Cambodia and China have signed a bilateral free trade agreement, which has been touted as a boon for Cambodia’s agricultural exports, but with little detail of its content provided by the Cambodian government.
Prime Minister Hun Sen and Chinese Foreign Minister Wang Yi, presided over the signing ceremony of the trade agreement at Peace Palace in Phnom Penh, as well as grants for a hospital renovation and sewage system in the coastal city of Sihanoukville.
At the signing ceremony, Cambodian Commerce Minister Pan Sorasak said the agreement would ensure a robust economic partnership between the two countries by providing increased market access for goods, services and investment.
“The timely implementation of this agreement would provide economic and social benefits to people of the two countries in a mutually-advantaged manner,” he said.
The FTA is Cambodia’s first bilateral trade agreement and was concluded in less than a year of negotiations. Both governments have provided very little detail about the free trade agreement, except to say it would be a shot in the arm for Cambodia’s agricultural sector and covers around 300 products – not including the critical export of rice, which currently has a 200,000 tons export quota.
In a press briefing, Eang Sophalleth, a personal assistant to Prime Minister Hun Sen, said the prime minister told Wang Yi that Cambodia would eventually lose the E.B.A. preferences, but that that FTA would be permanent.
"EBA will be lost one day, more or less. But, this Free Trade Agreement between Cambodia and China is here to stay with Cambodia forever,” Eang Sophallet said, quoting Hun Sen.
E.B.A privileges are only given to least developed country, and given that Cambodia is a low-middle income country, it would have been transitioned out of the agreement by the E.U.
The deal was initially scheduled to be signed on August 12 in Beijing, China, the same day as when the European Union’s “Everything But Arms” trade privileges were partially withdrawn. The trade preferences are critical to Cambodia’s export sector and could impact the rice, garments and footwear sectors.
Economists have questioned the potential for Cambodia to take full advantage of the FTA, especially in light of the estimated COVID-19-induced economic contraction for 2020. Cambodia had a more than $6 billion trade deficit with China in 2018, with the world’s second largest economy holding 46 percent of the country’s debt.
Prime Minister Hun Sen has urged farmers and agro-businesses to scale up production, while asking China to increase its imports of fruits, pepper and other agricultural products. Deputy Prime Minister Hor Namhong reiterated this sentiment to Wang Yi at a meeting on Sunday.
The two countries also signed a grant for an upgrade of the Preah Sihanouk Referral Hospital in Sihanoukville, as well as a sewage system for the port city.
After meeting with Wang Yi on Sunday, Hor Namhong posted on Facebook that another $140 million grant was discussed but did not provide any details nor did government officials at the Peace Palace on Monday, who asked journalists to not report the deputy prime minister’s announcement.
According to state-owned China Central Television, Wang Yi said the free trade agreement would not only promote bilateral trade but also contribute to addressing Cambodia's challenges once the economic impacts of the COVID-19 pandemic had subsided.
“China stands ready to further consolidate political trust and enhance mutual support, to jointly chart the course and promote the development of bilateral ties in the post-pandemic era,” he said as reported by CCTV.
Ear Sophal, associate professor of diplomacy and world affairs at Occidental College in Los Angeles, said keeping in mind the bilateral trade deficit and China’s hold on nearly half of Cambodia’s debt, the FTA would benefit China more.
“It's unfortunate Cambodia is in a hole and can only dig a bigger hole. Digging a bigger hole will not get you out of this problem,” he said. “It needs to rebalance by strengthening its relationship with the U.S.”
Jayant Menon, a visiting senior fellow at ISEAS-Yusof Ishak Institute, a think tank based in Singapore, said Cambodia’s open economy and low tariffs makes an FTA with China a big positive for the country. But, it does increase an already-high economic reliance on China.
“To reduce this risk, Cambodia should look to further diversify its trade and investment flows, so that it is not overly dependent on one or a few trading partners,” he said in an email.
“This FTA should be considered carefully in the context of how it affects the diversification objective, or how it increases dependency.”
