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 
 
 
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