RCEP: A Boon for Cambodia's Economy, but Challenges Remain

While the RCEP can reap rewards for Cambodia's economy, challenges in its implementation remain. Kiripost explores the trade agreement
RCEP is expected to boost Cambodia's economy, but it faces challenges. Kiripost/Siv Channa
RCEP is expected to boost Cambodia's economy, but it faces challenges. Kiripost/Siv Channa

The Regional Comprehensive Economic Partnership (RCEP) is expected to have a positive impact on Cambodia's economy, boosting employment, attracting foreign investment, and improving the country's trade balance. However, the nation faces some challenges in its implementation, such as regulatory hurdles, capacity constraints, and the risk of a trade deficit.

RCEP, which Cambodia is one of 15 signatories, is the world's largest free trade agreement (FTA) in terms of market size and GDP, with a combined market of more than 2.270 billion consumers and a combined GDP of $29.5849 trillion, respectively.

It entered into force on January 1, 2022 in Phnom Penh, and consists of 15 signatories, including 10 ASEAN member states and China, Japan, South Korea, Australia, and New Zealand.

Neth Pheaktra, Minister of Information, said that RCEP has the potential to accelerate Cambodia’s digitalization, industrialization, and smart manufacturing. Therefore, this will pave the way for Cambodia to realize its goal of becoming an upper-middle-income country by 2030 and a high-income country by 2050, he added.

He said it at a lecture about RCEP in the context of geopolitics and geoeconomics, which was held at the Ministry of Information on September 13.

He said, “RCEP is vital for Cambodia’s economic growth; however, effective strategies are needed to benefit from this free trade agreement.”

This article will explore how Cambodia can benefit from RCEP and its challenges.

Benefits of RCEP for Cambodia

Giving a lecture at the Ministry of Information on Wednesday this week, Dr. Sok Siphana, Senior Advisor of the Royal Government of Cambodia and Chairman of Asian Vision Institute, highlighted how Cambodia can benefit from RCEP.

This FTA can help Cambodia to reduce its trade deficit by increasing domestic production and reducing imports. He said, “In terms of trade balance, Cambodia should improve its manufacturing capability to increase its domestic production. In this way, imported products will be reduced.”

Cambodia does not lack markets. Instead, the key to success is attractive packaging, he emphasized. For example, Japanese products are often well-packaged, which allows them to command a premium price.

However, to achieve this, Cambodia needs to invest in research and development to study the feasibility of these products and develop the necessary manufacturing capabilities. He said, “The private sector should focus on producing high-value products using expertise and technology.”

He raised examples of how Cambodia's raw agricultural materials, such as bamboo and red chili, could be used to produce high-value products, including luxurious floor mats and cosmetic products.

He said, ”If we have the expertise and technology to produce high-value products from raw agricultural materials, we will be able to make a good living.”

In Cambodia, businesses often focus on popular trends rather than investing in expertise and innovation, he added. He further said that this is a missed opportunity, as expertise is essential for improving economic growth.

He explained how doing businesses based on popular trends could disrupt the rice supply chain. He said, “Twelve years ago, Cambodia exported only 12,000 tonnes of rice because people do business based on popular trends.”

For instance, at that time when some rich people bought rice milling machines, others did the same, leading to oversupply and a lack of investment in farmers, he added.

According to Cambodia Rice Federation, the nation’s total rice exports was 637,004 tons in 2022.

Moreover, RCEP can help Cambodia to benefit from skills and technology exchange when foreigners invest in the Kingdom, he said. This can help Cambodia to develop the expertise and manufacturing capabilities it needs to produce high-value products from its raw agricultural materials, he added.

There are cases in which RCEP contributed to the establishment of manufacturing bases in Cambodia. Therefore, it is an opportunity for Cambodia to benefit from skill and technology exchanges.

There are three manufacturing bases in Sihanoukville aimed at producing over six million vehicle tires for exporting to RCEP signatories. Cambodia is home to rubber plantations that provide a valuable source for tire production.

Another example is the establishment of factories in Cambodia by Japan for producing raw cashews for export. Before, Cambodia only exported raw cashews to Vietnam.

Additionally, to benefit from RCEP, Cambodia should not focus on real estate because this sector is speculative, meaning that it does not increase productivity. Therefore, it is not good for the country's economy.

Jason Chumtong, Country Director of Konrad-Adenauer-Stiftung Cambodia, told Kiripost that Cambodia can benefit from RCEP in many ways. He said, “The agreement will likely open up new markets for Cambodian goods and services, thereby increasing production and creating more jobs.”

Sectors like textiles, agriculture, and manufacturing could see a surge in demand, leading to higher employment rates, he added.

Additionally, RCEP could make Cambodia more attractive to foreign investors by providing easier access to larger markets and reducing trade barriers, said the country director. This could result in increased foreign direct investment (FDI) in various sectors, further boosting economic growth, he explained.

In terms of trade balance, Chumtong said that RCEP can help improve Cambodia’s trade balance by increasing exports, diversifying export portfolio, and reducing import costs.

He said, “By reducing tariffs and trade barriers, RCEP could help Cambodian products become more competitive in other member countries, thereby increasing exports.”

Cambodia could diversify its export portfolio by tapping into new markets, reducing its dependency on a few trading partners, he added.

He further explained that lowering tariffs on imported goods could reduce production costs for Cambodian companies, thereby making them more competitive both domestically and internationally.

How to Overcome those Challenges

Besides these promising benefits from RCEP, there are challenges that Cambodia faces in implementing this FTA. Those challenges are regulatory hurdles, capacity constraints and trade deficit risks.

He said that aligning local laws and regulations with RCEP provisions could be challenging and time-consuming. Cambodia may face challenges in terms of infrastructure, skilled labor, and technological capabilities to fully capitalize on RCEP benefits, he added.

He said, “There's a risk that cheaper goods from other RCEP countries could flood the Cambodian market, affecting local industries."

To overcome these challenges, he suggested that Cambodia should invest in infrastructure and education, streamlining regulations and reducing bureaucratic hurdles, and forming strategic partnerships to facilitate technology transfer.

By carefully planning and implementing strategies to address these challenges, Cambodia stands to gain significantly from its participation in RCEP, he added.

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