Japan and Kingdom of Cambodia
Trade and Investment Promotion Workshop

September 14 in Phnom-Penh, Kingdom of Cambodia
(Summary of Discussions)

September 2006

Trade and Investment Promotion Workshop took place in Phnom Penh on September 14, 2006. H.E. Keat Chhon, Senior Minister and Minister of Economy and Finance, and H.E. Sok Chenda, Secretary General of the Council for the Development of Cambodia, as well as approximately 50 participants from ministries concerned participated from the Cambodia side. H.E. Fumiaki Takahashi, Ambassador of Japan to the Kingdom of Cambodia, and officials from the Ministry of Foreign Affairs, the Ministry of Economy, Trade and Industry and other agencies concerned as well as participants from the Japanese Business Association of Cambodia (JBAC) and Japanese private enterprises operating in neighboring countries participated from the Japanese side. The participants from both sides discussed actively means to promote Japanese investment in Cambodia.

The summary of discussions of the workshop is as follows. Both sides will continue to follow up through the processes of investment dialogues between the governments of Japan and Cambodia.

1. Explication from the Cambodian Side on the Current Situation of Investment Environment in Cambodia

In addition to the political stability and the sound macro economy, Cambodia's membership in the WTO, and ASEAN economic integration allow Cambodia to have favorable access to the international market. Overall investment environment is positive.

With a view to reflecting opinions from the private sector including foreign investors on the government policies of Cambodia, the Government-Private Sector Forum is carried out once every 6 months, with participation of H.E. Samdech Hun Sen, Prime Minister of the Kingdom of Cambodia. This forum consists of eight working groups, and decisions made by the forum are regarded as decisions made by the Council of Ministers meetings.

The Cambodian government gives priorities to the following seven areas: (1) agricultural and food processing industry (especially raw materials for rubber, organic crops, and bio fuel), (2) development of infrastructure (development of such infrastructure as seaports and airports by private capital), (3) electricity, (4) labor-intensive, export-oriented industries (shoe and garments industries), (5) tourism, (6) human resources, as well as (7) minerals including oil.

The legal system related to investment has been consolidated in Cambodia in recent years, and most of the conditions under such laws and regulations are liberalized to the investors. Except for land ownerships (however, land lease is permitted up to 70 years for foreigners as well), the conditions are non-discriminatory for both domestic and foreign investors. Neither nationalization nor regulations permitting sales price and other requirement without the consent of investors are in practice. There are various preferential treatments to investors, such as import-export tax exemptions.

2. Suggestions and Comments by the Japanese Private Sectors

(1) There may be a possibility that an investment boom in Cambodia in labor-intensive industries will occur in the near future, resulting from the rise in labor costs of neighboring countries such as China, Vietnam, and Thailand. However, there are usually a few years of time lag between the consolidation of legal system and actual increase in investment, due to the need for wide recognition of such improvements by the investors.

(2) With regard to investment to agro-industry, the most serious problem is to ensure stable supply of raw materials with uniform quality, and one of five factors hindering this is underdevelopment of farmers' cooperatives.

(3) The maximum leasing period which is long enough is reassuring to investors. Also, investors to SEZ are sensitive to land leasing fees, so that only enterprises with enough capital strength can utilize SEZs if the fee is higher than 40 or 50 US dollars per square meter, and small and medium enterprises will shy away.

(4) There are approximately 6,000 to 7,000 Japanese enterprises operating in Thailand, which is becoming an important investment base with major enterprises supported by a lot of small and medium enterprises. Accordingly, it is desirable to think of ways to promote investment in Cambodia complementary to investment activities in Thailand, such as attracting Japanese part makers which supply to Japanese automotive companies manufacturing in Thailand.

(5) It is important to step up the control against counterfeit products and smuggling.

3. Japan-Cambodia joint efforts for investment promotion in Cambodia

The possibility of Japan-Cambodia Investment Agreement was discussed. The importance of legal stability and predictability provided by such agreement was stated. It was pointed out that a possible investment agreement should include the provisions on investment liberalization as well as the provisions on investment, which are included in the Investment Chapter of Economic Partnership Agreement (EPA) that Japan had signed with other countries in recent years.