We’ve seen the ASEAN Single Window initiative launch last year in Malaysia, in Indonesia, in Thailand and in Vietnam, and is soon to be expanding across the rest of ASEAN. Based on what we’ve seen already of how this programme has been rolled out in other countries, what are some of the main economic benefits this would bring to Cambodia?
The Single Window Initiative has two levels – one is the national single window, which each of the members are pursuing. The original ASEAN members, and even Vietnam, have got a lot further down the road towards completion than the newest members, including Cambodia. And then there’s the regional single window, which is supposed to be linking up all the national single windows, so that there can be this seamless flow of goods and services across the ASEAN region to facilitate the regional value and supply chains more than anything else. So there are great benefits to be had nationally as well as regionally if this can progress.
Even without the regional window, the national window can help produce benefits for the home country and trading partners because it makes trade simpler, faster and cheaper. The problem is that in Cambodia, things have been moving not as fast as we would like, and there are two reasons for this. One is the physical or infrastructure constraints – linking up all the ports with other points of entry in order to enable monitoring and to have internet access in all points of entry. These countries have long had porous borders, so it’s not as easy as it may sound.
Infrastructure in rural parts and bordering regions may be very weak. That’s one constraint. The other, of course, is the so-called motivational constraint. The opportunities for rent-seeking and corruption are reduced or sometimes even eliminated as these things are automated and mechanised or made electronic in this way. And so there’s also resistance from authorities that currently benefit from non-official payments, as they’re called. So both of these factors need to be overcome in order for Cambodia to reap the full benefits of the single window as well as to complete the ASEAN regional single window.
“Even without the regional window, the national window can help produce benefits for the home country because it makes trade simpler, faster and cheaper”
Cambodia seems to be moving towards a transition now away from its historical reliance on garment exports and low-skill manufacturing, with these industries no longer seeming as sustainable as they have in the past. Where do you see Cambodia fitting in this more integrated economic community in ASEAN?
It’s time for Cambodia to start thinking about moving beyond the heavy reliance on garments in particular. And there are other compelling reasons now, with the possibility of losing preferential access [to European markets] through the [withdrawal of the] EBA and so on. So with these things happening, I think Cambodia can look to the new investments it’s been receiving from Japanese multinationals in the special economic zones, especially in Phnom Penh and Poipet, where you have the early signs of participating in the regional value chain with key Japanese multinational firms starting small operations in these zones – toeing the water, starting small, looking to how they might expand their operations as part of the so-called China plus one strategy or Thailand plus one strategy. So Cambodia’s already on the radar, it’s already received these investments – and now it has to make sure it remains attractive, rather it actually improves its attractiveness. Cambodia’s already quite open – it has low tariffs, but the difficulties there are the high logistics cost as well as these so-called unofficial payments. And the cost of electricity is still high compared to its neighbours, and this is a constraint that limits progression beyond pure assembly. Any kind of manufacturing of parts and components will be quite electricity intensive, and at the moment they simply won’t be competitive. So that’s the challenge of moving up the value chain in terms of what they produce, as well as attracting new investment in parts and components and not just simple assembly.
I think the government actually has no choice. Preferential access is coming to an end – it was going to end anywhere as Cambodia developed rapidly, becoming a victim of its own success – so the writing’s been on the wall for a while.
It seems like we’ve already seen the government taking some steps towards reducing some of the red tape involved in goods across the border. Do you think the government and private sector are both prepared to take steps to make Cambodia more competitive with its neighbours?
You can always reduce red tape, but the big issues are behind-the-border difficulties – things like infrastructure, transport costs and also sometimes these informal payments along the way – and if you look at the logistics indexes and the cost of doing business indexes that are produced for the majority of countries so that they can be compared, Cambodia always fares quite badly. On the Logistics Performance Index, the World Bank’s cost of doing business index, and of course on the Amnesty Transparency index – on the three international indices that are used to compare locations, Cambodia fares badly in all three. So it needs to work on those areas to improve its position so that it can become a more attractive investment site outside of garments.
Garments are preference-driven – of course low wages play an important part, but it is also by and large preference driven. Without the preferences they’ll lose a clear advantage – I don’t think it’ll completely shut down. But it could lose quite a bit of its investment going forward. It’s time to think beyond just the low-value end of garments. They could think of moving up the value chain with garments like Sri Lanka has done – they produce more high-end lingerie, I think they’re the largest producers of brassieres in the world, and brassieres are a high value-added product.
There are opportunities for Cambodia to move up the value chain within garments, but I think this diversification out of garments is a good thing as well, and it’s taking place – it just needs to be expanded.
These past few years we’ve seen quite a few shocks to this free-trade model of globalised liberal capitalism with Trump’s withdrawal from the Trans-Pacific Partnership, the prospect of Brexit in the UK. There seems to be increasing pushback against this idea of bringing countries together into these economic blocs. What, if any, impact from those trends to see on the ASEAN Economic Community, and do what extent do you see the AEC as a counterweight to those trends in the West?
Backlash so far mainly among the developed countries against the so-called distributional impacts of globalisation, how the fruits have been unfairly distributed both across countries and within countries. This of course is not news to Asia, Asia also sees this, but Asia has seen the main benefits of globalisation coming in the form of poverty reduction. Now it’s moving on to dealing with inequality, which is rising, but because they were by and large poor in many parts the initial stages saw great benefits in the form of poverty reduction.
Now in the case of ASEAN, I don’t think the same kind of disenchantment or resistance will be present for a number of reasons. One is what I just mentioned – these countries have benefitted from poverty reduction, and this is real, and this is popular. Because it involved millions of people having their livelihoods improved. But secondly ASEAN also embraces this idea of special and preferential treatment, which has also been retained in the RCEP [Regional Comprehensive Economic Partnership], where there is an acknowledgement of unequal capacity and abilities across the membership, and helping them deal with not just the requirements of membership but the consequences.
Of course, a lot of this is more talk than action, but at least there’s a recognition of it and there is some allowance for it in the processes. And therefore I think the backlash is not going to be as strong as we have witnessed in the Western industrialised countries.
Is there anything else you’d like to expand on?
The challenge for the AEC now is of course implementation. And the way ASEAN operates, a lot of it is based on goodwill – this is the ASEAN way. And there’s been a slowing down of interest in our progress with implementation – this is because all the [member states] say they’ve signed all the agreements, no one’s really keeping an eye on how things are going. And that’s my concern.
I think we need other civil society groups and so on to come in and monitor progress and make sure that this is not just a paper agreement – that’s where I think my concerns lie at the moment, because the spotlight is no longer on the ASEAN Economic Community – the AEC project seems to have ended with the signing. But we need to continue with the implementation, which is where things will happen.