Mixed feelings on Vietnam’s FTA

Chea Vannak / Khmer Times No Comments Share:
Women working in a garment factory in Cambodia. KT/Ven Rathavong

Government officials and key economic experts say the free trade agreement (FTA) between Vietnam and the European Union (EU), widely expected to be signed this year, should not be viewed as a threat, but rather as an opportunity to strengthen Cambodia’s industry.

Many have raised fears and concerns that the FTA between neighbouring Vietnam and the EU, one of Cambodia’s biggest trade partners, could severely hurt the kingdom’s exports.

Negotiations for a Vietnam-EU FTA were launched in June 2012 and are expected to conclude this year. Under the new deal, it is believed Vietnam will enjoy access to the EU market nearly tariff-free.

“The FTA would definitely affect Cambodia’s exports, particularly for milled rice and garments and footwear,” said Vongsey Visoth, secretary of state at the Ministry of Economy and Finance.

“However, for Cambodia, not everything would be negative. There would be some good things for us as a result of this deal.”

On the negative side, Mr Visoth said, Cambodian exports to the EU will probably take a hit, as Vietnam will be able to send products to the European market more cheaply. “Vietnam will be able to export with no tariffs,” he said.

On the other hand, the agreement will force Cambodia to become a more competitive player in the region, which will result in the country upping its quality standards, productivity and capacity.

“Whether or not Vietnam has an FTA, we have to survive according to market principles,” Mr Visoth said.

“We don’t want others to feed us water. We need to rely on ourselves, and we are getting there, step by step.”

“We have to improve our industry, including productivity and logistics, and try to work our way up the value chain,” he said. “Threats like this always are opportunities in disguise.

“We can turn this situation on its head and use it to improve ourselves.”

Chan Sophal, director of the Centre for Policy Studies, sees another advantage of an FTA between Vietnam and the EU.

“Under the deal, Vietnam’s industrial activity will rise significantly and it will need raw materials from neighboring countries to meet demand,” he said. “And they would buy those raw materials from Cambodia.”

“It will be an opportunity for Cambodia to increase exports to Vietnam. They will face shortages because they will be sending so much of their local production overseas, and Cambodia will need to step in to fill their demand.”

May Kalyan, senior advisor to the Supreme Economic Council, stressed the importance of stepping up the game in the industrial sector to face the challenges that the new agreement will pose.

“Our share of the international market would become smaller,” he said. “We are going to need to diversify production and find new markets for our products. This is a must.”

Mr Kelyan also said the country would need to address the high cost of transportation and electricity in the country, as well as upgrading the skills of the local workforce.

“We are now on the right path, working towards these goals. We are increasingly able to compete with other countries.

“But it will take some time to deal with our structural problems,” he said.

Cambodia’s GDP is expected to increase by 6.9 percent in 2018, driven mainly by strong performances in the agriculture, manufacturing and services sector, according to government data.

The trade volume between Cambodia and the EU was worth $5.1 billion in 2016, a 13 percent increase year-on-year. $4.5 billion of that trade were Cambodian exports to the EU.

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