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PHNOM PENH (KHmer Times): In a landmark moment for Cambodia, the UN General Assembly adopted a resolution later last week confirming the graduation of Cambodia from the Least Developed Countries (LDC) category in 2029 along with the African country Senegal.
According to the resolution A/79/L.49, adopted by the General Assembly on December 19, Cambodia and Senegal have also been granted an exceptional extended preparatory period of five years for graduation considering their requests to ensure a smooth transition out of the category. The normally permitted period is three years.
Cambodia’s graduation from LDC status has been rescheduled after the previous timeframe of 2027. The United Nations Committee for Development Policy (CDP) made this decision earlier in 2024 during an evaluation process.
Criteria for graduation assessment include per capita income, the Human Assets Index and the Economic and Environmental Vulnerability Index.
The UN General Assembly assured continued support to both nations during the transition period and thereafter. Both countries could also collaborate with their bilateral, regional, and multilateral partners for the transition.
However, Cambodia’s graduation from LDC status is not without challenges as the country will lose some of the trade benefits offered by the US and the EU, especially as it relies heavily on garments, footwear and travel goods (GFT) exports to sustain the economy.
These benefits include duty-free status under the Generalized System of Preferences (GSP) by various countries including the EU.
According to Vichet Lor, Vice President of the Cambodia Chinese Commerce Association (CCCA), the LDC graduation comes with its own set of opportunities and challenges for Cambodia.
“On one hand, it is a huge achievement for the Royal Government as it rebuilds the country from the ashes of war and internal struggles to achieve long-lasting peace with economic growth averaging over seven percent for over two decades before the Covid-19 pandemic,” Vichet noted.
“On the other hand, LDC graduation would result in the gradual withdrawal of international support measures including preferential trade arrangements, flexible application of the World Trade Organization’s (WTO) Rules of Origin (RoO) and Trade-Related Aspects of Intellectual Property Rights (TRIPS), among others. Typically, a minimum local value added of 60 percent is required for preferential treatment, compared to 30 percent under the LDC status. The lack of compliance will lead to higher tariffs,” he reminded.
It may also be noted that the UN’s preliminary evaluation for the 2024 triennial review earlier this year has given Cambodia a positive appraisal for graduation with a Gross National Income (GNI) per capita score of $1,546 which is above the threshold of $1,306.
Cambodia also achieved a good score of 77.7 on the Human Assets Index (HAI), which is above the graduation threshold of 66 or more. The country progressed well in the Economic and Environmental Index (EVI) as well with a score of 23.3 (the threshold for this category is 32 or below).
Graduation from the LDC category is a multi-year process that formally starts when a country meets the criteria for the first time at one of the CDP’s triennial reviews. The CDP is mandated to review every three years the list of LDCs and to make recommendations on which countries are to be graduated from the category to the UN General Assembly.
Expectations are that, following graduation, Cambodia will achieve the Upper Middle Income Country status by 2030 and a High-Income Country status by 2050.
It may be noted that Cambodia met the LDC graduation criteria for the first time in 2021. While graduation is considered a development milestone for the country, it also means the loss of several trade benefits enjoyed by LDCs.
It is learnt that Cambodia will no longer be eligible for the standard GSP and the Everything But Arms (EBA) tariff scheme of the EU after it gives up the LDC status. The country is now in the process of checking out favourable trade tariff schemes such as the EU’s GSP Plus.
GSP Plus is a special incentive arrangement of the EU for sustainable development and good governance in vulnerable developing countries that ratified 27 international conventions on human rights, labour rights, environmental protection and climate change, and good governance.
Cambodia should also pursue new free trade agreements (FTAs) and act promptly to accelerate trade reforms to deal with challenges that may arise when it graduates from the LDC status, a blog on the Asian Development Bank (ADB) website suggested.
Cambodia is one of the few LDCs that has dramatically increased its exports to the EU through preferential treatment and lenient rules of origin, allowing its products to enter Europe duty-free.
If not carefully managed, the loss of these preferences may hurt Cambodia’s export performance, the blog by economic consultant Gerald Pascua, Pramila Crivelli, economist with ADB’s economic research and regional cooperation department and Stefano Inama, chief of technical assistance at the UN Conference on Trade and Development (UNCTAD), noted. - Khmer Times
