UNEDITED FINAL DRAFT
COUNTRY REPORT ON THE COMPETITION SCENARIO IN CAMBODIA
Economic Institute of Cambodia
May 2005
Table of Contents
1. Introduction 3
1.1. Geographical Characteristics of the Country 3
1.2. GDP and Economic Structures 3
1.3. Cambodian Economic Policies 7
1.3.1. Trade Policy 7
1.3.2. Investment Policy 9
1.3.3. Industrial and Privatisation Policy 11
1.4. Importance of Competition in the Economic Policy Regime 14
2. Market Structure and Competition 16
2.1. The Overall Picture 16
2.2. Market structure in some sectors 17
2.2.1. Manufacturing 17
2.2.2. Services and Utilities 18
2.3. Barriers to Entry and Competition 21
3. Sectoral Policies 25
3.1. Electricity 26
3.2. Telecommunications 28
3.3. Forestry 31
3.4. Banking 33
4. Consumer Protection Policy 37
4.1. Legislations Pertaining to Consumer Protection 38
4.1.1. Quality and Safety of Products and Services 38
4.1.2. Protection of Marks, Trade names against Acts of Unfair Competition 40
4.2. Administration 41
4.3. Prevalent Consumer Concerns 42
5. Anticompetitive Practices 44
5.1. Horizontal Restrictive Trade Practices or Cartel Agreements 44
5.1.1. Collective Price-Fixing 44
5.1.2. Market Allocation or Market Sharing 45
5.1.3. Output Restriction 46
5.1.4. Bid-Rigging or Collusive Tendering 46
5.2. Vertical Restrictive Trade Practices 46
5.2.1. Tied-Selling 46
5.2.2. Exclusive Dealing 47
5.2.3. Refusal to Deal 47
5.2.4. Resale Price Maintenance 47
5.2.5. Discriminatory Dealing 48
5.2.6. Predatory Pricing 48
5.3. Other Anticompetitive Practices 48
5.3.1. Mergers and acquisitions resulting in dominance in market 48
5.3.2. Abuse of dominance 49
6. Perspectives on Competition Policy 51
6.1. Backgrounds and Methodology 51
6.2. Field Survey Results 52
6.2.1. The Extent of Anticompetitive Practices in Cambodia 52
6.2.2. Extent of Awareness Regarding Relevant Legislative Framework 53
6.2.3. The Necessity for a Comprehensive Competition Legislation 54
6.2.4. Scope and Coverage of the Competition Law 55
6.2.5. The Competition Authority 55
6.2.6. Other Implementation Issues 57
7. The Way Forward 59
References 60
1. Introduction 2
1.1. Geographical Characteristics of the Country 2
1.2. GDP and Economic Structures 2
1.3. Cambodian Economic Policies 5
1.4. Importance of Competition in the Economic Policy Regime 9
2. Market Structure and Competition 12
2.1. The Overall Pictures 12
2.2. Market Structures 12
3. Sectoral Policies 18
3.1. Electricity 18
3.2. Telecommunications 20
3.3. Forestry 22
3.4. Banking 24
4. Consumer Policy 26
4.1. Legislation Pertaining to Consumer Protection 26
4.2. Administrations 29
4.3. Prevalent Consumer Concerns 30
5. Anticompetitive Practices 32
5.1. Horizontal Restrictive Trade Practices or Cartel Agreements 32
5.2. Vertical Restrictive Trade Practices 34
5.3. Other Restrictive Trade Practices 36
5.4. Other Examples of Unfair Trade Practices 37
6. Perspectives on Competition Policy 37
6.1. Backgrounds and Methodology 37
6.2. Field Survey Results 37
7. The Way Forward 44
Reference 45
4
COUNTRY REPORT ON THE COMPETITION SCENARIO IN CAMBODIA
1. Introduction
1.1. Geographical Characteristics of the Country
Situated One of the countries located in the Indo-Chinese peninsular, the Kingdom of Cambodia has a relatively small territory of 181,035 square kilometres. In terms of physical geography, The country Cambodia shares its borders with three countriesneighbours: Thailand to the north and the west, Vietnam to the south-eastsoutheast and the east and Laos to the north. In the south and south-westsouthwest, Cambodia also has its maritime boundary, which is part of the borders the Gulf of Thailand.
The plains of Cambodia are bounded by the Cardamom Mountains to the west and the Dangrek Mountains in the north. The central areas of the country are plains areas, which are adjacent to the remote region of densely forested mountains and high plateaux that extends eastwards into Vietnam’s central Highlands and north into Laos. Cambodia is rich of rivers and lakes— the biggest known as the Tonle Sap Lake and the Mekong River, which arehave been estimated to haveaccount for aboutround five per cent of the entire land area.
The special features of Cambodian’s rich resources of alluvial soils and the abundancet of water for irrigation, together with a tropical monsoon climate, is in favour of agricultureholds great potential for agriculture development. Agriculture, therefore, contributes therefore approximately 49 per cent to Cambodia’sthe Gross Domestic Products (GDP) in 2003, and employs more than 70 per cent of the country’s labour forceCambodian workers.[1].
Cambodia has itsa total population of about 13 million people with thean annual population growth rate of approximately 1.80%, according to the National Institute of Statistics (NIS). A large majority of the population is Khmer ethnic people. There are some minority ethnic groups such as Chinese, Vietnamese, Cham (Khmer Muslim minority), in addition to some indigenous minorities.The large majority of population belong to Khmer ethnic. There are some minority ethnic groups such as Chinese, Vietnamese, Cham (Khmer Muslim minority) including indigenous minorities. The pPopulation density is aboutround 74 peoplersons per square kilometres.
1.2. GDP and Economic Structures
After the collapse of the Khmer Rouge regime in 1979, Cambodia pursued a centrally planned economic system. In 1989, the countryCambodia began its transformation into a free market-oriented economic system; however the country was still indistracted by civil war during the subsequent period, limiting the scope for economic development. The support of the international communitiesy led to the 1991 Paris Peace Accord that unified all conflict parties and the first1993 free and fair national election in 1993 under the auspices of the United Nations Peace Keeping Process, known as United Nations Transitional Authority in Cambodia (UNTAC). With the establishment of the first coalition government, Cambodia intended in earnest to restore the country to a peaceful island.
To back the political aims, many reforms have been undertaken with assistance offrom the international communitiesy. In 1994, a medium-term adjustment and reform programme aimed at restoring the macro-economic stability was launched and a process of institutional strengthening supported by the international communitiesy was undertaken.
During theose first years of liberalisation and reforms, foreign direct investment (FDI) in Cambodia significantly increased, risingstarting from 3.5 per cent of GDP in 1994 to 8.3 per cent of GDP in 1996. IThe investment covered almost all sectors of the economy. The eEconomic growth was relatively strong, averaging at about 7 to 8 per cent per year. However, persistent weak governance and political crisis in 1997 together with the Asian financial crisis led to a sharp economic slowdown.
Figure 1: GDP growth of Cambodia
Source: EIC, compiled from government and international organisation primary data and EIC model’s projection.
Despite a large number of investment projects in the garment industry since 1997 and in the tourism industry since 1999, the total volume of FDI flowing into Cambodia has continuously declined, which plummeted at. FDI was less than 1.5 per cent of GDP in 2002.[2] As a result, Cambodia’s GDP growth steadily slowed from 7 per cent in 2000 to 5.5 per cent in 2002 and to 5.3 per cent in 2003. The Economic Institute of Cambodia (EIC) estimated that the GDP would grow about 6.5 per cent only. According to EIC’s model’s projection, Cambodia’s GDP growth would decline (to only 3.2 per cent in 2005 and 3 per cent for the coming years) (see Figure 1) due to the elimination of the worldwide quota system worldwide, resulting in a great decline of Cambodian garment exports to the United States.[3]
Cambodia’s economy is cash-based and highly dollarised. The exchange rate in recent years was about 4000 Riels per US$. The iInflation rate was about 5.6 per cent from January to December 2004, whereas had beenand was only 0.5 per cent in 2003.
Agriculture, as mentioned earlier, remainsis the backbonemain sector of the country economy. It employs more than 70 per cent of the total workforce. The contribution of the agriculture sector to GDP has been in declining trend, but its value (US$ term) has a slight up-down change. Agriculture contributes about 26 per cent to GDP in 2004 down from about 30 per cent in 2003 and 40 per cent in 1995. ConverselyOn the other hand, the contribution of the industrialy sector has been in increasing trend while that of the service sector seems to be stable. Contribution of the industrialy sector was about 16 per cent in 1995, but this figure almost doubled (about 27 per cent in 2003 and 30 per cent in 2004), thanks to the growth ofquota system for the garment industry under the quota system. The service sector has contributed about 45 per cent to GDP since 1995, but its value has significantly increased recentlys (about 60 per cent).
Figure 2: Cambodia-Percentage of GDP by Industry Origin at Constance 2000 Price
Source: EIC, compiled from government and international organisation primary data and EIC model’s projection.
Cambodia’s total exports have noticeably increased in recent years from US$ 0.3 billion to US$ 2 billion in 2003. The U.S, which used to absorb just 1.4 percent of Cambodia’s exports in 1996,. has becomeen a major destination for Cambodia’s exports, which. It absorbed just 1.4 per cent of Cambodia’s exports in 1996. The figure rose to about 60 per cent in 2003 due to the boom of garment exports. In the same year, the value of garment exports was about US$ 1.6 billion, equivalent to about 80 per cent of the total exports. The U.S. and the EU markets absorbed about 70 per cent and 25 per cent of the country’s garment exports respectively.
Total imports reached about US$ 2.8 billion in 2003, up from about US$ 1.6 billion in 1996. Cambodia’sThe trade balance thus has been in deficit during this period. Cambodia’s imports are dominated by other ASEAN countries, accounting for between 40 per cent and 70 per cent. of the country’s total import value.Cambodia’s imports are dominated by Thailand (about 27 per cent in 2003).
Figure 3: Destination for Cambodia’ Exports
Source: EIC, Compiled from ADB indicators 2004
Figure 4: Sources of Cambodia’s Imports
Source: EIC, Compiled from ADB indicators 2004
1.3. Cambodian Economic Policies
1.3.1. Trade Policy
During the 1970s when the country was shattered by regional conflicts and civil wars, there was virtually no trading activity, domestic or foreign, in Cambodia. Under the socialist-style economic system adoptedDomestic trade liberalisation
In i n the early 1980s, both domestic and foreign trade was effectively controlled by the State through a network of state-owned trading Cambodia’s trading was exclusively controlled by the Statemonopolies. Together with the process of market-oriented reforms, which started in the late 1980s, Cambodia’s trade policy was gradually liberalised.
Within the period of the centrally planned economy, state owned trading bodies, as methods to restrict all trades. Citizens were required to sell their products to the State. To modernise its economic system, Cambodia has actually begun to open its trade by The abolishingment of the state monopoly for foreign trade sincein 1987, and the promulgation of the foreign investment law in 1989 allowing private companies to engage in foreign trade, were the initial steps toward trade liberalisation.
It was not until 1989, however, that Cambodia officially had the foreign investment law. Since then, Cambodia started to remove all restrictions placed upon firms and individuals engaging in international trade. The adoption of the 1993 Constitution, formalising the pursuance of set forth a clear-cut market economy system for the government in Cambodia, was the biggest landmark confirming the full freedom ofto pursue. Cambodian people have fully freedom to engage in both domestic and foreign trade. The obligation to sell products to the State does no longer exist, except for any special circumstances.
External trade liberalisation
The government has initiated a wide range of reforms in order to pursue the market economy system. One of the reforms was the tariff regime reform. SinceIn 1994, Cambodia eliminated mostall quantitative restrictions and licensing of imports, except for certain commodities that include like pharmaceutical products, gold and silver, ornaments, ammunition and various cultural and medical materials. Imports of sSome products such as pig-meatork, motorbike tyres, right- hand drivefour-wheelers vehicles, usedand second hand footwearfootwear, however, are banned from import. Several classes of products—such as fish, live animals and raw hides and skins—are subject to export taxes.
Tariffs were drastically reduced over time, the latest reduction in 2001. The highest rate of 120 percent was reduced to only 35 percent. The tariff system was simplified by reducing the number of tariff bands from 12 to 4. But a cascading structure still prevails, with the highest rates applying to processed goods and lowest rates on raw materials, as an effective shield protecting the infant processing industries in Cambodia.
The liberalisation in Cambodia is quite remarkable. The economy is moderately open to foreign trade compared to its trading countries.[4] Cambodia was classified by the Heritage Foundation of the U.S. as the country that openly liberalises its trade, ranking 35 out of 170. Tariffs have been drastically reduced in 2001. The highest rate of 120 per cent was reduced to 35 per cent; the tariff system was simplified by reducing a number of tariff bands from 12 to 4.
For export, many classes of goods—such as fish, live animals and raw hides and skins—are subject to export taxes. The government Royal Government of Cambodia (RGC) still retainshas its control over exports on the basis of compliance with the rule of origin as required by other trading partners, health, security reasons as well as public interests in the form of licences and permits. This type of control involves: (i1) exports of commodities linked with, which have bearings on national security, safety and health (such as food, military equipments, pharmaceutical and medical goods); (ii2) exports of rice due to food security purposes. Weak institutions and governance, nonetheless, render the government’s RGC’s control over exports inefficient. Many exports, particularly at the borders with Thailand and Vietnam, have been illegally carried out.
Cambodia has pro-actively integrated itself into regional and global markets. The country has become a member of ASEAN (the Association of South East Asian Nations) since April 1999, and agreed to gradually reduce most tariff rates by 2010 (0-5 per cent target) under the AFTA (ASEAN Free Trade Agreement) schemes. In September 2003, Cambodia was fully admitted to the WTO (World Trade Organisation) with a package of membership deals that include concessions and commitments to reduce tariffs of goods, open the services sector, and comply with the WTO Trade Related Aspects of Intellectual Property Rights Agreement (TRIPs).
At the international stage, Cambodia has integrated itself into regional and global markets. Cambodia has become a member of ASEAN since April 1999. The Cambodia’s commitment to other ASEAN members was Cambodia agreed to gradually reduce most tariff rates by 2010 (0-5 per cent target) under AFTA (ASEAN Free Trade Agreement). Plus, in September 2003, Cambodia was fully admitted to the WTO with a package of membership deals that include concessions and commitments to reducing tariffs of goods, opening its service sector, and complying with the WTO Trade Related Aspects of Intellectual Property Rights Agreement (TRIPs). One of the commitments in relation to agriculture policies is Cambodia sets its agricultural export subsidies at zero and will not maintain or apply any export subsidies for agricultural produce.