Having a free-trade agreement (FTA) with more trade partners would help mitigate the Kingdom’s loss from the European Union’s partial withdrawal of the Everything- but-Arms (EBA) trade status in the future because the country has already completed one with China.
Deputy Prime Minister Hor Nam Hong said that Cambodia and China will sign an FTA before Aug 12 when the EU’s partial withdrawal of the EBA deal comes into effect. Prime Minister Hun Sen will travel to China to preside over the FTA signing ceremony.
An FTA with the world’s second-largest economy will open the door for more Cambodian goods and agricultural products, such as bananas, cassava flour and rubber to be exported to China.
An economy researcher said the move is happening at the right time because Cambodia needs to diversify bilateral agreements with more trade partners. However, it will take time to replace the loss caused by the 20 percent EBA deal withdrawal.
Hong Vannak, a business researcher at the Royal Academy of Cambodia, said that with the existing huge volume of bilateral trade between Cambodia and China, there are some analysts who say the FTA with China is being made at the same time as the government’s plan to replace the loss of part of the EBA deal, but in fact it will come into place later.
“For me, it cannot be replaced in a short time and it will take longer while Cambodia is preparing more trade deals with more trade partners,” he said.
However, Vannak said the government may at first intend to mitigate the impact caused by losing the EBA deal and a similar one known as the Generalised System of Preferences, or GSP. This is a preferential tariff system that provides tariff reduction on various products. The concept of GSP is very different from the concept of “most-favoured nation” (MFN). MFN status provides equal treatment
in the case of tariff being imposed by a nation but in the case of a GSP differential tariffs could be imposed by a nation on various countries depending upon factors such as whether they are a developed country or a developing country. Both the rules come under the purview of the World Trade Organization (WTO). A GSP provides tariff reductions for least-developed countries but an MFN is only for not discriminating among WTO members.
Vannak believes the GSP no longer suitable for Cambodia.
“As we know, the FTA has yet come into force but China is already increasing buying agricultural products from Cambodia and putting more investment into the sector, so the FTA would help increase trade between China and Cambodia,” he said.
The trade volume between Cambodia and China has steadily increased from $5.16 billion in 2016 to $6.04 billion in 2017 and to $7.4 billion in 2018. The two countries aim to reach $10 billion in bilateral trade annually by 2023.
To attract more investment, what Cambodia needs to do is to improve competition and eliminate trade barriers.
The Kingdom’s new investment law is expected to be online soon because the draft law is already 95 percent complete and that will be more attractive to more investors, according to an official from the Ministry of Economy and Finance (MEF).
Cambodia is also now pushing to reach a free-trade deal with some of the world’s leading economies – namely South Korea and the Eurasian Economic Union (EAEU), the Russia-led economic bloc composed of five member states.
Seang Thay, spokesman and secretary of state at the Ministry of Commerce, said that FTA partners will provide Cambodia more benefits than the current situation. He said Cambodia needs to gain more benefits via bilateral trade agreements.
“We have been preparing to complete bilateral trade agreements with eight other countries. We will start with South Korea and have plans for Japan, the UK, India, Mongolia, the EAEU and the USA – all of which we already have working groups attending to,” he said. Thay said so far the EBA deal has provided Cambodia with huge benefits from garment export products to the EU market.
“Cambodia will never forget the status of the EBA deal in helping its economic growth. The FTA with China is not because we are losing part of the EBA deal but because we need to diversify our trade agreements so we need to make use of our potential for boosting economic growth.