Updated News Analysis: Cambodia-China Free Trade Deal Signed but Concerted Efforts are Needed to Benefit
AKP Phnom Penh, October 13, 2020 --
Finally, the Cambodia-China Free Trade (CCFT) deal inked on Oct. 12, 2020 sends a powerful message to friends near and far that Cambodia has expanded its greater market to the more than 1.3 billion strong Chinese market. It has great potential but just a legal framework alone is not enough to maximise the benefits of the deal - Cambodia’s resources are limited in terms of human resources, technical and financial aspects, in addition to our infrastructure and logistics areas.
Cambodia’s Prime Minister Hun Sen and China’s Foreign Minister Wang Yi, who is on his two-day visit, witnessed the signing of the agreement in Phnom Penh.
China’s Commerce Minister Zhong Shan signed in Beijing at the same time Cambodia’s Commerce Minister Pan Sorasak did so in Phnom Penh. They could see each other by videoconference.
One must look into the different aspects needed to make it work—although the country has great potential in agriculture and others—when putting such deal into practice in a competitive and globalised world.
Cambodia and foreign investors, not just those limited to China, must join hands to translate this opportunity into reality for mutual benefit. Foreign investors, such as China, may look to transfer of technologies and know-how when implementing the deal, this will help Cambodia to improve its productivity, its value-added products, improve efficiency in manufacturing, services and agriculture, among other factors.
So, the 950 million Chinese Yuan (US$141 million) financial grant assistance—as part of the economic and technical cooperation—provided by China announced at the ceremony can be invested in areas that improve product quantity and quality for export.
Not a Bed of Roses
Even with the trade deal in place, it is not going to be a bed of roses for tens of hundreds of small and medium sized enterprises, SMEs, in Cambodia. These have to be recognised and get qualifications before securing financial support from different sources for their business operations. This will require another government’s legal, technical support and maybe loans as well, beyond what our own government can provide.
The country currently has nearly 38,000 registered companies and nearly 10,000 enterprises both local and foreign. I hope they are ready, or preparing, to take advantage of the trade deal; otherwise they must do so soon because the agreement is expected to be implemented by early 2021.
Companies operating in Cambodia need to improve in many ways, especially in the areas of human resources, to deal with digital business operations as the government shifts to the digital economy. The country’s Industrial Development Policy (2015–2025) has been put in place to address the coming challenges, promote productivity and find markets for its products, such as rice, rubber, and others.
Cambodia’s main potential is rice with commodity planting of 4 million hectares nationwide. It also has 6 million tonnes in paddy rice (or 4 million tonnes in milled rice) a year in surplus from domestic consumption.
Cambodia’s stakeholders, such as the World Bank, Asian Development Bank, Education and Labour Ministries must play their parts in developing Cambodia’s human capital and help companies achieve their goals and objectives in global trade.
However, the coming trade deal is another plus to the existing legal framework of the ASEAN-China Free Trade Area (ACFTA) established in 2010, paving the way for the export of tens of hundreds of goods to China. Such an agreement also falls in line with the framework of the World Trade Organisation (WTO) of 164 members, which Cambodia joined in 2004.
Cambodia has greatly benefited from the ACFTA, since her resources are limited. That explains the Cambodia-China trade value of US$8 billion, of which Cambodia’s exports were US$1 billion a year. An even more positive prospect is dangling before us and the trend will contribute to developing Cambodia’s economy with more jobs creation, imports of know-how and technology from China and elsewhere will help Cambodia economy to leap-frog the challenges it faces.
Although Cambodia has potential from rice to sugar, rubber, black pepper and fresh-water fish to livestock, and other products, Cambodian officials and experts have expressed to me their concerns that Cambodia needs to work as clusters when it comes to commodities, such as rice, for export, to ensure good quality, and competitive prices.
This nation needs more silos and better equipped rice mills for rice processing, packaging, and logistics, and so forth. Although Chinese experts have recognised more Cambodian rice processing mills Cambodia’s Rice Federation needs to be more oriented towards working as a cluster, and that will help to boost exports to China where you have a market of billions of consumers.
Let us keep our fingers crossed, although we cannot achieve everything overnight. The government does not just stand and watch and that can be understood when the government, after wrapping up the trade deal with China, took measures to provide loans and supporting other technical and legal assistance for local companies, Small Medium Enterprises (SMEs), so that they can take advantage of exporting 340 items to China, of which 95 per cent are now tariff-exempt. The remaining 5 per cent will be exempted over the next five to ten years.
In August, the government announced that it has allocated US$500 million in loans, and of that US$300 million will be provided for financing support and US$200 million will go for credit guarantee projects.
Cambodia, which is still an export oriented country, must improve its productivity, quality, packaging, valued added goods, along with a cluster community of production, otherwise she will not get much profit from the trade deal.
The agreements can show us the way but we must be committed and step up to the plate if we are to benefit.
Today, Cambodia can export more than 10,000 items to China while China can export 8,000 items to Cambodia.
Cambodia’s commerce officials said that, among those 8,547 tariff lines of China, there are only 181 lines not included in tariff elimination and reduction schedules. Cambodia and China, however, will work closely to promote these products after the date of entry into force of CCFTA.
So far this year, Cambodia has exported more than 300,000 tonnes of milled rice to China, less than its target of 400,000 tonnes.
Two-way trade value with China alone was US$8 billion in 2019 from more than US$7 billion in 2018.
Phnom Penh, with the coming trade deal, hopes to increase exports to China by as much as 25 per cent a year. But this is just a calculation alone and the reality will depend on the actual efforts with the strong commitment of Cambodia, China and others.
The bilateral trade value expects to reach US$10 billion by 2023.
Fruitful Economic Diplomacy
It is fair to say that the coming free trade agreement expected to be signed in Beijing by the two commerce ministers before mid-August 2020, presided over by each country’s leaders, will be another historical diplomatic milestone between the two nations.
Such an event would not happen without the strong political and diplomatic moves by Prime Minister Hun Sen and Chinese President Xi Jinping since early this year.
The whole trend also reaffirms the two nation’s commitment diplomatic ties in place since 1958. They reached a comprehensive strategic partnership in 2010 and nine years later inked a 2019-2023 action plan to build the two-country’s shared future. It covers a number of measures in the areas of economies, people-to-people relations, politics, security and mutual cooperation.
Cambodia’s foreign policy maintains its friendly posture with countries that respects each other's independence, sovereignty and equal footing. This South-East Asian nation goes for wealth, not war, because she has endured more than enough of fighting and wars one after another which brought nothing good for the country; but tears and blood, massive destruction of national assets, and infrastructure. It went on from the late 1960s till late 1998, the year that Premier Hun Sen championed the win-win policy that ended the Pol Pot-led Khmer Rouge political and military organisation, notorious for its killing fields.
Khmer’s Ancient Smile
Some wrongly interpreted that with the CCFTA, Cambodia put aside its ties with the EU and embraced China. That is a wrong perception. Since day one, Cambodia has made it clear that she wants to make friends near and far for mutual interest base on equal treatment and respect for each other’s independence and sovereignty.
Cambodia’s foreign policy is open and friendly to everyone who wants to make friends with us. But if you do not want to follow those simple rules of engagement, there is nothing we can do.
Recalling that Prime Minister has said repeatedly that the U.S., China and the European Union are Cambodia’s friends. Our ancient smile of welcome remains with us, proven by the fact that for 900 years, the smile of Angkor, at the ancient Angkor complex has had inscribed on it since 1992, the plaque that it is a U.N. listed world heritage site, in Siem Reap.
Working as a spokesman, I do get inputs from various sources on different topics as much as possible, although I do not talk much; but I keep penning certain pieces so that the whole world can see a clearer picture of the goodwill of the Royal Government of Cambodia in many ways, starting from the national interest and contributing protecting global peace and development.
Cambodia is a member of the United Nations, the World Bank, and the International Monetary Fund, and the Asian Development Bank (ADB), ASEAN, and other key organisations.
That is to say that the government, under the great leadership of Prime Minister Hun Sen and his team, has put the interests of the country and her people before their own.
China’s government may also look to support Cambodia in the area of human resources, technology, and other related fields, given the fact that Cambodia’s logistics and infrastructure that help to reduce production costs are yet there. This is needed in today’s competitive world. Thus, support from China will enable both sides to take greater, if not full, advantage of the trade deal. I also see that the trade agreement is considered as part of the Belt and Road Initiative that both countries are committed to, to realise joint dreams and a shared future.
The benefits of the CCFTA will not drop like ripe mangoes from the tree, we have to be pro-active, and prepare, and shake the tree.
By Ek Tha
Standing-Vice Chairman of the Royal Government Spokesperson Unit,
Spokesman of the Council of Ministers,
Advisor to the Ministry of Information.