Your Excellency Dr. Hafiz Ahmed Pasha;
Ladies and Gentlemen:
Today, it is my great pleasure to join you all in the launching of a Groundbreaking New Regional Human Development Report on: Transforming Trade for Human Development in the Asia Pacific. On behalf of the Royal Government of Cambodia (RGC), I would like to highly appreciate the efforts made by the UNDP in producing such an excellent and substantive new regional human development report. Thus, we are most honored to host this launching of the groundbreaking report to signify the importance of international trade on human development.
I would like to take this opportunity to warmly welcome H.E. Dr. Hafiz Ahmed Pasha in Cambodia. I am pleased to meet with him again. I recall with pleasure of the meeting on several occasions, especially the last meeting we had in New York in September 2005.
There has been a swift change in the implementation of trade policy all over the world in the last three decades. The successes of the New Industrialized countries such as Hong Kong and Korea have prompted many countries that used to implement import substitution and to heavily protect their own industries have moved to export oriented policy and open up their markets to international competition. Trade liberalization has become the new fashion for trade policy; especially, the tariff rates have been reduced dramatically in all countries and structure of trade has been changed as well from mainly exporting agricultural products to industrial products.
Countries that have opened up their markets expected to reap enormous benefits from this liberalization, namely, improvement in both static efficiency and dynamic efficiency, to the manufacturing sector and the economy as a whole. It is expected that once trade is liberalised, there will be higher availability of imported inputs due to lower tariff rates, less import restrictions, higher availability of foreign exchange and lower prices. This will enable producers to use more imported inputs in production, which in return will lead to higher productivity. Trade liberalisation is also expected to lead to higher productivity growth and stronger export growth
Moreover, countries do expect to attract more foreign investment, and it can lead to more job generation and skill improvement because foreign investors do not only bring capital, which is badly needed for some countries, but also bring skills, both technical and management, to local employees. As the same time, trade might have been expected to raise education standards by giving people greater incentives to improve their skills. Overall, trade liberalization is expected to lead to better health, higher living standard, higher standards of human development and the most of all, it is expected to contribute to poverty reduction.
Trade can certainly enhance human development but it can also hinder it. Trade is after all a profit-driven activity and there are many examples from history that demonstrate what can happen when commercial gain takes precedence over human well-being: slavery, colonialism and apartheid are some extreme forms. The experience of the Asia-Pacific region has thus clearly demonstrated that trade by itself cannot address inequalities; indeed it may well make them worse. Governments are increasingly recognizing that they must devise complementary policies to ensure that increased engagement with international markets also generates jobs and promotes human development.
Indeed, many more countries now have food deficits and Asia still has more hungry people than any other region of the world. One of the most disturbing outcomes is that for most developing countries in the region a greater engagement with international markets has been accompanied by a rise in income inequality. Despite increases in trade, many Less Developed Countries have had less success in reducing poverty. While in developing countries of the region the proportion of the population living below the $1-per-day poverty line is 22 per cent, for the Less Developed Countries it is 38 per cent. Indeed across the region there is still evidence of extreme deprivation.
Realizing the vast potential provided by the world trade and foreign direct investment, Cambodia embraced the market based economic system in mid 1980s. Cambodia has never been hesitant to join regional and global trading communities and committed to trade liberalization. As a result, Cambodia has become the member of many different regional and global organizations such as ASEAN, GMS and the global level, the WTO. All these initiatives have meant considerable structural adjustment and reform on Cambodia’s part.
Cambodia’s trade with the world has also increased substantially in the last decade. Trade has been the main source of economic growth in Cambodia. Normalization of relationship with the US the EU countries culminating in the signing of trade agreements have been widely hailed as success, with Cambodia gaining jobs and investment along with better working conditions for labor. After Cambodia gained access to the US and EU markets its garment exports increased from just $20 million in 1996 to $2 billion in 2005. Growing employment in the garment and textile sector has been a major factor in stabilizing the economy.
The Cambodian economy performed very well in 2005. The real gross domestic product (GDP) accelerated to 13.4 percent. Among traditional factors contributing to this increase are the garment exports and tourism which were external factor, and the constructions which were domestic factor. However, the key driver of this growth was agriculture. It jumped by 13.1% in growth, while rice crop production played a key role with the increase of 27%. Total rice exports, both registered and unregistered, amounted to more than 800,000 tons in 2005.
This boom reflects the Royal Government’s steady efforts to raise productivity, and a continued robust non-agriculture growth reflecting the economic diversification and further expansion in industry – mainly garment and construction – and tourism related services.
The current success of economic growth stem from our strong background in trade liberalization and our big-bang approach in liberalizations taught us a lot of lessons that can be used to shape our future policy. Our experiences told us both bad and good stories through the sectoral development of our economy. We got success in garment and tourism that drive our today growth, but we failed to vibrant agriculture sector that is the only way that Cambodia can reduce the poverty rate in sustained way.
The report on “International trade and human development in Asia and the Pacific” shared experiences of Asia and the Pacific countries in taking advantages of trade liberalization and connected to human development. Without good human resources, trade can be a mechanism would bring back the idea of “capitalism” to the region and the world which might bring back the era of feudalism, slavery, colonialism and apartheid. The key message is “trade brings a development of human resources, while human resources are the ultimate sustains to gain maximum fair benefit from trade”.
While we discuss the trade would bring development of human resources, it is to note that education and health are public goods at large and invested heavily by the government. Trade liberalization, in contrary, reduces government’s revenue via tariff elimination and that would reduce public investment in education and health. However, expose people to a new strong environment, it would provide more incentives to people to improve their skills and learn from new stuff and it also create a pressure for investment and efficient management.
Trade liberalization might create more jobs through creation of new market accession meet larger market demand as well as new market opportunity. For example, garment sector in Cambodia and Tourism that currently create thousands of job.
The report painted a concern picture on the trend of increasing employment rate in China and Singapore, because the firm tends to substitute capital for labor. In this context, it is a good lesson for Cambodia to prepare ourselves for that trend by investment more in education that would sharpen more skills and capacities. The experiences of us told that private sector is good at providing this service for a skill improvement and tertiary education.
In the Asia and the pacific, the trade is base on textile and cloth and agriculture while developed countries have defending themselves. The recent temporary imports restrictions confirmed this and resulted both winners and losers while some countries maintain or even increase their shares. Such trade climate creates a trade-for-survival in a competitive global market which the investment in the industry is not only to invest in both a quality and quantity output, but on other value ranging from fair trade to labor exploitation.
Another remarkable point is to link trade development to poverty reduction. The report found that trades does less to bring people above the poverty line and argued that small, difficult topographies and distance from international market are the main reasons. The reasons are obviously natural constraints that unfortunately leaves a small countries to be a minor and weak player, and almost impossible to remove those constraints at least in the short and medium term. WTO might help some, but as weal player it still gains a minor.
Going forward, Cambodia identified several key policy issues and challenges confronting the country in the near and medium future while trade and market liberalization is the central. These include: (i) growth diversification and structural issues, (ii) cost competitiveness, (iii) institution building for market liberalization, and (iv) low human development.
Cambodia has identified sectoral diversification as a strategy towards attaining broad-based growth. Growth in a few sectors (e.g. garments and tourism) could create potential difficulties when those sectors face downturns. Therefore, Cambodia particularly affected by this issue is finding ways in achieving broad-based growth by promoting, among others, greater private sector development and investments in other sectors, as well as enhancing rural development.
The Royal Government has recently embarked on the Private Sector and Financial Sector Development Programmes, with supports from the World Bank and Asian Development Bank respectively. The two initiatives are particularly targeting improved competitiveness and export diversification, thus promoting further deepening and diversifying the economy as a whole while integrating itself with the rest of the world.
Moreover, agriculture and rural economies were identified as potential sources of growth, given its significant share of GDP (31.6 percent) and home to almost 80 percent labor forces. Thus, a long-term effort must be pursued and substantial investments must be made in enhancing the agriculture sector and rural economies in Cambodia. In this connection, we have in process of land reform. We are in process of issuing land title of people and issuance of sub-decrees on economic land concessions and on state land management was significant development. This would assure a secure land title that was argued that would increase the investment in agriculture.
The Royal Government has identified structural reforms, in particular enhancing governance, as key to sustain high growth and accelerate poverty reduction over the medium term. In this context, it has given high priority to public financial management reform (PFM) and trade facilitation to promote further progress in private sector development, including introduction of single administrative document; these measures will facilitate imports/exports process.
Institution building is an essential part of the agenda for the Royal Government of Cambodia. So far, there is much consensus on the need for reforms in the legal and judicial system and civil administrative system in Cambodia, in order to underpin the forward movement that is needed in improving governance, which is essential in creating a more conducive market environment. This would include the reduction of over-burdensome public administration requirements and barriers to entry into businesses.
The government has invested in basic education to meet the object of “education for all and all for education” and produce some significant result. The budget prioritization was made to the education sector and health sector to improve the performance. However, we yet get a satisfied outcome, we are in a right track and more investment perhaps is needed to make a big change.
All these challenges must be overcomes and rigorously proceed to make a good environment that Cambodia can gain at maximum from trade liberalization that would ultimately reduce poverty rate. Finally, I would like to wish all the participants a success in your future endeavors and a pleasant stay in Phnom Penh, the Capital City of the Kingdom of Cambodia.