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Cablegate: Cambodia: Trade Diagnostic Report Prompts

VZCZCXRO9645
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #1506/01 3460913
ZNR UUUUU ZZH
P 120913Z DEC 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 9187
RUEHHM/AMCONSUL HO CHI MINH PRIORITY 0130
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0710

UNCLAS SECTION 01 OF 03 PHNOM PENH 001506

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/MLS, EEP/TPP/BTA
F FOR ELLIS, HUNT AND SMITH
USAID FOR ANEQDONOVAN AND JENNINGS, EGAT FOR KLISSAS AND
SCHWARTZ
BANGKOK FOR USAID--KISSINGER, FCS--BACHER, USPTO--NESS
HANOI FOR FCS--NAY
HO CHI MINH CITY FOR FCS--MARCHAK AND LE
COMMERCE FOR ITA/MAC--MIKALIS
TREASURY FOR INTERNATIONAL AFFAIRS--WALSH AND CHUN
STATE PLEASE PASS TO US TRADE AND DEVELOPMENT AGENCY--FOR
WINKATES
STATE PLEASE PASS TO USTRQFOR BISBEE AND WEISEL

E.O. 12958: N/A
TAGS: ETRD ECON PREL PGOV KCOR CB
SUBJECT: CAMBODIA: TRADE DIAGNOSTIC REPORT PROMPTS
INTENSE BILATERAL DIALOGUE

PHNOM PENH 00001506 001.2 OF 003


1. (SBU) Summary: Recent discussions between key
Cambodian government officials and USAID staff about a
USAID-funded trade diagnostic report have led to increased
political will to tackle economic reform and a resultant
improvement in USAIDQs relationship with the government on
economic issues. The report and associated discussions
with staff of USAIDQs Regional Development Mission/Asia in
Bangkok (RDM/A), USAID Cambodia, and consultants are the
foundation on which the Cambodian government and USAID are
planning future USAID economic sector assistance to
Cambodia, and are one more strand in the maturing
relationship between the Royal Government of Cambodia (RGC)
and the U.S. The RGC, in an order issued by the Prime
Minister, has created a special Policy and Strategy
Committee for the purpose of facilitating the new
relationship with USAID. RDM/A and USAID Cambodia are
working together with USAID Washington to host a Regional
Forum to compare and contrast regional economic reforms and
to support the creation of an ASEAN Economic Community by
2015. Working in the context of improving the investment
environment and CambodiaQs competitiveness will also
provide an indirect and non-confrontational context for
addressing corruption. Expanding USAID funding for
economic-growth activities in Cambodia will be key to
maintaining credibility and building on this momentum. End
summary.

2. (U) In 2006, as part of USAIDQs on-going relationship
with ASEAN, RDM/A in Bangkok completed South East Asia
Commercial Legal and Institutional Reform and Trade
Diagnostics Reports (SEA-CLIR) for five ASEAN countries:
Vietnam, Philippines, Laos, Indonesia and Cambodia. The
assessments, produced by Booz Allen Hamilton consultants,
together with USAID technical support, provided USAID and
participating countries with quick, cost-effective analyses
of progress in trade and commercial law reform. USAIDQs
objective in supporting these areas has been to help
accelerate economic growth by promoting the development of
a legal and regulatory environment supportive of domestic
and international trade and investment. Specifically, the
primary purpose of the report is to provide an opportunity
for ASEAN countries to compare progress in key areas of
commercial law and trade reform and to facilitate ASEAN
economic integration.

Reports Spur Re-engagement with Cambodian Government
--------------------------------------------- -------

3. (U) At the time of the consultantsQ field work in
Cambodia (February 2006), USAID/Cambodia was unable to
partner with the RGC in the economic sector because of the
congressional restriction on aid programs benefiting the
central government. As a result, USAID had few
relationships with government officials and the draft 2006
report was largely based on interviews with other donors,
the private sector, and non-government organizations. Now
that the congressional restriction has been lifted, USAID
has begun engaging with the RGC on economic discussions by
bringing the consultants responsible for the SEA-CLIR
report back to Cambodia. During their week-long visit in
November, the consultants and USAID staff presented the
draft report to the Ministries of Justice, Economics and
Finance, Interior, and Commerce; the National Bank; the
Supreme National Economic Council; the Council for the
Development of Cambodia; the Council for Legal and Judicial
Reform; the Council of Ministers; and the National
AssemblyQs Economic Committee.

4. (SBU) USAID technical staff spent considerable time
reviewing the report page by page with cabinet members and
technical personnel from line ministries. The RGC
enthusiastically welcomed the opportunity to engage in
economic-related discussion with USAID for the first time
since 1997, although they felt that the tone of the report
was often negative, and indicated that, in some cases, it

PHNOM PENH 00001506 002.2 OF 003


was out-of-date or inaccurate. The consultants are now
using feedback from the RGC to correct inaccuracies, update
the report, and modify the tone where warranted. All
meetings were straightforward and frank, while, at the same
time, quite productive and extremely professional and
courteous.

5. (SBU) A significant outcome of the high level meetings
was the decision by the RGC, in an order issued by the
Prime Minister, to create a special Policy and Strategy
Committee for the purpose of facilitating the new
relationship with USAID, particularly in collaborating with
USAID on the design of its proposed new five-year $15
million project to improve CambodiaQs business enabling
environment. The project will address policy and
regulatory constraints on trade and investment among other
issues. It is important to recognize that many of the
constraints on trade and investment are the result of what
are, in reality, corrupt practices such as preferential
treatment in the awarding of business licenses and
concessions, lack of transparency in regulatory and
business practices, a non-independent judiciary, etc.
Working in the context of improving the trade and
investment environment now gives us a means of approaching
and addressing such sensitive issues in a non-
confrontational way.

Progress Made in Several Areas; Challenges Remain
--------------------------------------------- ----

6. (SBU) During the meetings, it was agreed that a number
of constructive initiatives and events have occurred since
the February 2006 draft, and that these will be reflected
in the updated report. On the legal front, this includes
passage of laws on customs, civil procedure, and secured
transactions. Also, it appears the government is close to
passing the civil code and the law on insolvency. Some of
the new priority laws still required include those covering
commercial courts and commercial contracts. On the
institutional front, the RGC has been making progress in
Customs administration. Cooperation between CamControl
(the health and food safety regulatory agency) and Customs
has increased; a new computerized customs control system
(ASYCUDA) is being implemented to promote efficiency and
transparency; a professional core of key Customs staff has
been recruited; and a new risk management system for
selectively inspecting incoming and outgoing goods is set
to be implemented. While the tone of the report can be
made more positive based on recent progress in some areas,
key issues remain, including corruption; insufficient
access to public information; the need for implementation
of the new laws; a general lack of technical and managerial
capacity; and a lack of stakeholder involvement. Where
there are differences in the RGCQs and consultants
opinions, these will be noted in the pertinent sections of
the updated report.

Cambodia to Publicize Report, Host Regional Conference
--------------------------------------------- ---------

7. (SBU) USAID will submit the updated report,
confidentially, to the RGC in the coming weeks.

SIPDIS
Ultimately, it is up to the RGC to decide if they want to
make the report public, however, the Ministry of Commerce
has clearly indicated that it would like to make the report
public after the consultants update it.

8. (U) The final versions of the country-specific reports
will be incorporated into one regional synthesis report to
be presented at an ASEAN SEA-CLIR Regional Forum to be
convened in early 2008. Representatives from the five
ASEAN nations included in the SEA-CLIR process will attend.
The focus of this Regional Forum will be to discuss with
ASEAN how the comparative results of these diagnostics can
be used to facilitate the creation of an ASEAN Economic

PHNOM PENH 00001506 003.2 OF 003


Community by 2015. As a result of the end of the U.S.
congressional restriction on assistance to the RGC in
FY2007, and USAIDQs subsequent re-engagement with the RGC
on economic discussions, Cambodia has offered to host this
SEA-CLIR Regional Forum. USAID is working with Deputy
Prime Minister Sok AnQs cabinet to confirm a final date and
the participation of the highest-level RGC officials.

Comment
-------

9. (SBU) The SEA-CLIR report and related meetings have
effectively opened a new high-level dialogue between USAID
and the Cambodian government and spurred positive re-
engagement on trade and economic assistance issues. There
is broad-based political will for reform in the economic
sector and strong interest in enhancing our bilateral
relationship in this area. The SEA-CLIR experience also
demonstrates how regional and bilateral USAID programs can
work together to accomplish mutually beneficial goals.
USAID/CambodiaQs engagement with the RGC introduced
bilateral depth to a regional program while the RDM/AQs
program provided a larger regional perspective that
demonstrated to the RGC the need to pursue legal, economic
and trade reforms. As Commerce Minister Cham Prasidh
explained: QThis report is inciting us to compare our
reform agenda to that of our neighbors."

10. (SBU) USAID/Cambodia will continue to work closely
with the RGC in designing its new economic growth program
for Cambodia, and will liaise with the RDM/A in Bangkok to
integrate the program with the ASEAN economic integration
process and other regional reform efforts. USAID/Cambodia
will also coordinate its work with other USG agencies via
the on-going US-Cambodia Trade and Investment Framework
Agreement (TIFA) process. It will be critical to ensure
that the level of funding for USAIDQs economic
growth/trade-related activities in Cambodia is not only
maintained but expanded in order to take advantage of the
new opportunities, and to maintain our credibility with the
RGC following USG re-engagement with them in this sector
and their positive response.


MUSSOMELI


2

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