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Looking to India for next major FTA agreement

Tom Starkey / Khmer Times Share:
Ambassador of India to Cambodia Devyani Uttamkhobragade meets Prime Minister Hun Sen at the Peace Palace, Phnom Penh. KT/Khem Sovannara

After the signing of the Regional Comprehensive Economic Partnership trade agreement,   the bilateral free trade agreement (FTA) between Cambodia and China and the successful conclusion of  FTA negotiations with South Korea, Cambodia is now looking towards the potential for a bilateral free trade deal with India. Spokesman for the Ministry of Commerce Penn Sovicheat said the ministry is working closely with an independent research institute within the region to conduct a feasibility study on the costs and benefits of such an FTA.

“The study is still in progress and involves many consultations with a full range of stakeholders. Therefore, we are still collecting and analysing data at this time, before we [can] begin drawing conclusions and preparing for expected negotiations.  We are looking forward to finalising all these tasks during the first semester of this year.”

Sovicheat said that with every FTA negotiation there are some challenges, which is why the study is being undertaken so all the parameters of a possible deal can be better understood.

He added that India is considered one of the biggest markets in the world with active purchasing power. As such it represents a great potential market for Cambodian products and is the next logical target among the Kingdom’s list of hoped for trade deal partners.

The news comes after Prime Minister Hun Sen said  last month that it is high time for the two countries to strengthen and deepen cooperation after meeting the newly appointed Ambassador of India to Cambodia, Devyani Uttamkhobragade.

According to the premier’s personal secretary Eang Sophalleth, during the meeting Mr Hun Sen and the ambassador discussed and noted the improvement of Cambodia-India relations.

Sophalleth remarked that Cambodia-India relations have a long history replete with many positive outcomes and that an FTA would be a key component in a revitalised effort towards strengthening and deepening cooperation, particularly in investment and trade.

Data from the Indian embassy in Cambodia said the trade volume between the two countries reached $250 million in 2019, up 10 percent compared to 2018’s $227 million.

Cambodia exported $82 million in goods to India last year, up 69 percent from 2018, while Indian imports amounting to $168 million were down 6 percent.

Indian investment in the Kingdom is worth $20 million. The country is among the top 10 foreign investors in Cambodia. India’s main investments are in machinery, agriculture, energy, construction and mining.

Meanwhile, calls for the AIFTA – a free trade agreement signed between the 10 member states of ASEAN and India in 2003 – to be reviewed have also surfaced, offering Cambodia the potential to benefit from new FTA’s both bilateral and multilateral.

In India, imports have risen at a much higher pace than exports. While Indian exports to the ASEAN member states grew by 9 percent year on year, hitting $37.4 billion in 2018-19, Indian imports grew at 25 percent to reach $59.31 billion.

In its trade with ASEAN, India has moved to eliminate tariffs on up to 75 percent of 12,000 tariff lines.

A report from the National Institution for Transforming India (NITI Aayog) found that this had led to its trade balance worsening in 13 out of 21 sectors, including textiles, leather and minerals. Currently India’s trade deficit with ASEAN countries stands at $24 billion.

According to Asia Briefing, in the light of this situation, India wants urgently to review the ASEAN-India FTA, but  other countries are slow to play ball.

“It is expected, now that RCEP is signed, the ASEAN member countries will heed India’s request to review the AIFTA, because India is too large a market for them to ignore. However, the negotiations are going to be arduous, painful and protracted,” it added.

Cambodia seeking a more direct, bilateral agreement with India could relieve the Kingdom of the need to wait for a potentially lengthy AIFTA review to be complete in order for the benefits of increased Cambodian-Indian trade to be realised.

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