SME participation in ASEAN and East Asian integration : the case of Cambodia

This study employs survey data of 201 firms to explore the impact of trade policy on small- and medium-sized enterprises (SMEs) in Cambodia. The results show that more than half of the surveyed firms were aware of the ASEAN Economic Community (AEC) and larger firms tend to use FTAs more frequently than SMEs. The key reasons identified in the study for not using the FTAs were mainly due to a lack of knowledge and also due to the complexity on the submissions of the required FTA forms. The strong import linkages with ASEAN and East Asia (as compared to export linkages) suggest that Cambodian firms take advantage of sourcing for cheaper intermediate inputs from ASEAN and East Asian economies and then export the final products to the U.S. and EU markets through generalized system of preferences (GSP) and Everything But Arms (EBA) arrangements. The results of the survey indicate that the perception that the AEC has or would decrease their domestic and export sales as well as their profitability, and face more competition in local and foreign markets. On the other hand, they think the AEC has or would decrease import costs and enhance accessibility to intermediate inputs. The impacts are believed to occur through the reduction of import and export tariffs/duties, increase in custom procedures, standards and regulations, recognition of professional qualifications, improved investment processes, and better connectivity. The empirical results indicate that compared to non-users, the active FTA users appear to be larger firms, have higher labour productivity, and have experience with multiple export markets. They are also members of business associations and have higher skill intensity and technological capability. Firm size, higher labour productivity, access to business networks, active use of information and communications technology (ICT), having more experiences with multiple export markets, skilled human capital and technological capability are important factors for firms to use multiple FTAs and participate in regional integration. (J SEA Econ/GIGA)