Asia St: Why the China-Cambodia Trade Pact Matters

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Why the China-Cambodia Trade Pact Matters

September 13, 2021

Cambodian Prime Minister Hun Sen (Photo Credit: Wikimedia Commons).

The BGA Cambodia Team, led by Managing Director Bora Chhay and Advisor Sophea Ros, wrote an update for clients on the legislative approval of the China-Cambodia Free Trade Agreement. The update addressed the background to the pact, its significance and the implications for clients.

Context

Cambodia’s National Assembly on September 9 approved legislation implementing the Cambodia-China Free Trade Agreement (CCFTA). The National Assembly’s approval comes nearly one year after Cambodia and China signed the agreement.

The pact is part of Cambodia’s growing ties with China amid issues it has had with some of its relationships with select Western countries. For instance, the CCFTA signing came two months after the European Union decided on August 12, 2020, to withdraw 20 percent of the everything but arms (EBA) preferential trade scheme it had earlier granted Cambodia due to human rights concerns. 

Significance

The deal is expected to help facilitate economic ties between both countries. It aims to diversify the export destination of Cambodian products; boost bilateral trade, services and investment; and promote post-Covid-19 economic recovery in both countries.

The CCFTA also underscores mutual commitment to strengthening the China-Cambodia comprehensive strategic partnership. Beijing views its relationship with Phnom Penh as being part of what Chinese President Xi Jinping has called a “community with a shared future.”

Implications

The CCFT is expected to take effect early in the first quarter of 2022. It needs to be reviewed and passed by the Senate and submitted to the king for endorsement and promulgation.

The CCFTA offers opportunities for local and foreign investors to relocate production, expand business in Cambodia and reexport to China, with provisions of relevance in sectors such as rules of origin, customs protection and e-commerce. Companies should also watch if the pact delivers on its value proposition to leverage stronger bilateral ties to spur domestic job creation, skills enhancement, technology transfer and supply chain integration, making Cambodia more competitive regionally and helping it move up the value chain.

BGA will continue to keep you updated on developments in Cambodia. If you have any comments or questions, please contact BGA Cambodia Managing Director Bora Chhay at bchhay@bowergroupasia.com.