Trade with one of Cambodia's largest foreign investors could slow as

Korea's economy is in shambles following world market fallout

AFREE Trade Agreement that took effect Saturday between South Korea and Cambodia is not likely to have a significant effect on trade while the world's markets continue to be battered by economic downturn, an analyst said Monday.

But these effects are likely to be felt only in the short term, said Kang Chandararot, the head of the economics unit at the Cambodia Institute of Development Study, and global financial recovery will see a substantial increase in commerce between Cambodia and its largest foreign investor.

The free trade agreement will speed up the process of [asean] integration.

"Trade will increase definitely, but the trade increase will happen once the financial crisis is over," he told the Post.

The FTA, which came online after Cambodia cleared the few remaining legal hurdles to its implementation, will see South Korea immediately scrapping import tariffs on more than 10,000 Cambodian manufactured goods, including garments.

Import duties on 108 farm and fishery goods, including Cambodian rice, beef and pork to South Korea will remain in effect.

Korean officials said Friday they expected the FTA to greatly increase trade between the two countries.

Last year, Korean exports to Cambodia totalled US$281 million.

In the first five months of this year, Cambodia imported $132 million worth of Korean products, an increase of 35 percent compared withthe same period last year.

Cambodia exported about $8.9 million worth of goods to Korea in 2007, according to Shin Hyun-suk, the South Korean ambassador to Cambodia.

Korea is Cambodia's largest foreign investor, while the Kingdom remains the sixth largest investment destination for Korean companies.

But much of Korean investment is in property and the garment sector, sectors that have both taken heavy hits by the global economic crisis.

Several massive South Korean-backed building projects in Phnom Penh have stalled or postponed future construction as investors re-evaluate their positions amid a worsening Korean economy.

Regional integration

Despite the likely short-term effects on bilateral trade, the Cambodian-Korean FTA would help speed up the Association of Southeast Asian Nations' integration with global markets, Kang Chandararot said.

Cambodia's agreement with South Korea is part of an Asean drive to offset declining demand from US and European markets.

"[Asean countries'] potential for further growth depends on their gaining independence from markets in other regions," Kang Chandararot said.

He also said that the FTA would not create costly regulation or overlap with other multilateral trade agreements.

Cambodia is the ninth Asean member to ratify an FTA with South Korea, which also has FTA's with Chile and the United States.

 ADDITIONAL REPORTING BY NGUON SOVAN