A bilateral meeting between Cambodian and South Korean leaders last weekend is expected to bolster imports and exports between the two countries as the two-way Cambodia-Korea Free Trade Agreement (CKFTA) enters into force on December 1, analysts have said.
Prime Minister Hun Sen on November 11 with South Korean President Yoon Suk Yeol in Phnom Penh on the sidelines of the 40th and 41st ASEAN Summits and Related Summits.
At the meeting, both sides hailed the economic cooperation and increasing trade between the two countries, and expressed optimism that the CKFTA would substantially drive up commercial shipments between them.
On the occasion, Hun Sen asked Yoon to encourage more Korean direct investment into the Kingdom, noting that Cambodians account for a sizeable share of foreign workers in the East Asian country.
In response, Yoon commented that the double tax avoidance (DTA) agreement between Cambodia and South Korea – which came into effect on January 29 – would spur more Korean investment in Cambodia.
To recap, formal CKFTA negotiations were launched on July 9, 2020 by the two countries’ trade ministers, and after 12 rounds of talks, the agreement was signed on October 26, 2021.
The Cambodian National Assembly (NA) ratified the CKFTA on December 29, 2021, and the King on January 29, 2022 signed a Royal Code promulgating the bill authorizing the deal’s ratification.
Following numerous delays, the South Korean NA ratified the deal on September 27, 2022, and after completing its final internal procedures, Seoul on October 2 deposited its instrument of ratification – a document by which a country formally agrees to be bound by a treaty – initiating a 60-day countdown for the CKFTA to come into effect, on December 1.
Under the CKFTA, coupled with the Regional Comprehensive Economic Partnership (RCEP), the Kingdom will lift tariffs on 93.8 per cent of goods traded, with South Korea scrapping duties on 95.6 per cent, Yonhap News Agency recently reported citing the South Korean trade ministry.
Ministry of Commerce undersecretary of state Penn Sovicheat has also noted that the CKFTA will provide more than 10,000 Cambodian items duty-free access to South Korea.
Cambodia Chamber of Commerce (CCC) vice president Lim Heng told The Post on November 13 that the meeting between Hun Sen and Yoon would come as a general boon for Cambodian politics, diplomacy and economic growth.
When asked to elaborate, Heng said that South Korea is a key buyer of Cambodian garments, footwear, travel goods, beverages, electronic components and agricultural products and exports vehicles, electronics, kitchen accessories, beverages, pharmaceuticals and plastics to the Kingdom.
“I am optimistic that as a result of this meeting, sales of Cambodian goods to [South] Korea will trend up more, as will the import of raw materials from Korea to be processed for export,” he said.
Hong Vanak, director of International Economics at the Royal Academy of Cambodia, echoed Heng’s sentiment on the significance of South Korea as a major buyer of Cambodian goods, adding that Korean entities represent a considerable share of inbound investment flows, especially in construction.
On the other hand, he suggested that Cambodia runs a large trade deficit that requires the government and investors to find ways to further diversify their exports and meet unfulfilled demand in South Korea.
Vanak recommended a focus on agricultural products and away from textile-related items, saying the CKFTA would give significant new impetus to the sale of Cambodian agricultural goods to South Korea.
“Through good cooperation and the CKFTA’s entry into force, it is certain that the export of certain products to the Korean market will increase. This growth also depends on the diversification of Cambodian goods towards meeting market demand,” he said.
The commodity trade between Cambodia and South Korea stood at $658,898 million in the first 10 months of 2022, up 3,249 per cent from the same time last year, according to figures posted by the General Department of Customs and Excise (GDCE) on November 10.
In the January-October period, Cambodian commodity exports to South Korea amounted to $190,529 million, up 21.57 per cent year-on-year, and imports $468,369 million, down 2.72 per cent. The Kingdom’s trade deficit with the East Asian nation for the 10-month period shrank by 14.44 per cent on a yearly basis to $277,840 million.
The Cambodian-South Korean commodity trade was relatively slow in October, reaching $58.46 million, up 2.0 per cent year-on-year and 16 per cent month-on-month, while the Kingdom’s exports were to the tune of $15.74 million, up 23.7 per cent year-on-year but down 13 per cent month-on-month.
Meanwhile, cumulative foreign direct investment (FDI) inflows into Cambodia between August 5, 1994 and December 31, 2021 amounted to 168.8 trillion riel ($41.0 billion), rising by 11.2 per cent from the nearly 152 trillion riel recorded by end-2020, according to the National Bank of Cambodia.
South Korea was the second largest investor in the Kingdom with $4.9 billion, or an 11.9 per cent market share, after China ($18.0 billion; 43.9 per cent), followed by Singapore ($2.7 billion; 6.5 per cent) and Vietnam ($2.5 billion; 6.1 per cent).
For reference, August 5, 1994 was the day when Royal Decree No 03/NS/94 promulgated the old Law on Investment and established the Council for the Development of Cambodia (CDC), the government’s highest decision-making body for large-scale investments .