SME Participation in ASEAN and East Asian Integration: The Case of Cambodia

Abstract

Covering 201 firms, this study employs a questionnaire survey to explore the impact of trade policy on small and medium 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 for not using FTAs were a lack of knowledge and not knowing how to use the forms. The strong import linkages with ASEAN and East Asia (as compared to export linkages) suggest that Cambodian firms take advantage of sourcing 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 surveyed firms hold 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, 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.