Cambodia - Cambodia’s Trade Deals

Cambodia has been a de-facto open and liberal free market economy since the mid-1990s simply because there are not much economic or industrial interests to protect.

Trade liberalization and openness are regarded as the keys towards economic development and poverty reduction.

To survive as a small economy, Cambodia has to be economically competitive and be able to integrate into the world economy. It needs to enlarge its export markets, attract foreign direct investment, improve production capacity and be part of global and regional value chains.

The evolution of regional mega trade arrangements, particularly the Regional Comprehensive Economic Partnership (RCEP) and the Trans-Pacific Partnership (TPP), ushers in a new momentum and dynamism in the Asia-Pacific. 

The RCEP, with a combined GDP of $23 trillion, aims to achieve a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement among the 10 Asean member states and six Free Trade Agreement (FTA) partners of Asean.

RCEP, which is still in the negotiation process, also aims to create a liberal, facilitative and competitive investment environment and narrows development gaps in the region through technical cooperation and development assistance.

Sensitive issues in RCEP negotiations include the movement of people, investment liberalization in certain sectors and government procurement. One complicating factor is that not all participating countries have an FTA with their RCEP partners.

For example, there is no FTA between China and India, between China and Japan.

The TPP, with a combined GDP of $28 trillion, aims to achieve extensive liberalization in trade in goods and services, investment, government procurement, non-tariff barriers and many other regulatory topics.

The TPP, which was concluded late last year, is a high-standard, comprehensive regional FTA that will boost trade and investment flows among the 12 member countries as well as integrate the region into a single manufacturing base and market.

Domestic politics in the US casts a long shadow over the TPP. Whether the US Congress will ratify the TPP is a matter of political debates. Both Donald Trump of the Republican Party and Hillary Clinton of the Democratic Party have publicly opposed the TPP in its current form.

Bernie Sanders from the Democratic Party calls TPP “disastrous” for America.

As a member of Asean and the RCEP, Cambodia prioritizes RCEP negotiations and other regional economic cooperation initiatives such as the Asean Economic Community and “One Belt, One Road.”

Cambodia has not yet officially demonstrated its interest in joining TPP. Cambodia may need to consider joining the TPP given the fact that the US is the main export market of its products.

The opportunities from these mega trade agreements are market access, investment attraction, technology transfer and skills development and transformation. The challenges are legal and institutional reforms, production and export capacity.

Although Cambodia is a relatively liberal and open economy, trade and investment facilitation measures need much improvement. According the OECD’s trade facilitation indicators, Cambodia’s trade facilitation performance ranks below the average of Asian countries.

The Cambodian government needs to, as suggested by the OECD, promote the involvement of the trade community, simplify and harmonize trade documents and promote the accountability and ethics policy of the customs structure and operation.

Another study by the World Bank argues that despite the government’s effort at introducing reforms to improve the investment climate, the business environment continues to hamper the competitiveness of firms in Cambodia.

The most severe constraints faced by firms include the cost of electricity, corruption and anti-competitive practices and transport and logistics.

Without urgently addressing the rampant and systematic corruption issues and strengthening and cleaning up state institutions, promoting innovation and enabling the private sector to better operate, Cambodia will lose its competitiveness and, consequently, it will be left behind.

Cambodia needs to have skilled labor, well-functioning transport, logistics, finance, communications and other business and professional services to move up the value chain.

Political leadership is the foundation of economic development. A healthy and productive partnership among the state, markets and society will produce holistic solutions to the challenges and issues deriving from globalization and regionalization.

Regional economic integration unleashes new opportunities, but it needs to remain open and inclusive. High-standard and high-quality mega-regional trade agreements help regional countries to move forward with more vigor.

With the improvement of strategic trust and deepening economic integration in the Asia-Pacific, RCEP and TPP will be able to converge into an integrated Asia-Pacific wide regional trade arrangement to accommodate both the first and second largest global economic powers – the US and China.

Chheang Vannarith

Khmertimes