A free trade agreement (FTA) between Europe and Cambodia is a “long way away” and “may never happen”, said Chris Humphrey, executive director of the EU-ASEAN Business Council in an interview with EuroCham Cambodia.
“Cambodia’s best hope is that the European Union [EU] makes rapid progress on FTAs with countries in the region [so] that a future region-to-region FTA is considered,” he added.
Humphrey, who has led the council for nine years, was responding to a question on how Cambodia can effectively navigate its planned graduation from Least Developed Country (LDC) status in 2027.
Humphrey said Cambodia would need to develop fast to avoid getting caught in a “trap” of losing preferences and not having FTAs in place as it moves out of its LDC.
He mentioned that bilateral lFTAs might also allow for some ASEAN accumulation to allow access to preferential tariffs for companies outside of the direct deal.
“For example, something could be made in Cambodia, finished in Thailand, and then sent to the EU. The country should also move up the value chain on manufacturing to produce higher quality goods, while still maintaining a low price point, but that is not an easy task,” he said.
Cambodia, centre of SEA
In the interview posted on EuroCham’s website, Humphrey was asked to share his thoughts on the EU's business sentiment towards Cambodia, where he said the overall sentiment towards the ASEAN region was “extremely positive”.
Citing data from his council’s last business sentiment survey, he noted that over 60 percent have a positive view of the region and believe it is the region with the “best economic opportunity”.
“There is a business-friendly environment in Cambodia and I think the country is aiming to be more friendly towards Europe in general. So, I think there are big opportunities for European business in Cambodia,” he said.
Cambodia has one of the smaller economies in Southeast Asia, but it is developing extremely fast, especially in Phnom Penh, Humphrey observed, adding that the population is “very young” and there are lots of things that are positive for European industry.
“The fact that there are positive feelings from the government – it’s a very open and easy to talk to government – that’s always a good thing for industry.
“There’s forward-thinking economic policies and a desire to get more foreign direct investment in, particularly from Europe,” he said.
Humphrey went on to say that geographically, Cambodia “really is at the centre of Southeast Asia”. “They provide a source of labour as well, something for example Thailand is struggling to provide at the moment.”
Green energy, supply chains
He felt that another area where EU business can play a role in Cambodia is energy transition, by helping to green the energy supply in the country.
“European businesses are leaders in that field, and Cambodia clearly has a need for it, based on our own discussions previously with the Ministry of Mines and Energy,” said Humphrey, who has frequently visited Cambodia.
On the topic of Cambodia’s sale of renewable energy to Singapore, he said the latter has an “absolute need” to green its power supply.
While much is being done to ensure green energy including adding wind turbines and solar panel rooftops, there is a “limit to what Singapore can do themselves”, as it is a small country, he said.
“So they need to do more, the deal with Cambodia, and other deals with countries in the region, it’s the only way they can go. This also boosts the whole idea of an ASEAN grid in the process, which can only be a good thing for everybody,” he added.
On a more general note, Humphrey said, sustainability initiatives from Europe would impact all businesses who export to the EU.
“It’s going to force European companies and local firms to clean up their act, green their supply chains, and make sure there’s no forced labour in their supply chains.
“I think overall that will be a good thing for a country like Cambodia. It will help improve levels of employment and the transfer of different technologies.
“There may be costs involved but I’m sure that good EU businesses, as they do everywhere in the region, will make sure that their supply chains are properly equipped and supported,” he said.
Start with tuk-tuks
Looking at Cambodia’s auto industry, Humphrey does not see it becoming a major automotive production hub, at least not in the way of Thailand, which has history and infrastructure, though it “perhaps lacks engineers and manpower” now.
He said the whole mood in the auto industry is “of course shifting towards non-internal combustion engines” in favour of electric or hydrogen-powered vehicles, which is a niche that Cambodia “needs to start looking at and exploring”.
According to him, internal combustion engines are now on a shortened timeline everywhere, particularly in Europe.
“They need to start thinking, what can we do in Cambodia? Can we afford to put in place the infrastructure to support electric vehicles? They can probably do it easier than elsewhere simply because they’re starting from a lower base perhaps than many others,” he said.
He opined that if Cambodia could position itself to start to manufacture – whether its motorbikes, tuk tuks or commercial vehicles – they should probably look to start doing so.
“They have the land, and I think they have the people for it. It’s a question of persuading companies that manufacturing in Cambodia for export – because the domestic market is not big enough – is a better option than what they have in other countries,” Humphrey said.
He said if one were to look around the region, Thailand is the “Detroit of Southeast Asia”, and then there are significant industries in Indonesia, Malaysia, and Vietnam. “Can Cambodia get part of that? Setting up a car plant is an expensive business. So anybody looking at it needs to be assured that they can manufacture, can export to the region and elsewhere, and make sure they have the right staff with the right expertise,” he shared.
Build up eco-tourism
The SEA Games is a good thing for Cambodia, as it helps put the country on the map, Humphrey said when asked about its impact on the economy, while noting that it is a major event, with 11 countries competing across various disciplines.
“It will really help in highlighting what a great country Cambodia is, and hopefully will be a further boost for tourism. Cambodia’s ASEAN Chairmanship went very smoothly and was very well-organised, and I expect the SEA Games will be the same.
“A successful management of the Games will also enhance Cambodia’s reputation in the eyes of Europe,” he commented.
In terms of tourism, Humphrey said Cambodia needs to diversify its base “a bit”.
“When we were in Siem Reap last year for the ASEAN Economic Ministers meeting, it was great being a tourist because it was empty, but for the locals, that wasn’t a good sign. They do need to promote more, the country has so much to offer.
“It’s a great destination to relax and there’s a huge market for eco-tourism. Some of our members, such as booking.com, are doing a big push on sustainable tourism. For a country like Cambodia, it’s a great opportunity,” he said.