The Integrated Framework Diagnostic Trade Integration Study for Cambodia: a team leader ’ s perspective

1. The Integrated Framework Diagnostic Trade Integration Study for Cambodia: a team leader’s perspective Presentation prepared for: EU-LDC Network Conference 2002 Improving Global Governance for Development: Issues and Instruments Chiang Mai Sports Club, Thailand 8-10 December 2002 Sandy CuthbertsonCentre for International EconomicsAustralia

2. Bionote Sandy Cuthbertson is a Senior Associate at the Centre for International Economics (CIE), Canberra office. He was a team leader for the Integrated Framework Diagnostic Trade Integration Study in Cambodia and is team leader for the DTIS in Yemen.

3. A brief history • The Integrated Framework Program (IF) was initiated in 1996 to promote the integration of LDCs into the global economy. Participating agencies are the WTO, IMF, World Bank, UNDP, UNCTAD and ITC. • Progress was initially slow and a review completed in 2000 referred to the need for stronger linkages to overall development strategies and the lack of donor resources. • In July 2000 a Heads of Agencies meeting redefined the Integrated Framework. • Through 2000 and 2002 the ‘new’ IF has been active in 8 countries

4. Main features of the ‘new’ IF • Better integration of trade with national development strategies including PRSPs. • Stronger funding with establishment of a trust fund which currently has 18 donors and $9.1 million pledged. • Management structure expanded to include agencies, bilateral donors and LDC representatives. • Diagnostic Trade Integration Studies (DTIS) established as a first step in an IF program covering: • global market access • trade in services • regulatory framework • trade facilitation (customs, transport) • sector specific analyses • trade and poverty • prioritised TA needs and policy reform

5. Activities through 2001... Missions to Madagascar and Mauritania Missions to Cambodia Three reports completed National Workshops in Cambodia and Mauritania Work initiated in Lesotho, Malawi, Senegal and Yemen Mission to Senegal July Aug Oct Nov Dec Jan Feb 2001

6. …and 2002... Missions to Lesotho Missions to Malawi Mission to Yemen Work initiated for Burundi, Guinea, Ethiopia, Eritrea and Nepal Completion of Yemen, Senegal, Lesotho and Malawi reports Mission to Nepal with mission proposed for Ethiopia, Eritrea, Guinea and Burundi in 2003 Mar Apr May Jun July Aug Sep 2002

7. Some lessons of the 1980s and 1990s for origins of ‘new’ IF • LDCs have liberalised trade - with average nominal unweighted tariffs falling from 40 per cent to 15 per cent between 1980-85 and 1996-98 • While some countries have done very well, in others growth rates have been only fair - pointing to behind the border constraints limiting supply response. • Trade and investments between people in developed countries happens relatively smoothly - when trade barriers are reduced - because of converging and long established institutions. • Institutional arrangements in many LDCs are often quite different from those norms. • Behind the border institutional and production capacities now matter more than conventional trade barriers - need for an economy-wide approach

8. Some lessons of the 1980s and 1990s for origins of ‘new’ IF (continued) • Policy durability requires government commitment which in turn requires public understanding and mandate • Lots of donors and sources of advice and limited capacity to assess and manage development cooperation • WTO membership: • accession activities complex and administratively demanding • accession requirements sometimes seen as an imposition • Need for countries to have systems information and processes to assess policies in terms of their economic and social impacts and not just in terms of WTO consistency

9. ‘In principle’ questions about Integrated Framework as a response • Does the Integrated Framework imply a centralised approach to development cooperation? • Why not have competition among sources of advice and providers and users of development funding? • How well would competition work if these providers and users are not subject to market discipline? • Is one role of Diagnostic Trade Integration Studies to inform the market for such competition?

10. Cambodia experience • Proposed by World Bank Regional Office as team leader. Met with Cambodian colleagues in July 2001; working with focal point put together terms of reference and team • TOR made to splice in with Government blue print presented to donors in early 2001 entitled The Tokyo Road Map • Fieldwork started in August and working to a tight deadline report circulated in two languages for a National Workshop in November 2001. • Cambodia exercise distinguished by: • close involvement of Government through Minister and Secretary of Ministry of Commerce • MOC leaders, through their energy competence and commitment, established themselves as bosses and partners. And agencies encouraged this to happen.

11. Cambodia experience (continued) • Team members were encouraged by MOC to offer independent professional advice • Obviously with the benefit of hindsight could have done some things better: • more interviews and observation in the country-side • wider circulation of Cambodia language material • closer links with PRSP process • more liaison with other development groups • better specification of technical assistance

12. Selected issues • Accession to WTO well advanced and important but the DTIS identified a need to build domestic capacities and processes to assess and develop policies on merit and not simply in terms of WTO requirements • Many Cambodians produce and consume rice. For producers, removal of barriers to exporting would raise welfare. But consumers could lose. The overall effect depends on the composition of household expenditures and revenues. Analysis of the impact of a rise in export demand suggests that most people would benefit - the very poor and the very rich would lose. • Many Cambodians also consume and produce (catch) fish. Exports of fish were controlled by a singe state owned company. This intervention imposed a significant tax on fish exports but raised little for general revenue

13. Selected issues (continued) • The benefits of preferred access to garment markets in the EU and US largely dissipated in rules of origin requirements and labour standards. Employed labour benefited from higher wages while people who would be prepared to work for lower wages lost out. Restrictions on overtime and like standards benefit hardly anyone • Supply bottlenecks rather than market access is the major constraint to trade development. • Importance of institutions covering such things as secure property rights, enforceable contracts and supporting voluntary exchange well recognised in Cambodia

14. After the DTIS • In June the Government released a paper entitled Implementing the Integrated Framework in Cambodia • Report focussed on: • building domestic constituencies • trade strategy and trade mainstreaming • trade and investment linkages • WTO membership • capacity building • on-going and emerging technical assistance activities • This report reaffirmed the Government’s determination to: • own the process • work with the IF team as partners • to establish processes for the focal point and the team to interact with key policy makers and stakeholders • establish rule of law

15. Afterthoughts • Attractive features of IF process include: • Government in the driver’s seat • economy-wide approach • provides opportunity to make full impacts of policies transparent • flexibility to consult widely • independent and professional advice • forum for main agencies to work together • Difficulties include: • managing complex processes with large number of people involved in a short time • need to work in local language • distilling wide coverage to a few priorities • Effectiveness requires: • Government to be in charge • follow-up • open processes for policy development