in the Sensitive List.

According to the schedules of tariff rate, Cambodia will have to lower its tariff between 0 and 5

per cent for the 85 percent of its goods and services on the Inclusion List by 2007. By the following

year, the percentage of goods and services on the Inclusion List will have to increase to 90 per cent. By

2009, 100 per cent of the percentage of goods and services on the Inclusion List will be between 0 and 5

per cent. In 2010, 60 per cent of the goods and services on the Inclusion List will be reduced to 0 per

cent. Finally, in 2015, 100 per cent of Cambodia's goods and services on the Inclusion List will be

reduced to 0 per cent. Moreover, Cambodia can benefit from products that are placed in the Sensitive

Track. The number of tariff lines of Cambodia that can be placed in the Sensitive Track shall be subject

to a maximum ceiling of 10 percent of all tariff lines.

Table 10: Schedules of Tariff Rate of the New Members of ASEAN

Vietnam Laos Myanmar Cambodia

Percentage of Goods &

Services on the Inclusion List

Percentage of Tariff Rate

2003 2005 2005 2007 85% 0% - 5% 2004 2006 2006 2008 90% 2005 2007 2007 2009 100% 0% - 5% 2006 2008 2008 2010 60% 0% 2007 2009 2009 2011 2008 2010 2010 2012 2009 2011 2011 2013 2015 2015 2015 2015 100% Cambodian-South Korea Trade Relations

Cambodia signed an agreement with South Korea to helping create a Cambodian stock

exchange by the end of the decade. Other agreements between the two leaders also included a slew of

signings boosting trade ties, especially in the areas of construction, industry, investment and

infrastructure development as well as an agreement for South Korea to build the IT network in

Cambodia. Actually, the both Governments had also discussed ways to offset a serious trade imbalance

between the two nations by increasing Cambodian exports to South Korea. But between aid and trade,

South Korea is a major contributor to the Cambodian economy.

Cambodian-China Trade Relations

Cambodia is a friendly adjacent nation of China. China established diplomatic relations with

Cambodia on July 19th 1958. The 2nd Prime Minister of Cambodian visited China from July 18th to

23rd in 1996, and in the July 19th, the two sides signed Trade Agreement and Investment Protection

32

Agreement. Since 1992, bilateral trade volume has seen a continuously rapid increasing. In the year

1997, Sino-Cambodian trade volume hit 120 million USD, increasing by 71.8% comparing to the year

before. In 1998, the number reached 162 million USD, another increase of 34.1%. The bilateral trade

volume of 1999 is 160 million USD, dropping 1.1% comparing to the year before, of which China's

exportation accounts for 104 million USD, dropping by 8.2%, importation 55.79 million USD,

increasing by 15.8%, comparing to the year before. The principal exports from China to Cambodia

include machinery and electric products, textile, steel, costumes and dressing accessories, on/off and

protective circuits’ facility, house chinaware, medicine, billet and rough-forged material, footwear, and

etc. The principal imports from Cambodia to China include caoutchouc, log, timber, veneer and etc.

Cambodian-US Trade Relations

Since the resumption of diplomatic relations with Cambodia in 1992, the United States has been

at the forefront of Cambodian development. In 1996, President of the United State of America signed a

bill formally extending Most Favored Nation (MFN) status to Cambodia. The US Government

subsequently designated Cambodia as a beneficiary under the Generalized System of Preferences (GSP)

in 1997. In 1999, Cambodia and the US signed a Bilateral Textile Agreement (BTA), a unique

agreement that links labor standards to trade. In addition, Deputy U.S. Trade Representative and

Cambodian Minister of Commerce signed a trade and investment framework agreement (TIFA) July 14,

2006. Under the TIFA, the two countries will consider ways to expand and liberalize bilateral trade and

investment. They also will discuss issues such as intellectual property rights, trade facilitation and

customs, and implementation of Cambodia’s WTO commitments.

Besides, for Cambodia the US has been a single largest trading partner by far since 1998.

Exports to the US totaled $1.5 billion in 2004, accounting for at least 70% of Cambodia’s total exports

and over 35% of Cambodia’s entire GDP. US exports to the Cambodia have been minuscule in

comparison, albeit increasing from approximately $20 million in 1999 to $59 million in 2004. The US

is the second largest bilateral donor to Cambodia after Japan. Assistance from the U.S. Agency for

International Development (USAID) reached $57 million in 2004 and is expected to increase from year

to year.

Cambodian-Japan Trade Relations

The possibility of Japan-Cambodia Investment Agreement was discussed. The importance of

legal stability and predictability provided by such agreement was stated. It was pointed out that a

possible investment agreement should include the provisions on investment liberalization as well as the

provisions on investment, which are included in the Investment Chapter of Economic Partnership

Agreement (EPA) that Japan had signed with other countries in recent years.

33

7. Cambodia rice trade facilitation

Customs Valuation

Cambodia is in the process of reforming its customs regime through a five year (2003–2008)

reform and modernization program to streamline and improve the effectiveness of customs operations

and to facilitate trade. With assistance from the International Monetary Fund (IMF), a revised Law on

Customs has been drafted and is awaiting National Assembly approval. As part of its WTO accession

commitments, Cambodia will implement the WTO Customs Valuation Agreement by January 2009.

Although Cambodia has made some progress in reform efforts, customs procedures remain

complicated. Both local and foreign businesses have complained at the present that the Customs and

Excise Department generally engages in practices that are non-transparent and that often appear

arbitrary and irregular. Importers frequently cite problems with undue processing delays, excessive

paperwork and formalities driven by excessive discretionary practices.

Rules of Origin

Cambodia had not yet established regulations on rules of origin and intended to introduce

preferential rules of origin as required by its membership in ASEAN. But Cambodia was requested by

the Members of WTO that the Cambodia’s law and regulations on rules of origin would be in

conformity with the provision of WTO Agreement on Rule of Origin and would incorporate the

requirements of Article 2(h) and Annex II, paragraph 3(d), i.e., that for non-preferential and preferential

rule of origin, the customs authority would provide upon the request of an exporter, importer or any

person with a justifiable cause an assessment of the origin of the import and outline the terms under

which it would be provided, and that any request for such an assessment would be accepted even before

trade in the goods concerned began.

Until now, importers were required by the Government of Cambodia to indicate a product’s

origin in the import declaration for non-preferential trade. The requirement was applied for statistical

purposes only. However, Cambodia intended to comply fully with the provisions of the WTO

Agreement on Rules of Origin in the application of preferential and non-preferential rules of origin and

would be to do so after enactment of the new Customs Law and its implementing regulations. In

particular, the requirements of Article 2(h) and Annex II, paragraph 3(d) of the Agreement would be

established in Cambodia’s Law on Customs from the date of its promulgation, or if necessary, by

government degree.

Pre-shipment Inspection

Cambodia maintains a pre-shipment inspection system. Societé Generale de Surveillance (SGS)

may inspect the quality of any goods shipped into the country. In practice, imports are admitted into

34

Cambodia with little reference to standards or rigorous inspection. The present pre-shipment inspection

contract applied to consignments valued at US$ 4,000 or more (FOB).

Goods worth less than US$ 4,000 were valued by the Cambodian Customs and Excise

Department (some remote customs checkpoint were authorized to make valuation decisions for imports

up to US$ 1,200). The fee for pre-shipment inspection amounted to 0.80 % of the FOB value of the

inspected goods, except for bulk petroleum products (US$ 0.30 per metric ton). Importers failing to

secure pre-shipment inspection, and thus necessitating goods to be inspected by custom officials at the

border checking point, incurred a penalty equal 7 % of the CIF value of the imported goods. Cambodia

has also a Dispute Settlement Working Group that respond to resolve promptly claims or disputes

arising from the implementation of pre-shipment inspection.

But from the date of the Cambodia’s Accession into WTO the Government of Cambodia takes

full responsibility to ensure that the operations of the pre-shipment inspection companies meet the

requirements of the WTO Agreements, including the establishment of charges and fees consistent with

Article VIII of the GATT 1994, due process and transparency requirement of the WTO Agreement

(Article X of the GATT 1994), the provisions of the Agreement on the Implementation of Article VII of

the GATT 1994 and the Agreement on Pre-shipment and Inspection.

Import Licensing Procedures

Cambodia imposed no licensing requirements nor quantitative restrictions or prohibitions on

imported agricultural products. Sanitary and Phytosanitary certificates were required for the importation

of agricultural products.

D. Market Access of Cambodian Rice Export (Mr. KANN Viseth)

1. Multilateral Commitments under the WTO Agreement on Agriculture

The General Agreement on Trade and Tariff (GATT) came into existence in 1947. It sought

substantial reduction in tariff and other barriers to trade and to eliminate discriminatory treatment in

international commerce. Therefore, the agriculture trade has been covered by the GATT rules of non

discrimination and market access.

Since the GATT focuses almost entirely on manufactured products, problems have been arising

for agricultural products. Core problems are high tariff & various non tariff barriers, unlimited export

subsidies, and unlimited trade distorting domestic support. These leaded to agricultural trade distortion,

price undercutting, and increasing trade distortion dispute cases. Concerning on the problems, the

Agreement on Agriculture (AOA) were formed in the Uruguay Round of trade negotiation to reform the

rules of agriculture trades and put them under the multilateral disciplines of GATT/WTO. Objective of

WTO-Agreement on Agriculture are:

• Fair and market oriented trading system

35

• Commitments on support and protection

• Operationally effective GATT rules and disciplines

• Equitable trade reform process

• Greater opportunities and term of access to developing countries

• Concern for LDCs and NFIDCs

• Concern on Non-trade issues such as food security, environment, health, etc.

Positive Effects from the Agreement on Agriculture

Since Cambodia is an agricultural economy, 80 percent of its labor force is employed in the

agricultural sector. The agreement on agriculture provided many benefits to least developed countries

such as Cambodia. The agreement required member countries to eliminate non-tariff barriers, transfer

them into tariff barriers and gradually reduce them. As a least developed country, Cambodia may

maintain import tariffs on agricultural products at higher levels through accession negotiations. This

factor provides a better possibility for Cambodia to expand its export agricultural products and attract

investment in this area as well.

Retaining policy options and flexibility on agriculture

Market access and improvements in the investment environment will benefit agriculture as well

as manufacturing and services. In the special rules of WTO regarding the way governments can support

agriculture sectors. These rules are designed to insure that support measures that distort trade are not

introduced or increased, and that any existing measures that distort trade are gradually reduced to

minimal amounts.

2. The Doha Development Agenda

At the fourth WTO Ministerial Conference in Doha (November 2001), Members agreed to a

round of multilateral trade negotiations, incorporating the ongoing agriculture negotiations. On

Agriculture, Members committed themselves to: “comprehensive negotiations aimed at substantial

improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies;

and substantial reductions in trade-distorting domestic support.”

As tariff barriers are reduced and tariff rate quotas expanded in both developed and developing

countries, increased market access opportunities will allow Members to expand export volumes and

revenues. Many of Cambodia’s actual or potential agribusiness export are affected neither by high tariff

nor large scale subsidies in the main importing markets. Three major exports are, however, likely to be

significantly impacted by Doha agricultural commitments: rice, rubber and oilseeds.

The world market for rice is highly influenced by subsidies and excessive duties in all the main

industrial markets. The US uses subsidized export credits and food aid dispose of surplus production as

36

well as providing significant domestic support to its rice farmers. Farmers in the EU, Korea, Japan and

Mexico are also supported through decoupled production-limiting payments. Japan and Korea, in

particular maintain very high market protection regimes (sensitive products). Cambodia’s market

prospects are also negatively affected by its lack of access to tariff quotas on rice like for Korea or other

countries mentioned above. All of these features tend to support the positions outline in general above.

3. Current WTO agriculture negotiation

The sixth Ministerial Conference, held in Hong Kong, in December 2005 failed to reach an

agreement on many of modalities for agriculture. Ministers did agree that they would complete the

negotiation on the modalities by April 2006, which was not met. A Mini-Ministerial meeting was held

in Geneva, but Members failed to reach a consensus on so-called Round One issues of (i) agricultural

tariff reductions, (ii) domestic agricultural support reduction, and (iii) non-agricultural tariff reductions.

The G-8 Summit leaders, at their meeting in July 2006, pledged to allow their negotiators additional

flexibility to reach an agreement on an acceptable packaged of reductions this year.

Base on the Ministerial Declaration in Hong Kong on duty-free, quota-free market access (DF

& QF), the United State is fully committed to implementing the decision on DF & QF to LDCs and

Japan provide DF & QF to LDCs by granted 98% of product from the list.

4. Preferential market access and ASEAN + arrangements

Currently, the market size of Cambodia is relatively small with 13.8 million consumers, 36

percent of which are living below the poverty line. Of course, we have access to the market of our

ASEAN neighbors, which consist of over 500 millions consumers, but economic conditions and

products are alike and these create some difficulties for Cambodia to export as much as possible to this

market. Therefore, it is necessary for Cambodia to look at the world market as a whole to find better

comparative advantages for its products, especially in the China, Japan, South Korea, and US markets.

The Most Favored Nation Principle among members created an important factor for Cambodia to attract

foreign direct investment.

Cambodia in a China-ASEAN FTA

The ASEAN Summit held in November 2001, the leaders of ASEAN and China agreed to

further accelerate economic cooperation and integration between the two economies by setting an FTA

between them. After one year of negotiations, a framework agreement laying out an FTA plan was

signed at the Eighth ASEAN Summit in Phnom Penh. In January 2004, the “Early Harvest” of some

agricultural products came into force. The ASAEN-China Free Trade Area (ACFTA) will be a single

market of 1.7 billion people, and has been targeted to establish the ACFTA by 2010 for six original

members and 2015 for the newer members, namely the CLMV countries.

37

China and ASEAN trade began at a very low level. However, it has rapidly grown and they are

now important trading partners. An emerging phenomenon in China-ASEAN trade relations is that

China has become a major market for ASEAN’s products. ASEAN countries definitely benefited from

China’s rice and China’s import from ASEAN have increased continuously. With the adoption of

ASEAN-China FTA, ASEAN is currently China’s fifth largest trading partner and China is ASEAN’s

sixth trading partner. Among China’s imported products, many are closely relevant to ASEAN such as

rice, palm oil, rubber, chemicals, textiles, and petroleum products. Cambodia, therefore, welcomed the

decisions of both ASEAN member countries and China to grant special treatment to Cambodia’s

agricultural products, which envisage extending the implementation period of agricultural liberalization,

including very sensitive products in the exclusion list, as well as providing preferential market access to

Chinese markets earlier than other countries’ products.

Cambodia in a Korea-ASEAN FTA

Economic interdependence through trade and investment linkages between ASEAN and Korea

has been significantly deepened over the past decades. In 2004, ASEAN become Korea’s fifth largest

trading partners, taking 9.5 percent of Korea’s total trade volume as shown in table A. Although

bilateral trade and investment between ASEAN and Korea decreased sharply due to the East Asian

financial crisis, economic relationship between the two sides has rapidly recovered.

At the Ninth ASEAN–Korea Summit in December 2005, the leaders signed the Framework

Agreement on Comprehensive Economic Cooperation between ASEAN and the Republic of Korea.

They also welcomed the signing of the agreement on trade in goods.

Table 11 and Table 12 show that the results of the agreement on trade in goods under the

framework agreement on comprehensive economic cooperation between ASEAN economies and Korea

that have been reached in the early 2006. Under this agreement, the tariff reduction or elimination

program of each country will require the applied MFN tariff rates on goods under the listed tariff lines

to be gradually reduced, and where applicable, eliminated.

Table 11: ASEAN and Korea FTA Preferential Tariff Rates for ASEAN-6

X= applied

MFN tariff rate

2006*

2007

2008

2009

2010

X≥20 percent 20 13 10 5 0

15percent≤X<20 percent 15 10 8 5 0

10percent≤X<15 percent 10 8 5 3 0

5percent≤X<10 percent 5 5 3 0 0

X≤5 percent Standstill 0 0

Note: * The first date of implementation shall be July 1, 2006.

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Source: ASEAN Secretariat, 2006

Table 12: ASEAN and Korea FTA Preferential Tariff Rates for Cambodia, Lao PDR, and

Myanmar (not later than January 1)

X= applied

MFN tariff rate

2006*

2007

2008

2009

2012

2015

2018

X≥60 percent 60 50 40 30 20 10 0

45percent≤X<60 percent 45 40 35 25 15 10 0

35percent≤X<45 percent 35 30 30 20 15 5 0

30percent≤X<35 percent 30 30 25 20 10 5 0

25percent≤X<30 percent 25 25 20 20 10 5 0

20percent≤X<25 percent 20 20 15 15 10 0-5 0

15percent≤X<20 percent 15 15 15 10 5 0-5 0

10percent≤X<15 percent 10 10 10 8 5 0-5 0

7percent≤X<10 percent 7** 7** 7** 7** 5 0-5 0

5percent≤X<7 percent 5 5 5 5 5 0-5 0

X<5 percent Standstill 0

Note: 1) * The first date of implementation shall be July 1, 2006.

2) ** Myanmar shall be allowed to maintain an ASEAN-Korea FTA preferential tariff rate at

more than 7.5 percent until 2010.

Source: ASEAN Secretariat, 2006

The ASEAN-Korea FTA will provide that by 2008 South Korea will remove all tariffs for at

least 95 percent of its tariff lines placed in the Normal Track while ASEAN-6 will remove all tariffs for

at least 90 percent in the Normal Track by 2009. In 2010, Korea shall eliminate all its tariffs for tariff

lines placed in the Normal Track while this shall apply for ASEAN-6 in 2012.

The agreement on trade in goods contains provisions for special and differential treatment

(SDT), and additional flexibilities specifically designed for new ASEAN member countries-the CLMV

countries. In this regard, an AKFTA would have differentiated timeframe for Korea and ASEAN-6 on

the one hand, and the CLMV countries on the others. Cambodia, along with Lao PDR, Myanmar, and

Vietnam will have preferential treatment due to their low level of economic development.

Cambodia in a Japan-ASEAN FTA

The ASEAN +Japan Summit were aimed at deepening the ASEAN-Japan cooperation. The

leaders of ASEAN and Japan signed a joint declaration on Economic Partnership toward the Creation of

ASEAN-Japan Free-Trade-Area for the coming ten years.

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5. Tariff and Non-Tariff Barriers

Tariffs in agriculture and food sector are (i) very high, being, on average, several fold higher

than in the non-agricultural sector, (ii) frequently highly skewed with a few, very large prohibitive

tariffs, (iii) highly variable among countries, and (iv) frequently significantly higher for bound than the

applied rates. In a number of cases, there are preferential rates for developing countries into developed

country markets. Agriculture trade also takes place in tariff rate quotas (TRQs). TRQs are two level

tariffs in which a limited volume of imports is permitted at the lower, in-quota tariff and additional

imports are allowed at higher, out of quota tariff.

Tariff rate for rice in China, Japan, South Korea, and USA

Table 13: List of Rice products with Tariffs in China, Japan, South Korea and USA

Products China

(Tariff %)

Japan

(Tariff %)

Korea

(Tariff %)

USA (tariff)

Rice in husk 68 402 yen/kg 5 % (in quota) 1.8 cents/kg

Husked (brown) rice 68 402 yen/kg 5 %(in quota) 2.1 cents/kg

Milled rice 68 402 yen/kg 5 %(in quota) 11.2 %

Broken rice 68 402 yen/kg 5 %(in quota) 0.44 cents/kg

Estimate, using methodology to convert specific and compound tariffs into ad valorem tariffs agreed by

WTO Members in 2005

Source: International Trade Centre UNCTAD/WTO

Tariff Rate Quotas (TROs) in China, Japan, South Korea, and USA

Tariff Rate Quotas (TROs) in China: Tariff quotas will be used in the administration of wheat,

corn, rice, cotton and wool imports, with low tariffs applied to imports under quotas and high tariffs for

imports beyond quotas. China has committed itself to abolish non-tariff measures as soon as it enters

the WTO; the administration of tariff quotas will come into force without affecting China's market

access for WTO members. During the course of negotiations, China was given the chance to enforce the

administration of tariff quotas on essential products, such as wheat, rice, corn, cotton, bean oil, sugar,

etc. The import quotas committed by China for wheat, corn and rice were 3.99 million tons and by

2004, the above quotas will increase to 5.85 million tons. The in-quota tariffs for rice range between 1

to 9 percent and their beyond-quota tariffs range between 65 to 71 percent.

Agricultural imports are subject to licensing, tariff-rate quotas and prohibitions. Automatic

import licensing is used to monitor imports; non-automatic import licences are used to fulfil China's

obligations under international conventions. TRQs are non-automatic, except for goods allocated on a

40

first-come first-served basis. As at 27 September 20051, China had notified three import licensing

regimes: import licenses, automatic import licenses, and tariff rate quotas (TRQs) for imports; import

quotas were abolished on 10 December 20042. According to China's notification on licensing, made in

December 2004, it appears that two lines that were due to be removed from the list of products subject

to licensing remain on the list3. Tariff rate quotas exist for wheat, maize, rice, soybean oil, palm oil,

rape oil, sugar, wool, wool tops, cotton, and chemical fertilizers. According to China's WTO

notification, the system serves the purpose of restricting the quantity of imports4. The National

Development and Reform Commission (NDRC) and MOFCOM are jointly responsible for

administering tariff rate quotas for rice, maize, wheat, and cotton, and MOFCOM is solely responsible

for fertilizers, other agricultural products, wool, and wool tops5.

Tariff Rate Quotas (TROs) in Japan: Japan currently has a tariff of 150 yen per kilogram

imposed on all rice as it crosses the border. Additionally, rice imports are subject to a quota of 682,000

tons, above which imports are taxed with a tariff of 341 yen per kilogram. Statistics show that this tariff

rate effectively prohibits all imports above the quota (Fukuda, et al., 2003). Without exception, every

policy has been designed to protect a comparatively disadvantaged domestic industry. Figure below

illustrates the nominal rate of protection in the Japanese rice sector due to high tariff levels.

Tariff quotas apply mainly to agricultural products, including dairy products, rice, wheat and

barley, silk-worm cocoons and raw silk, starches, prepared edible fat, corn and ground nuts, dried

vegetables; they cover some 1.6% of all tariff lines6. Imports of rice have been subject to tariff quotas

since 1 April 1999; the applied out-of-quota duty on rice in FY 2004 was set at ¥341 per kg.; the duty is

the sum of a specific duty (temporary rate) of ¥49 per kg., and a levy of ¥292 per kg collected by the

MAFF. Imports of in-quota rice were 679,668 tones in FY 2001, 679,875 tones in FY 2002, and

673,734 tones in FY 2003; out-of-quota imports in the same years were 69 tones, 202 tones, and 217

tones7. As part of Japan's minimum access commitments, a certain amount of rice can be purchased and

1 WTO document G/LIC/N/3/CHN/4, 30 September 2005. 2 WTO document G/LIC/W/25, 19 September 2005. 3 Under Annex 3 of China's Protocol of Accession, licensing was due to be phased out for HS 28371110 (sodium cyanide) upon accession and for part of HS 84435912 (platen screen press printing machinery) in 2002. 4 WTO document G/LIC/N/3/CHN/2, 9 October 2003. 5 Previously all the quotas except on fertilizers were administered by the State Development Planning Commission (SDPC); quotas for fertilizers were administered by the State Economic and Trade Commission (WTO document, G/LIC/N/3/CHN/1, 23 September 2002). 6 The latest notifications of tariff quota administration are contained in WTO documents G/AG/N/JPN/91 (10 March 2004), and G/AG/N/JPN/100 (13 September 2004). 7 The rice import system is described in detail in JETRO (2003). Under the Uruguay Round agricultural negotiations WTO Members would replace the import quota system by bound tariff measures, and guarantee minimum access for products with essentially no imports during the reference period (1986-88). Since 1996, Japan's rice imports have been subject to minimum access commitments defined by the Government based on the WTO Agreements.

41

marketed directly under the simultaneous buy-and-sell (SBS) system; a total of 50,067 tones were

imported under the SBS in FY 2002, and 100,000 tones in FY 2003.

Tariff Rate Quotas (TROs) in South Korea: During the 1994 Uruguay Round (UR) of WTO

negotiations, this notion was successfully challenged and Korea agreed to establish a Minimum Market

Access (MMA) quota for rice for a 10-year period. In addition, Korea agreed to remove all non-tariff

barriers, including import quotas, by January 1, 2005. At a minimum, Korea promised to increase rice

imports from zero to four percent of domestic consumption to prepare the rice market for liberalization.

Under the agreement, no rice would be sold directly to consumers; rather, imported rice would only be

used for processed foods. In December 2004, Korea was granted a 10-year extension for the ratification

of rice imports. The extension called for Korea to double its total rice imports over the next 10 years

(from 4 percent to about 8 percent of total consumption), increasing the MMA quota from 225,575 tons

in 2005 to 408,698 tons by 2014. Along with Country-Specific Quota (CSQ) commitments to purchase

minimum amounts of imports from China, Thailand, and Australia, Korea also agreed to purchase at

least 50,076 tons of U.S. rice each year for the next 10 years (Table 14).

A separate Most Favored Nation (MFN) quota was established to which all countries had

access, including the CSQ countries. Under the extension agreement, imported rice would be available

for retail sales to Korean consumers for the first time. The extension was approved by WTO in April

2005 and ratified by the Korean National Assembly in November 2005. Although the MMA import

quota will almost double in size by 2014, there is no provision for imports above the quota. Tariffs

within the quota will remain at five percent. Korea has the right to terminate the minimum-access quota

and move to the tariff-rate quota at the beginning of any year between 2005 and 2014. If the MMA is

terminated, the CSQ volumes will be converted to the global quota on an MFN basis.

Table 14: Allocation of the MMA for 2005-2014 (unit: tons, milled rice) Country Calendar Specific Quota (CSQs) Year

Total MFN

Quota Total USA China Thailand Australia

2005 225,575 20,347 205,228 50,076 116,159 29,963 9,030 2006 245,922 40,694 205,228 50,076 116,159 29,963 9,030 2007 266,269 61,041 205,228 50,076 116,159 29,963 9,030 2008 286,616 81,388 205,228 50,076 116,159 29,963 9,030 2009 306,963 101,735 205,228 50,076 116,159 29,963 9,030 2010 327,310 122,082 205,228 50,076 116,159 29,963 9,030 2011 347,657 142,429 205,228 50,076 116,159 29,963 9,030 2012 368,004 162,776 205,228 50,076 116,159 29,963 9,030 2013 388,351 183,123 205,228 50,076 116,159 29,963 9,030 2014 408,698 203,470 205,228 50,076 116,159 29,963 9,030 Source: Ministry of Agriculture and Forestry

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South Korea reserves the right to terminate the minimum access quota and move to a tariff-rate

quota (TRQ) system at the beginning of any year, 2005-14. If a TRQ system is adopted, the size of the

quota remains at the level of the minimum access quota when the switch to a TRQ system is made, with

no further increases in later years. A TRQ allows for imports outside the quota, and the over-quota tariff

would be calculated according to URAA guidelines. If agreement is reached in the global Doha

Development Round (DDR) of negotiations, the over-quota tariff and the size of the TRQ would be

changed to reflect rules of the DDR agreement. In the event of a switch to a TRQ system, country-

specific quotas would end and the entire quota amount would be open to imports on an MFN basis.

Tariff Rate Quotas (TROs) USA: The United States is one of the world's largest producers,

exporters, and importers of agricultural products. In 2004, the average MFN applied tariff for

agriculture was 9.7% (the corresponding average for other products was 4%, see Chapter III).

Government payments to agricultural producers as a share of net farm income fell from 48% in 2000 to

16% in 2004. This decline occurred despite an increase in the share in total government payments of

counter-cyclical and loan program payments since the enactment of the Farm Security and Rural

Investment Act of 2002. Ad hoc emergency payments continue to supplement other government

payments and government-sponsored crop insurance.

The Harmonized Tariff Schedule of the United States was enacted by the Trade and

Competitiveness Act of 1988 and became effective in January 1989. It is based on the Harmonized

Commodity Description and Coding System, (HS)8. The 2004 Harmonized Tariff Schedule reflects the

2002 amendments to the HS. It comprises 10,304 tariff lines at the HS 8-digit level9. The general

policy of the United States, embodied in Section 126 of the Trade Act of 1974, is to grant MFN tariff

treatment to all its trading partners10. The United States may adopt laws that deny MFN tariff treatment

to particular countries: it applies MFN tariff treatment to all but one WTO Member (Cuba). In

addition, the Democratic People's Republic of Korea does not receive MFN tariff treatment from the

United States. Imports from these two countries are subject to the "statutory rate", which is the rate

imposed by the Smoot-Hawley Tariff Act of 1930, as amended. MFN tariff treatment was restored to

Serbia and Montenegro in December 2003 and to Lao People's Democratic Republic in February

200511.

8 The Harmonized Tariff Schedule is included in a document produced and updated regularly by the International Trade Commission and available online at: http://www.usitc.gov/tata/hts/index.htm. 9 The tariff lines corresponding to the in-quota and out-of-quota rates applied to the same product are counted as one. 10 19 USC 2136. 11 Federal Register, 68 FR 64410, 13 November 2003, and 70 FR 7319, 11 February 2005.

43

TBT and SPS for China, Japan, South Korea, and USA

TBT and SPS for China: Since its accession to the WTO, China has made a number of changes

to its regulatory structure for technical regulations, conformity assessment procedures, standards, and

sanitary and phytosanitary measures. In 2001, China created the General Administration of Quality

Supervision, Inspection and Quarantine (AQSIQ) under the State Council. AQSIQ is a ministerial

administrative organ in charge of national quality, metrology, entry-exit inspection, animal and plant

quarantine, certification, accreditation, standardization, and administrative law enforcement. A number

of regulations on compulsory product certification have also been promulgated, unifying certification

rules for imported and domestically produced goods, including a product catalogue for compulsory

certification, technical regulations, standards and conformity assessment procedures, marks, and fees.

Thus, as of August 2003, a unified China Compulsory Certification (CCC) mark for both

domestically produced and imported products replaced previously applied marks (the CCIB mark for

traded products and GREAT WALL mark for domestic products). According to China's notification to

the WTO under Article 15.2 of the TBT Agreement, a large number of government agencies are

involved in the formulation of technical regulations (including mandatory standards), including AQSIQ,

the NDRC, the General Administration of Customs, the State Food and Drug Administration, and a

number of Ministries12. China's TBT and SPS enquiry point is in the AQSIQ, and the notification

authority is in the Ministry of Commerce.

The Standardization Administration of China (SAC) was established by the State Council in

April 2001 to administer standardization work in China. There are four kinds of standards in China:

national, sectoral, local, and enterprise standards. National standards are developed for technical

requirements that need to be adopted nationally. Sectoral standards are developed when there are no

national standards available, but unified technical requirements are needed in a certain professional field

at a national level. Local standards may be developed where neither national nor sectoral standards are

available, but unified requirements for safety and hygiene of industrial products are needed within a

local area; once equivalent national standards are developed, they replace these local or sectoral

standards. Enterprise standards may be developed within an enterprise when national, sectoral or local

standards are not available. However, an enterprise is encouraged to adopt national, sectoral, and local

standards if they are available. In each of the national, sectoral, and local standards categories, there are

voluntary and mandatory standards.13 Around 14% of national standards are currently mandatory; the

12 A full list is provided in WTO document G/TBT/2/Add.65, 29 January 2002. 13 According to the Regulations for the Implementation of the Standardization Law, mandatory standards relate to: pharmaceuticals, food hygiene and veterinary medicine; safety and hygiene standards for products and production, storage and transportation, and utilization of products; standards for the safety of labour and hygiene and safety standards for transportation; quality, safety, and sanitation standards for "project construction" and other standards for "project construction" that must be controlled by the State; standards for the discharge of pollutants concerning environmental protection, and standards for environmental quality; important technical terms, symbols, codes and drafting methods in common use; standards for commonly-used methods of

44

share has not changed since 2000. No data are available on the share of sectoral and local standards that

are mandatory. In addition, national advisory technical documents may be developed in some areas

where technologies are changing rapidly and standards need to be developed more rapidly than the time

taken to develop national standards.

China's WTO notification authority for SPS measures is the Ministry of Commerce. The

Enquiry Point under paragraph 3 of Annex B of the SPS Agreement is located in the AQSIQ.

According to the authorities, under the relevant laws and regulations, there are three methods of

inspection carried out at the border for goods subject to SPS measures. In the first case, the authorities

at the border may release the goods after inspection of the relevant documents, following which SPS

inspection is carried out by the relevant SPS authorities at the final destination within the country; in

this case, the goods would clear customs the following day. Under the second method, inspection at the

border is carried out "using sense organs"14, following which SPS inspection is carried out, as under the

first method, at the destination; under this method, clearance at the border takes between 3-5 days.

Under the third method, SPS inspection is carried out at the border before customs clearance is given;

the time taken for clearance varies depending on the type of products being imported and the risks

involved.

Labeling requirements are maintained under the Standardization Law, the Food Hygiene Law

adopted on 30 October 1995, and the Law on Product Quality, adopted on 22 February 1993 and

amended on 8 July 2000. Under these laws, all products sold in China must have Chinese language

labels. The label should state, inter alia, name and trade mark of the product, type of food, the

manufacturer's name and address, country of origin, ingredients in descending order by weight or

volume, net weight and solid content, date of manufacture, best before or expiry date, usage

instructions, batch number, and the relevant standard code. Information may also be provided in a

foreign language, although the details must correspond to the information provided in Chinese.

TBT and SPS for Japan: Japan has continued its efforts towards international harmonization of

its standards and technical regulations. In 2005, voluntary standards comprised 9,727 Japan Industrial

Standards (JIS), and 215 Japan Agricultural Standards (JAS). About 93% of JIS were aligned with

international standards in 2005, up from 92% in 200415. Between April 2005 and March 2006, 510 JIS

items were revised, 141 withdrawn, and 267 newly established; during the same period, 34 JAS items

were revised, 15 withdrawn, and five newly established.

experimentation and examination; standards for conversion and coordination; and quality standards for important products that need to be controlled by the State. 14 The authorities state that this inspection is carried out by Customs officers using their sensory organs. 15 In order to facilitate a more efficient harmonization of national standards with international ones, the JIS Committee adopted an Action Plan in June 2004. The Plan identifies strategic fields in international harmonization and prescribes the roles of individual participants (industries and the private sector) in detail.

45

Japan revised its maximum residue limits for agricultural chemicals (e.g. pesticides, feed

additives, and veterinary drugs) under a positive list system for chemicals in foods in May 2006. Te list

of non-quarantine plant pests was amended in April 2005 and July 2006 to add 46 and 34 pests,

respectively. The Food Safety Commission has been conducting safety assessments of genetically

modified foods (GM food) since 200316. The Commission developed standards for the safety

assessment of GM foods and food additives produced by GM micro-organisms, and policies for the

safety assessment of GM stack varieties, GM feed crops, and GM feed additives.

Food labeling in Japan is subject to the JAS Law and the Food Sanitation Law. A total of

63 technical regulations are in force based on the JAS Law. These are: the cross-category quality

labeling standards for processed foods, fresh foods, and genetically modified foods; individual quality

labeling standards; and the standards for organic agricultural products and organic processed foods. The

cross-category quality labeling standards are provided for all foods and beverages except alcohol and

medical drugs. Fresh foods must be labeled with the name and the place of origin. Processed foods must

be labeled with the name, the list of ingredients, the net content, the date of minimum durability or use-

by date, instructions for storage, the name and address of the manufacturer, and the country of origin for

imported products.

Specific labeling requirements are provided as quality labeling standards for individual

products depending on their characteristics. Any food containing additives must also be labeled with the

names of all additives included. Processed food imported from foreign countries is excluded from the

mandatory labeling of place of origin of the ingredients. All organic agricultural products and organic

agricultural processed foods to be sold in Japan must comply with the JAS organic standards and carry

the JAS organic mark. To label food as "organic", certification is needed from a registered certifying

body (RCB) or a registered overseas certifying body (ROCB) that the food meets certain JAS

requirements. Only certified food is allowed to be distributed with a JAS organic mark.

Mandatory labeling for genetically modified (GM) foods is regulated under the Food Sanitation

Law and the JAS Law; the list currently comprises seven crops (soybeans, corn, rape, seeds, potatoes,

cotton seeds, alfalfa, and sugar beet) and some processed foods (32 kinds of designated processed food)

mainly made of soybeans or corn17. The Ministry of Health, Labour, and Welfare does not permit

imports of GM foods that do not meet its safety requirements. The Agricultural Products Inspection

Law requires mandatory inspections of rice, wheat, and barley as well as soybean.

16 The Food Safety Commission was established under the Food Safety Basic Law in the Cabinet Office to perform risk assessments. The Commission's primary goals comprise three main components: conducting risk assessments of food in a scientific, independent, and fair manner, and making recommendations to relevant ministries based upon the results; implementing risk communication among stakeholders; and responding to food-borne accidents and emergencies. 17 The list is subject to annual update.

46

TBT and SPS for South Korea: The Purpose of the WTO’s TBT Agreement is to encourage the

development of international standards and conformity assessment procedures to support free

international trade, while ensuring that the standards and technical regulations do not create unnecessary

obstacles to international trade. For transparency and efficiency, Korea appointed four enquiry points by

distinct sectors and products (industrial products: Ministry of Commerce, Industry and Energy;

agricultural products: Ministry of Agriculture and Forestry; fishery products: Ministry of Maritime and

Fishery; food hygiene and cosmetic products: Ministry of Health and Welfare).

These enquiry points to reply to oversea enquiries on any existing or proposed Korea standard,

technical regulations and certification systems, including Korea’s TBT notifications of the WTO TBT

Agreement. Korea has to do as a member of the WTO is to notify the change in technical regulations

and conformity assessment procedures and as a member of WTO, Korea observes the principle of non-

discrimination in applying technical regulations and conformity assessment procedures to similar

domestic and imported products regardless of origin.

Since the establishment of the WTO, the Korean government has amended various SPS

measures to harmonize with standards, guidelines, and recommendations promulgated by the CODEX,

OIE, and IPPC. Korea recognizes pest or disease free areas after a risk assessment of the exporting

country. For transparency and efficiency, Korea designates the notification authority to the Ministry of

Foreign Affairs and Trade.

TBT and SPS for the United State: In applying the SPS and TBT Agreements, the WTO

extensively relies on decisions by the Codex Alimentarius Commission ("Codex"). Article 3 of the SPS

Agreement provides that a national health standard for food is presumptively legal if it conforms to a

standard, guideline, or recommendation established by Codex. A national standard that provides a

greater level of protection than Codex is a "trade barrier" unless the WTO decides that the stricter

national standard is based on a proper "risk assessment" that demonstrates that the Codex standard,

guideline, or recommendation does not provide sufficient protection or that the country maintaining the

stricter standard has other scientific justification. Article 2.4 of the TBT Agreement provides that

countries shall use Codex or other international standards "except when such international standards or

relevant parts would be an ineffective or inappropriate means for the fulfillment of a" legitimate

objective.

Compliance with standards is not a legal requirement, but in practice the U.S. market often

provides strong incentives for imported and domestic products to meet certain standards. Under the

Trade Agreements Act of 1979, federal government agencies are required to "take into consideration"

international standards when developing standards, and if appropriate, to base the standards on

47

international standards18. The recognized exceptions that justify a departure from an international

standard include national security requirements; prevention of deceptive practices; protection of human

health or safety, animal or plant life or health, or the environment; fundamental climatic or other

geographical factors; and fundamental technological problems19. The Act defines an international

standard as any standard that is promulgated by an organization "the membership of which is open to

representatives, whether public or private, of the United States and at least all [WTO] Members and that

is engaged in international standards-related activities"20. E. Domestic Constraints and Market Linkage (Mr. YEM Sophal)

1. Organization related rice production

Seed constraints

Rice production is based mainly on seeds. Many types of seeds, which provide high yields and

relatively pest resistant, have been improved and developed by some key institutions like CARDI and

other private companies. CARDI alone has developed 37 kinds of seed including IR66, Phkarum Dual,

Senpidor which are the popular ones; and Neang Malis which is developed by Angkor Kasekam is also

well known for export. Even though, those many varieties of seeds have been improved and developed,

farmers still lack of widespread adoption of these varieties and they still prefer to use their own

traditional seeds and always obtained some seed for their next season production21. The use of

traditional varieties normally provide lower yield than the improvement ones (Yields of improved

varieties are averaging 6 to 7 tons per hectare22, while traditional variety yields is only 2.2 tons per

hectare)23. On the other hand, Cambodian farmers and consumers still prefer traditional (wet season)

varieties for their own consumption and the use of other improvement seeds, and other seeds for selling

to export. So, we notice that while the volumes of exports remain small relative to domestic

consumption, the adoption of improved varieties will continue to be constrained.

Fertilizer and Pesticide Constraints

The low yields are due in part to poor fertilizer application24. As a consequence the yield of rice

is low and large amounts of fertilizer are needed in order to boost productivity. But the access to

affordable fertilizer and pesticides is constrained by infrastructure and budget problems. Most farmers

use fertilizer when they have sufficient surplus cash only because price of fertilizer is relatively high, 18 19 USC 2532, in addition to legislation, regulatory guidance issued by the Office of Management and Budget includes obligations to consider the trade impact and evaluate the merits of using relevant international standards. See WTO document G/TBT/W/258, 26 October 2005. 19 19 USC 2532. 20 19 USC 2571. 21- JICA - JICA estimates that around 4-5 percent of paddy is reserved for seed use 22- CARDI- In case of good management 23- Young, Raab et al. 2000, pp. 10-11. AQIP (Agriculture Quality Improvement Project 2002) 24- Cambodia-IRRI-Australia Project 1999, pg. 169

48

ranging from 28,000-55,000 Riel/50kg-sack which vary between locations. Any way, the main concern

of the farmers in using Chemical product like fertilizer and pesticide, is that most of those products

instruction are written in other languages other than Khmer. Hence, most of the farmer users do not

know the proper usage. There is a lack of understanding about correct application rates and the hazards

of mixing chemicals together. Any way, there is no quality assurance on fertilizer because some of them

have not produced properly from uncontrolled and unknown places, and as well as sell by trick traders

and no responsibility may cause harmful to rice or destroy land quality (CARDI staff).

Irrigation Constraints

The majority of rice production is from rain-fed production systems. More than 90% of wet

season rice cultivated areas is rain field lowland rice. In this ecosystem, rice is cultivated on a variety of

different soil types and under different rainfall intensities and patterns. The use of irrigation is limited.

Only about 13% of Cambodian rice growing area is irrigated or supplementary irrigated during the dry

season (Potential of the SRI for Cambodia-Jurgen Anthofer). Based on estimates of potential surface

irrigation resources, Cambodia is presently only utilizing between 50-60 percent of the potential

irrigation resource. If available surface water was fully utilized up to 1.67million hectares could be

irrigated25. There are varying accounts on the true state of agricultural irrigation in Cambodia.

According to official statistics, irrigation covers a total of 358,388 hectares of land in 2003, equivalent

to barely 10 percent of the total cultivated land in that year26. There are claims in other government

studies, however, which placed the extent of irrigation at 16 percent. A World Bank-sponsored study

stated that there are 946 irrigation systems in place in Cambodia covering 256,000 hectares in the wet

season and 143,000 in dry season, representing merely 2 percent of the country’s total land area27.

Some places use groundwater for irrigation, such as Prey Veng, Svay Rieng, Takeo and

Battambang. But, it is believed that the extensive use of groundwater resources for agricultural

irrigation is not feasible due to the low quantity of water, low and variable flow rates, poor recharging

capacity28. MOWRAM identifies lack of investment in new irrigation systems, limited budgets for

operation and maintenance of existing schemes, lack of agricultural research and extension services to

promote intensification of production in irrigated areas and lack of commercial opportunities to benefit

from agricultural production from irrigation as significant constraints to the development29.

Budget constrains 25- World Bank Study Team Interview, July 2002 26- (MAFF, CAMInfo version 2, Cambodia’s Socio-Economic Indicators Database, National Institute of Statistics, Ministry of Planning, April 2005) 27- AgriFood Consulting International, Rice Value Chain Study: Cambodia; A Report Prepared for the World Bank, September 2002, p. 43 28- World Bank Study Team Interview July 2002 29- The Ministry of Water Resources and Meteorology (MOWRAM)

49

The key issues cited by numerous farmers were the limited access to budget. To enlarge the

cultivated area or to improve their productivity, farmers need budgets, but the source of their budget is

limited. Farmers do not spend much of the money on their rice farms. Hence, most farmers produce

rice relies on natural condition only. In case of the urgent need to use money (i.e. to buy fertilizer,

pesticide and sometime to use for irrigation to cure rice in case of drought) generally, farmers borrow

money from traders, middlemen, or millers to secure their production, and will pay back in money or in

exchange for rice at the harvest time. Some times, farmers are often forced to borrow from

moneylenders at interest rates in excess of 20 percent per up to 40 percent per month, which is the high

one30. These high interest rates eat up of the farmer’s profit margin. So the lack of budget impede to the

improvement of rice production in Cambodia.

2. Rice processing and quality issues

Rice Mills

The milling operations are also involved in the production of rice in Cambodia and most of

millers have involved in the rice trading, exporters, but they face a number of significant constraints

that are:

- Lack of working capital: The limit of adequate working capital impedes the ability of millers

for purchases of paddy at the harvest time and for improvement milling technology, modernizing their

facilities and expansion in milling capacity.

- Low paddy quality: Most paddies are produced from mixed variety of seeds and inadequate

post harvest handling (particularly drying). This results in high level of broken rice and limits entry in

world market.

- Low level of milling technology: The majority of mills are used old or out of date equipment,

due to low paddy to rice conversion rate compare to some neighboring country (Table 15) There are

only two mills, Angkor Kasekam Roongroeung and MAN SARUN, are considered to use high standard

and modern machinery, but still not meet to the world standard requirement, especially in the term of

whitening and polishing the rice which need a lot of money to invest in those modern equipments; and

can not compete to the neighboring countries that use quite more modern one.

- High processing cost: the cost of processing is high comparing to the neighboring countries

due to the high price of petroleum and electricity.

- Lack of market access: All rice millers have limited access to the world markets because of

the inability to supply the consistent order amount from the customers. Once export markets have been

found, exporters find it extremely difficult to find the quantities and quality required rice to fulfill those

30- World Bank Study Team Interview July 2002

50

orders31. “Finding markets are not the problems, but while we have them we just cannot supply the

quantities demanded” added Mr. Nov Saroeun. So, the unpredictability of Cambodian paddies supply is

another impediment to Cambodian rice export markets. Both suppliers and traders face the same

problem in finding the sufficient amount of rice to trade. This result from the poor of rice production

management to ensure adequate amount of paddies are produced and production means, i.e. irrigation

systems, drainage to recur rice field from flooding, adequate farming equipment and know-how.

- Limited knowledge of oversea market, due to the lack of information about foreign market

conditions, is another constraint to many other millers/exporters

Table 15: Paddy to Milled Rice Conversion Rate

Countries Conversion Rate

Lao PDR 0.60

Myanmar 0.62

Cambodia 0.63

Vietnam 0.65

Thailand 0.66

China, PR 0.70

Taiwan, China 0.73

Japan 0.73

Source: The World Bank, Private Sector Development, East Asia and Pacific Region 24 Global

Development Solutions, LLC

Storage

Unlike the storage of paddy, storage of rice is very difficult. We can not keep it for long period

of time, due to the lack of technology, said Mr. Nov Saroeun. So, rice needs to be bought and consumed

quickly. So far, Cambodian rice can not compete with the other export countries that they can keep the

rice more longer period of time. Any way, There are no major for rice’s storage facilities in Cambodia.

Most traders do not have either the capital to invest in speculative storage.

3. Farm-market linkages

Although Cambodia is the rice producing country, and has seen that the export of rice can help

to boost its economy, Cambodia still faces some significant problems in both productions and markets.

By interviewing with some farmers, most households produce rice just for sufficient consumption in the

31- interviewed with Mr. Nov Saroeun, Deputy planning manager in MEN SARUN Imp & Exp Co. Ltd.

51

family only, this cause the lack of sufficient amount of paddy for export. Any way, farmers usually

produce rice from their traditional varieties to satisfy their own consumption and the domestic needs,

and sell paddy in case of surplus amount or when money is needed urgently for other purposes only.

They don’t mean to produce paddy in the intent to sell. Anyway, Because of the lack of transportation

mean and the poor infrastructure, such as bad road condition, farmers usually sell their paddy to miller

or collectors at their farms on price which set by these two kinds of buyers. These show farmers mostly

not access to market information in case of quality or kind of paddy requirement as well as price.

4. Transportation and Warehousing costs

There are some laws and regulations to control the transportation means such as:

- Sub decree on Maximum Limitation of Vehicle Weight on National Routes

- Declaration on Money Fine of Over-loaded Truck Weight on Route

- Sub-Decree Concerned with Demobilization and Creation of Posts Inspection along Border

Check Point established various kinds of checkpoints to control entry and exit along border check

points by roads, ships, railways and airlines in the Kingdom of Cambodia are under administration at

the central level. The Agencies responsible are National Police, Armies, CAMCONTROL Agent,

Customs and Excise Agents, Sanitary Vegetation Agents, and Medical Inspection Agents. These

checkpoints established at borders and cities are to monitor movement of goods and human beings.

Excessive checks caused by deficiencies in the tax system obstruct the smooth transport of goods32.

These many check point cause a lot of money to be paid to those agents, which adds high cost

to the products, but the money to be paid is not revealed.

Infrastructure

Cambodia’s overall poor road condition makes the transportation of rice from the production

areas to markets very expensive. The lack of efficient transportation infrastructures is aggravated by the

country’s heavy dependence on importation of petroleum. The other additional costs in transporting rice

resulting from informal taxation and bribes-unofficial fees. These unofficial fees contribute as much as

57 percent to the total transportation33. JICA estimates that infrastructure improvements would reduce

costs by 30-40 percent34.

Transportation costs in Cambodia are also considered extremely high and regarded as a major

barrier to domestic and international trade. Shipping charges in Cambodia are the highest in the region

and four times the cost for shipments of comparable size in Thailand35. Angkor Rice, for example,

32- Japan International Cooperation Agency 33- Trade Liberalization impact of rice on Cambodia - Oxfam - 03 November 2005 34- Food and Agriculture Organization 1997 35- FAS-USDA, op cit., p. 11

52

decided not to expand its export market to the US because the sea freight cost from Cambodia’s port to

the US west coast is prohibitive and will considerably eat up the company’s profit margin36.

Transportation cost of rice product

The transportation costs are considered the highest in the region. From Phnom Penh to Sihanoukville

Port (20 foot container)

1- Truck US$ 140

2- Road fee (NR4) US$ 13.86

3- Container scan USD 50

4- Vessel Loading fee US$ 87

5- Customs Inspection US$ 150

6- Camcontrol Inspection US$ 120

Total US$ 560.86

Source: Unofficial Interview with Shipping Company

5. Rice Marketing

Although Cambodia has produced the rice surplus reach to 568,563.9 tons of milled rice; and

although, Government’s new policy pays some attention to the issues surrounding rice marketing-

removing import and export quantity restriction and abolished the license, the sectors still face some

restrictions. Cambodia is not yet a player in the international rice export market. Its rice sector is

directly affected by the rice market situation in its two major rice-exporting neighbors. The rice market

system of Cambodia is not developed yet and still small and limited, this is because of Cambodia can

not supply to a huge consistent order amount from the oversea customers, due to fluctuation of rice

production and customers can not liable on the supply side.

Prices of rice in Cambodia are also not secure and floating, and not at all determined by

domestic factors, the main determinant of rice prices in the country is the current price of rice in the

rice-exporting neighbors37. Cambodia’s rice has not yet met the standard quality requirement, this result

from low processing equipment and technology. However, there is no efficient policy at this time for

improving or supporting rice milling facilities38. Foreign investments in rice milling require local equity

participation, such as through joint partnership schemes, to be determined through negotiations between

local and foreign investors. To date, rice milling, for example, remains a purely Cambodian industry

36- Trade Liberalization impact of rice on Cambodia - Oxfam - 03 November 2005 37- Trade Liberalization impact of rice on Cambodia - Oxfam - 03 November 2005 38- Economic Institute of Cambodia 4 January-March, 2004

53

with thousands of small to medium-scale mills processing the paddy harvests of rice farmers. Majority

of these rice mills, however, are family-owned and only registered with local authorities as business

entities39. The distribution Channels of Cambodia’s rice is not widespread. Cambodian exporters always

sell their product through only the brokers who find the customers by themselves.

F. Political or instrumental options to promote the rice export (Mr. Chan Bonnivoit, Mr. Yem Sophal and Mr. Kann Viseth) 1. Domestic Competitiveness

Factors endowment related to trade

It should be continually to undertake an effectively work and managements involved in land

reforms concerning with social land concessions and economic land concessions, because these

measures would be mobilized all force of the Country to use the land for the productions. Besides, it

should enhance formulating and enforcing of regulations against land grabbing and ensure land security

and equity to the poor and median rice suppliers.

It is concerned with the widespread use of agrochemicals, which may contribute to increased

production and trade volume, although it is a higher cost of inputs, especially fertilizers and pesticides

(seen chapter 2). The broader and longer-term effects of use of agrochemicals should be seriously

considered in the assessment of its costs and benefits regarding to the economic growth and the harm of

the human health and environment in the Country. Despite many open questions still to be investigated

by researchers for the use of fertilizers and pesticides, the appropriated use of fertilizers and pesticides

has proven to be a worthwhile practice to be promoted and should be included in any rice production.

But where is appropriate and economical, using the methods of the production as the System of

Rice Intensification (SRI) and a variety of fragrant rice like Neang malis, which allows for increased

production with reduced use of agrochemicals, can be also seen that those productions have a high cost

(Juergen Anthofer, 2004) and need good environmental or management conditions and more time to

care the plant compared to other methodologies of the traditional rice production. But regarding to the

health of the consumers and the environment, SRI and a variety of fragrant rice like Neang Malis

should be carefully considered also to extend this variety in throughout of the Country where rich soils

provide an optimal growing environment for them.

The land preparation is a crucial problem for Cambodian rice producers regarding to the high

cost of the gasoline and interest rate, in case using the tractor or the credit in buying the oxen. But in

term of the comparative advantage, the relative output from using tractor is higher than using of the

oxen for the rice producers. Therefore, to increase the competitiveness of the Cambodian rice supply in

the global rice trading system, Cambodian smallholder farmers should establish new organizational

forms like farmer Community that allow them to gain the benefit from the integration into the global 39- Trade Liberalization impact of rice on Cambodia - Oxfam - 03 November 2005

54

rice trading system. In this case, for the area that land is extensively used, the establishing of the farmer

Community can reasonable arrange and have the high possibility to buy or rent the tractors to use for

the land preparation and also to improve the productivities and the yield in their Communities.

Cambodian labor productivity has remained relatively low compared to regional and

international competitors. Low labor productivity can partly affect on the low output of the rice yield

which is causing the low volume of Cambodian rice exports in regional and global rice trading system.

Small farms or low knowledge farmers will not be able to generate sufficient productive employment

for a growing labor force in the Cambodian rice production as well trade. The establishing of regional

training and support institutions as well improving the local extension service to assist the farmers is

significantly to improve those capacities and the productivity of the rice production as well the rice

trade in the Country. Improving the reasonable access in financing the farmers to access proper farming

implements and to install own small irrigation system could play also a big rule to increase the currently

low supplying and exporting of the Cambodian rice products.

The farm community is a very significant community based organization which can accelerate

the development process in the rural area. All stakeholders concerned should promote or provide the

incentive to establish the farmer community every province and region, and encourage the relevant

institutions to take the real action to develop those communities in order to transfer new technology,

information of market situation and so on. And this also helps all relevant Institutions easy to get

feedback in order to find out way for the development.

Some important macro-economic indicators like the price and exchange rate which can also

affect the flow of Cambodian rice trade and the inputs used for its production, should be carefully

facilitated and supported with the some macro-economic measures which can restraint these indicators

not to be harm or distorted the Cambodian rice trade.

Trade related measures (Suppliers side)

It should be enhanced the current domestic support for the rice production, in particular for

organic rice’s producers. Such supports can be exempted the income tax and VAT on agricultural

Inputs which can be improved productivities and efficiency of the rice production which can promote

the competitiveness and increase the volume of the Cambodian rice export. The exemption from the

agricultural land tax and income tax for the farmers, which is currently classified as decoupled income

supports of the Government (Green Box), should be maintained and concentrated but only on the land

which are currently used, because these measures can positively affect for the Country to move the non-

productive land into the productive land and to increase the state revenue.

What we reported at the component 2, the Government of Cambodia has yet involved much

kind of other supports to encourage the agricultural and rural development and other small scale

supports (Blue Box) which can be seen like providing credits with the low interest rate for the rice

55

producers, supporting improved quality’s seeds and irrigation systems etc. These domestic supports

measures should be considered as a priority and extended into the area facing lack of irrigation systems,

capital and appropriated technologies.

Water resources support the needs of many sectors of the economy. The greatest pressure on the

water resource accentuated by growing economic development activities occurs during the dry season

or extended period of drought, when the risk of pollution is the highest; on the other hand, excessive

water during rainy season causes floods leading to loss of lives and livelihoods and downward pressure

on national GDP. The priorities to consider about the irrigation system are the rehabilitation and

reconstruction of the existing irrigation and drainage systems, particularly in high poverty incidence

areas and along the border areas, expanding surface water storage capacity and promote water

harvesting technologies, promoting effective and sustainable use of ground water resources in areas

with scarce surface water availability, developing and apply measures on flood and drought mitigation

and agricultural water management, strengthening and expanding farmer water user communities and

promoting appropriate and effective river basin management and water allocation systems.

One of the most important aspects of enhancing the Cambodian rice productions and rice

supply is the further development of the energy sector to effectively respond to the increasing needs for

electricity in the agricultural sector. A domestic power generation, transmission and distribution system

will be put in place to meet the needs of rural communities and a growing economy. Generating and

making available low cost electricity would at once reduce costs of production in the rice sector and

costs of operation in all other sectors concerned with the Cambodian rice trade. To archive them it can

be considered to privatize all kinds of power generations and electricity sector, and its distribution

systems.

Rural Credit is an important ingredient for rural development, in particular for supporting rice

production and the creation and expansion of its trade. Much more funds will be needed to even

partially meet the huge demand for this rural credit. The most important challenge is to find ways and

means by which rural credit could be made available at much lower rates of interest than prevailing now

(48% per annum). To ensure increased and easy access to the poor for credit, especially for productive

purposes, it can be took any measures to expand, and reduce the high cost of, rural credit by exploring

and promoting institutions like user saving group and cooperatives, well known in some parts of Asia,

transforming NGOs doing this work into registered finance operators, improving supervision of such

institutions to ensure that they conform to standards and reducing the prevalent interest rates through

best practices like the policy of the Government for the “Blue Box”. Furthermore, Cambodia should be

improved the investment climate and actively continued liberalizing and accords national treatment to

all foreign investors, in particular all kinds of financial investment.

2. Domestic constraints and market linkage

56

Infrastructure, irrigation system, seeds, fertilizer and pesticide are still seen to play the

important role in the rice production besides some invented know-how. So in order to improve rice

production as well Cambodian rice export, a number of measures concerning with improving the

domestic constraints should have been considered. RGC has to continues to try her best in the

commitment to build infrastructure system link the town to the rural area where has high potential and

competitive advantage in producing rice.

Ministry of Agriculture Fisheries and Forestry by collaboration with CAMCONTROL

Department of Ministry of Commerce should take the action to check and control to find out traders

who sell fraud fertilizer which harm to farmers’ budget as well as their rice and land quality. All rice

exporters should be cluster so that they can strengthen themselves in order to secure quantity and

quality supply, and ability to compete with foreign exporters, as Khmer proverb says “Many hand make

things better”. Government should take some measures to intervene on what we called unfair

competition which acts by some traders in the paddy collection buying activity especially outside

traders like Vietnamese traders. This unfair activity a big serious and harm to the fair trader (Angkor

Kasekam Roong Roeung has complained about this). Furthermore, the RGC should take action to

implement the SPS and TBT agreements in trading rice products.

Weaknesses in supporting agricultural services and disseminating information on market prices

and quality requirements, new varieties, and improved production and techniques is hampered by low

literacy, weaknesses in internal communications, and limited access to the media. Extension and

Information’s constraints are further constrained by weaknesses in quality standards that leave rice

producers vulnerable to the adulteration of agriculture inputs. Similarly, there are limited opportunities

for rice producers to verify measures of weight or moisture content and to trade their products. Rice

producer communities, farmer associations and research institutions can help address such concerns,

while also providing them with low cost access to information and supporting services. In the longer

term, increasing competition, and the need to preserve reputations, can provide powerful incentives for

rice millers and traders to deal honestly with the rice producers.

Agricultural processing and marketing is largely informal, except for the larger rice millers.

Agricultural products flow from small producers to consumers fairly quickly and through short

channels, given that storage and processing infrastructure is minimal. Producers either bring the rice

directly 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 for the rices 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 and with unmilled rice. But

Cambodia has a well developed, largely informal and micro or small scale agro-processing and trading

system, peopled by economically rational participants who respond effectively to perceived constraints

and opportunities. Therefore, Cambodia should improve some of the key elements on which a modern

57

production, processing, and marketing system will be built to stop the informal trade and exporting of

unmilled rice. 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 for these improvements.

It remains continues to involve in food aid distribution through a state enterprise, 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 ASEAN Food Security Reserve Agreement. To secure

the food aid distribution and the food security reserve reminded above, the rices exporters should be

legally required to obtain a permit before exporting rice to the importing Countries. But a permit

doesn’t be considered as the restriction for the rice export, being only the documents to use as a

statistical data to warrant the above objectives.

Cambodia’s investment climate is still poor. The World Bank also ranked Cambodia near the

bottom of the list on business climate. The Cambodian government should be improved the investment

climate and actively solicits foreign private investment to boost its economic development, in particular

agriculture sector. Cambodia must continue liberalizing and accords national treatment to all foreign

investors, in particular all kinds of financial investment. Foreign ownership of land, foreign investors

using land through concessions, unlimited long-term land leases and renewable limited short-term

leases should be raised to consider for this liberalize policy. Besides, in practice, it should be also to

eliminate the currently complex and burdensome bureaucracy, corruption and any unofficial charge.

Other reforms which can significantly improve also the business environment of the Country are trade

facilitation reform program. It should be careful took into account and to consist with the trade

facilitation WTO agreements.

3. Market access

The political or instrumental options for Cambodian Rice Export Promotion in Post-WTO

Accession of Cambodia present key finding from studies conducted as part of the project and other

relevant points. The central question of the whole project is how the Cambodian can continue to

develop the rice trade under the conditions of market access to the world market, which is represented

by its accession to ASEAN and the WTO integration. The agreement on agriculture provided many

benefits to least developed countries such as Cambodia. The agreement required all member countries

to eliminate non-tariff barriers, transfer them into tariff barriers and gradually reduce them. As a least

developed country, Cambodia should continue to maintain current import tariffs on agricultural

products. This factor provides a better possibility for Cambodia to expand its export rice products and

attract investment in this area as well.

Rules that reduce the support provided by other countries to their efficient producers will

therefore ultimately be to the benefit of Cambodia. Tariff rate Quotas expanded in both developed and

58

developing countries and MFN principal among members have also created important factors for

Cambodian rice exports. We believe that that Cambodia is a competitive or potentially competitive

agricultural producer across a broad range of agricultural products in which rice is also playing a big

role. As mentioned above, however, we understood that we would need to maintain minimal, but

adequate, tariff protection of agricultural products, and maintain our right to provide support to

domestic producers that genuinely assists them in becoming more competitive.

As market access improves with entry into the WTO and ASEAN, there will be large gains to

be made by Cambodia in those areas where it has a comparative advantage, such as rice, rubber, wood,

and some processed food. Cambodia’s success or failure is depends to large extent not only on its

ability to balance its rights and obligations under the multilateral trading system, but as well on how the

country positions itself to take advantage of the broad opportunities and challenges of regionalism and

globalization. Therefore, Cambodia must continue to negotiate bilateral-and multilateral to open the

market and to get GSP or QF & DF market access into large Countries in order to attract FDI and to

reduce tariff or low tariff for Cambodian rice exports.

G. Conclusion

Although Cambodia has made significant progress in addressing the weaknesses in land

allocation procedures, the proportion of rural households lacking land for cultivation has risen from 13

percent in 1997 to 16 percent in 1999 and 20 percent in 2004. In order to reduce such negative impacts

it should be continually to undertake an effectively work and managements involved in land reforms

concerning with social land concessions and economic land concession. Furthermore, it should be

enhanced formulating and enforcing of regulations against land grabbing and ensure land security and

equity to the small and medium rice suppliers.

Concerning with the improvement of the productivities, Cambodia still is one of the lowest

levels of rice yields in the region. To solve the problem the farm community and the local institutions

concerned are a very significant community based organization which can accelerate the development

of productivities in term of using and transferring new technology, information of market situation and

so on. In addition, farm community can also helps all relevant institutions easy to get feedback in order

to find out way for the development of the rice sector.

Despite increasing the yields, but using of non-appropriated inorganic and organic fertilizer and

land preparation still account for the highest cost of the production phase in the rice production.

Therefore, the appropriated use of fertilizers and pesticides has proven to be a worthwhile practice to be

promoted and should be included in any traditional rice production. And regarding to the health of the

consumers and the environment, SRI and using of a variety of fragrant rice like Neang Malis should be

carefully considered also to extend these technologies in throughout of the Country where rich soils

provide an optimal growing environment for them.

59

While MOWRAM has responsibility for technical aspects of large scale systems, small and

medium scale projects are responded by the provincial department. However, we saw irrigation area

covers only 10 percent of the total cultivated land. Like recommendation in the 5 component, expanding

surface water storage capacity and promote water harvesting technologies, promoting effective and

sustainable use of ground water resources in areas with scarce surface water availability, developing

and apply measures on flood and drought mitigation and agricultural water management, strengthening

and expanding farmer water user communities and promoting appropriate and effective river basin

management and water allocation systems should be took in to account.

Cambodia still lack of Credit Providers for the rice producers and processors and has a high

cost of using credit. Therefore, Rural Credit is an important ingredient for rural development, in

particular for supporting rice production and the creation and expansion of its trade. To ensure increased

and easy access to the poor for credit, especially for productive purposes, it can be took any measures to

expand, and reduce the high cost of, rural credit by exploring and promoting institutions like user

saving groups and cooperatives, well known in some parts of Asia, transforming NGOs doing this work

into registered finance operators, improving supervision of such institutions to ensure that they conform

to standards and reducing the prevalent interest rates through best practices like the policy of the

Government for the “Blue Box”. Furthermore, Cambodia should be improved the investment climate

and actively solicits foreign private investment to boost its economic development, in particular

agriculture sector. Cambodia must continue liberalizing and accords national treatment to all foreign

investors, in particular all kinds of foreign financial investment.

Although MAFF, CARDI and NGOs have put emphasis on researches and extension, those

agricultural extension services also fail to meet the demands of farmers especially cash crop producers.

Besides, Cambodian labor productivity has remained relatively low compared to regional and

international competitors. Low labor productivity can be partly affected by low knowledge and no-

sufficient productive employment in the Cambodian rice production as well trade. The establishing of

regional training and support institutions as well improving the local extension service to assist the

farmers is significantly to improve those capacities and the productivity of the rice production as well

the rice trade in the Country. Improving the reasonable access in financing the farmers to access proper

farming implements and to install own small irrigation system could play also a big rule to increase the

currently low supplying and exporting of the Cambodian rice products.

Government maintains the exemption of the agricultural land tax which focus only used land

better than exempting of all kinds of land, and income taxes and involved to encourage the agricultural

and rural development, and other small scale supports. In addition, Cambodia should continue to have

liberal market accesses for all kind of imported agricultural inputs with the consistence of the WTO

agreements and try reasonable in coordinating some macro indicators like exchange rate and inflation

which can be also distorted on Cambodian rice trade.

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61

Most farmers’ household produce rice just for sufficient consumption in the family, they are not

prepare or do not tempt to produce for export. To address such concern it can be that the rice producer

communities, farmer associations, rice processors and traders as well research and extension institutions

can play a significant role to help or persuade the farmers to think or to convert their traditional

production into the market production. In particular, they should also provide them with low cost access

to all kinds of information, credits and services.

Cambodian rice traders have limited ability to buy and store paddy for fulfilling order

requirement. Finding markets are not the problem, but while they have them they just cannot supply the

quantities or qualities demanded. Limited knowledge of oversea market, due to the lack of information

about foreign market conditions, is another constraint to millers/exporters. To address such issue the

farm communities or/and farm associations, rice exporters or rice processors and the institutions

concerned like TBT and SPS enquiry points should work together in order to produce the rice products

base on the required qualities and quantities. Furthermore, establishing “one village one product” can be

also addressed such concern.

Overall poor infrastructure and transaction cost are still a significant element to impede the

exportation. So in order to improve rice production as well Cambodian rice export, a number of

measures concerning with improving the domestic constraints should have been considered. RGC has to

continues to try her best in the commitment to build infrastructure system link the town to the rural area

where has high potential and competitive advantage in producing rice. Besides, in practice, it should be

also to eliminate the currently complex and burdensome bureaucracy, corruption and any unofficial

charge. Other reforms which can significantly improve also the business environment of the Country

are trade facilitation reform program. It should be careful taken into account and to consist with the

trade facilitation of WTO agreements.

The agreement on agriculture provided many benefits to LDCs regarding to eliminate non-tariff

and tariff barriers, and domestic supports. As a least developed country, Cambodia should continue to

maintain current liberal import tariffs on agricultural products and to reserve the right to support the

domestic rice producers. This factor provides a better possibility for Cambodia to expand its export rice

products and attract investment in this area as well.

Tariff rate Quotas expanded in both developed and developing countries and MFN principal

among members created important factors for Cambodian rice export. We believe that Cambodia is a

competitive or potentially competitive agricultural producer across a broad range of agricultural

products in which rice is also playing a big role. Therefore, Cambodia must continue to negotiate

bilateral-and multilateral to open the market and to get yet GSP or QF & DF market access into large

Countries like US and Japan.

APPENDIX

Output milestone of the research project

1. Study goals and objectives: Name of research project Goals and objectives Cambodian Rice Export Promotion in Post-WTO Accession

• To assess the structures and conditions of Cambodia trade in rice • To assess the market accesses of Cambodia rice export • To analyse the constraints of Cambodia trade in rice • To develop the political or instrumental options to promote Cambodia rice export

2. Milestones, research methodologies and mentor coordination program: Output Milestone Task Methodology Resource

Timing Submit research work plan to Mentor

Communication with Trainer and Mentor through E-Mail

Research Team 31 Oct 06

Feedback on outline

Written and verbal comments Email/phone correspondence

Mentor

Research work plan

Work plan approved

Written and verbal comments Email/phone correspondence

Trainer, Mentor

First week to second week, Nov 06

Submit summary outline to Mentor (specify number of pages per research component)

Review of initial documents and research components

Research Team Summary Outline (including research components and recommendations)

Feedback on outline

Written and verbal comments Email/phone correspondence

Mentor

Third week, Nov 06

Output Milestone Task Methodology Resource Timing

Research component 1 Current structures of Cambodia’s rice exports

- International trade in rice - Export quantity and markets (China, Japan,

South Korea, and US) - Past pattern of Cambodia trade in rice - Current patterns of Cambodian trade in rice

(e.g., Thailand and Vietnam) - Trade preferences

Complete Research Literature review of relevant documents Secondary data, related documents Data from related Ministry Internet search/desk research

Mr. YEM Sophal Mr. CHAN Bonnivoit

From fourth week Nov to fourth week, Dec 06

Research Component 2 Cambodia competitiveness for trade in rice

- Resource and factors endowments - Price and exchange rate - Policies to promote rice supply - Policies on trade liberalization in the rice

sector - Cambodia trade policy under AOA framework - Cambodia commitments to bilateral and

multilateral trade agreements - Cambodia rice trade facilitation

Complete Research Collect primary and secondary data including sources from Government Institutions and other Institutions concerned, etc. Review of WTO, ASEAN website and third Countries documents concerned Internet/desk research

Mr. CHAN Bonnivoit From fourth week Nov to fourth week, Dec 06

Output Milestone Task Methodology Resource Timing

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Research Component 3 Market accesses

- Multilateral commitments under the WTO AoA - Doha development agenda - Current WTO agriculture negotiation - Preferential market access (e.g., GSP

preferences, ASEAN + arrangements, Cambodia bilateral agreements)

- Tariff and non tariff barriers (e.g., TRQs, TBT and SPS)

Complete Research Collect primary trade data, Review of secondary data, access from WTO, ASEAN and Government websites Literature reviews Internet search/desk research

Mr. KANN Viseth From fourth week Nov to fourth week, Dec 06 From fourth week Nov 06 to fourth week, Jan 07

Research Component 4 Domestic constraints and market linkage

- Marketing and production - Farm-market (domestic and overseas)

linkages - Transportation and warehousing costs - Rice processing and the quality issues - Organizations related rice production

Complete research

Interviews with related companies, Non governmental organizations and other related government agencies and Ministries concerned through survey/questionnaire Analysis of results of surveys

Mr. YEM Sophal From fourth week Nov to fourth week, Dec 06

Output Milestone Task Methodology Resource Timing

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Research Component 5 Political or instrumental options to promote the rice export

- Trade related factors endowment: including efficient using of land, resources and other factor endowed in the Country

- Trade related measures: including domestic support for rice and organic rice production, processing, warehousing and marketing, infrastructure, tax and other investment incentives, credits, research and technical assistances

- Direct trade measures: including direct exports, transport and trade facilitation, trade deregulation and export licensing reforms

- Market access strategy: including WTO negotiations on LDC market access and agriculture negotiations, ASEAN +, bilateral negotiations and GSP

Complete research Analysis of research components 1-4

Mr. CHAN Bonnivoit Mr. KANN Viseth Mr. YEM Sophal

From fourth week Nov to fourth week, Dec 06 From fourth week Nov 06 to second week, Feb 07

First draft report

Consolidate all research components, introduction and executive summary, incorporating Mentor comments

Research Team

Submit all research components to Mentor

Consolidation of all research components

Research Team

Draft Report (all research components)

Feedback from Mentor

Written and verbal comments Email/phone correspondence

Mentor

From first week to second week, Jan 07 From third week to fourth week, Feb 07

Output Milestone Task Methodology Resource Timing

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Regional Progress Workshop - Review and discuss project to date - Feedback on progress - Revise research according to workshop outcomes

Workshop with Mentor and Trainer Research team, Mentor and Trainer

15-18 Jan 07

Complete draft report

Consolidate all research components, introduction and executive summary, incorporating Mentor comments

Research Team

Submit Complete Draft Report to Mentor

Complete Report Research Team

Draft Report (all research components)

Feedback on complete draft

Written and verbal comments Email/phone correspondence

Mentor

From first to third week, Mar 07

Submit Final Report to Mentor

Draft report including introduction and executive summary, referencing and bibliography

Research Team

Comments on final study

Written and verbal comments Email/phone correspondence

Mentor

Final Report

Final Report completed

Final report incorporating Mentor comments

Research Team

Fourth week, Mar 07

In-country Policy Advising Workshop

Discuss final report

Workshop with Trainer and Mentor Trainer, Mentor, Researchers

3-5 Apr 07

Dissemination Disseminate study results

Final Workshop 24-25 Apr 07

Remark: Ab = Completed; Ab = Changed

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3. Research Budget: Description of Expenses

Estimated funds

Documents and Statistics - Reports (statistics purchasing,

Questionnaire conducting) - Books for references - Access data from internet

US$290

EE industry excursion - Transportation expenses

US$350

Communication expenses - Phone calls - Fax

US$200

Draft reports - Printing / photocopying / binding - Office accessories

US$400

TOTAL

US$1,240

TARP ROUND 2 ACTIVITY 2.3 FRAMEWORK FOR PRESENTATION BY RESEARCH TEAMS ON RESEARCH PROJECTS In the first part of this activity, Research Teams are required to present a report on the research project using the format set out below. They are asked to complete a report following the format below and prepare a PowerPoint presentation using the same format. (In the right hand column an example is provided. That should be deleted) This should be prepared before the Policy Advising Workshop and cleared with the Mentors before the Workshop. It is a duty of Mentors to ensure research teams prepare this presentation before the Activity.

Section of report What it should cover 1. Aim of the Study

To develop policies and instrumental options to promote Cambodian rice export

in post WTO accession

2. Details of research team

- Mr. Chan Bonnivoit, Team Leader, Official of WTO Office, ASEAN and IOs Department, Ministry of Commerce - Mr. Kann Viseth, Research Team, Official of WTO Office, ASEAN and IOs Department, Ministry of Commerce - Mr. Yem Sophal, Research Team Official of International Coordination Office, ASEAN and IOs Department, Ministry of Commerce - Mr. Michael Young, Mentor, TARP Projects Manager

3. Summary of the research work program

- Date - project approved : Sept 2006 - Date - In-Country briefing course : 16-19 Oct 2006 - Date - Research program agreed : 31 Oct 2006 - Date - Regional Workshop : 13-17 Nov 2006 (Hoi An, Vietnam) - Date - Research began : Fourth week Nov 2006 - Date - completion of drafts, interactions with Mentors : Fourth week, Feb 2007 - Date - Regional Workshop : 15-18 Jan 2007 (Siem Reap) - Date - completion of drafts, interactions with Mentors : Third week, Mar 2007 - Date - Final version : Fourth week, Mar 2007 - Date - In-Country Policy Advising Workshop : 3-5 Apr 2007 - Date - Dissemination Seminar : 24-25 Apr 2007

4. Research Conclusions

Cambodia competitiveness for trade in rice: - Although Cambodia has made significant progress in addressing the weaknesses in land allocation procedures, the proportion of rural households lacking land for cultivation has risen from 13 percent in 1997 to 16 percent in 1999 and 20 percent in 2004. - Despite the improvement of the productivities, Cambodia still be one of the lowest levels of rice yields in the region - Using of non-organic and organic fertilizer and land preparation account for the highest cost of the production phase - While MOWRAM has responsibility for technical aspects of large scale systems, small and medium scale projects are responded by the provincial department. Currently, we saw irrigation area covers only 44.48 percent of the total cultivated land. - Lack of Credit Providers for the rice producers and processors - Although MAFF, CARDI and NGOs have put emphasis on researches and extension, those agricultural extension services also fail to meet the demands of farmers especially cash crop producers

- Government maintains the exemption of the agricultural land tax and income taxes and involved to encourage the agricultural and rural development, and other small scale supports. - Cambodia has more liberal trade and market accesses for all kind of agricultural inputs and rice products, and a consistence with the WTO agreements. Domestic constrains and market linkage: -Most farmers’ household produce rice just for sufficient consumption in the family, they are not prepare or do not tempt to produce for export -Unpredictable paddy supply -limited ability of traders to buy and store paddy for fulfilling order requirement -Overall poor infrastructure and transaction cost are still a significant element to impede the exportation Market access : - The agreement on agriculture provided many benefits to LDCs regarding to eliminate non-tariff and tariff barriers. - Tariff rate Quotas expanded in both developed and developing countries - WTO special rule for LDCs in term of domestic supports, but not distorting to trade - MFN principal among members created important factors for export. - The world market for rice is highly influenced by subsidies as such US, Japan and South Korea. - Tariff of rice products of those Countries is still high and Quotas are remained.

a. Research experience

- Experience using resources used in this project - Experience in working collaboratively with personnel from another agency and stakeholders concerned - Gain knowledge and understanding of the domestic competitiveness of Cambodian rice supply - Experience examining the domestic constraints of market linkage of rice supply and the market accesses of the target Importing-Countries - Experience formulating the political options or recommendations to promote Cambodian rice exports - Experience how the research has been structured

5. Policy issues arising from the research

a. Policy problems What determines Cambodian rice export promotions? - Do current agricultural tax and investment policies impede Cambodian rice

export? - Do current markets access policies of some Countries distort Cambodian rice export? - Do unregulated export of paddy impedes milled rice export and lost the value added and jobs?

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b. Changes required

- Continue to undertake an effectively work and managements involved in land reforms (social and economic land concessions) - Consider to liberalize land use and land ownership for foreign investors - Promote using of organic rice production and appropriate using of non-organic fertilizer rice production - Establish the farm community easier to transfer the modern technology and the information - Establish regional training and research institutions - Attract and convince all kinds of the financial investments and direct investments - Continue to maintain tax exemption on used land, farmer income tax and agricultural input tax - Accelerate irrigation system and infrastructure development - Generating and making available low cost electricity - Promote fair competitions and take action to implement the SPS and TBT regulations - To stop formal and informal export of paddy rice - Continue to negotiate bilateral– and multilateral to open the market and to get the GSP

c. Follow up steps - Meeting, raising the questions and consultation with the stakeholders concerned - Collecting the data concerned - Writing the report and raising the right policy options - Providing the workshops and seminars to dissemination of the information - Implementation and monitoring the policies changed - Evaluation of the implementation

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TARP ROUND 2 ACTIVITY 2.3 - FRAMEWORK FOR PLAN FOR POLICY IMPLEMENTATION

In the second phase of the Policy Advising Workshop, Research Teams are to conduct workshops to develop plans to demonstrate how policies should be developed and implemented to achieve the goals set out in the research projects. The focus will vary according to the conclusions in each research project. The aim is to simulate a real workplace activity. Research teams are to assume they have the responsibility of laying down a plan which will implement the goals identified in their research projects. They are to envisage they have been asked by a senior official to demonstrate how to implement the policy goals. They are to use the framework set out below. Mentors and Trainers are to facilitate this work by the Research Teams. This report will be presented at the Dissemination Seminar. Preparing and Implementing Policy to achieve the objectives of the Research Studies (The report should follow the structure in the first two columns. The third column provides examples of answers. Participants should substitute other examples they consider relevant)

Issue Action 1. What is the policy goal? To develop policies and instrumental options to promote Cambodian rice export

- To assess Cambodian competitiveness for trade in rice - To assess the market accesses of Cambodian rice - To assess the constraints of Cambodian trade in rice - To find out political framework to be implemented

2. What conclusions did the research report reach?

Cambodia competitiveness for trade in rice: - Although Cambodia has made significant progress in addressing the weaknesses in land allocation procedures, the proportion of rural households lacking land for cultivation has risen from 13 percent in 1997 to 16 percent in 1999 and 20 percent in 2004. - Despite the improvement of the productivities, Cambodia still be one of the lowest levels of rice yields in the region - Using of non-organic and organic fertilizer and land preparation account for the highest cost of the production phase - While MOWRAM has responsibility for technical aspects of large scale systems, small and medium scale projects are responded by the provincial department. Currently, we saw irrigation area is estimated to be about 44.48 percent of the total cultivated land. - Lack of Credit Providers for the rice producers and processors - Although MAFF, CARDI and NGOs have put emphasis on researches and extension, those agricultural extension services also fail to meet the demands of farmers especially cash crop producers - Government maintains the exemption of the agricultural land tax and income taxes and involved to encourage the agricultural and rural development, and other small scale supports. - Cambodia has more liberal market accesses for all kind of agricultural imported Products and consistence with the WTO agreements.

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Domestic constraints and market linkage: -Most farmers’ household produce rice just for sufficient consumption in the family, they are not prepare or do not tempt to produce for export -Unpredictable paddy supply -limited ability of traders to buy and store paddy for fulfilling order requirement -Overall poor infrastructure and transaction cost are still a significant element to impede the exportation Market Access : - The agreement on agriculture provided many benefits to LDCs regarding to eliminate non-tariff and tariff barriers. - Tariff rate Quotas expanded in both developed and developing countries - WTO special rule for LDCs in term of domestic supports, but not distorting to trade - MFN principal among members created important factors for export. - The world market for rice is highly influenced by subsidies as such US, Japan and South Korea. - Tariff of rice products of those Countries is still high and Quotas are remained.

3. What policy issues were raised or have to be answered if change is to be made.

- Continue to undertake an effectively work and managements involved in land reforms (social and economic land concessions). - Consider to liberalize land use and land ownership for foreign investors. - Promote using of organic rice production and appropriate using of non-organic rice production. - Establish the farm community easier to transfer the modern technology and the information. - Establish regional training and research institutions. - Attract and convince all kinds of the financial investments and direct investments. - Continue to maintain tax exemption on used land, farmer income tax and agricultural input tax. - Accelerate irrigation system and infrastructure development. - Generating and making available low cost electricity. - Promote fair competitions and take action to implement the SPS and TBT agreements. - To stop both formal and informal export of paddy rice - Continue to negotiate bilateral– and multilateral to open the market and to get the GSP.

a. Is more information or more research required?

- Research the ability to attract the investments on rice sector. - Research on economic comparative advantage between the producing of organic and non-organic rice. - Research for effective marketing to promote the rice trade. - Research to compare the economic benefits of exporting unmilled and milled rice.

b. What change is required? - Establish the farm community as many as possible easier to transfer the modern technology and the information. - Establish regional training and research institutions. - Attract and convince all kinds of the financial Investments and direct investments in the rice sector. - Continue to maintain tax exemption on used land, farmer income tax and agricultural input tax.

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- Accelerate irrigation system and infrastructure development. - Generating and making available low cost electricity. - To stop formal and informal export of paddy rice. - Continue to negotiate bilateral– and multilateral to open the market and to get the GSP.

4. How are changes made?

a. Who should initiate the changes?

- Ministry of Commerce - Ministry of Agriculture, Forestry and Fisheries - Council for development Cambodia - Ministry of Economic and Finance - Ministry of Water Resource and Meteorology - Stakeholders concerned

b. What is the process to initiate change?

- Promoted and supported by the Ministries and Stakeholders to establish the farmer community and farmer association. - Approved by Ministry of Commerce some regulations to stop the informal and formal export of paddy rice. - Continue to implement the tax exemption, to develop irrigation and infrastructure system and to negotiate open the market for rice products.

c. Are additional resources required to make the change?

- Human and capital resources are required to implement the policies recommended.

5. How are social and economic impacts taken into account in designing the strategy

a. Will the changes have social and economic impacts?

Positive impacts: - Getting effective farmer community easier to contact in term of development processes and doing marketing of their rice products. - Increasing the productivities of the rice production. - Creating the jobs. - Expanding the market accesses and increasing the volume of rice export. - Expanding the investments in this sector. Negative impacts: - Difficult to adopt the new technology because our farmers still face limited knowledge. - Distorting the informal and formal paddy rice exporters. - Farmers lost opportunity in price competition. - Loss of the state revenue because of tax exemptions. - Government spends a lot of budget on the development of irrigation and infrastructure systems. - Poor farmers can lose land for rice production.

b. Will those impacts make it difficult to implement the changes?

- No, because we guess that the positive social and economic impacts are larger than the negative.

c. How should these impacts be taken into account in development and implementation of the

- The loss of the state revenue can be compensated with increasing volume of rice exports and expanding the productivities of agricultural sector. - Provide some social and administrative incentive for milled rice

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strategy?

exporter. - Strengthen the support to farmer community.

6. What is the plan for implementation?

- Collecting the data concerned - Meeting, raising the questions and consultation with the stakeholders concerned - Writing the report and raising the right policy option - Providing the workshops and seminars - Dissemination of the information - Implementation and monitoring the policies changed - Evaluation of the implementation

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