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Cambodia-South Korea Free Trade Agreement
In January 2022, Cambodia and South Korea signed a free trade agreement (CKFTA) which is expected to be ratified soon. This is the second such bilateral FTA that Cambodia has signed, the first being with China. South Korea was already an important economic partner for the country before the agreement was signed, as ASEAN had already implemented a free trade agreement with Korea in 2007, which had a great impact on trade volumes with Cambodia.
This FTA could be seen as an extension of the ASEAN-Korea FTA to strengthen the existing economic relationship between the two countries by increasing trade volumes.
With this FTA, Cambodia is looking to ensure market liberalisation and play a more active role in the global production chain by diversifying its markets. Furthermore, the agreement was signed at a critical time for the global economy and aims to fuel economic recovery from the covid-19 crisis.
Boosting trade volumes
The 2007 ASEAN-Korea free trade agreement removed import duties for 90% of the products traded between the two. This had a significant impact on trade volumes between Cambodia and Korea. Trade volumes in 2007 amounted to around USD 300 millions and reached around USD 1 billion before the pandemic.
With this new FTA between the two countries, it is now 95.6% of products imported from Cambodia to Korea that enjoy a duty-free treatment, which amounts to 10,000 Cambodian products (and 93.8% of products imported from Korea to Cambodia).
Several hundred Korean manufacturing companies currently operate in Cambodia, mainly in the clothing, textile and footwear sectors. The FTA will therefore strengthen and increase trade volumes in this area, allowing Korea to move forward with its “New Southern Policy”, which aims to diversify its economic and strategic relationships.
Cambodia’s market diversification
While the above-mentioned industries are vital to the Cambodian economy, as they lead in exports and account for almost a third of GDP, the country is committed to gradually reduce its dependency from these industries. Cambodia is now focusing on more advanced industries such as electronics, automobiles and higher value-added agricultural products.
The FTA is a way to encourage investment by Korean companies in the electronics and automotive sectors in order to compete with neighbouring countries such as Vietnam and Thailand and become an alternative production centre for these products.
Meanwhile, Cambodia’s agricultural sector is also particularly promising. Its geographical location is seen as a real opportunity for future agriculture. The country is dependent on agriculture, but this also means that its workers are experienced. With the right investments and a well thought-out strategy, the country could indeed turn to high value-added products.
In conclusion
Cambodia’s efforts to achieve its goal of becoming a middle-income nation by 2030 are visible in almost every area. With incentives for business, evolving regulations, and a solid plan to transition to a digital economy, the country is also strengthening its relationships with regional partners. The Cambodia-Korea FTA is a strategic agreement to stimulate economic growth and diversify markets.
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