Cambodia Investment Review
From July 7-10, 2024, representatives from the AmChams of Asia Pacific, including delegates from Cambodia, participated in the 2024 Washington Door Knock. This event, led by AmCham Cambodia President Casey Barnett and Vice President Anthony Galliano, provided a platform for high-level discussions with U.S. government officials and key policymakers. The outcomes of these meetings have significant implications for U.S.-Cambodia relations, particularly in the areas of trade, investment, and economic policy. These findings were published in a report by Casey Barnett, President, AmCham Cambodia on July 21, 2024. (All views and observations are those of the author only.)
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Generalized System of Preferences (GSP) Renewal
A critical topic of discussion was the renewal of the Generalized System of Preferences (GSP), a program that has historically provided duty-free access to the U.S. market for Cambodian exports. The GSP expired in 2020, and its renewal is crucial for sustaining Cambodia’s economic growth. The U.S. Congress is considering a new GSP bill, which has garnered bipartisan support but is delayed by debates over labor conditions. The proposed bill, set to extend until 2030, includes several significant changes: banning China, increasing the rule of origin requirement from 35% to 50%, and mandating progress on human rights and anti-corruption measures.
The GSP has been a cornerstone for Cambodia’s manufacturing sector, driving economic growth and providing jobs for thousands of Cambodians. Its renewal is vital for maintaining export momentum to the U.S.
De Minimis Tax and E-Commerce
Another key issue discussed was the de minimis tax exemption, which allows goods valued under $800 to be imported into the U.S. tax-free. This provision has significantly benefited e-commerce sellers from countries like China, but it is perceived as a loophole that could be exploited to avoid import tariffs. U.S. officials acknowledged the complexity of reforming this exemption without causing unintended consequences.
Decoupling and De-risking from China
The ongoing U.S. strategy of decoupling and de-risking from China was also a focal point. This strategy aims to reduce dependency on Chinese manufacturing by relocating production to other countries, including those in Southeast Asia. High-tech manufacturing, particularly semiconductor production and the securing of critical minerals, is a primary concern. The U.S. has enacted several laws to support this shift, such as the CHIPS and Science Act of 2022.
The trend of decoupling from China presents both challenges and opportunities for Cambodia. While navigating the geopolitical complexities, there is potential for increased investment in Cambodia’s manufacturing sector.
Indo-Pacific Economic Framework for Prosperity (IPEF)
Discussions also touched on the Indo-Pacific Economic Framework for Prosperity (IPEF), a multilateral trade initiative aimed at strengthening economic ties in the region. While the framework is still in its early stages and faces challenges, it represents a “good start” towards more robust economic cooperation. However, Cambodia’s participation in IPEF appears unlikely in the near future due to its perceived military and geopolitical ties with China.
Recommendations for Cambodia
The report concluded with several recommendations for Cambodia to strengthen its economic relationship with the U.S.:
- Avoid facilitating Chinese “power projection infrastructure,” such as the naval base in Ream, which could negatively impact trade with the U.S.
- Demonstrate credible progress in governance and human trafficking issues to maintain favorable trade conditions.
- Understand and prepare for future accession to IPEF by familiarizing with its agreements and commitments.
- Highlight the poverty reduction and employment benefits of GSP to garner support for its renewal.
- Ensure transparent and effective management of international tax agreements to build confidence for future U.S. tax collaborations.
- Engage with AmCham to address concerns and improve the investment environment.
- Consider inviting U.S. officials to Cambodia to foster closer ties.
Engaging with U.S. policymakers through forums like the Washington Door Knock is crucial for advancing Cambodia’s economic interests. It allows Cambodian representatives to articulate their needs and collaborate on policies that benefit both nations.
The 2024 Washington Door Knock underscored the importance of strategic dialogue and cooperation between Cambodia and the U.S., highlighting areas where concerted efforts can yield mutual economic benefits.
