Cambodia's economy faces new challenges that could affect the growth of trade and investment inflows as international manufacturers possibly move operations to Vietnam after the country made new trade deals with major markets, several economists have said.
Following the recent completion of negotiations with the EU on a free trade agreement (FTA), the Vietnamese government on Monday passed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
Inking of the CPTPP makes Vietnam the seventh country to approve the trade deal following Australia, Japan, Mexico, Singapore, New Zealand and Canada.
Hiroshi Suzuki, the chief economist of the Cambodian-based research firm, Business Research Institute for Cambodia, said yesterday that the Kingdom would be at a disadvantage in trade growth compared with the CPTPP members – especially Vietnam.
He said the FTA between Vietnam and the EU could have a negative impact on the Kingdom since the latter is considering withdrawing Cambodia’s preferential Everything But Arms (EBA) agreement.
This would make EU companies – especially the garment and footwear sectors – consider shifting their production base from Cambodia to Vietnam.
“Thailand is considering participation in the CPTPP. If both Vietnam and Thailand join the CPTPP and Cambodia not, the international supply chain could be affected because only Cambodia has a different status.
“So in order to keep attracting foreign direct investments to Cambodia, it would be necessary for the Kingdom to consider participation in the CPTPP in the near future.”
Formerly known as the TPP, the trade agreement was a key Obama administration policy. The deal was expected to liberalise trade among its 12 signatory Pacific Rim nations, which include the US, Canada, Vietnam and Japan.
However, early last year, US President Donald Trump signed an executive order to withdraw the US from the TPP.
The 11 remaining countries agreed to push ahead without the world’s largest economy, rebranding the pact as the CPTPP.
With the recent signing of the CPTPP, taxes on nearly 43 per cent of Vietnam’s apparel exports to Canada will be removed immediately after the agreement takes effect, and 100 per cent after four years.
The garment sector is Vietnam’s second largest export-earner after smartphones. Exports of footwear products and seafood will also benefit.
While Vietnam has completed several deals to liberalise trade, the EU – Cambodia’s biggest export market – warned this month that the Kingdom may lose its EBA status.
Shanghai-based China Market Research Group business analyst Kerstin Brolsma foresees the recent inclusion of Vietnam in the CPTPP trade deal as a burden to Cambodia as international producers might pay more attention to Vietnam.
“As Vietnam enters the TPP and works to expand its global trade relations, challenges may arise for Cambodia as international producers, importers and investors, especially from other CPTPP countries, seek out new opportunities in the market."
“Yet, economic and political ties between Vietnam and Cambodia, as well as Chinese investments into the Kingdom as part of the Belt and Road Initiative will be positive mechanisms that ensure Cambodia remains competitive,” she said.
Supreme National Economic Council senior adviser Mey Kalyan said yesterday that being able to participate in the CPTPP or other international trade deals could improve Cambodia’s competitiveness.
However, he said there is a need for a clear study of its positive and negative impacts first to avoid unnecessary risks.
“There must be many challenges to join the agreement because, to be a member, we need to fulfil many requirements.
“When we join any trade deal, we force ourselves to adapt to international standards of production, but it could be good for us as eventually, we will get global recognition,” he said.