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10PHNOMPENH29 2010 INVESTMENT CLIMATE STATEMENT – CAMBODIA

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“244036”,”1/19/2010 0:41″,”10PHNOMPENH29″,

“Embassy Phnom Penh”,”UNCLASSIFIED”,

“09STATE124006|10SINGAPORE1|10SINGAPORE199”,

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FM AMEMBASSY PHNOM PENH

TO RUEHC/SECSTATE WASHDC PRIORITY 1556

INFO RUCNASE/ASEAN MEMBER COLLECTIVE

RUEHBK/AMEMBASSY BANGKOK 2827

RUEHHI/AMEMBASSY HANOI 4118

RUEHHM/AMCONSUL HO CHI MINH 0163

RUCPDOC/USDOC WASHDC

RUCPCIM/CIMS NTDB WASHDC

RUEATRS/DEPT OF TREASURY WASHINGTON DC 0822

RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC”,”UNCLAS SECTION 01 OF 17 PHNOM PENH 000029

 

STATE FOR EAP/MLS, EB/IFD/OIA, EB/TPP/ABT, EEB/TPP/MTA, EEB/TPP/BTA

STATE PASS TO USTR/KLEIN AND WEISEL

STATE PASS TO USTDA/ROSSITER

BANGKOK FOR USAID/CARDUNER, FCS/GRIFFIN

HANOI FOR FAS/BAILEY

HO CHI MINH CITY FOR FAS/ REIDEL

 

SIPDIS

 

E.O. 12958:N/A

TAGS: ECON, EFIN, EINV, ELAB, ETRD, KIPR, OPIC, KTDB, USTR, CB

SUBJECT: 2010 INVESTMENT CLIMATE STATEMENT – CAMBODIA

 

REF: 09 STATE 124006

 

PHNOM PENH 00000029 001.12 OF 017

 

1. Cambodia, a developing country, began the transformation from a

command economy to the free market in the late 1980s. It is now

integrating into the regional and world trading framework. In 1999,

Cambodia joined the Association of Southeast Asian Nations (ASEAN)

and in September 2004, became a member of the World Trade

Organization (WTO). On December 15, 2008 the entry into force of

the ASEAN Charter brought Cambodia and other member states into a

new regional legal framework. Cambodia has shown interest in

participating in other international trading arrangements, including

the Asia-Pacific Economic Cooperation forum (APEC).

 

2. As part of its WTO commitments to strengthen the investment

climate for both foreign and domestic businesses, Cambodia committed

to enact 47 laws or regulations to address areas where existing law

did not meet WTO requirements. Cambodia has been behind schedule in

fulfilling its WTO commitments to pass necessary business

legislation concerning the general business environment, trade in

goods, trade in services, and the protection of intellectual

property rights. However, the country has made progress recently,

passing several significant laws in 2008, including a Law on Plant

Breeder Rights and Law on Civil Aviation, and in 2009, the

government promulgated a Law on Tourism, a Law on Insolvency, and a

sub-decree establishing a national commercial arbitration body. The

government has either completed drafts of most of the remaining

required laws or is waiting for their approval by the legislature.

 

3. Since the re-establishment of a constitutional monarchy in 1993,

the economy has grown steadily. From 2004 to 2008, the economy grew

at an average of approximately 10 percent per year, driven largely

by an expansion in the garment, construction, agriculture, and

tourism sectors. In 2005, exploitable oil and natural gas deposits

were found beneath Cambodia\’s territorial waters, representing a new

revenue stream for the government if commercial extraction begins.

Mining also is attracting significant investor interest,

particularly in the northern parts of the country. However, the

global economic crisis has adversely affected the economy\’s key

pillars and economic growth was expected to contract in 2009.

 

4. Inflation decreased from its sharp rise in 2008, which peaked at

25.7 percent in May 2008 driven largely by the global surge in oil

and food prices. Because the economy is heavily dollarized, a

depreciation of the Cambodian riel and the U.S. dollar against

trading partner currencies contributed to imported inflation, while

rising domestic demand contributed to domestically generated

pressures. However, these pressures lessened in 2009 and Cambodia

recorded an average inflation rate of an estimated 4.5 percent and a

7.5 percent year-on-year inflation rate.

 

5. Foreign Direct Investment (FDI) approved by the Council for the

Development of Cambodia (CDC), Cambodia\’s investment approval body,

has dramatically increased in recent years, with approved proposals

peaking at nearly USD 11 billion in 2008, compared with USD 201

million in 2004. However, figures for the first 10 months of 2009

reveal that investment has slowed significantly to only USD 1.6

billion, an 82 percent decrease compared to total investments in

2008. The CDC does not have a functional mechanism to monitor

implementation of projects, so it is not clear how many proposed

projects are fully implemented. Corruption has been singled out as

one of the most serious deterrents to private investment.

 

6. Since early 1999, the Cambodian government has intensified its

economic reform program, a process the international financial

institutions and donors encourage, participate in, and monitor

closely. In recent years the government has publicly committed

itself on numerous occasions to fighting corruption, pursuing good

governance, and increasing transparency and predictability. This

strategy is set out in phase II of the government\’s latest public

reform effort called the \”Rectangular Strategy for Growth,

Employment, Equity, and Efficiency.\”

 

7. The government has initiated specific measures to promote

business, especially small and medium-sized businesses, by reducing

costs and the time required for business registration and by

establishing a number of committees for business promotion and trade

facilitation.

 

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Openness to Foreign Investment

——————————

 

8. Cambodia officially welcomes foreign direct investment.

Cambodia\’s 1994 Law on Investment established an open and liberal

foreign investment regime. All sectors of the economy are open to

foreign investment and 100 percent foreign ownership is permitted in

most sectors. Article 44 of the Constitution provides that only

Cambodian citizens and legal entities have the right to own land.

However, a new law allowing foreign ownership of properties located

above the ground floor is expected to be passed in 2010. Aside from

this, there is little or no discrimination against foreign investors

either at the time of initial investment or after investment.

However, some foreign businesses have reported that they are at a

disadvantage vis-a-vis Cambodian or other foreign rivals, who engage

in acts of corruption or tax evasion, or take advantage of

Cambodia\’s poor enforcement of legal regulations.

 

9. In addition, there are a few sectors open to foreign investors

which are subject to conditions, local equity participation, or

prior authorization from relevant authorities. These sectors

include manufacture of cigarettes, movie production, rice milling,

exploitation of gemstones, publishing and printing, radio and

television, manufacturing wood and stone carvings, and silk weaving.

The government has issued a sub-decree restricting foreign

ownership of hospitals and clinics and forbidding the employment of

non-Cambodian doctors in any specialty in which the Ministry of

Health considers there to be an adequate number of Cambodian

practitioners.

 

10. Under a sub-decree dated September 2005, Cambodia prohibits

certain investment activities, including investment in production or

processing of psychotropic and narcotic substances, poisonous

chemicals, agricultural pesticides and insecticides, and other goods

that use chemical substances prohibited by international regulations

or the World Health Organization that affect public health and the

environment. Production of electric power by using waste imported

from foreign countries is prohibited, as is forestry exploitation.

 

11. The privatization of state enterprises and transactions

involving state property has not always been carried out in a

transparent manner. In several instances, the public learned that

enterprises were for sale or swap only after the government

announced a sale or deal to a particular buyer.

 

12. Investor rights (investment guarantees) provided for in the Law

on Investment include:

— Foreign investors shall not be treated in a discriminatory

manner by reason of being a foreign entity, except in respect to

land ownership as provided for in the Constitution of the Kingdom of

Cambodia.

— The Royal Government of Cambodia shall not undertake a

nationalization policy that adversely affects the private property

of investors.

— The Royal Government of Cambodia shall not fix the price of

products or fees for services.

— The Royal Government of Cambodia, in accordance with relevant

laws and regulations, shall permit investors to purchase foreign

currencies through the banking system and to remit abroad those

currencies as payments for imports, repayments on loans, payments of

royalties and management fees, profit remittances and repatriation

of capital.

 

13. The following is a summary of Cambodia\’s rankings in

international indexes and the Millennium Challenge Corporation score

card.

 

Measure Year Index/Ranking

TI Corruption Index 2009 2/158

Heritage Economic Freedom 2009 56.6/106

World Bank Doing Business 2010 145/145

MCC Govnt Effectiveness 2009 0.00/05 percent

MCC Rule of Law 2009 -0.20/33 percent

MCC Control Corruption 2009 -0.30/12

MCC Fiscal Policy 2009 -2.4/35 percent

MCC Trade Policy 2009 63.4/36 percent

MCC Regulatory Quality 2009 0.21/65 percent

 

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MCC Business Start Up 2009 0.765/16 percent

MCC Land Rights Access 2009 0.769/88 percent

MCC Natural Resource Mgmt 2009 68.75/61 percent

 

Conversion and Transfer Policies

——————————–

 

14. There are no restrictions on the conversion of capital for

investors. The Foreign Exchange Law allows the National Bank of

Cambodia (the central bank) to implement exchange controls in the

event of a crisis; the law does not define what would constitute a

crisis. The U.S. Embassy is not aware of any cases in which

investors have encountered obstacles in converting local to foreign

currency or in sending capital out of the country.

 

15. The U.S. dollar is widely used and circulated in the economy.

The 2009 exchange rate was stable, although slightly depreciated

compared to 2008. As of December 2009, the exchange rate was USD 1

= 4,164 riel. The government is committed to maintaining exchange

rate stability.

 

Expropriation and Compensation

——————————

 

16. Article 44 of the Cambodian Constitution, which restricts land

ownership to Cambodian nationals, also states that \”the (state\’s)

right to confiscate properties from any person shall be exercised

only in the public interest as provided for under the law and shall

require fair and just compensation in advance.\” Article 58 states

that \”the control and use of state properties shall be determined by

law.\” The Law on Investment provides that \”the Royal Government of

Cambodia shall not undertake a nationalization policy which

adversely affects the private property of investors.\”

 

17. In late 2009, the National Assembly approved the Law on

Expropriation which sets broad guidelines on land-taking procedures

for public interest purposes and defines public interest activities

such as construction of infrastructure projects, development of

buildings for national protection and civil security, construction

of facilities for research and exploitation of natural resources,

and construction of oil pipeline and gas networks.

 

18. In spite of various legal protections, protection of immovable

property rights is complicated by the fact that most property

holders do not have legal documentation of their ownership rights.

Numerous cases have been reported of influential individuals or

groups acquiring property through means not entirely in keeping with

the Constitution or laws. This murky property holding environment

may adversely affect long-term leases and /or corporate social

responsibility goals unless proper due diligence is conducted. Cases

of inhabitants being forced to relocate continued to occur when

officials or businesspersons colluded with local authorities,

although the numbers reported dropped significantly from the

previous year. Human rights NGO ADHOC reported receiving 186 land

related cases during the year. During the same period, another NGO

received 115 land related cases in Phnom Penh and 14 provinces,

affecting a total of 8,806 families. Some of those expelled

successfully contested these actions in court, but the majority of

the cases in the courts were still being processed.

 

19. To date, there are no known investment disputes involving

government expropriation of property belonging to U.S. citizens. Up

to 17 Thai businesses sustained varying degrees of damage during

anti-Thai rioting in Phnom Penh on January 29, 2003. The Cambodian

government pledged to compensate Thai business owners, and all of

claims have been resolved.

 

Dispute Settlement

——————

 

20. Cambodia\’s legal system is a mosaic of pre-1975 statutes

modeled on French law, communist-era legislation dating from

1979-1991, statutes put in place by the UN Transitional Authority in

Cambodia (UNTAC) during the period 1991-93, and legislation passed

by the Royal Government of Cambodia since 1993.

 

21. Cambodian culture and its legal system have traditionally

favored negotiation and conciliation over adversarial conflict and

 

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adjudication. Thus, compromise solutions are the norm, even in

cases where the law clearly favors one party in a dispute. In civil

cases, courts will often try conciliation before proceeding with a

trial.

 

22. Cambodia\’s court system is generally seen as non-transparent

and subject to outside influence. Judges, who have been trained

either for a short period in Cambodia or under other systems of law,

have little access to published Cambodian statutes. Judges can be

inexperienced and courts are often understaffed with little

experience, particularly in adjudicating commercial disputes. The

local and foreign business community reports frequent problems with

inconsistent judicial rulings as well as outright corruption, and

difficulty enforcing judgments. For these reasons, U.S. investors

are reluctant to resort to the courts to resolve commercial

disputes.

 

23. The Cambodian judiciary system is beginning to undergo reform.

To provide the necessary background knowledge, judges and court

staff from around the country are being trained by the Royal Academy

for Judges and Prosecutors, which was created in 2002. In an effort

to clean up the court system, the Prime Minister has announced ad

hoc anti-corruption measures, including the dismissal, replacement,

and transfer of judges and prosecutors. The Supreme Council of

Magistracy, comprised of a president (the King) and eight other

members, is responsible for the appointment and conduct of judges

and prosecutors.

 

24. To address the perception of many Cambodian and foreign

business representatives that the court system is unreliable and

susceptible to external political and commercial influence, the

Cambodian government is finalizing draft legislation to create a

Commercial Court. In July 2009, the government passed a sub-decree

creating a commercial arbitration body, the National Arbitration

Center in the Ministry of Commerce. When the National Arbitration

Center is operational, parties involved in a commercial dispute that

have a written arbitration agreement will be able to settle

commercial disputes by means of quasi-judicial methods without

involvement of the Cambodian courts. Parties will be able to select

arbitrators without direct government interference. The Law on

Commercial Arbitration also allows the Cambodia Chamber of Commerce

to establish its own arbitration center for disputes between members

or between members and third parties. The law also mandates

recognition of arbitral awards made outside of Cambodia.

Arbitration awards can be appealed to the Appellate and Supreme

Court of Cambodia based on limited grounds.

 

25. To handle specific disputes with regard to labor, the Ministry

of Labor and Vocational Training established an Arbitration Council

in May 2003. Basing its decision on the provisions of the Labor

Law, the Council has 30 arbitrators. The Council is an independent

body whose function is to resolve collective labor disputes that the

Ministry is unable to solve by conciliation. The Council\’s

decisions are non-binding but it has been very successful in

reducing the number of industrial actions in the garment sector.

The Council plays a vital role in contributing to the development of

healthy industrial relations in Cambodia. The Council\’s success in

the garment industry has prompted unions in other sectors, e.g., the

hospitality and tourism sectors, to seek the Council\’s arbitration

and mediation services.

 

26. Cambodia became a party to the Convention for the Settlement of

Investment Disputes between States and Nationals of Other States in

2005. In 2009, the International Center for the Settlement of

Investment Disputes (ICSID) approved a U.S. investor\’s Request for

Arbitration in a case against the Kingdom of Cambodia.

 

Performance Requirements and Incentives

—————————————

 

27. The Council for the Development of Cambodia (CDC), Cambodia\’s

foreign investment approval body, administers a package of

investment incentives. The CDC was created as a one-stop shop to

facilitate foreign direct investment.

 

28. Seeking to increase government revenue, the international

financial institutions recommended that the Cambodian government

scale back its investment incentives. Consequently, the Cambodian

 

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government amended the Law on Investment in 2003. The law creates

regimes for profit (20 percent), salary (5 to 20 percent),

withholding (4 to 15 percent), value-added (10 percent) and excise

taxes (rates vary). While some incentives have been eliminated, the

law provides a simplified, more transparent, and faster mechanism

for investment approval.

 

29. Under the amended Law on Investment, the profit tax exemption

is allocated automatically on the basis of activity and minimum

investment amounts as set out in the sub-decree. To maintain the

incentives under the law, qualified investment projects (QIP) are

required to obtain an annual Certificate of Compliance from the CDC

and file this with the annual tax return.

 

30. The amended Law on Investment includes the following

provisions, which include the exemption, in whole or in part, of

customs duties and taxes, for QIPs:

— An exemption from the tax on profit imposed under the Law on

Taxation for a set period. The tax exemption period is composed of

a trigger period + three years + n years (a number of years

determined according to the Financial Management Law and depending

on the economic sector). The maximum allowable trigger period is to

be the first year of profit or three years after the QIP earns its

first revenue, whichever is sooner.

— 100 percent exemption from import duties for construction

material, production equipment and production input materials for

export QIPs and supporting industry QIPs in accordance with the

provisions of the sub-decree on the Implementation of the Amendment

to the Law on Investment

— Transfer of incentives by merger or acquisition.

— Renewable land leases of up to 99 years on concession land for

agricultural purposes and land ownership permitted to joint ventures

with over 50 percent equity owned by Cambodians.

— No price controls on goods produced or services rendered by

investors.

— No discrimination between foreign and local investors.

— 100 percent exemption from export tax or duty, except for

activities specifically mentioned in the Law on Customs.

— Employment of foreign expatriates where no qualified Cambodians

are available. QIPs are entitled to obtain visas and work permits.

— A QIP that is located in a designated special economic zone

(SEZ) is entitled to the same incentives and privileges as other

QIPs as stipulated in the law.

 

31. The September 2005 sub-decree on the Implementation of the

Amendment to the Law on Investment also details investment

activities that are excluded from incentives, although investment is

permitted. They include the following sectors: retail, wholesale,

and duty-free stores; entertainment (including restaurants, bars,

nightclubs, massage parlors, and casinos); tourism service

providers; currency and financial services; press and media related

activities; professional services; and production and processing of

tobacco and wood products.

 

32. Incentives are also excluded in the production of certain

products with an investment of less than USD 500,000 such as food

and beverages; textiles, garments and footwear; and plastic, rubber,

and paper products. Investors are encouraged to refer to the

sub-decree for details of other investment activities that are

excluded from incentives.

 

33. Investment activities that are eligible for customs duty

exemption, but not eligible for the profit tax exemption, are

telecommunication basic services; exploration of gas and oil,

including supply bases for gas and oil activities; and mining.

 

34. Cambodia allows foreign lawyers to supply legal services with

regard to foreign law and international law, and allows them to

supply certain legal services with regard to Cambodian law in

\”commercial association\” with Cambodian law firms. Cambodia\’s WTO

General Agreement on Trade in Services (GATS) commitment defines

\”commercial association\” as any type of commercial arrangement,

without any requirement as to corporate form. Thus, there are no

equity limitations on the practice of foreign and international law

by foreign enterprises and there are no equity limitations on the

formation of \”commercial associations\” under which foreigners may

practice certain legal services with regard to Cambodian law.

 

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35. Investors who wish to take advantage of investment incentives

must submit an application to the Cambodian Investment Board (CIB),

the division of the CDC charged with reviewing investment

applications. Investors not wishing to apply for investment

incentives, or who are ineligible, may establish their company

simply by registering corporate documents with the Department of

Legal Affairs of the Ministry of Commerce. Once an investor\’s

application is submitted, the CDC will issue to the applicant either

a Conditional Registration Certificate or a Letter of Non-Compliance

within three workdays. The Conditional Registration Certificate

will set out the terms, such as approvals, authorization,

clearances, permits or registrations required. If the CDC fails to

issue the Conditional Registration Certificate or Letter of

Non-Compliance within three workdays, then the Conditional

Registration Certificate will be considered approved.

 

36. The CDC has the responsibility to obtain all of the licenses

from relevant government agencies on behalf of investor applicants.

The relevant government agencies must issue the required documents

no later than 28 workdays from the date of the Conditional

Registration Certificate. At the end of the 28 days, the CDC will

issue a Final Registration Certificate.

 

37. The Sub-decree on the Implementation of the Amendment of the

Law on Investment adopted on September 27, 2005 does not require

investors to place a deposit guaranteeing their investment except in

cases in which the deposit is required in a concession contract or

real estate development project. Investors who wish to apply are

required to pay an application fee of seven million riel (approx.

USD 1,750) representing the administration fees for securing the

approvals, authorizations, licenses, or registrations from all

relevant ministries and entities including stamp duty.

 

38. Under a 2008 sub-decree, the CDC is required to submit to the

Council of Ministers for approval investment proposals with an

investment capital of USD 50 million or more; involve politically

sensitive issues; involve the exploration and the exploitation of

mineral or natural resources; may have a negative impact on the

environment; have long-term strategy; or, involve infrastructure

concessions.

 

Right to Private Ownership and Establishment

——————————————–

 

39. There are no limits on the rights of foreign and domestic

entities to establish and own business enterprises or to compete

with public enterprises. However, the Constitution provides that

only Cambodian citizens or legal entities have the right to own

land. A legal entity is considered to be Cambodian when at least 51

percent of its shares are owned by Cambodian citizen(s) or by

Cambodian legal entities. A new law allowing foreign ownership of

properties, such as apartments and condominiums is expected to be

passed in 2010. The current draft stipulates that only properties

located above the ground floor can be foreign-owned, and foreigners

would not be able to own property within 30 kilometers of a national

border.

 

40. Under the 2001 Land Law, foreign investors may secure control

over land through concessions, long-term leases, or renewable

short-term leases. If investors intend to take a long-term lease

interest in land or ownership interest through a 51 percent

Cambodian company, it is essential that caution be exercised to

ensure that clear and unencumbered ownership of the land is

verified.

 

41. The Land Law establishes a comprehensive legal framework for

long-term leasing. The leaseholder has a contractual interest in

the land, which means the lease can be sold or transferred through

succession and can be pledged as security in order to raise

financing. It is also important to make sure that the land

ownership is clearly and legally established before entering into

any leasing agreement.

 

42. Qualified investors approved by the Council for the Development

of Cambodia have the right to own buildings built on leased

property. However the law is unclear as to whether buildings from

qualified projects can be transferred between foreign investors or

whether foreign investors can own buildings built through projects

 

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not approved by the CDC.

 

Protection of Property Rights

—————————–

 

43. Cambodia has adopted legislation concerning the protection of

property rights, including the Land Law and the Law on Copyrights

and Law on Patent and Industrial Design. Cambodia is a member of

the World Intellectual Property Organization (WIPO) and the Paris

Convention for the Protection of Industrial Property.

 

44. Chattel and real property: The 2001 Land Law provides a

framework for real property security and a system for recording

titles and ownership. Land titles issued prior to the end of the

Khmer Rouge regime in 1979 are not recognized due to the severe

dislocations that occurred during the Khmer Rouge period. The

government is making efforts to accelerate the issuance of land

titles, but in practice, the titling system is cumbersome,

expensive, and subject to corruption. The majority of property

owners lack documentation proving ownership. Even where title

records exist, recognition of legal title to land has been a problem

in some court cases where judges have sought additional proof of

ownership. Although foreigners are constitutionally forbidden to

own land, the 2001 law allows long or short-term leases to

foreigners.

 

45. Intellectual property rights (IPR): Cambodia\’s IPR regime is

in compliance with its WTO member commitments; however,

comprehensive enforcement remains problematic. The 1996

U.S.-Cambodia Trade Agreement contained a broad range of IPR

protections, but given Cambodia\’s very limited experience with IPR,

the WTO agreement granted phase-in periods for the Cambodian

government to fully implement IPR protections. On November 9, 2005,

the WTO granted a deadline extension until 2013 for Cambodia and

other least developed countries to enforce copyright laws and begin

accepting patents.

 

46. In a significant step toward consolidating IPR policy-making,

enforcement and technical assistance, the Council of Ministers

created the National Committee for Intellectual Property Management

on September 18, 2008 with its secretariat within the Ministry of

Commerce. This committee is responsible for developing national

policy on intellectual property, strengthening interagency

cooperation, preparing and disseminating new laws and regulations,

and acting as a clearinghouse for technical assistance relating to

the intellectual property sector. This new interagency IPR

committee chaired by the Minister of Commerce includes a broad range

of IPR actors including representatives from the Council of

Ministers and the Ministries of Industry Mines and Energy; Culture

and Fine Arts; Interior; Economy and Finance; Posts and

Telecommunications; Health; Agriculture, Forestry and Fisheries;

Environment; Justice; Education; and Tourism.

 

47. Trademarks: The Cambodian National Assembly approved the Law

Concerning Marks, Trade Names and Acts of Unfair Competition to

comply with Cambodia\’s WTO obligations under the Agreement on

Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Signed in February 2002, the law outlines specific penalties for

trademark violations, including jail sentences and fines for

counterfeiting registered marks. It also contains detailed

procedures for registering trademarks, invalidation and removal,

licensing of marks, and infringement and remedies.

 

48. Since 1991, the Ministry of Commerce has maintained an

effective trademark registration system, registering more than

35,500 trademarks (nearly 6,599 for U.S. companies) under the terms

of a 1991 sub-decree, and has proven cooperative in preventing

unauthorized individuals from registering U.S. trademarks in

Cambodia.

 

49. Despite lacking clear legal authority to conduct enforcement

activities, the Ministry of Commerce has taken effective action

against trademark infringement in several cases since 1998. The

Ministry has ordered local firms to stop using well-known U.S.

marks, including Pizza Hut, McDonalds, Nike, Scotties, Marlboro,

Seven Eleven, and Pringles. In 2009, the Ministry of Commerce

resolved 12 cases of trademark infringements.

 

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50. Copyrights: Copyrights are governed by the Law on Copyrights

and Related Rights, which was enacted in January 2003.

Responsibility for copyrights is split between the Ministry of

Culture and Fine Arts, which handles phonograms, CDs, DVDs, and

other recordings, and the Ministry of Information, which deals with

printed materials. Pirated CDs, videos, textbooks, and other

copyrighted materials are widely available in Cambodian markets and

used throughout the country. Before the adoption of the law, there

were no provisions for enforcement of copyrights.

 

51. To protect and manage their economic rights, authors and

related rights holders are allowed by law to establish a collective

management organization (CMO). The creation of the CMO requires

authorization from either the Ministry of Culture and Fine Arts or

the Ministry of Information, depending on the nature of their work.

The Ministry of Culture and Fine Arts is developing a sub-decree on

collective management. In mid-2007, the Ministry of Culture and

Fine Arts created a Copyright Department which is gradually building

capacity.

 

52. Patents and industrial designs: Cambodia has a very small

industrial base, and infringement on patents and industrial designs

is not yet commercially significant. With assistance from WIPO, the

Ministry of Industry, Mines, and Energy (MIME) prepared a

comprehensive law on the protection of patents and industrial

designs which went into force in January 2003. The law provides for

the filing, registration, and protection of patents, utility model

certificates and industrial designs. The MIME issued a declaration

in June 2006 on granting patents and registering industrial

designs.

 

53. Encrypted satellite signals, semiconductor layout designs, and

trade secrets: The Ministry of Commerce is preparing a draft law

for trade secrets while the Ministry of Industry, Mines, and Energy

is drafting a law on integrated circuit protection. Cambodia has

not yet made significant progress toward enacting required

legislation on encrypted satellite signals, although it obtained a

model law on encrypted satellite signals and semiconductor layout

designs from WIPO in March 1999.

 

54. IPR enforcement: With the exception of the trademark

enforcement, the Cambodian government has taken few significant

actions to enforce its IPR obligations. However, in January 2008,

at the annual conference of the Ministry of Culture and Fine Arts,

the government suggested it would increase prosecutions for

copyright violations on domestically produced products before

expanding prosecutions for foreign products. Cambodian copyright

law allows IPR owners to file a complaint with the authorities to

take action. Law enforcement action taken at the request of owners

is directed against the piracy of domestically produced music or

video products, but not against piracy of foreign optical media.

The owners requesting crackdowns must pay support costs to the

authorities for conducting the operation. Crackdowns on such IPR

violations are not conducted on a consistent basis.

 

55. Infringement of IPR is pervasive, ranging from software,

compact discs, and music, to photocopied books and the sale of

counterfeit products, including cigarettes, alcohol, and

pharmaceuticals. In 2008, the Business Software Alliance estimated

a 95 percent software piracy rate in Cambodia which cost the

industry USD 47 million in 2007. Although Cambodia is not a major

center for the production and export of pirated CDs, videos, and

other copyrighted materials, local businesses report Cambodia is

becoming an increasingly popular source of pirated material due to

weak enforcement. The Ministry of Commerce has plans to put in

place measures to stop IPR-violating products at borders, as

post-inspection mechanisms are unlikely to be effective. During the

TIFA discussions in November 2007, Cambodia requested technical

assistance for a draft sub-decree on Border Measures detailing

procedures at the borders allowing IPR owners to file an application

with customs to suspend clearance of suspected counterfeit goods.

 

Transparency of the Regulatory System

————————————-

 

56. There is no pattern of discrimination against foreign investors

in Cambodia through a regulatory regime. Numerous issues of

transparency in the regulatory regime arise, however, from the lack

 

PHNOM PENH 00000029 009.8 OF 017

 

of legislation and the weakness of key institutions. Investors

often complain that the decisions of Cambodian regulatory agencies

are inconsistent, irrational, or corrupt.

 

57. The Cambodian government is still in the process of drafting

laws and regulations that establish the framework for the market

economy. In addition to existing laws and regulations, in 2009, the

government adopted the Law on Tourism, the Insolvency Law, and a

sub-decree establishing a national commercial arbitration body. A

commercial contract law and other important business-related laws

such as commercial court, e-commerce, telecommunications, and

personal property leasing laws are in draft.

 

58. Cambodia currently has no anti-monopoly or anti-trust statutes.

On a practical level, Cambodia has indicated a desire to discourage

monopolistic trading arrangements in most sectors.

 

59. Cambodia is currently working on the establishment of standards

and other technical measures based on international practice,

guidelines, and recommendations. Under the Law on Standards in

Cambodia, passed in 2007, the Institute of Standards in Cambodia

(ISC) was created within the Ministry of Industry, Mines, and Energy

(MIME) as a central authority to develop and certify national

standards for products, commodities, materials, services, and

practices and operations. The ISC serves as the secretariat of the

National Standards Council which consists of representatives from

various government ministries, state-controlled academic/research

institutions, the private sector, and a consumer representative

created to advise as well as approve standards.

 

60. The ISC has been assigned as the focal point for technical

barriers to trade (TBT) and as the agency responsible for

notifications and publications required by the WTO TBT Agreement.

The Ministry of Health is charged with prescribing standards,

quality control, distribution and labeling requirement for

medicines, but this responsibility may be brought under the ISC in

the future.

 

61. Quality control of foodstuffs, plant and animal products is

currently under the General Directorate of CamControl of the

Ministry of Commerce. Cambodia is a member of the Codex

Alimentarius Commission. Currently CamControl is the national

contact point for Codex Alimentarius. Its primary responsibility is

the enforcement of quality and safety of products and services

relating to sanitary and phytosanitary (SPS) measures. Cambodia was

provided a transition period until January 2007 to implement its WTO

TBT Agreement commitments and until January 2008 to implement its

SPS Agreement commitments, but has not yet fully implemented these

commitments. The RGC plans to adopt a subdecree on Automatic

Adoption of Codex Norms by the end of 2010.

 

62. The Cambodian Constitution and the 1997 Labor Code provide for

compliance with internationally recognized core labor standards.

The law authorizes the Ministry of Labor and Vocational Training to

set health, safety and other conditions for the workplace. (The

\”Labor\” Section of this report discusses the labor situation in more

detail.)

 

63. The National Bank of Cambodia supervises Cambodia\’s banks and

financial institutions while the Ministry of Economy and Finance

regulates the insurance industry. The insurance market in Cambodia

is relatively new, but has recently begun to gain credibility and

expand its scope. Currently, there are a few major insurance

companies operating here such as Asia Insurance, the state-owned

insurance company Caminco, Forte Insurance, Campubank Lonpac

Insurance, and Infinity Insurance. Cambodia Reinsurance Company

(Cambodia Re) is the only reinsurance company in Cambodia

established by the government to carry out reinsurance business

operations for all classes of risk, including general insurance and

life insurance.

 

64. To help Cambodian businesses stay competitive in the world

market, the government introduced specific measures to facilitate

business, in particular exports, by attempting to reduce informal

costs and streamline bureaucratic hurdles. Measures included: (1)

introduction of a joint inspection by CamControl and the Customs and

Excise Department and issuance of a common inspection report valid

for both agencies and the \”Federal Office\” in order to reduce the

 

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amount of time spent applying for export goods inspection; (2) based

on this common report, MIME and the Ministry of Commerce will issue

the Certificate of Processing (CP) and the Certificate of Origin

(CO), respectively; (3) reduction of the costs of registration from

USD 615 to USD 177 and of the time limit for Cambodian government

issuance of registration from 30 days to ten and a half working

days; and (4) reduction of time required to acquire documents

related to the CO and exports and for goods inspection.

 

65. Cambodia has renewed its commitment to creating a favorable

environment for investment and trade and has further committed to

reducing unofficial fees and costs related to imports and exports.

 

Efficient Capital Markets and Portfolio Investment

——————————————— —–

 

66. Cambodia is moving to address the need for capital markets. In

November 2006, the National Assembly passed legislation to permit

the government to issue bonds and use the capital to make up budget

deficits. However no bonds have been issued since 2007 and Prime

Minister Hun Sen said in 2008 that the government does not plan to

issue bonds in the near future. In 2007, the government also passed

the Law on the Issuance and Trading of Non-government Securities,

and, in partnership with the Korean Stock Exchange, plans to

establish a stock market by the end of 2010.

 

67. At the end of November 2009, the Securities and Exchange

Commission of Cambodia (SECC) released a draft administrative order

on equity securities issuance, which is expected to be adopted in

2010. According to the regulation, the issuance of equity

securities in the Cambodia stock market can be private placement or

public offering. Private placement refers to a personal offer that

is made to no more than 30 investors and with an issue size not

exceeding 20 percent of shareholder\’s equity when shareholder\’s

equity is less than USD 4.8 million or with an issue size not

exceeding 15 percent of shareholder\’s equity when shareholder\’s

equity is more than USD 4.8 million during a 12-month period. In

addition, the allotment of equity securities of public offerings are

divided, with a reserve of 20 percent of total public offering for

investors who are Cambodian citizens, and 80 percent of the

remaining public offering amount open to investors who are both

Cambodian and non-Cambodian citizens.

 

68. The Cambodian government does not use regulation of capital

markets to restrict foreign investment. Domestic financing is

difficult to obtain at competitive interest rates. A new law

addressing secured transactions, which includes a system for

registering such secured interests, was promulgated in May 2007.

Most loans are secured by real property mortgages or deposits of

cash or other liquid assets, as provided for in the existing

contract law and land law.

 

69. The total assets of Cambodia\’s banking system as of September

2009 were approximately USD 4.9 billion, an increase of nearly 22

percent from 2008. Loans account for about 49 percent of the

banking system\’s assets. The National Bank of Cambodia (NBC)

reported that the non-performing loans (NPLs) ratio of banks has

increased from 3.7 percent in December 2008 to 5.2 percent in May

2009 and that the rate could reach as high as 10 percent by the end

of the year. Credit disbursement has also slowed, from a growth

rate of 50 percent in 2008 to just 1 percent through the middle of

2009. As of September 2009, credit granted by the commercial banks

amounted to USD 2.4 billion. Loans made to services and the

wholesale and retail sectors accounted for over 40 percent of total

loans. The banking sector has shown significant improvement, but

requires continued progress to gain international confidence.

 

70. Under the amended Law on Banking and Financial Institutions,

all of Cambodia\’s commercial banks had to reapply for licenses from

the NBC and meet new, stricter capital and prudential requirements

by the end of 2001. As a result, there was a significant shakeout

and consolidation within the banking sector with the closure and

liquidation of 12 banks. In September 2008, the National Bank of

Cambodia moved to slow the rapid growth in the number of commercial

banks, which increased by more than 20 percent in the first nine

months of 2008, giving commercial banks without an investment grade

shareholder until the end of 2010 to triple minimum capital from USD

13 million to USD 37 million. In January 2008, Cambodia\’s banks

 

PHNOM PENH 00000029 011.6 OF 017

 

were given their first-ever risk assessment from Standard & Poor\’s

of a \’B+/B\’ rating with stable outlook. Their placement was

alongside that of banks in Venezuela, Bolivia, Ukraine, and Jamaica.

Banks have been free to set their own interest rates since 1995 and

average annual interest rate spread has declined from 15.3 percent

in 2004 to 9.6 percent in May 2009 which reflects an increase in the

interest rate for deposits and a decline in the interest rate for

credit.

 

Competition from State Owned Enterprises

—————————————-

 

71. Private enterprises are allowed to compete with public

enterprises under the same terms and conditions and in general are

not entitled to special trading rights or privileges. However,

certain laws and regulations reserve special rights for the state to

monopolize various services including the Electricity Law which

provides special privilege for the Electricity of Cambodia (EDC) to

provide power transmission to the distribution companies and bulk

power consumers.

 

72. Cambodia has several state-owned enterprises and two

joint-venture enterprises with a majority state holding. These

include rubber plantations and an agricultural inputs company,

infrastructure operating companies, the Phnom Penh Water Supply, the

EDC, the Rural Development Bank, and two joint-venture companies –

telecommunication operator Camintel and Cambodia Pharmaceutical

Enterprise. Currently, the country does not have a sovereign wealth

fund.

 

73. All SOEs are under the supervision of certain line Ministries

or government institutions and are overseen by boards of directors

drawn from among senior government officials. The Law on Audit

established the National Audit Authority and empowers the Auditor

General to conduct audits of state-owned enterprises. The audit

conducted by the Auditor General\’s Office primarily focuses on

compliance with rules governing SOE financial management. Limited

information is publicly available on the financial position and

performance of state-owned enterprises.

 

74. Cambodia has yet to pass the Law on Competition as part of its

WTO accession obligations. Under the draft law, a National

Committee on Competition will be established. However, the 1993

Constitution of Cambodia provides for the state to take necessary

intervention measures to protect the competitive process of the

marketplace as well as to protect consumer welfare.

 

Corporate Social Responsibility (CSR)

————————————-

 

75. CSR is a new concept to Cambodia and is not widely understood

among local producers or consumers. However, certain labor and

social standards have been established in key industries,

particularly in the garment sector. Under the terms of the 1999

U.S.-Cambodia Trade Agreement, the U.S. Government committed to

increase the size of Cambodia\’s garment export quota if the country

could demonstrate improvements in labor standards. This was the

first bilateral trade agreement to positively link market access

with progress in compliance with labor obligations. Currently labor

standard monitoring in the garment sector is being conducted by the

International Labour Office (ILO) in coordination with the

government. The ILO project succeeded in improving compliance with

labor standards, virtually eliminating the worst labor abuses such

as forced labor and child labor within the garment sector. Socially

responsible businesses continue to source garments from Cambodia due

to its well-deserved reputation for high labor standards.

 

76. Currently, the ILO\’s Better Work and Better Factories Cambodia

program is developing a training package on planning and

implementing the transition of the inspections regime towards

substantial compliance with international labor standard such as the

OECD Guidelines for Multinational Enterprises. In addition, several

multinational enterprises conduct CSR programs in Cambodia which are

viewed favorably by the local community.

 

Political Violence

——————

 

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77. Cambodia is relatively peaceful compared to its pre-UNTAC

history. Election-related violence has decreased in each national

election held at five-year intervals since 1993. Cambodia\’s 2007

commune council elections followed by the July 2008 National

Assembly election had little of the pre-election violence or

intimidation that preceded the 2002 and 2003 elections. The 2007

and 2008 polls resulted in clear victories for the Cambodian

People\’s Party, with the Sam Rainsy Party emerging as the main

opposition party.

 

78. Cambodian political activities have turned violent in the past,

and the possibility for politically motivated violence remains.

During the anti-Thai riots in 2003, the Royal Embassy of Thailand

and Thai-owned commercial establishments were attacked. In November

2006, police arrested six people for allegedly plotting to conduct

bomb attacks in Phnom Penh during the Water Festival.

 

79. On July 29, 2007, three improvised explosive devices (IEDs)

were planted at the Vietnam-Cambodia Friendship Monument in Phnom

Penh. One of the IEDs partially exploded, but the others failed to

detonate and were recovered by Cambodian authorities. No one was

injured. On January 2, 2009, two undetonated IEDs were found near

the Ministry of National Defense and state-owned TV3. While there

is no indication these incidents were directed at U.S. or other

Western interests, the possibility remains that further attacks

could be carried out.

 

80. Following the July 2008 UNESCO World Heritage Site listing of

the Preah Vihear Temple, thousands of Thai and Cambodian soldiers

amassed in a few isolated areas along the Thai-Cambodian border,

particularly near the disputed Preah Vihear temple area. Since

then, soldiers have clashed near the temple resulting in deaths on

both sides, but the outbreaks of violence have been rare and lasted

only a few hours. Both the Thai and Cambodian governments have

committed to a peaceful resolution of the dispute.

 

Corruption

———-

 

81. Despite increasing investor interest, Cambodia continues to

rank poorly on global surveys of competitiveness and corruption.

According to the World Economic Forum\’s Global Competitiveness

Report 2009-2010, Cambodia\’s competitiveness ranking slipped by one

point to 110 of 133 countries surveyed, a reversal of the one point

climb to 109 in the 2008-2009 report (of 134 countries). The World

Bank also ranked Cambodia in the lower half of the list, 145 of 183,

on business climate. In 2009, Cambodia scored 2.0 on a scale of 0

(highly corrupt) to 10 (highly clean) in Transparency

International\’s Corruption Perceptions Index, ranking 158 out of 180

countries assessed, suggesting widespread and endemic forms of

corruption.

 

82. Business people, both local and foreign, have identified

corruption, particularly within the judiciary, as the single biggest

deterrent to investment in Cambodia. Corruption was cited by a

plurality of respondents to the World Economic Forum survey as the

most problematic factor for doing business in Cambodia. A 2007

USAID-funded survey of the Phnom Penh Chamber of Commerce also found

that corruption is considered to be the main obstacle for doing

business.

 

83. Public sector salaries range from USD 25-60 per month for

working level officials, and around USD 2000 per month for

high-ranking officials. Although there is an annual salary increase

of 10-15 percent, these wages are far below the level required to

maintain a suitable quality of life in Cambodia, and as a result,

public employees are susceptible to corruption and conflicts of

interest. Local and foreign businesses report that they must often

pay extra facilitation fees to expedite any business transaction.

Additionally, for those seeking to enter the Cambodian market, the

process for awarding government contracts is not transparent and is

subject to major irregularities.

 

84. Current Cambodian laws and regulations and their application

are insufficient to address the problem of corruption. Laws dating

from the UNTAC period (1991-93) against embezzlement, extortion, and

bribing public officials exist, but are enforced rarely, often for

political reasons.

 

PHNOM PENH 00000029 013.8 OF 017

 

85. Cambodia is not a signatory to the OECD Anti-Bribery

Convention, but has endorsed the ADB/OECD Anti-Corruption Action

Plan for Asia and the Pacific. In 2007, the government signed a

regional anti-corruption pact with eight other ASEAN countries, and

in September of the same year, also signed the UN Convention Against

Corruption. Cambodia is considering joining the Extractive

Industries Transparency Initiative governing the oil sector.

 

86. Cambodia is under increasing pressure from donors to address

the issue of good governance in general, and corruption in

particular. Cambodia began efforts to draft and enact

anti-corruption legislation in the 1990\’s. In a draft action plan

on good governance presented to donors in May 2000, Cambodia

promised to pass anti-corruption legislation by late 2001. Since

then, donors have become increasingly frustrated with the

government\’s failure to meet a series of benchmarks to enact new

anti-corruption legislation.

 

87. However, in October, the National Assembly passed a new Penal

Code, which the government has long stated was a prerequisite to the

heavily anticipated anti-corruption law. In December, the Cambodian

government finally approved the draft anti-corruption law which is

expected to be approved by the National Assembly in 2010. Under the

new law, all civil servants would be obliged to declare their

financial assets to the government every two years.

 

88. The Ministry of National Assembly-Senate Relations and

Inspection (MONASRI) has an anti-corruption mandate, but is largely

inactive. In 2007, however, MONASRI, with technical assistance from

USAID, created a draft Access to Information Policy. The draft has

yet to be forwarded to the Council of Ministers. The government

also created an anti-corruption commission within the cabinet in

late 1999, which has undertaken a few investigations, one of which

resulted in the dismissal of a mid-level official in late 2001.

Also in 2001, the government established a National Audit Authority,

which has been only marginally effective because of its lack of

transparency and independence.

 

89. Ignoring the existing anti-corruption commission, the

government established the Anti-Corruption Unit (ACU) in August

2006, a temporary body designed to address corruption until the

anti-corruption legislation is passed. The mission of the ACU is to

focus on preventing corruption, strengthening law enforcement, and

obtaining public support for combating corruption. However the ACU

is considered to be ineffective because of its lack of independence

and capacity.

 

90. In its most comprehensive reform strategy, the Rectangular

Strategy Phase II, adopted as the government platform in 2008 after

phase I in 2004, the Cambodian government once again renewed its

commitment to fight corruption and make good governance the

centerpiece of reform. The strategy acknowledges the importance of

taking action against corruption, but the challenge remains a

daunting and long-term one that will require political will at the

highest levels of the government.

 

Bilateral Investment Agreements

——————————-

 

91. Cambodia has signed bilateral investment agreements with

Australia, China, Croatia, Cuba, the Czech Republic, France,

Germany, Indonesia, Kuwait, Japan, Laos, Malaysia, the Netherlands,

North Korea, the Organization of the Petroleum Exporting Countries

(OPEC), Pakistan, the Philippines, Singapore, South Korea,

Switzerland, Thailand, and Vietnam. Future agreements with Algeria,

Bulgaria, Burma, Egypt, Hungary, Libya, Malta, Qatar, Russia, the

United Kingdom, and Ukraine are planned. The agreements provide

reciprocal national treatment to investors, excluding benefits

deriving from membership in future customs unions or free trade

areas and agreements relating to taxation. The agreements preclude

expropriations except those that are undertaken for a lawful or

public purpose, are non-discriminatory, and are accompanied by

prompt, adequate and effective compensation at the fair market value

of the property prior to expropriation. The agreements also

guarantee repatriation of investments and provide for settlement of

investment disputes via arbitration.

 

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92. In addition, in July 2006, Cambodia signed a Trade and

Investment Framework Agreement (TIFA) with the United States, which

will promote greater trade and investment in both countries and

provide a forum to address bilateral trade and investment issues.

Two very successful meetings were held under the TIFA in 2007 in

which the U.S. and Cambodian governments discussed WTO accession

requirements, trade facilitation and economic development

initiatives, and progress on intellectual property rights. Since

then, several bilateral working level meetings have been held to

advance the TIFA agenda.

 

OPIC and Other Investment Insurance Programs

——————————————–

 

93. Cambodia is eligible for the Quick Cover Program under which

the Overseas Private Investment Corporation (OPIC) offers financing

and political risk insurance coverage for projects on an expedited

basis. With most investment contracts written in U.S. dollars,

there is little exchange risk. Even for riel-denominated

transactions, there is only one exchange rate, which is fairly

stable. Cambodia is a member of the Multilateral Investment

Guarantee Agency (MIGA) of the World Bank, which offers

political-risk insurance to foreign investors.

 

94. The Export-Import Bank of the United States (Ex-Im Bank)

provides financing for purchases of U.S. exports by private-sector

buyers in Cambodia on repayment terms of up to seven years. Ex-Im

Bank support typically will be limited to transactions with a

commercial bank functioning as an obligor or guarantor; however, it

will consider transactions without a bank undertaking on a

case-by-case basis.

 

Labor

—–

 

95. The country has an economically active population (defined as

being ten years of age and older) of some 8.8 million people out of

a population of 13.4 million. While government statistics are

somewhat higher, they do not fully capture the problems of

unemployment and underemployment in Cambodia.

 

96. The economy is not able to generate enough jobs in the formal

sector to handle the large number of entrants to the job market.

This dilemma is likely to become more pronounced over the next

decade. Cambodia suffers from a large demographic imbalance.

According to the 2008 General Population Census of Cambodia,

Cambodia\’s annual population growth rate is 1.54 percent. Persons

20 years of age or younger account for 48.1 percent of the total

population. As a result, over the next decade at least 275,000 new

job seekers will enter the labor market each year.

 

97. Approximately 65 – 70 percent of the labor force is engaged in

subsistence agriculture. At the end of 2009, about 278,000 people,

the majority of whom are women, were employed in the garment sector,

with 300,000 Cambodians employed in the tourism sector, and a

further 50,000 people in construction.

 

98. The 2009-2010 Global Competitiveness Report of the World

Economic Forum identified an inadequately educated workforce as one

of the most serious problems in doing business in Cambodia. Given

the severe disruption to the Cambodian education system and loss of

skilled Cambodians during the 1975-79 Khmer Rouge period, workers

with higher education or specialized skills are few and in high

demand. A Cambodia Socio-Economic Survey conducted in 2004 found

that about 12 percent of the labor force has completed at least an

elementary education. Only 1.2 percent of the labor force completed

post-secondary education.

 

99. Overall literacy, for those aged fifteen and over, is 75.1

percent with male literacy rates considerably higher than those for

females in both urban and rural areas. Many adults and children

enroll in supplementary educational programs, including English and

computer training. Employers report that Cambodian workers are

eager to learn and, when trained, are excellent, hardworking

employees.

 

100. Cambodia\’s 1997 labor code protects the right of association

and the rights to organize and bargain collectively. The code

 

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prohibits forced or compulsory labor, establishes 15 as the minimum

allowable age for paid work, and 18 as the minimum age for anyone

engaged in work that is hazardous, unhealthy or unsafe. The statute

also guarantees an eight-hour workday and 48-hour work week, and

provides for time-and-a-half pay for overtime or work on the

employee\’s day off. The law gives the Ministry of Labor and

Vocational Training (MOLVT) a legal mandate to set minimum wages

after consultation with the tripartite Labor Advisory Committee. In

January 2007, the minimum wage for garment and footwear workers was

officially set at USD 50 per month. In April 2008, a USD 6 per

month cost of living allowance was instituted to offset high levels

of inflation. There is no minimum wage for any other industry. To

increase competitiveness of garment manufacturers, the labor code

was amended in 2007 to establish a night shift wage of 130 percent

of day time wages.

 

101. Acleda Bank, a local commercial bank, is currently managing

Cambodia\’s first National Social Security Fund (NSSF), which

protects workers against occupational risks and workplace accidents.

The fund was established by sub-decree in 2007 and requires

employers to contribute 0.8 percent of each employee\’s salary to the

NSSF. As December 29, 2009, approximately 350,000 workers, most

from the garment sector, contribute to the fund through their

employer. The Cambodian government has responded to the global

economic crisis by temporarily contributing 0.3 percent towards the

NSSF on behalf of employers for two years (2009-2010) which has

resulted in a reduction of employers\’ obligation from 0.8 percent to

0.5 percent of total wages. A second phase of the fund, to be

implemented in 2010, will focus on health care for employees,

followed by pensions in 2012.

 

102. Enforcement of many aspects of the labor code is poor, albeit

improving. Labor disputes can be problematic and may involve

workers simply demanding conditions to which they are legally

entitled. In labor disputes in which workers complain of poor or

unhealthy conditions, MOLVT and the Ministry of Commerce have

ordered the employer to take corrective measures. The U.S.

Government, the ILO, and others are working closely with Cambodia to

improve enforcement of the labor code and workers\’ rights in

general. The U.S.-Cambodia Bilateral Textile Agreement linked

Cambodian compliance with internationally recognized core labor

standards with the level of textile quota the U.S. granted to

Cambodia. While the quota regime ended on January 1, 2005, a

\”Better Factories\” program continues to build on the labor standards

established.

 

Foreign Trade Zones

——————-

 

103. To facilitate the country\’s development, the Cambodian

government has shown great interest in increasing exports via

geographically defined special economic zones (SEZs), with the goal

of attracting much-needed foreign direct investment.

 

104. The government is preparing a Law on Special Economic Zones

which will define SEZs and establish the rules under which they will

operate. The law may be submitted for approval of the Council of

Ministers in 2010.

 

105. In late December 2005, the Council of Ministers passed a

sub-decree on Establishment and Management of Special Economic Zones

to speed up the creation of the zones. The sub-decree details

procedures, conditions and incentives for the investors in the

zone.

 

106. Since issuing the sub-decree, the Cambodia Special Economic

Zones Board (CSEZB) has approved 21 SEZs as of December 2009, of

which 4 are in operation, located near the borders of Thailand and

Vietnam, and in Phnom Penh, Kampot, and Sihanoukville.

 

Foreign Investment Statistics

—————————–

 

107. Foreign Direct Investment (FDI) proposals approved by the

Council for the Development of Cambodia (CDC) have dramatically

increased in recent years, with approved FDI reaching USD 10.9

billion in 2008, compared with USD 201 million in 2004. However, FDI

inflows declined dramatically to only USD 1.6 billion as of October

 

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2009 due to the impact of the global economic crisis. FDI registered

capital however, has been modest since 1995, with an average inflow

of USD 304 million in the period 1995-2008. The FDI registered

capital figures probably understate actual investment, since they

report only registered capital and not fixed assets. CDC statistics

for fixed assets, however, are based on projections, and the CDC has

no effective monitoring mechanism to determine the veracity of the

numbers. The FDI registered capital flow into Cambodia is uneven

and gradually declined from USD 135 million in 1999 to USD 30

million in 2003, but rose to USD 105 million in 2009.

 

108. Total FDI registered capital flows into Cambodia for the years

1998-2009 are presented in the table below, in USD million.

(Source: CDC) (Note: statistics from the National Bank of Cambodia

differ significantly from CDC\’s figures.)

 

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

320 135 74 81 50 30 45 383 209 473 260 105

 

109. Figures from the CDC for registered capital of approved

projects, including domestic investment, and broken down by country

of origin and economic sector, are provided below. The FDI

registered capital figures below may overstate investment because

they include projects that have not yet been, or may never be, fully

implemented and retention of dormant or defunct projects from

earlier years makes the investment figures appear higher.

 

110. Total cumulative registered investment projects approved, by

country of origin, August 1994 to October 2009 (source: CDC)

 

Country USD millions Pct.

Malaysia 1,736 32.17

Cambodia 1,526 28.28

China 603 11.17

Taiwan 405 7.50

Thailand 221 4.09

Singapore 199 3.68

South Korea 170 3.15

U.K. 132 2.44

USA 71 1.31

Vietnam 69 1.27

Indonesia 55 1.01

Australia 55 1.01

France 42 0.77

Japan 24 0.44

Other 88 1.63

Total 5,396 100

 

111. Total cumulative registered investment capital by sector, from

January 1998 to October 2009 (source CDC)

 

Sector USUSD millions Number of Projects

Industry 1,538.7 748

– Food Processing 93.5 13

– Garments 469.4 421

– Petroleum 212.2 9

– Wood Processing 100.3 17

– Footwear 33.8 27

Agriculture 209.6 90

Services 342.8 81

– Construction 64.6 15

– Telecommunications 94.5 16

Tourism 446.4 98

Total 2537.5

 

112. New investment projects in USD million, by country of origin,

2004-2009(source: CDC)

 

Country 2004 2005 2006 2007 2008 2009

Malaysia 7.81 0.6 2.5 19.8 1 na

Cambodia 15 78.5 116.8 264.3 99.8 17.6

U.S. 2.1 2.2 4.3 6.5 12.3 1

Taiwan 4.6 4.1 16.4 14 9.5 5

Singapore 1.6 5.3 3.8 1 12 5.5

China 24 38 28.3 40.4 37.9 34.5

South Korea 4.1 16 4.5 22 19.5 5.2

Hong Kong na 0.3 1.5 0.6 na 1

France 0.6 0.4 na 0.3 2.3 1.6

 

PHNOM PENH 00000029 017.10 OF 017

 

Thailand 2 15 10 13.8 30.6 15.5

U.K. 1.5 1 1 1.5 1 2

Canada 1.7 0.6 1.5 na 4.8 1

Indonesia na na na na na 1

Australia na 7 na 3.5 1 na

Japan 0.7 na 1 7.5 4.6 1

Other na na 8.1 78.5 4.1 11

Total 65.71 169 199.7 473.7 240.4 102.9

 

113. New investment projects in USD million, by sector, 2004-2009

(source: CDC)

 

Sector 2004 2005 2006 2007 2008 2009

Industry 53.5 325 173.4 269.9 90 56.7

– Food Processing 1 na 22 24 4 2

– Garments 19 54 41.9 45.1 49 20

– Petroleum 1 200 na na na 9.2

– Wood Processing 1 na na 2 na 2

– Mining na 30 1 149 4 7

Agriculture 2 4 2 50.1 26 32.5

Services 5 32 16.3 127.2 43 4

– Construct 3 31 6 5 1 na

– Telecom na na na 42.2 2 2

– Infrastructure na na na 65 na 1

Tourism 5.5 18 18 33.5 101 12

Total 66 379 209.7 480.7 260 105.2

 

114. The CDC has registered approximately USD 71 million in U.S.

investment since August 1994. Caltex has a chain of service

stations and a petroleum holding facility in Sihanoukville; Crown

Beverage Cans Cambodia Limited, a part of Crown Holdings Inc.,

produces aluminum cans; and Chevron is actively exploring offshore

petroleum deposits. W2E Siang Phong Co., Ltd., a joint venture

between U.S.- Dutch investors, invested in biogas power generation.

There are also U.S. investors in a number of Cambodia\’s garment

factories.

 

115. In 2008, several Cambodia-focused private equity funds emerged

seeking to raise between USD 100 and USD 500 million each for

investments in infrastructure, agriculture, tourism, and real estate

development, among other sectors. However it appears the global

economic slowdown is limiting fund-raising abilities, and widespread

investments by these funds have not yet materialized.

 

116. Major non-U.S. foreign investors include Asia Pacific

Breweries (Singapore), Asia Insurance (Hong Kong), ANZ Bank

(Australia), BHP Billiton (Australia), Oxiana (Australia), Infinity

Financial Solutions (Malaysia), Total (France), Cambodia Airport

Management Services (CAMS) (France), Samart Mobil Phone (Malaysia),

Shinawatra Mobile Phone (Singapore), Thakral Cambodia Industries

(Singapore), Petronas Cambodia (Malaysia), Charoeun Pokphand

(Thailand), Siam Cement (Thailand), and Cambrew (Malaysia).

 

117. Since 2007, several well-known U.S. companies opened or

upgraded their presence in Cambodia. General Electric and DuPont

have established representative offices. Otis Elevators, a division

of United Technologies, also upgraded to a branch office, and

Microsoft initiated a presence through its Market Development

Program.

 

118. Some major local companies and their sectors are: Sokimex

(petroleum, tourism, garment), Royal Group of Companies (mobile

phone, telecommunication, banking, insurance), AZ Distribution

(construction, telecommunication), Mong Rethy Groups (construction,

agro-industry, rubber and oil palm plantation), KT Pacific Group

(airport project, construction, tobacco, food and electronics

distribution), Hero King (cigarettes, casinos and power), Anco

Brothers (cigarettes, casinos and power), Canadia Bank (banking and

real estate), Acleda Bank (microfinance), and Men Sarun Import and

Export (agro-industry, rice and rubber export).

 

119. In 2009 Acleda Bank opened its first bank branch outside of

Cambodia in Laos, and has announced plans for further expansion into

Vietnam and China. Statistics on Cambodian investment overseas are

not available, but such investments are likely minimal.

 

RODLEY

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Written by thaicables

July 22, 2011 at 9:38 am

06BANGKOK5075 NEW ANTI-PIRACY MOU BRINGS MALLS INTO THE FIGHT

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“75348”,”8/18/2006 10:26″,”06BANGKOK5075″,

“Embassy Bangkok”,”UNCLASSIFIED”,

“06BANGKOK3477″,”VZCZCXYZ0011

RR RUEHWEB

 

DE RUEHBK #5075 2301026

ZNR UUUUU ZZH

R 181026Z AUG 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 1048

RUCPDOC/USDOC WASHDC”,”UNCLAS BANGKOK 005075

 

SIPDIS

 

SIPDIS

 

STATE PASS USTR

USDOC FOR JKELLY, SWILSON

USDOC PASS USPTO

 

E.O. 12958:N/A

TAGS: ECON, KIPR, TH

SUBJECT: NEW ANTI-PIRACY MOU BRINGS MALLS INTO THE FIGHT

 

REF: BANGKOK 3477

 

1. Summary: On August 16, 39 representatives from Thai law

enforcement, government, IP rights holders and retail establishments

signed a new Memorandum of Understanding (MOU) on prevention and

suppression of intellectual property piracy. Owners of malls where

pirated goods are widely available have been brought in under the

MOU for the first time and given duties and responsibilities for

preventing sales of illegal merchandise by lease holders in their

establishments. The new MOU is a modest step forward in IPR

enforcement, but rights holders consider it an important one. End

Summary.

 

2. The new MOU replaces a June 2004 MOU, and is based largely on

the earlier version. The MOU sets out responsibilities for IPR

owners, law enforcement, local authorities and the RTG Department of

Intellectual Property, and for the first time owners of noted retail

establishments where pirated products are sold. Retailers were

hesitant to sign earlier drafts of the MOU, recognizing that the MOU

delineated a number of duties and responsibilities for them but no

apparent benefits. Mall owners had stated concerns over liability

issues, and managed to include a clause holding rights holders

responsible for compensation for damages if a shop\’s lease was found

to have been unjustly terminated for piracy. In the end, only one

mall owner, MBK, declined to sign the MOU.

 

3. Rights holders applauded the MOU\’s inclusion of store owners,

signifying it as an important step in encouraging cooperation from

malls that have traditionally turned a blind eye to piracy.

However, they recognized that implementation would be a different

story and have realistic expectations on how much can be

accomplished. Nevertheless, movie and recording industry reps said

they planned to follow carefully the MOU\’s provisions and hold mall

owners to their commitments. The Motion Picture Association\’s local

rep suggested that recalcitrant mall owners could be brought up on

conspiracy charges for aiding sales of illegal merchandise if they

failed to cooperate.

 

4. The MOU is also notable for its inclusion of the Department of

Special Investigations (DSI) (similar to the U.S. FBI), and the

Bangkok Metropolitan Authority (BMA), which has responsibility over

street vendors. DSI has shown enthusiasm in taking on IPR

infringement cases, but BMA expressed doubts over its limitations in

controlling street sales of pirated goods. Its commitment to the

MOU is questionable, but as with retailers, rights holders are happy

to have them under the same tent.

 

So much for cleaning the streets

——————————–

 

5. RTG plans to sweep the streets clean of piracy for June and July

in celebration of the King\’s 60th year on the throne (reftel) were a

bust. With the exception of one week when all street vendors,

including fruit carts and craft vendors, were kept off the streets

no concerted efforts against piracy took place. After the one week

break, pirate retailers returned to the streets in force with no

apparent impact on sales.

 

6. Ironically, on August 1, the day after the special enforcement

period had ended, police made their biggest seizure of the year,

raiding two houses and netting 300,000 pirated CDs and DVDs. A

hapless employee who drove up to one of the houses as the raid began

had his Toyota SUV seized as well as a thousand discs found inside

the vehicle. Altogether police seized 42,191 music CDs and 35,465

movie DVDS. The rest of the booty was \”series movies\” including

sets of TV series \”Lost\”, \”24\”, and popular Korean soap operas.

BOYCE

Written by thaicables

July 13, 2011 at 5:24 am

06BANGKOK4978 THE ECONOMICS OF PIRACY (AND WHY IT\’S NOT GOING AWAY)

leave a comment »

“74986”,”8/16/2006 2:57″,”06BANGKOK4978″,

 

“Embassy Bangkok”,”UNCLASSIFIED”,””,”VZCZCXRO1350

RR RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #4978/01 2280257

ZNR UUUUU ZZH

R 160257Z AUG 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 0947

RUCPDOC/USDOC WASHDC

RUCNASE/ASEAN MEMBER COLLECTIVE”,”

UNCLAS SECTION 01 OF 03 BANGKOK 004978

 

SIPDIS

 

SIPDIS

 

USDOC FOR JKELLY, SWILSON

USDOC PASS USPTO FOR PFOWLER

 

E.O. 12958:N/A

TAGS: KIPR, TH

SUBJECT: THE ECONOMICS OF PIRACY (AND WHY IT\’S NOT GOING AWAY)

 

1. Summary. Low risk, low investment, and exceptionally high

returns are strong and consistent motives for distributors and

retailers to start, and stay, in business in the optical disc piracy

industry. Setting up shop to sell pirated discs involves dealing

with both organized crime and local law enforcement, but is

nevertheless considered a worthwhile profitable business,

particularly for small business owners with few other opportunities.

Legitimate CD stores have reduced prices to try to compete with

pirate shops, but price differences are still substantial and

prospects are bleak. As long as margins remain high and other

employment and business opportunities are seen as less remunerative,

enforcement efforts are unlikely to put a permanent dent in the

piracy business. End summary.

 

So you want to open a pirate CD stall

————————————-

 

2. In a series of interviews, pirate retailers candidly explained

their motivation for setting up their small businesses. (Note:

Econoff is Thai-American and did not identify himself in interviews

as an Embassy employee.) For young Thais with few prospects, a

pirate CD shop is a low-cost means to begin a potentially highly

profitable business. One retailer at pirate-infested Pantip Plaza

told Econoff of her upbringing in a poor family, and said that her

parents could not support her and that she could never pay for

higher education. She claimed that she had very few options and

getting involved in piracy was her best choice to make money.

Capital costs for starting a pirate shop are relatively low and even

her family\’s modest financial situation was sufficient to begin her

small yet profitable shop. However, the money comes with risk as

well; she told Econoff she is constantly worried about the police,

and is always on the lookout, though had yet to be caught.

 

3. Nearly all retailers interviewed had no college education, and

related that few other business opportunities were available to

them. One retailer had a Business Administration degree from a

well-known local university, but told Econoff that the financial

return selling bootleg optical discs was far superior to other

legitimate job offers that he received upon graduation.

 

4. Market entrance costs can be minimal. The City Law Enforcement

Department (CLED), a branch of the Bangkok Metropolis Authority,

controls operations on public streets and authorizes establishment

of street stalls on about 300 public streets. All vendors must

receive a license to do so directly from the CLED, but the city

collects no application fee and charges no rent. Although

officially cost-free to open a street stall, a common practice is

for one person to acquire many licenses for the same street, then

rent out stalls to other vendors who wish to open shops. Rental

prices vary according to the frequency of shoppers of that

particular street, anywhere from 100 baht (USD 2.50) per day on a

less-trafficked street to 100,000 baht (USD 2500) for a prime

location. This practice became illegal in 2005 and the CLED is

making efforts to eliminate the practice. Like many enforcement

agencies, however, the CLED admits it is making little progress in

cleaning up the illegal renting activities and it seems doubtful

that these practices will stop any time soon. The Deputy Director

General noted that organized crime often has a hand in these types

of illegal rent operations, making enforcement all that more

difficult.

 

5. Similar rental practices take place in private malls, though

costs increase dramatically. Outlandishly high rent costs or down

payments can be the norm in a popular mall, and only high-profit

retailers, such as optical disc piracy retailers, can afford the

space. Pirate retailers told Econoff that space was at such a

premium that commonly many different retailers will share space and

the cost of rent in an area meant for a single shop. Often, a shop

will appear to be a single shop that sells different types of

optical discs, but each person in that area is a separate retailer

with their own products. They keep the profits of whatever they

individually sell but split the cost of rent with the other

retailers.

 

6. Though entrance costs can be low, other barriers await an

aspiring pirate. A retailer must have connections in the

supply-chain before being able to access the supply of pirated

optical disc merchandise, according to enforcement authorities.

Similar to the drug world, only a trusted person will be able to

gain entry into the pirate world. New retailers are often sent on a

wild goose chase for their first supply shipment, told to change

locations over and over until the supplier is satisfied that law

enforcement is not following. Even then, supplies and payments are

kept separate. The organizations that run these operations are

cautious about undercover agents and choose wisely whom they will

trust.

 

Profits and Costs

—————–

 

BANGKOK 00004978 002 OF 003

 

7. Extremely high profit margins for pirated optical disc sales are

consistent incentives for the pirate industry. Pirated music CDs

and DVDs usually sell on the street for 100 baht and software for

130 baht. According to a Royal Thai Police Colonel active in

enforcement, the cost of making a single disc from a factory is

between 10 to 15 baht, depending on the quantity produced. The

wholesale price of a CD from the distributor typically ranges

between 25 and 40 baht, depending on the quantity purchased by the

individual retailer, and rarely exceeds 50 baht. (Note: current

exchange rate is 38 baht/dollar.) The Motion Picture Association

estimates that a sale of a retail pirated movie of a DVD-5 (4.7 GB)

will bring in about a 50 percent profit; a DVD-9 (8.5 GB) will bring

a 100 percent profit. DVD-9s sell for a price of 200 baht.

Multiply those profit margins by the hundreds of thousands of discs

produced annually, and the piracy business becomes a multi-million

dollar industry that produces more than enough revenue to cover all

other costs. Retailers consider the incredible amount of potential

money to be made to be more than worth the risk of getting caught.

 

8. There are several other fixed costs aside from the costs of

creating the actual disc. The deep involvement between organized

crime, government, and police in the piracy business creates a

continual need for bribery funds and bail money for jailed

retailers. Front line police officers are constantly paid off to

turn a blind eye to piracy activities and for tips on raids.

Thousands of discs are also seized by enforcement authorities each

year, resulting in losses for retailers of millions of baht.

Recording industry sources say that criminal organizations keep

thugs on the payroll for protection of their markets at the ground

level. Retailers are usually spared these costs as the powers above

them handle it. But even adding in these risks and external costs,

the piracy business still pulls in enough money to continue to

operate smoothly.

 

9. Incomes for shop employees are substantial, and retailers manage

to keep risks relatively low. A common practice by retailers is to

hire minors under 14 years old to run day-to-day business,

retrieving and sending discs to customers. Police have little

interest in arresting minors and courts have even less interest in

prosecuting. According to recording group Phonorights Thailand,

minor employees are paid a relatively handsome salary of 6,000 to

10,000 baht (USD 160 to 260) per month.

 

Legitimate retailers compete, barely

————————————

 

10. Legitimate sales in the 4 billion baht (USD 106 million) music

industry are down 40 percent this year, according to industry rep

Phonorights Thailand. Phonorights gave three reasons for the

precipitous decline. First is the recent economic downturn, leading

consumers to choose to save money by buying cheaper, pirated music,

or no music at all. Second, a new type of music customer has hit

the market in recent years, with behavioral patterns that advocate

piracy. The younger generation\’s main experience with accessing

music is through pirated CDs and internet downloads and has little

experience buying legitimate product. Finally, supply of pirated

CDs is on the upswing owing to a surge of imported pirated CDs from

China and other neighboring countries, such as Malaysia and Burma.

 

11. Thai music makes up between 60 to 70 percent of the music market

in Thailand, but local industry is struggling against the effects of

piracy. Grammy, the leading record label in Thailand, reported a

loss this year for the first time in 20 years. To combat piracy,

and facing mounting pressure from the government, Grammy dropped

prices three years ago from 250 baht to 150 baht per disc. Company

reps said the strategy succeeded the first year but customers

quickly returned to the pirate market. Grammy responded by

requesting artists to produce more albums per year and increase

quality, which met limited success.

 

12. The international market has also been suffering recently.

Rumors abound that international music retailer CD Warehouse is

going out of business, and their general manager confirmed that

sales were low and declining. He predicted that the entire

legitimate music retail industry would be out of business within

five years. He recalled that when international record labels cut

prices from 400 baht to 250-300 baht several years ago to combat

piracy, sales stayed stagnant. A recent survey by the MPA showed

that, surprisingly, the primary reason Thais purchased pirated DVDs

was to avoid the censorship present in legitimate product.

Additionally, pirated discs for newly released movie titles are

available on DVD much faster and in more sales locations than

legitimate versions, often accessible the day after the movie is

released in theatres. Pricing was surprisingly found to be the

least important reason, though still a key motivator.

 

13. Comment: The recording, movie and software industries have long

pushed Thai authorities for stronger enforcement actions to combat

 

BANGKOK 00004978 003 OF 003

 

the widespread piracy of their products. However, it seems

increasingly clear that enforcement faces a long uphill battle

against not only the forces of organized crime and public apathy,

but the primal forces of the market. With low capital and

production costs and high margins, pirate disc shops will continue

to be an attractive small business opportunity. And while price and

accessibility of pirated discs exceeds that of legitimate product,

consumers show no signs of declining demand. End comment.

BOYCE

Written by thaicables

July 13, 2011 at 5:18 am

06BANGKOK3477 CLEANING UP PIRACY FOR THE KING

leave a comment »

67208″,”6/8/2006 10:23″,”06BANGKOK3477″,

 

“Embassy Bangkok”,”UNCLASSIFIED”,””,”VZCZCXYZ0018

RR RUEHWEB

 

DE RUEHBK #3477/01 1591023

ZNR UUUUU ZZH

R 081023Z JUN 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 9394

RUCPDOC/USDOC WASHDC”,”UNCLAS BANGKOK 003477

 

SIPDIS

 

SIPDIS

 

STATE PASS USTR

USDOC FOR JKELLY, SWILSON

USDOC PASS USPTO FOR PFOWLER

 

E.O. 12958:N/A

TAGS: ECON, KIPR, TH

SUBJECT: CLEANING UP PIRACY FOR THE KING

 

1. Summary: In honor of the 60th anniversary of the KingQs

accession to the throne, Thailand has declared war on intellectual

property piracy, pledging to sweep the streets and malls clean of

pirated goods for the whole of June and July. Police and other

enforcement authorities will be taking the campaign nationwide, but

most efforts will be directed at the so-called \”Red Areas\”, where

piracy is particularly rampant. Little has been accomplished thus

far into the campaign, but a new MOU being negotiated between

enforcement authorities, rights holders and mall owners give hope

that IPR enforcement will be improved beyond the next two months.

End summary.

 

2. Police General Ukrit Patchimsawat, who replaced the

much-respected General Nopadol to take charge of IP enforcement, has

issued a directive to the 1400 police stations nationwide to put

together IPR suppression units for each force and assign an officer

to coordinate enforcement actions in their area. Enforcement

actions are to be undertaken at a higher tempo for the next two

months to keep the streets clear of any embarrassing sales of

illegal merchandise during the KingQs anniversary celebrations.

Piracy suppression will not be centrally directed, rather each

police precinct will have responsibility for taking enforcement

action in their locale and are required to submit regular reports to

central headquarters on their progress. General Ukrit has organized

two police teams to monitor police efforts and convince recalcitrant

stations to get with the program.

 

3. Department of Intellectual Property (DIP) officials insisted to

Econoff that this would not be just a showcase event, but hopes are

not high in the local IP community that the suppression campaign

will amount to a serious assault on piracy. On past occasions the

RTG has swept piracy away temporarily, as it did during the APEC

meetings in Bangkok in 2003, but the enforcement campaigns were

never sustained. The campaign was to have begun in earnest on June

1, but police have yet to make a real impact on sales of pirated

goods in any of the more notorious areas. A quick walk through IT

malls in Bangkok showed sales of pirated goods at the usual rampant

level. However, authorities apparently have had no difficulty

clearing all vendors (including pirated merchandise sellers as well

as noodle and satay carts) off the sidewalks of major thoroughfares

in a bid to clean the streets during the celebrations. The Bangkok

Metropolitan Authority (BMA) that regulates street sales simply told

vendors to take two weeks off. A few notorious sites for bootleg

sales have disappeared as part of the overall street cleaning, but

there is little doubt they will be back after the celebrations have

ended.

 

4. Some of the delay in enforcement can be attributed to protracted

negotiations over an MOU to manage the enforcement effort. On May

18, Deputy Minister of Commerce Preecha Louhapongchana convened a

meeting between enforcement authorities, rights holders and mall

owners to hammer out a new MOU to replace an earlier version signed

in June 2004. The draft MOU is based largely on the previous

version, but includes several provisions for which rights holders

 

have been lobbying for years.

 

5. The draft MOU calls for cooperation from department stores and

malls to terminate the leases of shops selling pirated merchandise.

In cases where DIP informs the mall owner that a tenant has been

prosecuted for IP offenses, the owner will be obligated to terminate

the lease. In the MOU negotiations, mall owners have bridled at

taking on that responsibility, concerned they may be exposed to

liability from lessees.

 

6. The draft MOU also outlines specific geographical areas and

malls where sale of infringing products is particularly severe,

identifying the worst as \”red areas\” and less severe as \”yellow

areas\”. Responsibility for IP enforcement in red areas is to be

conducted by RTG authorities who will regularly inspect the areas on

an ex officio basis. IP rights holders will lead enforcement

efforts in yellow areas, identifying potential targets and suspect

infringers for police action. Controversial is the proposal that

rights holders not settle arrests and seizures made in red areas.

It is, and will continue to be, legal to drop charges in an arrest

case in exchange for a financial settlement, but police hope a

gentlemanQs agreement with rights holders not to settle will improve

their enforcement efforts in the worst areas.

 

7. The Department of Special Investigations, set up to undertake

large-scale criminal investigations, is also party to the MOU and is

being recruited to follow up on police arrests and put increased

resources into pursuing in-depth investigations into pirate

organizations. Rights holders have long complained about the

refusal or inability of local police to conduct investigations,

typically closing the books on a case after an arrest, regardless of

any evidence found of further complicity. As a result, court

dockets have filled with cases of small-time dealers of infringing

product while the masterminds stay safely above the fray.

8. Comment: Although little is expected from the current

suppression campaign, a new MOU gives hope for long-term improvement

in IPR enforcement. Rights holders hope that any serious

enforcement action taken during this two-month period will at least

set a precedent for the future. The local IP community gives credit

to General Ukrit, who is committed and has put together a dedicated

team to tackle IP enforcement. End Comment.

BOYCE

Written by thaicables

July 12, 2011 at 4:50 am

06BANGKOK3237 SEED PIRACY IN THAILAND: A “GROWING” PROBLEM

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“65786”,”5/30/2006 7:27″,”06BANGKOK3237″,

“Embassy Bangkok”,”UNCLASSIFIED”,

“06BANGKOK3237″,”VZCZCXRO0683

PP RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #3237/01 1500727

ZNR UUUUU ZZH

P 300727Z MAY 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC PRIORITY 9131

INFO RUCNASE/ASEAN MEMBER COLLECTIVE PRIORITY

RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

RUEHRC/USDA FAS WASHDC PRIORITY 0715”,

“UNCLAS SECTION 01 OF 03 BANGKOK 003237

 

SIPDIS

 

SIPDIS

 

STATE PASS USTR

COMMERCE PASS USPTO FOR DKEATING AND PFOWLER

 

E.O. 12958: N/A

TAGS: KIPR, EAGR, TH

SUBJECT: SEED PIRACY IN THAILAND: A \”GROWING\” PROBLEM

 

1. Summary: Behind the headlines of record losses to

optical disc and trademark piracy in Thailand lies a less

known but equally serious form of intellectual property

infringement. Plant breeders in Thailand have seen their

plant varieties and the seeds derived from them, which

typically take years and large capital investments to breed,

copied and sold by small-time seed dealers. Thailand passed

a Plant Variety Protection Act in 1999 to protect these

investments, but delays in implementing regulations and

registration procedures has meant that enforcement is

non-existent. Seed firms look forward to enforcement of

rights to their new plant varieties, but in the meantime are

using their own security tactics to protect their valuable

products. End Summary.

 

Seed sales flowering, but piracy growing like a weed

——————————————— ——-

 

2. Thailand is a net exporter of seed for both field crops

(corn, rice, soybeans, etc.) and vegetables, and a growing

site of seed production and research and development for

breeding new plant varieties. The Thai seed market is

estimated at over USD 200 million in annual sales, mostly in

field crops. Thailand imported about USD 11 million in seed

in 2005, but exported approximately USD 35 million worth and

projections are for that number to triple in the next five

years. The U.S. and Japan are the top export destinations.

Multinationals control about 80 percent of the field crop

seed market, but Thai firms are dominant in vegetable seed

sales.

 

3. Like most intellectual property, new plant varieties

are costly and time consuming to develop, but cheap and easy

to copy. Seed firms in Thailand develop their products the

old-fashioned way, selecting plants with desirable properties

such as high yield and resistance to disease and insects,

then cross breeding them to develop improved varieties.

After development and testing in field trials, the firms

contract with local farmers to grow the new and improved

variety to produce seed for sale to farms around the country

and for export. As Thailand\’s seed market began growing in

the 1990s, seed piracy grew right along with it. Seed

pirates, usually small-time sellers in rural areas but also

increasingly more sophisticated operations, purloin firms\’

new plant varieties by either surreptitiously stealing the

parent lines of the new hybrid from test fields or paying off

contract farmers for a sample. The pirates then reproduce

the new breed on their own farms and sell the resulting seed.

(Note: Genetically modified crops are not authorized in

Thailand, but there is anecdotal evidence that some farmers

are growing bootlegged GM cotton and papaya without

authorization.)

 

4. Mr. Manas Chiravavonda, director of Chia Tai, the

largest vegetable seed seller in Thailand, couldn\’t put a

figure on the percentage of seed piracy, but labeled it

\”huge\”, a problem affecting both Chia Tai\’s domestic sales

and exports. Monsanto reps estimated the piracy rate at

single digits, but saw it as a growing problem. Field theft

accounts for much of the piracy, but Manas said firms\’ own

employees were perhaps the greatest danger. Manas described

how one of Chia Tai\’s employees recently quit the company,

walked out the door with the company\’s latest line of melon

seeds and immediately set up his own business selling the

seeds to the Indonesia market. Without a means to protect

their variety, Chia Tai was helpless to prevent the theft.

\”It\’s the wild West out here,\” says Manas.

 

5. To combat seed theft firms have developed a raft of

security procedures, from stationing security guards around

contract farms and research fields to growing and storage

protocols to prevent pirates from getting the latest variety.

Chia Tai treats plant development as a trade secret, keeping

research under tight wraps and in house to prevent

disclosure. The firm develops new varieties more quickly

than before and releasing them earlier, trying to stay one

step ahead of the pirates. Simon Jan de Hoop, Director of

R&D for East-West Seed, said their farms grow the male and

female parents of a new hybrid in different fields, making it

more difficult for pirates to get both keys to the new plant.

When possible multinationals like Monsanto keep the parent

lines back in the home country.

 

6. To further avoid piracy, seed firms are moving

production bases offshore to China, India, and Thailand\’s

ASEAN neighbors, particularly countries where the seed

variety to be sold in Thailand is not being sold locally.

Although piracy occurs in these countries as well, pirates

 

BANGKOK 00003237 002 OF 003

 

are less familiar with the plant material and the risk is

consequently lower. However, seed firms worry that the

pirates are developing their own international connections,

working with partners in other countries to pilfer the best

new varieties.

 

PVP Act yet to reap benefits

—————————-

 

7. Thailand passed the Plant Variety Protection (PVP) Act

in 1999 to extend intellectual property rights to new crop

varieties, but many implementing regulations have yet to be

promulgated and registration of new varieties is only now set

to begin. East West\’s Simon de Hoop blamed some of the

delays on staff turnover in the Ministry of Agriculture, but

considered the staff capable and knowledgeable about the

issues. Nevertheless, until varieties are officially

registered there exist no legal restrictions to prevent a

seed pirate from freely selling another seed firm\’s variety.

\”It\’s free to steal,\” says Chia Tai\’s Manas.

 

8. The Ministry of Agriculture\’s (MoA) Plant Variety

Protection Office has responsibility for examining and

approving new plant varieties. Under the PVP Act only

certain crops can be protected; at the moment MoA accepts

applications for 33 crop varieties though plans are in the

works to add more crops to the protected list. Breeders can

request additional crop varieties to be added, and though the

variety must meet a set of criteria, MoA says that in

practice breeders are unlikely to be turned down. MoA has

accepted 99 applications for new plant variety protection in

the two years since they began accepting applications, but

only recently got closer to issuing approvals for the first

batch: 14 new varieties of orchids. If a new variety is

commercialized, MoA requires that one percent of revenues be

paid into a plant variety protection fund to go towards

conservation and community development projects. The fund

contribution is considered compensation for use of Thai

genetic resources in developing the product. Firms that do

not use Thai plant resources are exempt from the fund payment.

 

9. The PVP Act provides protection for new plant varieties

for between 12 to 27 years depending on the plant. The Act

lays out penalties for unauthorized sales of a protected

variety, up to two years imprisonment and/or a USD 10,000

fine, though there has yet to be a case filed. Mr. Sakorn

Tripetchposal of Pioneer Hi-bred said that a DNA

fingerprinting laboratory at Kasetsart (Agriculture)

University was available to seed firms and could offer proof

within days that a protected variety had been counterfeited.

Sakorn looks forward to enforcement authorities bringing seed

pirates to court, but it is uncertain whether authorities

will take this form of piracy any more seriously than they

have other IP piracy in Thailand. Without active involvement

from police, firms would be forced to resort to bringing

lawsuits against infringers and hoping for damages. East

West Seeds, which is expecting a new sweet corn variety to be

approved soon, said they were prepared to enforce their

rights, but were concerned that in the end a legal suit may

not be worth the cost to bring an infringer to justice.

 

10. In recent negotiations for a U.S.-Thai Free Trade

Agreement, Thai negotiators resisted a U.S. proposal for

Thailand to join the International Union for the Protection

of New Varieties of Plants (UPOV in the French acronym).

Thailand\’s PVP Act is based in large part on an earlier

version of the convention, UPOV 1978, but the 1991 updated

version tightens protections for plant breeders that Thai IP

experts consider not in Thailand\’s best interests. Dr. Tanit

Changthavorn of Biotec, part of the Ministry of Science and

Technology, explained that the RTG had concerns over UPOV\’s

restrictions on farmers saving seed for the next harvest,

resource issues on protecting all crop varieties rather than

only select crops, and the lack of a requirement for benefit

sharing for the use of local plant resources in breeding new

varieties. Some seed firms said that although they would

support Thailand joining the UPOV convention, they considered

the PVP Act to contain sufficient protection for their new

varieties and were substantially more concerned with

proceeding with enforcement of the current law.

 

11. Comment: Not as visible as the rampant trade in

counterfeit CDs, DVDs and Billabong shorts on the streets of

Bangkok, seed piracy is nevertheless having an economic

impact on Thailand, specifically on farmers, a population

perhaps least able to afford an economic blow. Firms have

been unwilling to conduct in-depth research into new

vegetable varieties that have relatively low sales, and

 

BANGKOK 00003237 003 OF 003

 

improvements in yield have lagged compared with the more

lucrative field crops. Counterfeits of new plant varieties

are typically not properly controlled in production and

farmers do not have access to detailed information on

fertilizer and herbicide spraying techniques and timing for

the new varieties, resulting in higher costs and lower

production yields. Hopes are high among plant breeders that

enforcement of the PVP Act can turn this situation around,

but it is an open question whether the police or courts will

take the crime seriously enough to put a dent in piracy. End

comment.

BOYCE

Written by thaicables

July 11, 2011 at 8:25 am

06BANGKOK4978 THE ECONOMICS OF PIRACY (AND WHY IT’S NOT GOING AWAY)

with one comment

“74986”,”8/16/2006 2:57″,”06BANGKOK4978″,

“Embassy Bangkok”,”UNCLASSIFIED”,””,”VZCZCXRO1350

RR RUEHCHI RUEHDT RUEHHM RUEHNH

DE RUEHBK #4978/01 2280257

ZNR UUUUU ZZH

R 160257Z AUG 06

FM AMEMBASSY BANGKOK

TO RUEHC/SECSTATE WASHDC 0947

RUCPDOC/USDOC WASHDC

RUCNASE/ASEAN MEMBER COLLECTIVE”,”

UNCLAS SECTION 01 OF 03 BANGKOK 004978

SIPDIS

SIPDIS

USDOC FOR JKELLY, SWILSON

USDOC PASS USPTO FOR PFOWLER

E.O. 12958:N/A

TAGS: KIPR, TH

SUBJECT: THE ECONOMICS OF PIRACY (AND WHY IT\’S NOT GOING AWAY)

1. Summary. Low risk, low investment, and exceptionally high

returns are strong and consistent motives for distributors and

retailers to start, and stay, in business in the optical disc piracy

industry. Setting up shop to sell pirated discs involves dealing

with both organized crime and local law enforcement, but is

nevertheless considered a worthwhile profitable business,

particularly for small business owners with few other opportunities.

Legitimate CD stores have reduced prices to try to compete with

pirate shops, but price differences are still substantial and

prospects are bleak. As long as margins remain high and other

employment and business opportunities are seen as less remunerative,

enforcement efforts are unlikely to put a permanent dent in the

piracy business. End summary.

So you want to open a pirate CD stall

————————————-

2. In a series of interviews, pirate retailers candidly explained

their motivation for setting up their small businesses. (Note:

Econoff is Thai-American and did not identify himself in interviews

as an Embassy employee.) For young Thais with few prospects, a

pirate CD shop is a low-cost means to begin a potentially highly

profitable business. One retailer at pirate-infested Pantip Plaza

told Econoff of her upbringing in a poor family, and said that her

parents could not support her and that she could never pay for

higher education. She claimed that she had very few options and

getting involved in piracy was her best choice to make money.

Capital costs for starting a pirate shop are relatively low and even

her family\’s modest financial situation was sufficient to begin her

small yet profitable shop. However, the money comes with risk as

well; she told Econoff she is constantly worried about the police,

and is always on the lookout, though had yet to be caught.

3. Nearly all retailers interviewed had no college education, and

related that few other business opportunities were available to

them. One retailer had a Business Administration degree from a

well-known local university, but told Econoff that the financial

return selling bootleg optical discs was far superior to other

legitimate job offers that he received upon graduation.

4. Market entrance costs can be minimal. The City Law Enforcement

Department (CLED), a branch of the Bangkok Metropolis Authority,

controls operations on public streets and authorizes establishment

of street stalls on about 300 public streets. All vendors must

receive a license to do so directly from the CLED, but the city

collects no application fee and charges no rent. Although

officially cost-free to open a street stall, a common practice is

for one person to acquire many licenses for the same street, then

rent out stalls to other vendors who wish to open shops. Rental

prices vary according to the frequency of shoppers of that

particular street, anywhere from 100 baht (USD 2.50) per day on a

less-trafficked street to 100,000 baht (USD 2500) for a prime

location. This practice became illegal in 2005 and the CLED is

making efforts to eliminate the practice. Like many enforcement

agencies, however, the CLED admits it is making little progress in

cleaning up the illegal renting activities and it seems doubtful

that these practices will stop any time soon. The Deputy Director

General noted that organized crime often has a hand in these types

of illegal rent operations, making enforcement all that more

difficult.

5. Similar rental practices take place in private malls, though

costs increase dramatically. Outlandishly high rent costs or down

payments can be the norm in a popular mall, and only high-profit

retailers, such as optical disc piracy retailers, can afford the

space. Pirate retailers told Econoff that space was at such a

premium that commonly many different retailers will share space and

the cost of rent in an area meant for a single shop. Often, a shop

will appear to be a single shop that sells different types of

optical discs, but each person in that area is a separate retailer

with their own products. They keep the profits of whatever they

individually sell but split the cost of rent with the other

retailers.

6. Though entrance costs can be low, other barriers await an

aspiring pirate. A retailer must have connections in the

supply-chain before being able to access the supply of pirated

optical disc merchandise, according to enforcement authorities.

Similar to the drug world, only a trusted person will be able to

gain entry into the pirate world. New retailers are often sent on a

wild goose chase for their first supply shipment, told to change

locations over and over until the supplier is satisfied that law

enforcement is not following. Even then, supplies and payments are

kept separate. The organizations that run these operations are

cautious about undercover agents and choose wisely whom they will

trust.

Profits and Costs

—————–

BANGKOK 00004978 002 OF 003

7. Extremely high profit margins for pirated optical disc sales are

consistent incentives for the pirate industry. Pirated music CDs

and DVDs usually sell on the street for 100 baht and software for

130 baht. According to a Royal Thai Police Colonel active in

enforcement, the cost of making a single disc from a factory is

between 10 to 15 baht, depending on the quantity produced. The

wholesale price of a CD from the distributor typically ranges

between 25 and 40 baht, depending on the quantity purchased by the

individual retailer, and rarely exceeds 50 baht. (Note: current

exchange rate is 38 baht/dollar.) The Motion Picture Association

estimates that a sale of a retail pirated movie of a DVD-5 (4.7 GB)

will bring in about a 50 percent profit; a DVD-9 (8.5 GB) will bring

a 100 percent profit. DVD-9s sell for a price of 200 baht.

Multiply those profit margins by the hundreds of thousands of discs

produced annually, and the piracy business becomes a multi-million

dollar industry that produces more than enough revenue to cover all

other costs. Retailers consider the incredible amount of potential

money to be made to be more than worth the risk of getting caught.

8. There are several other fixed costs aside from the costs of

creating the actual disc. The deep involvement between organized

crime, government, and police in the piracy business creates a

continual need for bribery funds and bail money for jailed

retailers. Front line police officers are constantly paid off to

turn a blind eye to piracy activities and for tips on raids.

Thousands of discs are also seized by enforcement authorities each

year, resulting in losses for retailers of millions of baht.

Recording industry sources say that criminal organizations keep

thugs on the payroll for protection of their markets at the ground

level. Retailers are usually spared these costs as the powers above

them handle it. But even adding in these risks and external costs,

the piracy business still pulls in enough money to continue to

operate smoothly.

9. Incomes for shop employees are substantial, and retailers manage

to keep risks relatively low. A common practice by retailers is to

hire minors under 14 years old to run day-to-day business,

retrieving and sending discs to customers. Police have little

interest in arresting minors and courts have even less interest in

prosecuting. According to recording group Phonorights Thailand,

minor employees are paid a relatively handsome salary of 6,000 to

10,000 baht (USD 160 to 260) per month.

Legitimate retailers compete, barely

————————————

10. Legitimate sales in the 4 billion baht (USD 106 million) music

industry are down 40 percent this year, according to industry rep

Phonorights Thailand. Phonorights gave three reasons for the

precipitous decline. First is the recent economic downturn, leading

consumers to choose to save money by buying cheaper, pirated music,

or no music at all. Second, a new type of music customer has hit

the market in recent years, with behavioral patterns that advocate

piracy. The younger generation\’s main experience with accessing

music is through pirated CDs and internet downloads and has little

experience buying legitimate product. Finally, supply of pirated

CDs is on the upswing owing to a surge of imported pirated CDs from

China and other neighboring countries, such as Malaysia and Burma.

11. Thai music makes up between 60 to 70 percent of the music market

in Thailand, but local industry is struggling against the effects of

piracy. Grammy, the leading record label in Thailand, reported a

loss this year for the first time in 20 years. To combat piracy,

and facing mounting pressure from the government, Grammy dropped

prices three years ago from 250 baht to 150 baht per disc. Company

reps said the strategy succeeded the first year but customers

quickly returned to the pirate market. Grammy responded by

requesting artists to produce more albums per year and increase

quality, which met limited success.

12. The international market has also been suffering recently.

Rumors abound that international music retailer CD Warehouse is

going out of business, and their general manager confirmed that

sales were low and declining. He predicted that the entire

legitimate music retail industry would be out of business within

five years. He recalled that when international record labels cut

prices from 400 baht to 250-300 baht several years ago to combat

piracy, sales stayed stagnant. A recent survey by the MPA showed

that, surprisingly, the primary reason Thais purchased pirated DVDs

was to avoid the censorship present in legitimate product.

Additionally, pirated discs for newly released movie titles are

available on DVD much faster and in more sales locations than

legitimate versions, often accessible the day after the movie is

released in theatres. Pricing was surprisingly found to be the

least important reason, though still a key motivator.

13. Comment: The recording, movie and software industries have long

pushed Thai authorities for stronger enforcement actions to combat

BANGKOK 00004978 003 OF 003

the widespread piracy of their products. However, it seems

increasingly clear that enforcement faces a long uphill battle

against not only the forces of organized crime and public apathy,

but the primal forces of the market. With low capital and

production costs and high margins, pirate disc shops will continue

to be an attractive small business opportunity. And while price and

accessibility of pirated discs exceeds that of legitimate product,

consumers show no signs of declining demand. End comment.

BOYCE

Written by thaicables

June 22, 2011 at 4:43 am