26 Jul, 2023

Cambodia’s New Rules of Origin Law to Better Facilitate International Trade

Cambodia has approved a new Rules of Origin (ROO) law, which is to be in line with the standards set by the World Trade Organization (WTO).On July 5, 2023, the Cambodian government approved a new ROO law, to be in line with the standards of the WTO. This will provide businesses with clear and uniform criteria for identifying the source of a product. More importantly, it will enable importers and exporters to access preferential trade treatment – where ROO provisions are met. Finally, the new law gives the government a legal basis to impose trade restrictions where necessary and crack down on counterfeit goods.The new ROO law has been formulated with assistance from WTO and the UN Conference on Trade and Development (UNCTAD), thereby ensuring consistency with existing free trade agreements (FTAs) and agreements with other WTO member countries.What is ROO?ROO or rules of origin is a set of criteria to determine the country from which a product is derived from. This includes, for instance, the permitted scope of “substantial transformation” that allows a product to be classified as originating in the country in which it is manufactured or processed. As commodities may be subject to varying duties, restrictions, or preferential treatment depending on their origin status, it is essential to have in place an accurate and consistent classification process.In addition to facilitating trade, certificates of origin (COO) can also help to improve the recognition of products, increase brand value, and prevent counterfeiting by providing buyers with proof of the product’s origin and quality. This is especially true for specialty goods, such as artisanal or agricultural products.ROO for products subject to non-preferential treatment are determined individually by each country and therefore can differ greatly, although they must generally adhere to WTO standards if the country in question is a member. Meanwhile, ROO criteria for products subject to preferential treatment are usually integrated into trade agreements like FTAs. Under the agreement, two or more signatory countries agree to the same rules to provide preferential treatment for market access or sourcing of certain products, thus boosting bilateral or multilateral trade.What is in Cambodia’s ROO?The implementation of Cambodia’s ROO law is in line with its commitments to adhere to the WTO Agreement on Rules of Origin. Under the WTO Agreement, a country cannot “create restrictive, distorting, or disruptive effects on international trade” and “shall not pose unduly strict requirements or require the fulfillment of a certain condition not related to manufacturing or processing, as a prerequisite for the determination of the country of origin.”Cambodia’s new ROO law outlines criteria for the origin of products that are subject to preferential and non-preferential treatment. For preferential products, the ROO defaults to those set by the trade agreements in effect, such as the Regional Comprehensive Economic Partnership (RCEP). Cambodia’s ROO law thereby officially confirms its adherence to these regulations within its legal framework.Meanwhile, for non-preferential products, the law outlines new ROO criteria. As is required by the WTO Agreement, the law stipulates that a product must be either wholly obtained or have undergone “substantial transformation” in the country for it to be classified as having originated in that country.The Cambodian ROO law also stipulates penalties for the falsification of a product’s origin and outlines mechanisms for dispute resolution.How will Cambodia’s ROO facilitate foreign trade?Cambodia’s new ROO, when adopted, is widely expected to strengthen its foreign trade partnerships. A stronger ROO regime will provide clarity and predictability for foreign traders, particularly those from countries that are not part of an existing FTA with Cambodia.Clearer criteria will also make it much easier for traders to obtain COOs for their products, while also easing compliance with the ROO of both Cambodia and its trading partners. Inconsistent implementation of rules and a lack of clear guidance has previously made it harder for Cambodian authorities to tackle counterfeit products, which serves to devalue domestically produced export products. Cambodian manufacturers and producers, therefore, have a harder time proving the source and authenticity of their products. Regional traders also face difficulties in third markets if their products have been sourced from Cambodia at any stage.The new ROO will ensure Cambodian exporters benefit from preferential treatment given to products that have been either wholly produced or manufactured domestically, as they will be better able to prove their origin in Cambodia. This could help to increase the country’s overall exports and boost economic growth.At the same time, better ROO standards will improve Cambodia’s ability to impose trade restrictions, such as anti-dumping duties, as it will make it harder for exporting countries subject to certain restrictions from circumventing restrictive policies by re-exporting products through a third country and claiming their origin there. This will allow the government to better protect Cambodia’s economy and producers.Why is Cambodia implementing a new ROO now?Cambodia is a party to a handful of FTAs, including bilateral FTAs with China and South Korea. It is also a member of the RCEP, an expansive FTA between 15 countries in the Asia-Pacific, and the ASEAN-Australia-New Zealand FTA (AANZFTA).ROOs are incorporated into the trade treaties to determine whether or not a product is derived from an FTA member country, and thereby eligible for preferential treatment. For this reason, Cambodia is already subject to various ROO for trade with certain countries.Finally, the new ROO law will place Cambodia in better standing for negotiating future FTAs, as it increases its reliability as a trading partner and provides a basis upon which to formulate bilateral ROO with FTA trade partners.

12 May, 2023

ASEAN to Increase Local Currency Trade, Reducing Reliance on the US Dollar

ASEAN members have agreed to increase the use of local currency transactions and push for a better regional payment connectivity, in a move that could be seen as a continuing shift in de-dollarization in the region.At the 42nd ASEAN Summit, held in Labuan Bajo, Indonesia, ASEAN members signed an agreement to push for better regional payment connectivity and the use of local currency transactions (LCT). The move is seen as the bloc’s strategy to transition away from established currencies used for trade, such as the US dollar.The US dollar has been king for global trade for decades. This is not only because the US is the world’s largest economy, but also because oil and most commodities are priced in US dollars. However, since the Federal Reserve embarked on its aggressive interest rate hike strategy, central banks of developing countries have been forced to raise their own interest rates to stem the sharp depreciation in their currencies.To be clear, the US dollar is still the dominant currency among global forex reserves, accounting for some 58 percent of the reserves in the fourth quarter of 2022. The Euro is second and accounts for 20 percent of global forex reserves.Through the local currency transaction initiative, ASEAN hopes to increase trade within the bloc, deepen regional financial integration, strengthen financial resilience, and bolster regional value chains. Finance Ministers will next develop an ASEAN Local Currency Transaction Framework to implement its LCT (LCT) plans. ASEAN accounts for about 7% of global GDP. ASEAN is wary of the impact of sanctionsASEAN members are also wary of the role the US dollar plays in sanctions brought on by the US. The US along with the EU froze some US$300 billion of Russia’s foreign reserves and cut its major banks from accessing the SWIFT network in a bid to cripple the Russian economy. As such, these sanctions have forced ASEAN countries to mitigate their risks and engage in diversifying their reserve currencies. Further, they are also wary that the US could use the power of its currency to target them in the future.China has been getting rid of its US Treasury Bonds and now holds US$870 billion in US debt – the lowest since 2010. Iraq has now allowed trade with China to be settled with the yuan, and China and Saudi Arabia are considering pricing some oil sales in yuan. The central banks of Indonesia and South Korea have agreed to expand the use of each other’s local currency for bilateral transactions, in addition to India and the UAE also finalizing a deal to trade in their currencies.ASEAN’s improving regional payment connectivity systemAn initiative from ASEAN to improve its regional payment landscape has been the launch of the universal quick response (QR) code.The central banks of the Philippines, Indonesia, Malaysia, Singapore, and Thailand have employed contactless QR code payment systems for goods and services between the countries and thus encouraging greater financial inclusion for consumers and MSMEs in the region.This also means a transaction in Thailand using an Indonesian app will be paid through a direct exchange between the rupiah and the baht – bypassing the US dollar as an intermediary. Once the connection linkages have been completed, the central banks will seek to connect with other clusters around the world. The QR digital payment system is expected to be implemented among ASEAN members by September 2023.Importantly, the initiative will encourage greater financial inclusion for the region’s unbanked and underbanked population. It is estimated that 50 percent of Southeast Asia’s population remains unbanked, meaning they do not have access to the most basic banking services. Further, for the region’s MSMEs – which account for 99 percent of all businesses – the use of QR payment systems will enable them to seize more market opportunities, in addition to investments to help them climb up the value chain.However, despite the slow erosion of the US dollar’s dominance, analysts say the currency will not be dethroned in the short term, mainly because there are no real alternatives.