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China and Cambodia sign FTA on heels of EU sanctions

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Nikkei Asia - 12 October 2020

China and Cambodia sign FTA on heels of EU sanctions
By Shaun Turton

China and Cambodia on Monday signed a free trade agreement at a ceremony in Phnom Penh attended by Chinese Foreign Minister Wang Yi.

The FTA, Cambodia’s first such bilateral deal, was completed after just three rounds of talks that started in January and finished in July. It is yet to be made public.

A statement on China’s Ministry of Commerce website said the agreement covered a wide range of cooperation in the areas of investment, trade, tourism, transportation and agriculture.

It was signed by Cambodia’s Minister of Commerce Pan Sorasak and his Chinese counterpart Zhong Shan. According to Cambodia’s state media outlet, the ministers praised the deal as a "new milestone" that would provide "economic and social benefits."

However, few specifics were released. A spokesman for Cambodia’s Council of Ministers, writing in the Khmer Times in August, said the government hoped the deal would boost exports to China by 25%.

Previous remarks by Cambodian officials have suggested the agreement has a focus on improving agricultural exports to China.

Commerce Ministry official Sok Sopheak in July said it covered 340 commodities, 95% of which would be tariff-free, according to government-aligned outlet Fresh News.

Among the items Sopheak cited as included were chillies, pineapples, vegetables, fruit, fish, meat, grain, seafood and a variety of canned products. Cambodian rice, rubber and sugar were not included in the agreement, Sopheak was reported as saying.

Bilateral trade between Cambodia and China reached more than $9 billion in 2019, though the trade balance is heavily skewed.

China was Cambodia’s largest source of imports last year, accounting for 37.2% of total merchandise goods imports — worth $8.3 billion — according to figures from the Economist Intelligence Unit. Cambodia, meanwhile, shipped just over $900 million of goods to China — about 5% of its total exports.

With an economy heavily dependent on apparel manufacturing, Cambodia’s most important export markets are the U.S. and the European Union, which took 26% and 25% of exports last year.

The FTA with China comes on the heels of EU trade sanctions. Brussels has partially suspended Cambodia’s duty-free access to the bloc over human rights violations.

China, Cambodia’s largest source of aid and investment, has vowed to help cushion the blow. But the FTA could be more symbolic than practical.

Riley Walters, a senior policy analyst at The Heritage Foundation, said the boost for Cambodia would be marginal given that the 2010 ASEAN-China Free Trade Area had already reduced tariffs.

Keen to diversify its markets, Cambodia is also in FTA talks with South Korea and Mongolia. But Imogen Page-Jarrett, an analyst at the EIU, said it would take "many years" to lessen Cambodia’s reliance on the US and EU markets. Further, the type of agricultural produce targeted for export was starting from a low base and was low in value added, she said.

But certain areas are improving. A 2019 deal to permit Cambodian bananas into China saw Cambodia’s total banana exports increase from about 10,000 tonnes in 2018 to 157,000 tonnes last year. The two countries have also reached a deal to pave the way for fresh mango exports.

Page-Jarrett said the EIU expected the Chinese government would use the FTA to further encourage Chinese FDI and Chinese tourism in Cambodia. Of the $3.7 billion of FDI recorded in Cambodia in 2019, 47% came from China.

The FTA was among three deals signed during Yi’s visit to Phnom Penh, which is the first stop on a tour of Southeast Asia for the top Chinese diplomat.

Other agreements include plans to upgrade a hospital and drainage infrastructure in the coastal city of Sihanoukville, according to Cambodia’s Foreign Ministry. China also announced $140 million in additional aid, according to Fresh News.

 source: Nikkei Asia