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Cambodia-Korea free trade agreement ratified

30/09/2022    64

The National Assembly of the Republic of Korea on Tuesday gave its formal consent to the Cambodia-Korea Free Trade Agreement (CKFTA) through its ratification to make Cambodia’s second bilateral trade agreement officially valid and effective for enforcement in a short period of time, according to a senior official of the Ministry of Commerce (MoC).

Under CKFTA, Cambodia is expected to receive over 95 percent of the total tariff lines from the Republic of Korea to export 92 percent of all of its goods to the latter at zero percent of customs duty immediately after the agreement is entered into, according to the official who is also the spokesman of MoC.

Pen Sovicheat, Undersecretary of State of MoC, told Khmer Times yesterday that CKFTA will provide additional benefits from the trade between the two countries as the tariff lines, tariff rates and some conditions under the Regional Comprehensive Economic Partnership (RCEP) that also include the Republic of Korea are still limited, unlike CKFTA.

“So, CKFTA will fulfill the things we have received through RCEP and expand our markets in that country, which enables us to expect that the bilateral trade would be boosted further, but the rest percentage of tariff lines that we have not received yet refers to some goods that are still sensitive to the partner’s economy and so they cannot give us, while some goods require complete fulfilment of technical conditions,” Sovicheat said.

The spokesman said CKFTA will allow Cambodia to export peppers, bananas, cashew nuts, potatoes, pineapples, coffee, fruits, corns, longans, tobaccos, meats, aquaculture products, sugar, rubbers, apparel, textiles, footwear, bicycles, travel materials, bags, accessories, industrial goods and more, while the Republic of Korea will be allowed to export electronic devices, automobiles, construction machinery, agriculture machinery, cloth raw material, processed cloth, cosmetics, food, groceries, construction materials and spare parts and more.

The Ministry of Trade, Industry and Energy of the Republic of Korea confirmed that the CKFTA will be effective after its government officially notifies Cambodia within 60 days. “The government will notify Cambodia about the completion of all procedures and that would make this free trade agreement effective,” the ministry pointed out.

CKFTA is expected to foster Cambodia’s exports to the Republic of Korea such as garments, textiles, foot wears, bags, accessories, electronic devices, rubbers and agricultural products, according to the statement, adding that CKFTA is the second bilateral free trade agreement for Cambodia following the bilateral free trade agreement between the Kingdom and China that was enforced in January this year.

Cambodia already enjoys special trading benefits with South Korea under the Association of Southeast Asia Nations (ASEAN)-Korea Free Trade Agreement, and the Regional Comprehensive Economic Partnership Agreement (RCEP), according to the Hong Kong Trade Development Council (HKTDC), adding that the new bilateral agreement is expected to further boost trade and investment between the two economies.

RCEP comprises of 15 countries, among which 10 are the member states of ASEAN, while the rest are trade partners that include Australia, China, Japan, South Korea and New Zealand, according to the statement of MoC, adding that South Korea signed the free trade agreement with Cambodia in October last year.

His Majesty King Norodom Sihamoni, King of the Kingdom of Cambodia, has signed into law the ratification of the Free Trade Agreement between Cambodia and South Korea on January 29, 2022, after it was cleared by the National Assembly and Senate. A free trade agreement between Cambodia and South Korea was discussed and drafted by the two countries’ expert working group in 2021.

The agreement was officially signed via video by the Minister of Commerce of Cambodia Pan Sorasak and the Minister of Commerce of the Republic of Korea, YEO Han-Koo on October 26, 2021, which is expected to boost exports, increase gross domestic product and increase employment opportunities, and help speed up the recovery of the two economies affected by Covid-19 by expanding trade liberalisation markets.

Prime Minister Hun Sen said that this free trade agreement will be a major driving force in boosting trade and investment flows
between Cambodia and the Republic of Korea. According to him, the establishment of free trade will help the Cambodian economy and expanding the market for Cambodian products.

The agreement also presents opportunities for value-added investments in Cambodia’s downstream processing industries through a ‘plus one business model’, in which South Korean companies could expand their supply chain network developed in not only China but also Vietnam or Thailand, according to the ASEAN Briefing.

There are more than 300 South Korean manufacturing firms in Cambodia that are mostly operating in the light manufacturing industry, producing goods such as clothing, footwear, travel bags, and footwear. Cambodia exports raw agricultural products including rubber, fruits and starches to South Korea as well as electrical and electronic components, the ASEAN Briefing pointed out, adding that Cambodia relies on South Korea for more advanced electronic and assembled goods that require highly developed technology.

Although electronics constitute a small portion—approximately US$35 million of Cambodia’s exports to South Korea, Cambodia’s government has identified the electronics and automotive industries as priority industries that will help promote the country in the global value chain.

Cambodia has the potential to become an automotive and electronic component production hub and complement its neighbours, Thailand and Vietnam, who have well-established automotive
and electronic manufacturing centres respectively.

The country’s strategic location along the Mekong Delta—a sub-region that is attracting interest from foreign investors who are taking advantage of the pace
of increased intra-regional integration—is helping Cambodia to become an alternative supply base for electronic and automotive spare parts for factories in Thailand and Vietnam.

South Korean investors will have confidence in the ongoing pro-business reforms Cambodia has enacted over the past year. The Law on Investment, issued in October 2021, provided 19 selected industries with investment incentives that include income tax exemption, the deduction of capital expenditure through a special depreciation mechanism and the exemption for export custom duties.

In addition, eligible businesses can also receive value-added tax exemptions for the import of construction equipment, production inputs, and production equipment, among others. The Cambodian government has also made attempts to improve the overall labour environment by introducing a new pension scheme and making amendments to the Labour Law. Under the new pension scheme, four new types of social benefits have now been introduced for workers including old-age pension, disability pension, survivor’s pension, and funeral allowance.

Meanwhile, the amendments to the Labour Law include allowing businesses to schedule working hours into three shifts, and labour disputes can now be brought to court if the disputing parties cannot resolve the issues amicably. The government hopes these changes can strengthen Cambodia’s competitiveness and help reach its target of becoming a middle-income nation by 2030 and a high-income nation by 2050.

The bilateral trade volume between Cambodia and the Republic of Korea has increased by nearly 7 percent to about $550 million in the first eight months of this year compared to approximately $515 million in the same period of last year, according to the figures received by Khmer Times yesterday from Sovicheat.

Source: Khmer Times