The experiences of other countries that have joined WTO show that the economic impact of accession can take a variety of forms. In general, however, the impact can be understood in terms of two broad headings: the impact of accession on the legal and institutional framework governing the economy, and the immediate impact of accession on imports, exports, and other key macro-economic variables, in particular government revenue.

Two categories of decision-makers will determine the impact of the WTO on the Cambodian economy. First, the public sector which will play a very important role in the process of policy adjustments to be consistent with WTO Agreements. Second, the private sector, which will directly participate in the implementation of the agreements, and will change investment, production and trade as a result of the new situation. The past experience of countries that have acceded to WTO does, however, provide a general guidance as to what these will be.

Accession to WTO will require policy action in two areas: First, steps will have to be taken to bring Cambodia’s legal and institutional framework into conformity with WTO rules. Second, Cambodia will be called upon to make commitments on market access in the areas of trade in goods and trade in services. In each of these areas, Cambodia’s economic integration into the world trading system will provide both opportunities and challenges.

1. The Legal and Institutional Framework

At the time Cambodia becomes a member of the World Trade Organization, Cambodia has to undertake firm commitments to bring her legal framework and administrative procedures into conformity with WTO Agreements. Cambodia expects to make considerable concrete progress in this direction during the accession process itself, and to commit to specific work-programs and time frames for completing the process after accession. Cambodia has for some time been seeking to reform its legal system to bring it into line with the requirements of a modern market economy. WTO accession can be seen as a way of organizing and accelerating this process, and of ensuring that international norms are fully reflected in Cambodia’s own legal framework governing business and trade. It will thus be of great help to Cambodia in accelerating economic reform, and ensuring that through reform, in the near future, the legal framework and administrative procedures of Cambodia will be consistent with international rules both in theory and in implementation.

2. Market Access into the World Market

Currently, the market size of Cambodia is relatively small with 12 million consumers, 36 percent of which are living below the poverty line. Of course, we have access to the markets of our ASEAN neighbors, which consist of 500 million consumers, but economic conditions and products are alike and these create some difficulties for Cambodia to export as much as possible to this market. Therefore, it is necessary for Cambodia to look at the world market as a whole to find better comparative advantages for its products, especially in the US, EU, Japanese and Korean markets. The Most Favored Nation Principle among members created an important factor for Cambodia to attract foreign direct investment.

3. Positive Effects from the Agreement on Agriculture

Since Cambodia is an agricultural economy, 80 percent of its labor force is employed in the agricultural sector. The agreement on agriculture provided many benefits to least developed countries such as Cambodia. The agreement required member countries to eliminate non-tariff barriers, transfer them into tariff barriers and gradually reduce them. As a Least Developed Country, Cambodia may maintain import tariffs on agricultural products at higher levels through accession negotiations. This factor provides a better possibility for Cambodia to expand its export agricultural products and attract investment in this area as well.

4. Export Quota on Textile Products will be eliminated in the Future

The agreement on textile and clothing requires all members to eliminate quotas imposed on export textile products by 01 January 2005. At that time Cambodia will no longer be concerned about export quotas to the U.S. and E.U., and we should pay attention to the competition capacity of the private sector in this area.

From the above observations we can say that the membership of Cambodia in the World Trade Organization is very important for Cambodia to accelerate the economic development process and to raise the living standards of people through market access to the world market.

5. Good Dispute Settlement Mechanisms              

With suitable dispute settlement mechanisms, it will ensure and support small and vulnerable economies such as Cambodia from any violation made by big countries due to the fact that dispute settlement mechanisms in the WTO are very crucial in providing security, safety and predication to the economic issues of member countries. This mechanism is also considered an important factor in upgrading the rights and obligations of members under the agreements. This factor is also very important for Cambodia to ensure current investment and attract more foreign direct investment into the country.

6. Special and Differential Treatment

WTO Agreements provide a Special Treatment to least developed countries with longer time to prepare to implement WTO Agreements and technical assistance to upgrade the commercial legal framework. Developed countries commit to provide opportunities for goods from least developed countries to flow into their markets with better terms and 0% tariff rates. The European Union at the LDCIII Conference in Brussels declared the principal of everything but arms, which will provide more opportunity for least developed countries on market access.  This is a very important factor for Cambodia to attract foreign direct investment.

7. Impact on the National Budget

Some challenges may arise from globalization. One immediate impact could be seen on the national budget.  Binding tariff rates are one obligation that Cambodia has to fulfill in the negotiation process of accession. Within this context, main trading partners will request that Cambodia bind all tariff rates, some of which will have to be bound at levels below those currently applied. A key concern is how this can be managed without endangering the growth of budget revenues, taking into account the ongoing need for fiscal reform and for a broadening of the tax base.