In the context of the EIF-WTO Project on LDC Graduation, International Economics Consulting Ltd. (IEC) has prepared a report on the trade-related implications of graduation from LDC Status for Cambodia. The report evaluates the implications of graduation from LDC Status on Cambodia’s market access, its compliance requirements with WTO Agreements, and on development cooperation. The report also highlights the efforts and national strategy in place to achieve graduation.
Cambodia is a Least Developed Country in South-East Asia with a population of more than 16 million inhabitants in 2020. Over the past two decades, the country has undergone significant changes and in 2015, it was able to achieve lower-middle-income status. The Cambodian economy has been one of the fastest-growing in South-East Asia. During the period 2010-2019, it recorded an average growth rate of around 7% annually, driven largely by the textile, agricultural and tourism sectors.
Nonetheless, Cambodia still faces numerous structural challenges and vulnerabilities including high dependence on dollarisation, a weak business climate, a narrow economic base as well as an underdeveloped financial market. These not only constrain growth opportunities but also make the Cambodian economy vulnerable to shocks. Like the rest of the world, Cambodia has also been deeply impacted by the COVID-19 pandemic whereby in 2020, its economy shrunk by 3.1%. Most economic sectors have been impacted by the pandemic, especially those that are most outward-oriented and that are less apt for digital transformation, such as tourism, labour-intensive manufacturing and construction which made up for at least 70% of the country’s GDP in 2019 and employed more than 40% of the country’s population. On top of the pandemic, Cambodia also suffered from the suspension from preferential market access to the European Union, which is one of its major export markets, under the ‘Everything But Arm’ (EBA) scheme.
Cambodia met the prerequisites for LDC graduation for the first time in the Committee for Development Policy (CPD) Triennial Review 2021. It’s Gross National Income (GNI) was valued at USD 1,377, placing it above the graduation threshold of USD 1,222. Moreover, it also fulfilled the criteria with regards to the Human Asset Index (HDI) with a score of 74.3 compared to the graduation threshold of 66. Concerning the Economic and Environmental Vulnerability Index, the graduation threshold is set at 32 but Cambodia’s score was 30.6. Cambodia will thus be considered for graduation at the next Triennial Review in 2024 as long as it continues to meet the prescribed criteria.
Upon graduation from LDC Status, Cambodia will no longer have access to the numerous preferential treatments granted under the GSP LDC-specific schemes. At the level of the EU, however, Cambodia may apply for the GSP+ as long as it ratifies and complies with 27 international agreements and conventions on human rights, labour rights, environmental protection, climate change and good governance. Moreover, at the level of the WTO, Cambodia will also be faced with more stringent requirements. For instance, when it comes to the Agreement on Agriculture, Cambodia will still have numerous flexibilities during the establishment of its bound duties but it will be required to submit the notifications for domestic support under the Agreement annually instead of every two years. Furthermore, Cambodia will no longer be eligible for some of the export subsidies that LDCs and net food-importing developing countries (NFIDCS) may provide.
Moreover, Cambodia will also have to comply with the numerous obligations of the TRIPS Agreement. LDCs benefit from longer durations of transition to implement the WTO TRIPS Agreement. While LDCs were originally granted an 11-year transition period to implement the Agreement (other than the core non-discrimination principles under Art. 66.1), this period has been extended 3 times and will be valid until 1 July 2034 (IP/C/88) or until a Member graduates from LDC status. Similarly, LDCs benefit from a transition period in regard to pharmaceutical products. Following the Doha Ministerial Declaration on TRIPS and Public Health, LDCs were granted a transition period from 2012 to 2016.
Subsequently, it has been extended and will last until 1 January 2033 or until a Member ceases to be an LDC. Upon its graduation, Cambodia will no longer have recourse to such concessions.
The Royal Government of Cambodia’s (RGC) Vision 2050 promotes economic inclusion and environmental sustainability with the aim of ensuring that Cambodia becomes an upper-middle income country by 2030 and a high-income country by 2050. The RGC also adopted the Rectangular Strategy IV (RS4) in 2018, which highlights the reforms required for Cambodia to achieve Vision 2050, LDC graduation, and subsequently upper-middle-income and upper-income status. Achieving these targets will be largely determined by how fast Cambodia implements the necessary reforms. In this light, the RGC also devised the National Strategic Development Plan (NSDP) 2019-2023 as an implementation roadmap so as to assist in the implementation of Cambodia’s priorities.