Copy Reference On October 12, Chinese Minister of Commerce Zhong Shan and Cambodian Commerce Minister Pan Sorasak signed the China-Cambodia Free Trade Agreement (CCFTA) virtually in Beijing and Phnom Penh on behalf of their respective governments. Cambodian Prime Minister Samdech Techo Hun Sen and visiting Chinese State Councilor and Foreign Minister Wang Yi witnessed the signing in Phnom Penh.
Frequent high-level dialogue related to the agreement has been conducted all year, reflecting strong desire and determination from leaders of the two countries to engage in economic cooperation to promote growth and improve living standards in the post-pandemic era.
Wang Yi called the signing of the CCFTA a strong signal that China will help Cambodia address challenges brought by the COVID-19 pandemic as it promotes socio-economic development in the Southeast Asian nation.
Pan Sorasak also spoke highly of the CCFTA. “The signing of bilateral agreements with our partners is essential for upgrading Cambodia’s competitiveness and trade diversification,” he declared. “The CCFTA is critical for Cambodia to integrate into the regional and the world economy.”
Foundation of Friendship
The signing of the CCFTA is an important consensus reached by leaders of the two countries. During Prime Minister Hun Sen’s visit to China in January 2019, the leaders agreed to explore the feasibility of a China-Cambodia free trade agreement. Formal negotiations kicked off in January 2020 and were completed seven months later on July 20, 2020. The efficient negotiation process reflected the solid foundation of political mutual trust and economic and trade cooperation between the two countries. It also evidenced strong desire of both countries to actively promote bilateral trade and investment to cope with the impact of COVID-19.
CCFTA negotiations benefited from the solid foundation of friendly relations the countries share. China and Cambodia have a long history of friendly relations. In 1955, then Cambodian King Norodom Sihanouk established a tight relationship with then Chinese Premier Zhou Enlai at the Bandung Conference, and a new chapter of China-Cambodia friendship commenced. In July 1958, the two countries formally established diplomatic ties. From the 1970s to 1990s, as Cambodia grappled with domestic turmoil and external aggression, the Chinese government and people offered selfless assistance and promoted peaceful settlement of the Cambodian conflict. Cambodian King Norodom Sihamoni and Prime Minister Hun Sen continued developing friendly relations with China thereafter. In 2010, the two sides established a comprehensive strategic cooperative partnership. When China proposed the Belt and Road Initiative (BRI), Cambodia responded enthusiastically and helped set an example of mutually-beneficial win-win cooperation within the framework of the initiative. The two countries have always supported each other on major issues such as opposing foreign interference and maintaining peace and stability. China has always supported Cambodia’s development along a path that suits its own realities, while Cambodia has always adhered to the one-China principle. On issues involving the South China Sea and Hong Kong, Cambodian voices have frequently and boldly spoken in defense of justice for China.
In 2016, during Chinese President Xi Jinping’s visit to Cambodia, the two governments signed a cooperation document on jointly building the BRI. In 2019, the two countries signed an action plan to build a community with a shared future. The two countries’ sincere and solid friendly relations have been constantly reinforced.
More Robust Economic Cooperation
In recent years, China-Cambodia economic and trade relations have been continuously strengthened. China has become Cambodia’s largest trading partner, largest source of investment, largest source of foreign tourists and largest development partner. The CCFTA covers a wide range of areas such as BRI cooperation, trade in goods, trade in services, investment cooperation, economic and technical cooperation, and e-commerce, which will further expand market access for Cambodian products in China, promote the diversification of Cambodian products and markets, and effectively contribute to the rapid recovery of the Cambodian economy in the post-pandemic era.
In this era, the support for free trade and multilateralism demonstrated by signing of the CCFTA is especially noteworthy against the backdrop of the rise in protectionism and unilateralism.
The outbreak of COVID-19 has exerted a huge impact on global economies. To minimize damage caused by the pandemic, China and Cambodia have devoted concerted efforts to fighting the virus while promoting bilateral pragmatic cooperation on reopening the economy.
Earlier this year, the European Union, Cambodia’s second-largest trading partner, announced that it would withdraw some tariff preferences granted to Cambodia on August 12. The decision will impact Cambodian garments, footwear products, sugar, and travel goods worth US$1.5 billion, about 20 percent of all Cambodian exports to Europe. The export costs for footwear products are expected to rise 17 percent, and 11 percent for textile products. Cambodia will likely lose some of its advantages in export pricing compared to neighboring countries.
Signing of the CCFTA will help both economies endure tough times. Cambodia and China have supported each other through thick and thin with sincere action and friendship. The CCFTA will reduce Chinese tariffs on 97.53 percent of Cambodian product categories, with the tariffs on 97.4 percent of goods reduced to zero. The specific tariff concessions will cover Cambodian garments, footwear, and agricultural products, among other things. Meanwhile, the CCFTA will reduce Cambodian tariffs on 90 percent of Chinese product categories, with tariffs on 87.5 percent of goods reduced to zero when the agreement takes effect. Specific tariff concessions cover textile materials and products, mechanical and electrical products, and other goods. It represents the highest level the two sides have ever reached in FTA negotiations.
In July 2020, Cambodia officially launched bilateral FTA negotiations with South Korea. According to Cambodian media reports, the Cambodian Ministry of Commerce organized eight working groups to coordinate signing of free trade agreements with China, the United Kingdom, South Korea, the Eurasian Economic Union (EAEU), the United States, Japan, Mongolia, and India, respectively. The CCFTA was the first FTA Cambodia signed with a foreign government. After the agreement takes effect, more Chinese investors will start investing in agricultural product processing and textile industries in Cambodia, which will add value to Cambodia’s export commodities. Meanwhile, investment in infrastructure, real estate, financial services, manufacturing, and retail sales will help Cambodia achieve industrialization to enhance its position in the global value chain.
The CCFTA explicitly covers BRI cooperation in terms of not only trade in goods and services, but also in investment, e-commerce, and other areas. Cooperation in areas like e-commerce and the digital economy will create brand-new growth poles for China-Cambodia economic cooperation in the post-pandemic era and support ongoing efforts in both countries to make supply and demand more balanced, logistics smoother, and markets more efficient, so as to promote industrial upgrading and transformation and boost economic recovery of both countries.
Cambodian agricultural products displayed at the 17th China Shenyang International Agricultural Exposition on July 28, 2017. (YU HAIYANG)
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The decision will impact Cambodian garments, footwear products, sugar, and travel goods worth US$1.5 billion, about 20 percent of all Cambodian exports to Europe. The export costs for footwear products are expected to rise 17 percent, and 11 percent for textile products.
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The CCFTA will reduce Chinese tariffs on 97.53 percent of Cambodian product categories, with the tariffs on 97.4 percent of goods reduced to zero.
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Meanwhile, the CCFTA will reduce Cambodian tariffs on 90 percent of Chinese product categories, with tariffs on 87.5 percent of goods reduced to zero when the agreement takes effect.
About the author
Wang Zi is a research fellow at the China Institute of Contemporary International Relations.