Trade Deal a ‘Wake-up Call’ for Cambodia

May Kunmakara / Khmer Times No Comments Share:
The 12 Trans-Pacific Partnership (TPP) ministers hold a press conference to discuss progress in their negotiations in July.Reuters/Marco Garcia

The Commerce Ministry is looking closely into the ramifications of the Trans-Pacific Partnership (TPP) signed by 12 nations on Monday, especially at how it may affect exports, as Cambodia is not included in what is being billed as the world’s largest free-trade market, Commerce Minister Sun Chanthol told  Khmer Times yesterday.

Mr. Chanthol also said he would not have the details of the agreement, which followed five years of negotiations between 12 Pacific Rim countries, until the end of this year. “The TPP meeting just finished yesterday and the document is secret. I will have the document by the end of the year, but we are already looking into and studying how the TPP will impact our economy,” Mr. Chanthol said.

He made the comments in an interview following a speech at CamEd Business School yesterday morning.

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The minister also said that the government is currently negotiating a Regional Comprehensive Economic Partnership to diversify its export markets beyond their reliance on the United States and European Union. “We are negotiating with China, Japan, Korea, Australia, and New Zealand.”  

Mr. Chanthol’s comments follow speculation here that the TPP could make Cambodian exports less competitive than those from neighboring countries like Vietnam and Malaysia, which are part of the deal. It could also result in a fall in foreign direct investment (FDI) in Cambodia, executives and economists warn.

Spearheaded by Washington, the TPP will cut barriers and establish common standards for 12 countries. These are the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Mr. Chanthol told Khmer Times that it was possible Cambodia could still join the TPP.  “Cambodia is looking into whether or not it can join TPP,” he said. 

Possible Downsides

With four members of Asean – Brunei, Malaysia, Singapore and Vietnam – also members of the TPP, some local business leaders have warned that it could make Cambodia less competitive against them. 

Economist Srey Chanthy told Khmer Times that Cambodia will face more challenges and tougher competition for its main exports, garments and agricultural products, in the US market, which is the country’s main export destination. 

“Cambodia will have tougher competition, especially with Vietnam, for its traditional exports such as garments, shoes, milled rice, and so on,” Mr. Chanthy said. “I am afraid, therefore, that Cambodian exports to the US would continue to decline remarkably, and Cambodia may become like a [backyard] raw-material supplier for Vietnam that will process, [and] reprocess… and [then] export [Cambodian commodities] to 11 other TPP member countries,” he said.

Chheang Vannarith, a lecturer of Asia Pacific politics at the University of Leeds in the United Kingdom, was less bleak in his assessment, noting that it would still take “some time” for the controversial trade deal to pass through the US Congress. 

“The TPP does not impact much on Cambodia’s economic competitiveness,” Mr. Vannarith said. “The main stumbling blocks of Cambodia’s economic development are corruption, weak public institutions, poor infrastructure, and low skilled labor,” he explained. “Unless Cambodia can address these issues, it will suffer downward economic growth,” Mr. Vannarith said.

“Wake-up Call”

Ken Loo, secretary-general of the Garment Manufacturers Association of Cambodia, said the TPP was a wakeup call for Cambodia. “The agreement surely places Cambodia at a disadvantage compared to Vietnam for the US market,” he said, adding that the US market accounted for 32 percent of all garment and footwear exports last year. He added that this is expected to fall to 25 percent this year. 

“Currently, neither Cambodia nor Vietnam enjoy any trade preference from the US. When the TPP comes into force, Vietnam will have a clear advantage over Cambodia and garments made in Vietnam will enjoy duty-free access into the US,” Mr. Loo said. Import duties on garments in the US range from 5 to 36 percent, Mr. Loo said. 

A free trade agreement is also likely to be signed by the EU and Vietnam by the end of this year, he added. “For the EU, currently Cambodia enjoys duty free access… while Vietnam currently pays [the] GSP rate. When the FTA is completed and comes into force, both Cambodia and Vietnam will enjoy duty free and we will have to compete on equal terms and raise our productivity and efficiency,” Mr. Loo explained. He said that about 42 percent of Cambodia’s footwear and garments exports went to the EU. 

Slowing Growth

David Van, managing director of Bower Group Asia (Cambodia), agreed with Mr. Loo that the TPP could damage Cambodia’s garment industry. “Vietnam will enjoy incentives derived from TPP. Garment industry players could easily migrate there due to their high mobility,” Mr. Van said.

He also pointed to rising wages here and low productivity compared to Vietnam as factors that could see manufacturing shifting from Cambodia to that country. 

Cambodia should urgently ramp up negotiations for bilateral free trade agreements (FTAs), he said, pointing to Singapore as a model. The city state has been “very pro-active in negotiating such bilateral FTAs with many countries,” he said. “With a multitude of bilateral and multilateral agreements concluded by our competing neighbors, the risk is very real for Cambodia’s economic growth,” Mr. Van said. Such agreements could have a “hollowing out” effect on Cambodia’s economy. “FDI would certainly be drawn away from our shore and we may become simply a ‘back water’ spot for backpackers vacationing and comfy work station for mainly NGO workers,” Mr. Van added. 

The World Bank on Monday revised its projection for Cambodia’s economic growth this year to 6.9 percent, compared to 7.1 percent last year, citing slowing growth of garment exports as one of the factors. It noted that the value of garment exports grew 7.8 percent during the first six months of the year, compared to 9.2 percent in the same period last year.

International Monetary Fund managing director Christine Lagarde has welcomed the TPP. She said rekindling trade is an essential component of jolting global economic growth. “The agreement is not only important because of the size, as the signatories countries account for about 40 percent of global GDP, it also pushes the frontier of trade and investment in goods and services to new areas where gains can be significant,” Ms. Lagarde said in a statement.

“We would need to review all the details before offering a comprehensive assessment, including the transitional effects and spillovers, but I expect that the TPP can pave the way to a new generation of deep trade integration efforts. I encourage other countries to renew their efforts to complete ongoing negotiations and the broader international community to reignite multilateral trade initiatives to ensure a cohesive global trading system,” she said. Additional Reporting by Sok Chan.
 

Workers iron t-shirts at a factory on the outskirts of Phnom Penh. The new TPP pact could see factories shift to Vietnam, GMAC says. Anne Holmes
 

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