Spotlight - Cambodia: January 20, 2022

Fifteen months after Cambodian prime minister Hun Sen and Chinese foreign minister Wang Yi put pen to paper in Phnom Penh, agreeing to the Cambodia-China Free Trade Agreement (FTA), the pact finally took effect on January 1, 2022.

While the vast majority of Cambodia’s exports to China are already tariff-free thanks to the ASEAN-China Free Trade Area, this new agreement slashes tariffs on some 340 additional products—mostly agricultural—including garlic, cashew nuts, and dried chili. Ultimately, with this deal, China will offer duty-free status to nearly 98 percent of Cambodian imports; Cambodia will offer exemptions on almost 90 percent of Chinese imports, according to Cambodian media.

The two sides agreed to the FTA after the European Union partially withdrew its “Everything But Arms” (EBA) trade privileges from Cambodia in February 2020. The EBA gives some of the world’s least-developed nations preferential access to the EU market, but Brussels revoked some 20 percent of Cambodia’s preferences because of the Cambodian government’s “serious and systematic violations of the human rights principles enshrined in the International Covenant on Civil and Political Rights.”

The new FTA with China cannot by itself replace the EBA. The EU’s suspension of this scheme resulted in a loss of $1.08 billion, nearly 7 percent of Cambodia’s $26 billion economy. Estimates suggest, meanwhile, that the new FTA will add only $325 million, which is less than 2 percent of the national economy.

But Cambodia’s simultaneous membership in the Regional Comprehensive Economic Partnership (RCEP)—whose members account for 30 percent of the world’s combined gross domestic product—should help fill the hole that the European Union left. So too will the FTA that Cambodia signed with South Korea last October. Hun Sen has also said that he wants an FTA with Russia, and he is likely to pursue similar agreements moving forward.

These FTAs should boost Cambodia’s growth. But because the country remains so beholden to special interests, these pacts will not substantially improve Cambodia’s real economy, in which a majority of people live on $2 a day.

Charles Dunst is an adjunct fellow (non-resident) with the Southeast Asia Program at the Center for Strategic and International Studies in Washington, D.C.​