VZCZCXRO5989
PP RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHPF #1438/01 3302338
ZNR UUUUU ZZH
P 262338Z NOV 07
FM AMEMBASSY PHNOM PENH
TO RUEHC/SECSTATE WASHDC PRIORITY 9130
RUEHHM/AMCONSUL HO CHI MINH PRIORITY 0119
RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY 0696
RUEHC/DEPT OF LABOR WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUEHGV/USMISSION GENEVA 1637

UNCLAS SECTION 01 OF 05 PHNOM PENH 001438 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PLEASE PASS TO USTR-FOR BISBEE AND WEISEL 
BANGKOK FOR USAID--KISSINGER, FCS--BACHER, USPTO--NESS, FAS--MEYER 
HANOI FOR FAS--WADE AND RALPH, FCS--NAY 
HO CHI MINH CITY FOR FCS--MARCHAK AND LE 
GENEVA FOR USTR--PALLGEIER, STATE--CHICK 
COMMERCE FOR ITA/OTEXA--D'ANDREA, ITA/MAC--MIKALIS 
LABOR FOR ILAB--LI 
AGRICULTURE FOR FAS/OCRA--RIKER 
USPTO FOR CHAITOVITZ 
STATE FOR EAP/MLS, H, DRL/ILCSR--MITTELHAUSER, 
EEB/TPP/ABT--CLEMENTS, EEB/IFD/OIA, EEP/TPP/BTA, EEB/TPP/MTA, 
EEB/TPP/IPE 
STATE PLEASE PASS TO LIBRARY OF CONGRESS--FOR POOR 
STATE PLEASE PASS TO USAID FOR DCHA/DG--LUDWIG 
STATE PLEASE PASS TO US TRADE AND DEVELOPMENT AGENCY--FOR WINKATES 
STATE PLEASE PASS TO US PATENT AND TRADEMARK OFFICE--FOR CHAITOVITZ 
 
 
E.O. 12958:  N/A 
TAGS: ETRD KTEX EINV ELAB EAGR CB
SUBJECT:  SUCCESSFUL TRADE TALKS FEATURE TARIFF, INVESTMENT, IPR, 
AND LABOR ISSUES 
 
 
PHNOM PENH 00001438  001.2 OF 005 
 
 
¶1.   (SBU) Summary:  A strong bilateral partnership and Cambodia's 
commitment to economic reform were on display November 21 as U.S. 
Trade Representative Susan Schwab and Commerce Minister Cham Prasidh 
led Trade and Investment Framework Agreement (TIFA) joint council 
discussions.  The Commerce Minister listed an impressive number of 
trade and business-related laws passed since the last TIFA meeting 
in February, many of which help to meet Cambodia's WTO accession 
commitments.  Cambodia is also taking substantial positive steps in 
protecting intellectual property rights and creating an environment 
conducive to collective bargaining, although other areas--such as 
passage of a long-awaited anti-corruption law--remain problematic. 
Minister Prasidh was outspoken in his enthusiasm for a bilateral 
investment treaty and in his worries that the all-important 
Cambodian garment sector cannot survive the end of U.S. safeguards 
against China, a concern which has led to his strong support for 
proposed U.S. legislation designed to allow duty-free imports of 
Cambodian garments.  End Summary. 
 
Commerce Minister Highlights Growth, Appeals for Tariff Review 
--------------------------------------------- ---------- 
 
¶2.  (U) Commerce Minister Cham Prasidh's opening statement 
highlighted Cambodia's impressive economic performance and concerns 
about tariffs facing garments and other goods entering the U.S. 
market.  Prasidh noted that the Cambodian economy has been growing 
at a average of 9.6% per year since 1999, with trade growing by 20% 
per year and foreign direct investment increasing 13-fold in just 
three years.  Prasidh also said that the U.S. is Cambodia's number 
one export market, although Cambodian imports account for only 0.1% 
of total U.S. imports.  The Commerce Minister appealed to the U.S. 
to review its tariffs on Cambodian products, highlighting that due 
to the high tariff rates on garments, Cambodia pays as much in U.S. 
tariffs as does France, despite the enormous differences in 
development levels and trade volume between the two countries. 
 
¶3.  (U) In response, U.S. Trade Representative Susan Schwab praised 
the growth and increased global integration of the Cambodian economy 
and the country's engagement on trade issues.  Schwab highlighted 
the recent conclusion of a handicrafts agreement which will allow 
for duty-free imports of handmade Cambodian textiles, noted growing 
U.S.-Cambodian trade, and the U.S. hope that the TIFA would continue 
to increase bilateral trade and investment.  She noted the increased 
visits by U.S. officials, members of Congress and Congressional 
staffers, and business representatives this fall and hoped that the 
Cambodian Government would use these visits to underscore its 
economic potential. 
 
Enhanced Integrated Framework 
----------------------------- 
¶4.  (U) Cambodia is one of three pilot least developed countries 
(LDCs) to participate in the Enhanced Integrated Framework, the 
World Trade Organization's (WTO) program to coordinate donor support 
for WTO implementation through a country-driven development 
strategy.  Prasidh outlined recent developments in this area, 
including great progress towards fully funding the initiative and 
the upcoming launch of Cambodia's trade integration strategy.  The 
strategy, based on the recently updated Diagnostic Trade Integration 
Study, identifies priority product or service sectors for promotion; 
highlights bottlenecks which hamper exports; links trade development 
more clearly with human development and poverty reduction goals; and 
seeks to better coordinate efforts by donors and various branches of 
the Cambodian government via a trade sector-wide approach (Trade 
SWAp).  The first phase of this strategy will focus on capacity 
building and management of trade development, and is expected to be 
funded at approximately USD 1.5 million over 3 years. 
 
 
PHNOM PENH 00001438  002.2 OF 005 
 
 
Legislative Progress on WTO Implementation 
------------------------------------------ 
 
¶5.  (U) Cambodia's parliament has been busy reducing its backlog of 
WTO-related legislation, a priority area identified in the TIFA 
Action Plan developed after the last TIFA meeting in February 2007, 
as well as other laws designed to promote a transparent and 
well-regulated business environment.  The Parliament has passed a 
Criminal Procedures Code, Civil Procedures Code, and a nightshift 
amendment to the Labor Law; and relevant government ministries are 
implementing them, Minister Prasidh said.  A sub-decree on the 
implementation of the Law on Marks, Trade Names and Acts of Unfair 
Competition was recently adopted and implementation is underway. 
The Parliament has passed Laws on Insolvency, Customs, Secured 
Transactions, Standards, Government Securities, Non-Government 
Securities, and Money Laundering but the laws have not yet been 
implemented.  The National Assembly passed the Civil Code and the 
legislation is awaiting Senate approval.  The Telecommunications 
Act, Law on Insurance, and Law on the Establishment and Management 
of Special Economic Zones have been or are being drafted, and 
Minister Prasidh requested USG comments on several of these draft 
laws.  Ambassador Schwab agreed to provide comments on key pieces of 
legislation, including the Law on Insurance and on Government 
Securities, among others. 
 
¶6.  (U) Kun Nhem, Deputy Director of the Customs and Excise 
Department (CED), highlighted customs reform efforts that have 
accompanied the passage of the new Law on Customs.  The CED is 
moving towards a WTO-compliant customs valuation system; automating 
customs processing with a system known as ASYCUDA, to be piloted at 
Sihanoukville port starting in December 2007; introducing a single 
administrative document; and developing new risk management 
procedures.  Nhem also highlighted a February 2008 workshop on the 
development of a framework for World Customs Organization (WCO) 
implementation to be conducted in Cambodia in conjunction with the 
WCO.  Nhem said the government would send invitations to this 
meeting to donors shortly.  He thanked USAID for their efforts in 
reviewing customs and other procedures as part of the Southeast Asia 
Commercial Legal and Institutional Reform (SEACLIR) report. 
Cambodia looks forward to hosting officials from other Southeast 
Asian nations who participated in SEACLIR evaluations at a regional 
seminar to be held in Siem Reap early next year. 
 
Cambodia as a Model:  IPR and Labor Issues 
------------------------------------------ 
 
¶7.  (U) Cambodia's recently increased efforts to strengthen 
intellectual property (IP) enforcement earned praise from Amb. 
Schwab, who noted that intellectual property is "another area where 
Cambodia is showing great potential to be a model for other 
countries."  Minister Prasidh noted that Cambodia was the first 
country to link trade to labor standards and wanted to develop a 
program over the next couple of years that would similarly put 
Cambodia in the forefront in IP.  He stated that draft Laws on 
Geographical Indicators and Layout Designs of Integrated Circuits 
are under review while the Cambodian Government is drafting 
sub-decrees on IP border measures, compact disc production and 
trade, and collective management organizations for remuneration to 
performers and music producers.  Minister Prasidh stated that 
Cambodia wanted to develop a policy to link intellectual property 
and trade by ensuring that anyone producing IP-sensitive goods in 
Cambodia would be scrutinized to ensure that they did not export 
pirated materials.  Cambodia would like to pursue parallel tracks of 
IPR enforcement and public awareness simultaneously, but will need 
significant USG support to do so, he said.  Amb. Schwab praised the 
idea of a trade link and offered to send an intellectual property 
 
PHNOM PENH 00001438  003.2 OF 005 
 
 
and capacity building team to Cambodia to assist and could enlist 
private sector groups in helping Cambodia define its vision of an IP 
model country. 
 
¶8.  (U) Turning to an area where Cambodia is acknowledged as a 
leader, labor conditions and worker rights, Minister Prasidh stated 
that the Ministry of Labor and Vocational Training was working 
closely with the International Labor Organization, the American 
Center for International Labor Solidarity, the Garment Manufacturers 
Association of Cambodia, and several unions to improve the process 
of certifying unions as most representative, an initiative stemming 
from the last TIFA meeting in February 2007.  While other unions can 
be active at a factory, only most representative unions can engage 
in collective bargaining.  At present, most representative union 
status is not enforced, and many garment factories have multiple 
unions competing for workers' allegiance and often engaging in 
harassment, intimidation, and illegal strikes, making collective 
bargaining all but impossible.  Prasidh noted that he believes 
firmly in worker rights and believes that clarifying and enforcing 
rules about most representative status will encourage Cambodian 
unions to mature and help ensure that there are fewer production 
disruptions so Cambodian products can remain competitive with those 
from China and Vietnam.  The Commerce Minister praised Ambassador 
Mussomeli's role in averting a general strike last year, and asked 
for continued embassy support on the most representative status 
issue.  Ambassador Schwab offered to talk to the AFL-CIO and UNITE 
to see if they could provide support on this issue. 
 
Investment Climate and Bilateral Investment Treaty 
--------------------------------------------- ----- 
 
¶9.  (U) Cambodia is poised for sustainable economic growth thanks to 
political stability, macroeconomic stability, a sound and 
transparent legal framework, and preferential access to key markets 
via the Generalized System of Preferences (GSP), Minister Prasidh 
said during a detailed presentation on the Cambodian investment 
climate.  He emphasized that tourists have been coming to Cambodia 
in increasing numbers, with 2 million tourist arrivals expected this 
year.  Garment exports have also grown, particularly to the U.S. 
market, where Cambodia has gone from being the 17th largest exporter 
to the 5th largest in just a few years.  He also made a strong 
appeal for negotiating a bilateral investment treaty (BIT) with the 
U.S.  Cambodia has already signed 21 BITs, including with Western 
countries such as Germany, France, and Australia.  "The U.S. should 
be number 22," Prasidh opined, adding that he was ready to start 
negotiating as soon as December 12. 
 
¶10.  (U) Amb. Schwab praised Cambodia's efforts to create a good 
investment climate, and asked for an update on the long-stalled 
anti-corruption law.  Prasidh stated that it had been submitted to 
the Council of Ministers, but said that streamlining procedures and 
setting deadlines for government action--such as for customs 
clearance--were more important steps and were already underway. 
Surprised by Prasidh's proposal for launching BIT negotiations in 
December, Amb. Schwab explained that the USG was interested in a 
potential BIT in the future.  She said that the process typically 
involved preliminary detailed exchanges of information to be sure 
that both sides were clear about the process and that all questions 
were answered.  This would then be followed by an intense series of 
exchanges in person, by email, or by digital video conference and 
then begin a pre-negotiation phase.  Only once the two sides have 
essentially reached agreement on all the issues are the start of 
formal negotiations announced, and these then tend to move quickly 
to an agreement. She said she appreciated his interest in a BIT and 
that her staff would be in touch on appropriate next steps. 
 
 
PHNOM PENH 00001438  004.2 OF 005 
 
 
Technical Assistance 
-------------------- 
 
¶11.  (U) The U.S. has provided most of the technical assistance (TA) 
requested at the February 2007 meeting, Amb. Schwab reported, 
including strengthening private sector ties via several business 
missions and providing information, documentation, and legal 
comments on standards and e-commerce.  Additionally, the U.S. Trade 
and Development Agency plans to provide assistance in the area of 
energy development, customs, and telecommunications.  Prasidh 
thanked the USG for its assistance, including the USAID-funded 
Southeast Asia Commercial Legal and Institutional Reform report 
(SEACLIR), which the Ministry intends to make public once finalized. 
 The Commerce Minister presented an extensive five-page list of new 
TA requests ranging from seafood quality assurance guidelines to 
refurbishing hearing rooms.  The two sides agreed that these 
requests will be considered over the coming months at the working 
level. 
 
The McDermott NPDA Bill, the Doha Round, and Other Duty-Free 
Initiatives 
--------------------------------------------- ---------- 
 
¶12.  (SBU) In response to a question from Prasidh about the 
prospects for passage of Sen. McDermott's New Partnership for 
Development Act (NPDA), proposed legislation which would allow 
duty-free entry for LDC products, Amb. Schwab noted that she was 
increasingly optimistic about Congress' stance on trade issues.  She 
noted that the new Senate, which many had predicted would be 
strongly protectionist, just passed a Free Trade Agreement with Peru 
by a wide bipartisan margin and that a House vote was expected 
shortly.  Nonetheless, the McDermott bill and a similar initiative 
by Smith and Feinstein were "not likely to move very far very fast," 
she remarked, as a large trade deficit and U.S. sensitivities around 
the garment industry hurt prospects for passage. 
 
¶13.  (SBU) Instead, Amb. Schwab said, USTR was more focused on 
efforts to extend duty-free, quota-free (DFQF) treatment to 97% of 
LDC goods via the Doha Round of WTO negotiations.  USTR has begun 
the process of getting more input on what the U.S. will list in the 
3% of tariff lines that the U.S. can exclude from DFQF treatment. 
Amb. Schwab emphasized that Cambodia stands to gain a lot from a 
completed Doha Round, and urged Cambodia to "advocate for its 
economic self-interest" rather than follow the efforts of some 
middle-income countries to water down the commitments. 
 
¶14.  (SBU) Despite statements from Schwab that the 3% of tariff 
lines would include garment lines plus other sensitive industries, 
Prasidh launched a passionate plea for garment tariffs to be 
included in the 97% of tariff lines that are subject to DFQF. 
Cambodia's garment industry is fighting to survive, the Commerce 
Minister said, with factories "bleeding white" trying to keep buyers 
placing orders in Cambodia through the end of U.S. safeguards 
against China in December 2008.  Putting garment tariff lines in the 
3% exclusion group will send the wrong signal to buyers, Prasidh 
argued, saying that Cambodia's garment industry can't survive if put 
on the same footing as other (non-LDC) countries.  He said that the 
Cambodian Government recognizes the importance of diversification of 
its economy, but that will take 10-15 years, while the U.S. 
safeguards on China will expire at the end of 2008.  The garment 
industry was like a "time bomb" he said, with garment buyers ready 
to move out if there were any negative developments.  Cambodia's aim 
is not to erode the garment industry in the U.S., but rather to cut 
into China's market share, he clarified.  Cambodia was happy to play 
a role in the Doha Round short of leading the LDC group, he said, 
comparing the negotiations to a big boat in which China, Brazil, 
 
PHNOM PENH 00001438  005.2 OF 005 
 
 
India, and others were all fighting over the steering wheel while 
Cambodia and the other LDCs were standing near the lifeboats. 
 
¶15.  (SBU) In response, Amb. Schwab repeated her encouragement to 
Cambodia to stand up against the middle-income countries who were 
attempting to hijack the Doha Round.  Amb. Schwab also encouraged 
Cambodia to consider proposing a textile sectoral negotiation as 
part of the Non-Agricultural Market Access negotiations, which could 
help LDCs, including Cambodia.  Further, Amb. Schwab pledged that 
DFQF will move forward in a transparent process and that the 3% of 
tariff lines excluded would not be prejudicial against specific 
countries as Cambodia fears. 
 
Comment 
------- 
 
¶16.  (SBU) Cambodia's recent commitment to trade and investment 
reform warrants serious USG attention and action.  Despite suffering 
from tremendous human capacity limitations, Cambodia has made 
significant progress since February's meeting, particularly in the 
area of legislative change.  Cham Prasidh has a sophisticated and 
realistic understanding of the precariousness of Cambodia's 
successful economy, particularly as its narrow economic base in 
garment exports faces the impending end of U.S. textile safeguards 
against China.  While some of Cambodia's requests would be tough to 
agree to--such as not including any textiles in the 3% of tariff 
lines excluded from DFQF access--others, such as the intense 
interest in a bilateral investment treaty, warrant USG action.