This week, the European Union and Vietnam agreed, in principle, to a free-trade agreement that will see the Kingdom’s neighbour benefit from reduced-tariff access to European markets.
Industry insiders say that the deal will slowly erode into the competitiveness that Cambodia currently enjoys under the Everything But Arms scheme.
David Van, the local representative of business advisory firm Bower Group Asia, who has formerly played an active role in both Cambodia’s rice and garments sectors, sat down with the Post this week to discuss Cambodia’s competitiveness in the face of Vietnam’s new trade agreement.
Where do you see the major impacts on Cambodia’s economy?
In general, Vietnam is a lot more productive and competitive in manufacturing than Cambodia and the FTA with the EU would give their exports a serious boost after lifting the tariff impediment.
On the impact to the Cambodian Rice sector, 99 per cent of all tariffs from the 28 EU countries and Vietnam will disappear.
The FTA will come into force somewhere between mid 2017 and early 2018.
It means 80,000 tonnes per year for the first 5 years and unlimited from 2022 onwards. 80,000 tonnes is not a large quantity, but unlimited from 2022 is a surprise.
On the impact to the Cambodian Garment Sector, GMAC’s current Secretary General said that while Cambodian garment exporters can source fabric from anywhere, the Vietnamese agreement stipulates that garment exports to the EU only use Vietnam-made fabric.
But Vietnam does have a comprehensive backward linkage environment to support their garment industry, this compares to Cambodia who has to import about almost every single component from fabric to zippers and buttons.
The minimum wage in Vietnam is lower than our current one and Vietnamese workers are 30 per cent to 40 per cent more productive than ours.
If our minimum wage keeps increasing it would automatically force the migration of factories to go elsewhere as bottom line for investors is the primordial element.
What do you think can be done to help strengthen Cambodia’s competitiveness as the EU-Vietnam FTA comes into being?
To salvage our affected industries – from garments to agricultural commodities – Cambodia needs to embrace a bold vision to enhance our competitiveness. Our current global ranking on the Ease of Doing Business Index, the Competitiveness Index and the Transparency Index are among the worst in the world.
This is despite the fact that we are located in a very good nieghbourhood.
Still, Cambodia could drastically improve on all of this.
But the challenge is in changing the values, habits and mindset – this is where the real problem lies – as our senior policymakers have narrow boundaries and comfort zones and may not be willing to bust their existing boundaries to take on the challenge for change for the economic survival of Cambodia.
Real growth and serious development requires an intense and effective inter-ministerial coordination.
It simply means that ministers and ministries must build bridges among themselves and cross those bridges.
Changes are hitting us at a very fast pace as the flurry of FTAs like [the Trans Pacific Partnership (TPP) and Regional Comprehensive Economic Plan (RCEP)] can testify.
Catching up is no longer a solution as we won’t differentiate ourselves and thus catching up is a doomed strategy.
Cambodia must be ahead of the curve in ASEAN with the ASEAN Economic Community 2015 just around the corner.
The EU-Vietnam FTA will take time before coming into affect, so is there real reason for immediate concern?
Time is certainly of the essence and the sense of urgency should raise alarm bells since the last few years.
On rice sector impact, Vietnam has already been granted a quota of 10,000 tonnes of any variety of rice to be imported tax free into EU starting October 2015 and once they complete the first quota, additional quota would be granted.
Besides, from now to mid- 2017 is barely 2 years away. Conceptualising and implementing adequate policies as remedy within such a short time frame is insufficient.
Cambodia is also been left out of the group of nations negotiating with the US on the Trans Pacific Partnership.
Why do you think that is so and what will its impact be?
The criteria to a become member of the TPP has been initially set to be a mandatory member of APEC which we are not.
There are other criteria also set forth but they have been subject to much controversy too.
Cambodia may not even be allowed to come on board even if the TPP version 2.0 will be negotiated.
Being a small economy with nothing much to protect in terms of industries, we had to open up widely when we acceded to WTO and we should shift gear with a real sense of urgency.
We need to start negotiating more bilateral FTAs and bilateral investment treaties with other markets to widen access to markets for our products and services.
Key criteria would be coming up with Bilateral Non Taxation agreements too.
This article has been edited for length and clarity.