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Apr 01, 2014

Investment Law to be Amended - A Call for Comments

By Bretton G. Sciaroni, Senior Partner, Sciaroni & Associates
The long-awaited amendment to the Law on Investment (LOI) will be considered later this year. At the March 4th meeting of the Working Group on Law, Tax and Governance, H.E. Sok Chenda, Secretary General of the Council for the Development of Cambodia (CDC) and Senior Minister attached to the Office of the Prime Minister, announced consultations will occur this year on the LOI. However, he also said that the necessary pre-condition to the enactment of the LOI amendments is the adoption of an industrial development policy, which is currently under consideration.
By way of background, Cambodia’s LOI, considered to be one of the most liberal in Asia in terms of benefits to investors, was originally enacted on August 5, 1994 and amended a decade later on March 24, 2003. Considerable pressure from international financial institutions such as the World Bank and the International Monetary Fund to modify the law resulted in reduction or elimination of a number of the incentives originally provided in the 1994 LOI.. As a trade off, the licensing procedures at the CDC’s Cambodian Investment Board were expedited.
The current effort is being undertaken at the initiative of the Royal Government, and is at least one year old. For example, at a EuroCham luncheon on January 22, 2013, H.E. Sok Chenda announced that amendment of the LOI was a priority for the Royal Government and that they were looking toward enactment of the amendments by year’s end. Thereafter, the CDC/CIB engaged experts from the Japan International Cooperation Agency (JICA) to review the current law. It is believed that they are also looking at amending the sub-decree on the establishment of Special Economic Zones (SEZ) as well.
The JICA team had at least one consultation with the private sector to date. On August 15, 2013, they met with the Working Group on Law, Tax and Governance. Although  the JICA team could not discuss the preliminary results of their analysis, they did take comments from members of the business community who were present. Many of the issues raised by the business community had to do with tax exemptions for Qualified Investment Projects and related issues. However, an array of other issues were raised including phased investment periods, use of debt capital and secured lending, M&A issues, dispute resolution, and labor issues. Also, issues concerning the efficiency and role of the CDC/CIB in expediting the process were discussed as well.
A second consultation took place with the private sector on December 12, 2013, and was hosted by the World Bank and its experts on investment laws. It is noteworthy that neither consultation to date has had the participation of the Royal Government. But both consultations served the purpose of prompting the business community to start to consider what amendments to the current law could be made to enhance investment in Cambodia.
The World Bank’s expert posited that the current law lacks some of the investment protection standards that characterize other investment laws and treaties (such as Bilateral Investment Treaties). A variety of issues were raised, such as fair and equitable treatment, non-discrimination, appropriate compensation, etc.
At the Working Group meeting on February 19th , 2014, the private sector raised the issue concerning when consultations would occur on the amendments to the LOI. The representative of the Royal Government stated that although amendments had been drafted to the LOI, consideration of them would be postponed until after the industrial development policy had been adopted.  After that event occurs, consultations with the private sector and development partners will be held, as well as submitting the amendments to the inter-ministerial process. It should be noted that, in conjunction with the amendment to the LOI, the tax laws likely will have to be amended as well, as was the case in the 2003 amendments.
Later in 2014, consultations will be initiated by the Royal Government concerning this important issue. Notifications will be communicated to interested readers who would like to participate in consultations, and all comments will be welcome once we have the draft amendments.
For more information regarding the consultative process, or the submission of any comments on the current law, please contact the Private Sector Working Group on Law, Tax and Governance at policy@ibccambodia.com  or visit the Council for the Development of Cambodia (CDC) on APPEDIX II &  APPEDIX III : Law on Investment

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