US trade treaty to aid Kingdom's TPP ambitions

New Zealand Prime Minister John Key (sixth right) and ministerial representatives from 12 countries pose for a photo after signing the Trans-Pacific Partnership agreement in Auckland earlier this month. AFP

US trade treaty to aid Kingdom's TPP ambitions

Phnom Penh Post | 15 February 2016

As Prime Minister Hun Sen attends the US-ASEAN Summit in California today, government officials are in the midst of ongoing negotiations with their American counterparts to formulate a trade and investment agreement, which analysts say could be a stepping stone towards one day joining the Trans-Pacific Partnership.

At a meeting in Phnom Penh last week, representatives from both countries, headed by Secretary of State for Commerce Pan Sorasak and Assistant US Trade Representative for Southeast Asia and the Pacific Barbara Weisel, focused on expediting a bilateral investment treaty, as well as enhancing trade capacities, said Ken Ratha, spokesman for the Commerce Ministry.

“These framework agreement discussions were meant to help enhance trade and investment between the two countries and provide a forum to address bilateral trade issues,” Ratha said.

The two countries formed the Joint Council on Trade and Investment in 2006 to discuss the Trade and Investment Framework Agreement (TIFA), with last week’s meeting being only the third, despite the agreement stipulating annual meetings of the council.

While details about the proposed agreement have been scant, discussions have centred on hastening Cambodia’s implementation of World Trade Organization commitments on customs and e-commerce regulations, as well as sanitary and phytosanitary measures – all aimed at solidifying trade an encouraging US investment.

Ratha said that both sides had agreed to “expedite the talks process,” which could be followed by a free trade agreement.

“At the same time, it will help Cambodia to attract more American direct investment with high technological spill-over to the country and create more jobs for our people,” he added.

Jay Raman, spokesman for the US Embassy in Phnom Penh, said that negotiations are currently at an “exploratory” stage but that a treaty would be a powerful signal to investors.

“Bilateral investment treaties are agreements that establish the terms and conditions for private investment, and are powerful tools to signal an open, transparent, predictable investment climate that is welcoming to investors,” Raman said.

While there were no scheduled announcements on trade at the summit, Raman added that given the high volume of trade between the US and ASEAN there will be “a robust discussion of trade and economic issues”.

Prime Minister Hun Sen has in the past been a vociferous critic of Cambodia’s exclusion from the Trans-Pacific Partnership (TPP), a 12-member trade agreement involving the US, Australia, Malaysia, and importantly Cambodia’s immediate neighbour Vietnam.

Additionally, Vietnam’s recent free trade agreement with the European Union has raised questions among government officials and businesses here over its potential impact to trade with Cambodia’s two major export destinations – the US and EU.

These two agreements combined have amplified the importance of establishing a bilateral trade treaty between Cambodia and the US, according to experts.

Raman said that while the focus was to ratify and implement the TPP with its current members, the agreement’s open architecture allows for other countries to join.

“It is not up the United States to invite new members. Rather, it is up to Cambodia to decide if it wants to take the steps necessary to be considered for membership down the road,” he added.

The implications of the TPP’s impact was “now dawning” on government officials and the business community, given that Vietnam would greatly benefit from the agreement, said Bretton Sciaroni, head of the American Chamber of Commerce in Cambodia.

“Assuming that the US and Japan ratify the treaty, a trading bloc representing 40 per cent of the world’s economy will be created,” he said. “Cambodia cannot afford to be on the outside looking in.”

However, the establishment of a bilateral investment treaty, Sciaroni said, would go a long way to helping Cambodia’s progression to becoming a TPP member.

“There are things we need to do in order to qualify to join, although Cambodia already benefits from having a free-market economy. This should position us well,” he added.

David Van, representative for business advisory firm Bower Group Asia, said that trade deal negotiations with the US will be tough as it will be agreed upon mainly on “US terms”.

“Cambodia’s attempt to negotiate the TIFA is key to getting free trade agreement benefits with the US but the stumbling block is [getting] a bilateral investment agreement,” Van said.

Under the Generalized Scheme of Preferences, Commerce Ministry data show that Cambodia exported a little over $2 billion to the US last year, compared to the $3.4 billion of shipments that headed to the EU.

Despite the EU providing Cambodia with duty-free exports under the Everything But Arms treaty, Van said exports to the US, especially garments, was still healthy.

“But certainly a trade deal with the US would enable Cambodia to pay much lesser duties and thus could expand our export volume,” he added.