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On June 16, Grand Twins International PLC, a Taiwan-based garment company, joined the Phnom Penh Water Supply Authority on the Cambodia Securities Exchange (CSX) to become only the second company—and first privately-owned company—to list since the CSX opened in 2011. Grand Twins originally expected to list on the CSX in May. Delays, however, pushed that date back to June 16.
Many had hoped that the Grand Twins listing would help stimulate the largely moribund securities market. However, on the first day of trading Grand Twins shares dropped about 5% from its opening price of $2.40 to $2.28 per share. This could be due to a lack of confidence rising from the recent unrest in the garment industry. However, Stephen Hsu, Chief Executive of Phnom Penh Securities was more optimistic according to a recent Wall Street Journal article: “This can be turned around . . . . Technical issues, such as a lack of liquidity and gaps in securities regulations, need time to be resolved.” Despite this optimism in the days since listing, Grand Twins stock price has continued to drop and is trading at around $2.17 as of today.
Despite the somewhat lackluster opening days for the Grand Twins listing and the thin trading in Phnom Penh Water Supply, another Taiwanese-owned garment company and additional state-owned companies are considering beginning the process of listing on the CSX. Further listings are sorely needed to build the CSX. Despite this slow start to the stock exchange, Cambodia remains an attractive investment destination. If your company is considering investing in Cambodia, our newly-updated Guide to Doing Business in Cambodia provides a good overview of the legal and regulatory environment here.
As the ASEAN integration deadline of 2015 approaches, Cambodia’s attractiveness as an investment destination is increasing apace. As your company assesses investment opportunities around the globe, our newly-updated Guide to Doing Business in Cambodia provides a valuable overview of the legal and regulatory climate in the Kingdom. If you would like further information regarding any of the topics presented in the Guide, please don’t hesitate to contact our legal professionals at: BNG Legal Cambodia.
Today’s Phnom Penh Post has an interview with the President of the new National Arbitration Centre, Ros Monin. The article is entitled “Arbitration centre facing hurdles”, which is a fair assessment. Although a launching ceremony was held earlier this year, the Mr. Ros doesn’t expect the NAC to be able to handle cases until early 2014. One hurdle is funding to construct offices and for startup operations, which he calls on the Ministry of Commerce to contribute. He also describes briefly how the Arbitration Centre will work and opines on the current state of dispute resolution in the Kingdom. Stay tuned
Cambodia is planning to join the Madrid System for the International Registration of Marks by 2015, according to the relevant authorities. The Madrid System greatly simplifies the process for trademark owners to register their rights in multiple countries at a time.
To register one’s trademark in countries outside the Madrid System, as Cambodia currently is, you have to make a separate application with the national authority (in Cambodia that is the Department of Intellectual Property within the Ministry of Commerce). Once Cambodia joins the Madrid System, it will be much easier, quicker, and cheaper for Cambodians to protect their trademarks abroad, and for foreigners to protect theirs in Cambodia. This would be a good development for intellectual property in Cambodia.
Amidst global economic frailty, foreign direct investment in Cambodia grew by an impressive 73% in 2012. The UN’s Word Investment Report, released today, calculates that FDI reached US$1.6 billion last year, compared with US$902 million in 2011. The influx in investment is credited to businesses looking to cut costs in labor intensive industries, particularly the garment sector. Along with Myanmar and Vietnam, Cambodia is touted as a “bright spot” in Southeast Asia, where overall FDI increased by only 2%.
The Report also stresses Cambodia’s strength in greenfield projects in retail banking. Over the past decade, Cambodia’s banking sector attracted the most capital, US$2.3 billion, of any least developed country, and the second highest number of projects, at 56.
From what we’ve seen so far in 2013, FDI remains robust, especially in manufacturing.
With crowded streets and poor enforcement of regulations, road safety is a critical concern in Cambodia. Every year, more than 2,000 people die and over 15,000 are injured on the country’s roads. A coalition of road safety advocates recently called on the Government to pass mandatory comprehensive helmet laws.
Kim Pagna, Country Director of Asia Injury Prevention Foundation Country Director says:
“Motorcycle helmets are proven to reduce the risk of serious injury by 69 percent and of death by 42 percent in a crash, but while motorcycle driver helmet wearing rates are more than 60 percent, fewer than 10 percent passengers wear helmets.”
Economic development means more vehicles on the roads, which means more accidents. Part of the solution is legislative, as the advocates are urging. Unless serious measures are taken to improve the physical infrastructure as well as driving habits, this problem is only going to get worse.
We had the honor of serving yesterday as a judge for the National Moot Court Competition of Cambodia, organized by East-West Management Institute. A moot court is essentially a play trial, where law students prepare a case and argue it in front of a play-judge. This year’s trial involved criminal charges against a man involved in a drunken fight in a Phnom Penh beer hall. A sadly not uncommon fact pattern.
EWMI has been supporting this competition for a number of years now, and the passion and seriousness of the law students is second to none. This is a BIG DEAL for the teams, and a championship brings a lot of pride to the school.
Law students get to experience what it is like to argue a case in front of judges and a live audience. It also trains them in cross-examination techniques and how to think on their toes.
Congratulations goes to this year’s winner, the Royal University of Law and Economics, runners-up National University of Management, and all the contestants!
What do pirated software and t-shirt have in common? More than you might think.
The Information and Communications Technology Business Association of Cambodia is drawing attention to an important issue for garment exporters to consider: their shipments to the USA might be blocked and they could be fined if they are using pirated software.
A number of American states have passed what are known as Unfair Competition Acts that can be used to block the importation of manufactured goods that have made in factories using pirated software. The rationale behind the law is that by not paying licensing fees for the software, these factories can undercut factories in the US that have to pay for their software. The laws are thus meant to protect US industry from this type of unfair competition.
The ICT Business Association recently sent a letter informing the over 300 garment factories in Cambodia of the issue. Pily Wong, President of the association said in a statement:
Garment is one of the largest industry in Cambodia and software piracy rate is very high in the country. Thus, we see a potential risk that the US garment customers stop ordering from the Kingdom in order to avoid short supply because US customs are confiscating and destroying all the products coming from Cambodia. Cambodia is maybe not enforcing IPR in the country, but US Authorities are definitely very active and one day or another, some factories from Cambodia will get hit. Cambodia is exporting billions worth of products to USA every year and over a million jobs in the Kingdom are at stake, we need the garment factories to be compliant in order to protect their business and their workers. Hopefully GMAC will follow up and play a more active role in informing their members about official regulations which may affect their operations and in providing them good advices about compliance.
A factory in China, and another one in India, have already been hit with a lawsuit in California. More suits are likely to follow, and it is possible that a Cambodian exporter is next in line. By conducting an audit of their IT systems and seeking legal advice, factories can ensure they’re in compliance with these laws and ensure access to the US market.
Recently, Cambodia has been a hub of international activity with its hosting of the 2012 ASEAN Summit. This got us thinking about international trade and investment, and we wanted to dive into Bilateral Investment Treaties (BIT). BITs are agreements between countries that are designed to encourage investment. It is an agreement under international law that covers how investments are treated in one country made by investors of the other country. BITs are only entered into by states, not investors, but an investor can enforce her rights directly under the BIT. A business considering committing assets overseas could be worried about being treated unfairly or disadvantaged in a dispute if it must be at the mercy of a foreign court system. A BIT aims to allay these kinds of fears.
As the world has gotten smaller and more connected, international investment has grown accordingly. After WWII, there was no clear framework outlining the rights and responsibilities of investors or host countries. European countries began negotiating investment treaties with developing countries one by one, and soon industrialized countries were entering into investment agreements with each other. Now, BITs seem to cover the globe. Use has exploded in the past few decades. There are currently 2,400 BIT agreements around the world, while in 1988 there were only 300. Cambodia has signed over 20 agreements, but not all of them have become binding. Currently, there are 11 agreements that are enforceable:
- Czech Republic
- South Korea
BITs, although done individually between countries, are very, very similar around the world. Generally, four issues are addressed by any BIT:
- Conditions for the admission of foreign investors to the host state
- Standards of treatment of foreign investors
- Protection against expropriation
- Methods for resolving investment disputes 
While all four issues are important, dispute resolution has gotten the most attention. The treaties only cover disputes that involve one of the countries to the treaty. A dispute between the countries is usually handled differently in the treaty than a dispute between an investor and one of the countries. When it comes to investors, a BIT crucially makes a binding arbitration process available. In Cambodia’s treaties, there is almost always a six month waiting period from when the dispute begins until the investor can bring the matter to arbitration. The treaties can differ in how arbitration is conducted and what forums are available. The International Center for Settlement of Investment Disputes (ICSID), an arm of the World Bank, and the UN Commission on International Trade Law handle many BIT disputes. However, a dispute involving Cambodia might be more likely resolved at the Singapore International Arbitration Center. Resolving a dispute can still be expensive, because the investor needs to not only obtain council, but also cover half of the costs from the arbitrators.
 George M. von Mehren et al., Navigating Through Investor-State Arbitrations: An Overview of Bilateral Investment Treaty Claims, Disp. Resol. J., Feb.-Apr. 2004, at 69, 70.
The Phnom Penh Post has been diligently reporting on the dispute taking place between garment workers and factories. A central issue of the dispute is the use of Fixed Duration Contracts (FDCs) versus Unspecified Duration Contracts (UDCs). The garment industry is hugely important for Cambodia: it represents about 15% of GDP and comprises the vast majority of exports. The workers are almost all women (estimates are about 90%), of which a healthy portion come from rural areas seeking a better life around Phnom Penh. Many of the workers complain that short-term FDCs leave them in a precarious situation, without the long-term security afforded by UDCs.
FDCs and UDCs mainly differ in their requirements and consequences of termination. If an employer wants to get rid of an FDC employee, he can simply decide not to renew her contract, which can last from only a few months to a maximum of two years. While under a UDC, the employer needs a valid reason. FDCs, generally, require the employer to give less notice in the event of actual termination if they decide not to use the non-renewal tactic. The following charts, from our Guide to the Cambodian Labor Law, summarize the relevant legal requirements: