Cambodia And China'S Rapid Signing Of A Free Trade Agreement May Mean More Than Substance

From October 11 to 15, 2020, Chinese mainland foreign minister Wang Yi paid a state visit to four Southeast Asian countries (Cambodia, Laos, Thailand and Malaysia). The first stop was Cambodia, where he met Cambodian Prime Minister Hun Sen. On October 12, witnessed by Wang Yi, Hun Sen, Cambodian Minister of Commerce pan sorasak, and Chinese Minister of Commerce Zhong Shan, on behalf of the two governments in Phnom Penh and Beijing, formally signed the China Cambodia free trade agreement (hereinafter referred to as China Cambodia FTA) through video. After the signing of the agreement, the two sides will go through their respective domestic law approval procedures, and it is expected to enter into force as soon as early as 2021.

China Cambodia FTA is the 18th FTA signed by the mainland of China. The negotiation was started in January 2020. After only seven months of formal negotiations (one substantive meeting and two video conferences), the negotiation was announced to be completed on July 20 of the same year. The signing of the "one belt and one road" strategic partnership between China and Cambodia marks a milestone in the new era of bilateral cooperation and cooperation. Wang Yi said that the China Cambodia FTA has sent a strong and powerful signal to the outside world, which will help Cambodia overcome the impact of the epidemic and play a positive role in promoting Cambodia's economic and social development.

In terms of market opening, China and Cambodia FTA will realize high-level tariff reduction. The mainland of China will grant Cambodia 97.53% of zero tariff products, of which 97.4% will realize zero tariff immediately after the agreement comes into effect, including clothing, footwear, leather and rubber products, electromechanical accessories, agricultural products, etc. However, Cambodia has granted 90% of China's zero tariff products, of which 87.5% will realize zero tariff immediately after the entry into force of the agreement, including textile materials and products, mechanical and electrical products, miscellaneous products, metal products, transportation vehicles and other products that China focuses on. This is the highest level of market opening commitment in all FTA negotiations between the two sides so far.

According to a press release issued by the Ministry of Commerce of mainland China, China and Cambodia have achieved a number of "first" highlights, including: This is the first FTA signed between Mainland China and a low-level developing country, and also the first FTA signed by mainland China in the post epidemic era. In addition, the "one belt and one road" agreement will be the first time for the two countries to cooperate closely on the belt and road. The two sides reiterated that they will thoroughly implement the belt and road initiative, and emphasize strengthening the "five links" (policy communication, facilities connectivity, trade facilitation, capital financing and people to people communication) in an all-round way, and carry out cooperation in key areas such as infrastructure, investment and economic corridor.

In fact, the FTA between China and Cambodia has been warming up rapidly after the EU imposed economic sanctions on Cambodia. Cambodia hopes to diversify its export market through the agreement. Since August 12, 2020, the EU executive committee has officially withdrawn the preferential tariff treatment for Cambodia's "everything but arms (EBA)" because Cambodia violates the human rights and labor rights and interests regulated by the United Nations and the international labor organization, and has not improved the problem. The sanctions will significantly increase the cost of Cambodia's export to the European Union. The main products affected are textiles, clothing and footwear, accounting for about 20% of Cambodia's exports to the EU. As Cambodia's economy highly depends on the garment manufacturing industry, and the main export markets of Cambodian clothing products are the United States and the European Union, accounting for 26% and 25% of Cambodia's clothing exports in 2019. Therefore, the Cambodian government hopes that China Cambodia FTA can offset the loss caused by the cancellation of part of EBA preferential treatment by the EU.

According to most reports, the symbolic significance of China Cambodia FTA may be greater than its essence. First, China mainland and ASEAN signed FTA in 2010, namely ASEAN China free trade area. Cambodia, as a member of ASEAN, enjoys tariff-free treatment for most products exported to mainland China, which makes the role of China Cambodia FTA in promoting Cambodia's economic growth is limited. Even if the country's GDP is less than US $0.3 billion, the country's GDP can only increase by US $0.25 billion. At present, it is not clear how the FTA and the FTA work together.

Second, in 2019, mainland China is the largest source of Cambodia's imports, accounting for about 37.2% of Cambodia's total imports, about US $7.6 billion. However, Cambodia's exports to mainland China are only 1 billion US dollars, accounting for only about 5% of Cambodia's total exports. The unbalanced import and export trade makes Cambodia have a huge trade deficit with China. In contrast, Cambodia's largest export markets are the European Union and the United States, which are US $4.9 billion and US $4.4 billion respectively in 2019, maintaining a trade surplus with these two markets. Therefore, compared with the trade structure between Cambodia and Europe and the United States, the trade structure between Cambodia and Mainland China is not conducive to the long-term economic development of Cambodia. Although China Cambodia FTA is expected to improve Cambodia's agricultural exports to mainland China, the profit generated is lower than that of Cambodian clothing products exported to Europe and the United States, so it can play a limited role in the gradual transformation of Cambodia's economic structure to manufacturing.

On the whole, although the effect of the agreement has been questioned by all walks of life, the general direction of diversified export market continues to advance. At present, Cambodia is also conducting FTA negotiations with South Korea and Mongolia, actively expanding new markets to reduce Cambodia's excessive dependence on European and American markets.