Opposition calls for tariffs as economic crisis mounts

A woman works on a field growing morning glories in Phnom Penh on Tuesday (???). The opposition Sam Rainsy Party has called for protectionist measures to be implemented. (Photo by: AFP)

Thursday, 26 March 2009
Written by May Kunmakara and Kay Kimsong
The Phnom Penh Post

As farming incomes plummet, the opposition says higher tariffs and more subsidies are needed, but government says WTO rules must be respected.
OPPOSITION lawmakers are calling on the government to raise trade barriers and boost agricultural subsidies to mitigate the effects of the global economic slowdown.

The move marks the first time parliamentarians have urged a protectionist response to the crisis.

"Look at Thailand - they are subsidising their farmers and protecting them by preventing Cambodian traders from exporting corn or cassava to Thailand - this is how we should be protecting our farmers," said Sam Rainsy Party lawmaker Son Chhay.

He urged the government to increase tariffs on imported goods to cut the trade deficit with neighbouring countries, citing the US$1.35 billion combined shortfall with Thailand and Vietnam.

"Even as a member of the World Trade Organisation, we still have five or six years to increase tax barriers for imported goods," he said.

The local protectionist pressures come on the back of what the World Bank is calling a global swing away from free trade.

Leaders at the Group of 20 meeting in November 2008 committed to promote free trade, but a World Bank report released last week said that protectionism was spreading.

The report said 17 of the G20 countries had issued 47 measures to regulate trade.

The protectionist calls have become ever louder as farmers on the Thai border are subject to tougher restrictions.

Tep Khunnal, governor of Malai district in Banteay Meanchey province, said farmers in his district need more government assistance.

"Thai farmers are growing fresh cassava. They [the Thais] are not allowing in Cambodian cassava unless it is dried. They are buying Cambodian dry cassava and exporting it to China," said Tep Khunnal.

"We are not sleeping - we are trying hard to address this crisis."

He said that farm incomes have dropped 40 percent in the past year in line with the falling prices of agriculture goods.

Government response

Minister of Finance Keat Chhon rejected the opposition demands, saying that the government is improving tax collection and investing in vocational training.

He added that Cambodia's membership to the WTO prevents it from raising trade restrictions.

"We are not sleeping - we are trying hard to address this crisis," Keat Chhon told the Post Wednesday.

He said the government has enough resources to mitigate the effects of the economic downturn, but acknowledged that tax revenue fell slightly in the first two months of 2009.

"I am also a bit concerned about falling revenues, but we are trying to improve our tax-collection methods," he said.

"The Ministry of Finance is working with the Ministry of Labour to retrain laidoff workers to help them find other jobs," he said.

"We are working hard to collect revenue for public finances, and we're moving to a second phase of public finance management reform, which means that the accountability of all institutions and ministries will be improved," he said.

"It can be done only when we build on the achievements we made in the first phase. The credibility of the budget means the flow of income will remain strong.

"We have some worries, but we are trying to spend as scheduled for the budget law of 2009," Keat Chhon added.

Responding to questions raised by Son Chhay, Keat Chhon wrote in a letter dated February 11 that the Cambodian economy is affected by the global economic downturn, but that foreign reserves in 2008 stood at $2.1 billion and were guaranteed for 3.8 months.

In 2009 the government decided to increase salaries by 20 percent, or by $30 million per month, Keat Chhon's letter said.

He wrote that the government spent $300 million subsidising electricity prices by freezing rates when oil prices surged 90.4 percent compared to July 2007.

Keat Chhon also said the government provided $450 million in subsidies to boost the fibre industry to reduce costs for garment producers.

He estimated that government intervention would account for about $500 million from the country's GDP.