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Cambodian Assembly Ratifies WTO Membership - 2004-08-31

Cambodia has taken a major step into the international trading system, with the National Assembly approving membership in the World Trade Organization. WTO rules will open more trade markets for Cambodia, but may hurt its garment industry.

Cambodia's National Assembly voted overwhelmingly for the country to join the World Trade Organization, becoming the group's 148th member. Accession to the WTO means Cambodia must meet international standards in business, trade, and labor. It will push the government to speed up reforms to the economy and business sector.

Almost all 107 members of the chamber approved accession. The vote is the final step to joining and was delayed a year because of problems naming a new Cambodian government after last year's elections.

Commerce Minister Cham Prasidh said after the vote that WTO membership would create more opportunities for the country, as well as improve the economy. Cambodia is one of the poorest countries in Southeast Asia.

The economy relies heavily on the textile industry, as well as the tourism industry.

With accession to the WTO, which strives to lower tariffs and build market access, Cambodia hopes to boost exports. But Tim Smyth, an executive with Phnom Penh consulting firm Indochina Research, says WTO membership may initially cut jobs in the garment sector, as companies strive to compete. "The impact will come from the garment sector, where they are estimating that [WTO entry] would nominally, just nominally, will result in a 20- to 30-percent reduction in the work force because of the shrinkage and uncompetitive nature of the small-scale production, that does not have economies of scale to compete," he says.

But Mr. Smyth expects many of those fired from small companies will find work as the larger garment producers take on extra staff. But the textile industry faces another challenge next year, when export quotas on clothing will be lifted around the world.

The garment industry accounts for 80-percent of Cambodia's export income of one-point-four-billion dollars a year.

Some critics of WTO membership say the government gave too many concessions to join and that the economy is already relatively open.

In recent weeks, the World Bank has pressed the Cambodian government to step up reforms, especially curtailing rampant corruption and reducing inefficiencies that threaten the economy. Mr. Smyth says the government appears ready to comply to encourage foreign investment and meet WTO regulations.

Economic growth has been gaining in recent years, and is expected to expand by almost six percent this year. But growth is likely to slow considerably next year, as foreign investment has been falling, which may make it hard to provide jobs for the growing work force.