In the first issue of Capital Cambodia, 1st February, 2019, the nation’s lead trade negotiator, Sok Siphana said Cambodia should sign as many bilateral and multiple trade agreements as possible to diversify the country’s export markets.
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According to Baker McKenzie, multilateral agreements can create international standards as well as create the efficiency advantages of a broader market. As tariffs on goods are relatively low across most product categories in trading countries, non-tariff barriers for both goods and services have now become the key focus of trade negotiations.
Indeed, there is an international competition for standard setting with the competition playing out across domains as diverse as energy and environmental rules, and information and communication technologies.
Where countries coalesce around common standards, they can create scale and competitive advantages for their producers. This norms-setting function was one of the key benefits cited by US trade officials in advocating for the Trans-Pacific Partnership.
The European Union (EU) has developed the “pan-Euro Mediterranean cumulation,” which is a diagonal accumulation of origin regime. The system allows for the accumulation between EU members, European Free Trade Association (EFTA) states, Turkey, countries that signed the Barcelona Declaration, the Western Balkans and the Faroe Islands.
The parties include a network of free trade agreements with similar origin rules. This system allows these countries to accumulate components from other pan-Euro Mediterranean countries.
At times, the bilateral approach works best for Cambodia and in other instances, multilateral agreements may be advantageous. Both approaches are available tools in the international trade toolbox.
Cambodia is facing the potential withdrawal of preferential treatment under the Everything but Arms deal, which gives least developed nations tariff-free access to EU markets. Revoking Cambodia’s access to the EBA would hurt its core garment industry, potentially disrupting the lives of hundreds of thousands of factory workers with knock-on effects on the economy.
EU tariffs on rice exports, meanwhile, have already begun to hurt manufacturing output at Cambodia’s primary agricultural business.
Dr Siphana said efforts to pursue more trade deals must be intensified, a move that would broaden market access while gradually weaning Cambodia off its dependence on the European market.
“We don’t have enough bilateral deals. We need access to markets. We need to diversify production away from garments. What else can Cambodia manufacture? Electronics. We need to move up the value chain,” Dr Siphana said.
Cambodia’s future is linked to the Regional Comprehensive Economic Partnership, a multilateral trade agreement that aims to significantly cut import duties, boosting trade and services while promoting investments and intellectual property rights.
The RCEP could potentially be the world’s largest trading bloc, accounting for 3.4 billion people with a total gross domestic product (GDP) of $49.5 trillion.
The deal between the region and six of Asia’s most powerful economic capitals – Australia, China, India, Japan, South Korea and New Zealand – could bolster Cambodia’s exports, perhaps fending off an exodus of manufacturers due to the removal of EBA access.
Another untapped market could be the Eurasian Economic Union (EAEU or EEU), also known as the Eurasian Union (EEU), is a political, military and economic union of states located in central and northern Asia and Eastern Europe.
The EEU has an integrated single market of 183 million people and a GDP of over $4 trillion. This market is largely untapped.
While there have been delegations and trade missions from the EAU, exports to these markets are minimal, and imports are considerably higher, especially in the field of machinery and farm equipment.
The future of Cambodia’s economic sustainability is heavily dependent on the nation’s ability to slowly but surely move away from its reliance on the highly labour intensive but volatile garment and footwear sector to other labour intensive industries such as electronics assembly, as a start.
Over reliance on garments and footwear, and construction, which is a cyclical industry, and tourism, often susceptible to global economic headwinds, puts Cambodia in a disadvantageous position as an ever-demanding labour industry causes enormous pressure on a sustainable economy as well as socio-economic stability.
If Cambodia’s exports relies on one or two clients, such as the EU and US, the nation is just one decision away from economic disaster. Strategic diversification is one of the few tools that would enable Cambodia’s exporters reduce risk and sustain if not boost sales growth at the same time while meeting economic turbulence that are often triggered by political decisions.
In this aspect, the forthcoming 18th public-private sector forum, led by Prime Minister Hun Sen would be key to unlocking hidden trade and investment opportunities and trigger extensive reforms in the trade and economy sector.
This in turn could lead to a more competitive export sector while ensuring the country’s move towards diversification and away from over reliance on a single export destination or a single nation.
While the 10 guiding commandments of the property sector is location, location, ….. and location, the two most important components of Cambodia’s trade and export sector which create employment, are DIVERSIFICATION and increased trade pacts.