Bound Rates and the Stakes of the Cambodian Trade Deal

Far from being incoherent, the United States’ recent moves against trading partners suggest a unique restructuring of its economic structure, with executive-dominated foreign investments planned to drive much of its future economic growth. I’ll focus on the Agreement concluded with Cambodia for this post. Cambodia has not signed a trade agreement, but an economic security agreement. Simon Lester and Simon Evenett here and here have highlighted issues arising from the recently released Agreements with Cambodia and Malaysia, and the joint statements on progress of talks with Viet Nam and Thailand.

In this post, I examine Cambodia's agreement in light of the broader economic security objectives raised by the United States since January 2025. This post will argue that the United States has locked Cambodia into its broader economic security strategy in exchange for a new status quo.

Most of the Agreement involves Cambodian commitments, save for a core United States commitment found in Article 1.1.2, which confirms that the United States has agreed to:

The United States shall apply a revised reciprocal tariff rate on originating goods of Cambodia as set out in Schedule 2 to Annex I.

Otherwise, the United States has just agreed to ‘work with’ Cambodia to ‘streamline and enhance defense trade’ (Article 5.3.1). There is no discussion as to financial support to implement the commitment on defense trade. However, the United States will coordinate with the EXIM Bank and the DFC ‘to consider’ investment financing of critical sectors in Cambodia (Article 6.1.2. Compare this to Cambodia’s commitment to ‘facilitate job-creating, greenfield investment’ in the United States (Article 6.1.3).

What happens if the U.S. Supreme Court affirms the judgments of the Federal Circuit and the District Court of Columbia that the IEEPA tariffs are illegal?

A Supreme Court ruling that the IEEPA tariffs are illegal could, in theory, put all U.S. trading partners back to square one, or in this case, MFN tariffs. At first read, the Agreement commits the United States to the reciprocity tariffs authorised by IEEPA. Paragraph 3 of the General Notes found in Schedule 2 of Annex I confirms that Cambodian original goods listed in the schedule, subject to the April 2, 2025 Order, shall “be no higher than 19 per cent.” Schedule 2 of the Agreement lists 0% duties for selected goods, subject to some scope limitations, such as civil aircraft and pharmaceuticals not subject to U.S. patents. Some examples are stainless steel waste and scrap, new pneumatic tyres, or ferronickel.

Therefore, we might sum this up as Cambodia has agreed to a laundry list of conditions in exchange for the United States’ agreement not to impose tariffs that exceed 19 per cent. Restoring the tariffs to MFN rates maintains that commitment, so long as any future authorised tariffs do not exceed 19 per cent. Additionally, paragraph 4 of the General Notes explains that the United States will apply the tariff rate concession in paragraph 3, in addition to the effective MFN tariff.

In June, Kathleen Claussen cautioned that the current U.S. litigation, focused on the legality of the reciprocity tariffs, does not address the Trump administration’s authority to enter agreements to “resolve the national emergency.”  She asked: Does “regulate . . . importation or exportation” include the power to enter into international agreements? If the IEEPA tariffs are rendered unlawful, then it is possible that the United States can argue the Agreement stands, with the existing bound rate concession.

What has Cambodia committed to in exchange for this bound rate concession?

Cambodia is a least-developed country (LDC), scheduled to graduate in 2029. The Agreement’s preamble acknowledges this status, but nothing speaks to Cambodia’s development (or vulnerability). And this is telling. Past U.S. trade agreements emphasised the goals of raising living standards, promoting economic growth and stability, or improving the welfare in their territories (as demonstrated in the Korea agreement). In contrast, this Agreement has little to do with reducing trade restrictions on ‘substantially all the trade’ between the countries (per GATT Article XXIV). Rather, this Agreement is about reinforcing ‘bonds of friendship,’ enhancing reciprocity, and increasing alignment on ‘national and regional economic security matters.’

To reinforce that bond, Cambodia has committed to not bring a dispute to the WTO concerning ‘any measure adopted by the United States to rebate or to refrain from imposing direct taxes in relation to exports from the United States.’ (Article 2.11.2) As far as I can confirm, Cambodia has never brought a dispute to the WTO. As such, we might see this commitment as largely performative. Another easy example is Article 2.11.3 that commits Cambodia to ‘not impose value-added taxes that discriminate against U.S. companies in law or in fact.’ Doug Irwin has explained how the administration fails to understand that a VAT does not discriminate against imports. Yet, performance is central to giving law its distinctiveness, giving law qualities that help make law, law.

Article 4.1.1: ‘The Parties intend for the benefits of this Agreement to accrue substantially to them and their nationals. If the benefits of this Agreement are accruing substantially to third countries or third-country nationals, a Party may establish rules of origin necessary to achieve the Parties’ intention for this Agreement.’ Interestingly, the language confirms that a Party may establish rules of origin rather than the Parties will negotiate rules of origin together. Considering the United States’ efforts to reset its tariffs against a metric of reciprocity, it could likely become Trump’s new rules (of origin).

Article 7.3, which concerns enforcement of the Agreement, does not provide for adjudication. There can be consultations should the United States or Cambodia contest the meaning of any terms, such as the terms ‘benefit’ or ‘substantially’ in Article 4.1.1. Any potential Cambodian concern with U.S. policies or measures may only be heard in closed-door political consultation without international adjudicators or mediators involved. Additionally, as Simon indicated in his separate post on the enforcement of the U.S.-China Phase One Deal, the strategy may reposition diplomacy back to strictly U.S. domestic consideration. Learning from that experience suggests there may be fewer opportunities for consultation than what might appear from reading the Agreement.

Where the United States imposes a trade prohibition or restriction ‘on a good or service of a third country’ pursuant to ‘relevant domestic law,’ then the United States will ‘notify’ Cambodia for ‘economic security alignment’ (Article 5.1.1). After receiving this notification, Cambodia ‘shall regulate’ the import of the good or service ‘through similar measures as those of the United States in a manner that does not infringe on Cambodia’s sovereign interests.’ Likewise, Cambodia shall ‘consult’ the United States concerning appropriate ‘border measures’ to address ‘regulatory arbitrage that would disadvantage U.S. workers and businesses’ (Article 2.11.1).

The mirroring commitment raises the question of what happens if the United States requires Cambodia to violate WTO rules. If the United States justifies an export ban based on protecting security interests, does this justification stretch to Cambodia based on aligned concerns with the United States? Could Cambodia argue that U.S. economic security is a matter of Cambodian security? In U.S. — Origin Marking (Hong Kong, China), the panel considered the United States’ measures in response to events in Hong Kong, China, and found it could not demonstrate a causal connection to international relations between the United States and China (see para 7.353). Drawing from this assessment, Cambodia would still need to provide legal argument and factual evidence of the circumstances that led to any security-justified actions against a third country.

Could Cambodia argue its complementary restrictions were necessary to ensure consistency with the Agreement? Also, unlikely. The Appellate Body found in Turkey — Textiles that Turkey did not have to mirror the EC quantitative restrictions to prevent their circumvention and meet the requirements of GATT Article XXIV:8(a)(i). I do not want to suggest this Agreement meets the commitments of Article XXIV in establishing a free trade area. Rather, in drawing from that reasoning, it is unclear whether the United States could accept proposed alternatives and may set the terms of what constitutes complementary action, without Cambodian or international oversight.

Article 5.1.2 creates a transnational trade action for the United States. Unlike existing rules concerning ‘unfair’ trade, which consider how subsidies or dumping cause material injury in the applicant country, Cambodia commits to implement measures againt ‘unfair’ practices of companies ‘owned or controlled by third countries’ operating in Cambodia’s jurisdiction, but with respect to dumping in the United States, increased exports to the United States, a reduction of U.S. exports to Cambodia, and a reduction of U.S. exports to third-country markets. There are no limits set out concerning the scope of the trade restrictive measure or its duration. Annex III, Section C, Article 3.2 confirms that Cambodia shall ‘expand cooperation’ with the United States on future antidumping and countervailing duty proceedings to account for ‘circumvention inquiries.’

These provisions acknowledge the United States’ ongoing concerns with Chinese businesses re-directing exports to the United States through other countries, like Cambodia or Vietnam. That said, do all of these situations constitute ‘unfair’ trade? Or are they safeguards in response to fair trade? In seeking to address transnational subsidies, how could Cambodia demonstrate causation between unfair practices in Cambodia and U.S. trade? Would there be investigations to narrow the scope of such a commitment, whereby the United States would demonstrate serious injury to domestic producers from the increased imports? What capacity does Cambodia require to evaluate how other foreign governments use a private company as a proxy to carry out these practices? Will the United States authorities trust Cambodian counterparts, or will it fall on Cambodian-based companies to offer evidence that meets these commitments? The implementation remains unclear, suggesting ongoing work to structure Cambodia’s commitments.

Article 5.1.3. Cambodia shall adopt ‘similar measures’ to the United States concerning shipping and shipbuilding, though the United States and Cambodia are set to ‘discuss’ the form and effect of such measures, leaving this provision a political signal more than anything.

In selecting some provisions to highlight, there is evidence that in exchange for the bound rate concession to 19 per cent, the United States has received substantial commitments from Cambodia –– far more than it may have otherwise, considering the requirements normally placed for responding positively to the needs of developing countries. Essentially replacing the objectives of the GSP scheme with this Agreement erases a vital conclusion by the Appellate Body in EC––Tariff Preferences that the Enabling Clause set expectations that conditions need not be identical but shall speak to the particular development, financial and trade needs of developing Members (para 165).

For the United States, the commitments build towards a broader ambition for supply chain resilience based on the United States’ standards. For example, Annex III confirms that Cambodia shall accept many products based on U.S. standards and compliance procedures, including cars, medical devices, dairy, meat and poultry, and food and agricultural products (see Annex III, Section A). Per Article 1.5, Cambodia ‘shall recognise’ that the U.S. SPS and TBT measures ‘satisfy the requirements of Cambodia’s measures applied to food and agricultural products imported into Cambodia.’

These provisions require a closer assessment of Cambodia’s right to regulate and the protections related to human, animal, or plant life or health, especially considering the reaffirmation of Cambodia’s commitments to the SPS Agreement (Article 1.5 of the Annex). A quick check on ePing shows Cambodia has notified the WTO 29 times, most recently in 2024, concerning a technical regulation for methanol in rice wine products (there is a gap from 2018 to 2024).

Per Article 1.5.1 of the Annex, Cambodia may apply ‘necessary emergency measures’ in the case of ‘urgent problems of health protection’ concerning ‘human, animal, or plant life or health,’ although the SPS Agreement does not mention emergency measures. Does this equate to a provisional measure based on Article 5.7 of the SPS Agreement, whereby Cambodia could implement measures and then seek ‘to obtain the additional information necessary for a more objective assessment of risk and review’? Colleagues have recently observed similar language in Article 6.11 of the UK-India Free Trade Agreement, and have offered more in-depth conclusions on FTA provisions on ‘emergency measures’ (p. 26).

Provisions restrict Cambodia’s approach to digital competition, with obligations prohibiting the negotiation of digital trade agreements without U.S. consultation (Article 3.3), or introducing any form of ‘digital competition regime’ that ‘unreasonably or justifiable restricts U.S. commerce.’ (Annex III Section B, Article 2.1). Cambodia shall not implement digital services taxes that discriminate against U.S. commerce (Article 3.2). Moreover, the United States has asked Cambodia to adhere to its regulation of export controls pursuant to the Bureau of Industry and Security (BIS), which appears to offer a significant extraterritorial overreach of BIS oversight (Annex III Section C, Article 3.1).

What should happen if Cambodia objects or fails to implement any of these obligations? The penalties are unclear, particularly considering the bound rate concession. As mentioned, there is no recourse to an international adjudicator or mediator to interpret some of these vague commitments, such as the breadth of a ‘benefit’, a ‘material threat’, what constitutes sufficient consultation, or questions of extraterritoriality, equivalence, or complementariness.

At the same time, there is a strange mix of obligations that bypass Cambodia’s international commitments while concurrently reifying them. On one hand, Cambodia shall complement the United States’ defensive approach to trade that could commit Cambodia to discriminatory measures and trade restrictions that are non-compliant with WTO obligations. On the other hand, Annex III confirms that Cambodia shall commit to its SPS and TBT notification commitments and ratify several Conventions and Agreements concerning IP protection. Likewise, Cambodia shall commit to the promotion of resource-efficient economies and to implementing the WTO Agreement on Fisheries Subsidies (Articles 1.5, 1.11, 1.21).

One potential conclusion is that the United States is reconstituting the global economy with new power plays, moving Cambodia, like a bishop on a chessboard, into position for further gameplay with third countries in the coming years. But another potential conclusion is that Cambodia has set its future growth based on U.S. priorities, rather than on its plans to grow, diversify trade, and move more into manufacturing and services. As mentioned from the start, the Agreement seems to be about making friends and unfriending others. Thus, it appears, for now, the gains appear more calibrated to U.S. interests than Cambodian ones.

As Mark Wu described China's economic model as China, Inc. in 2015, it is becoming clear that we are not (yet) seeing a revolution of the multilateral trading system (Turnberry begone), but instead a complex (foreign) privatisation of the United States into USA, Inc. This is distinct from past plans for on-shoring or friend-shoring, for the walls placed around United States markets require more than purchases of soybeans or aeroplanes; rather, deep coffers for transforming U.S. industries. What does USA, Inc. mean for trading relationships with vulnerable economies less capable of offering billions of dollars in investments and loans? Well, we are starting to have answers.