The Regional Comprehensive Economic Partnership Agreement (RCEP) is expected to provide a significant boost to foreign investors looking to establish production bases in Cambodia, leveraging the country’s abundant raw materials and low-cost environment to export to a broader global market.
In a recent forum organized by the American Chamber of Commerce in Cambodia (AmCham), Dr. Sok Siphana, Chairman of the Asian Vision Institute, spoke extensively on the potential benefits of RCEP, particularly for international businesses seeking opportunities in Cambodia.
“With the RCEP, as long as you establish a company in Cambodia and have 40 percent of raw materials coming from any ASEAN countries to comply with the Rule of Origin, you can export to the 15 member countries,” Dr. Siphana explained. “Cambodia has a lot of raw materials like cassava, rubber, bamboo, and cashew nuts.”
Rule of origin opportunities
The Rule of Origin (ROO) procedures under the trade pact require that about 40% of the raw materials come from any ASEAN country. This stipulation opens a wealth of possibilities for companies, particularly from Japan, Korea, and China, to relocate portions of their production to Cambodia and capitalize on lower production costs and potentially higher profit margins.
Dr. Siphana continued, “Through the enhanced ROO flexibility, I foresee more Japanese, Korean or Chinese multinationals shifting some of their production to Cambodia as a lower-cost location where they will expect higher profit margins through a better and streamlined regional supply chains.”
RCEP’s transformative potential was echoed throughout the forum. The trade agreement, covering all ten ASEAN countries, along with Australia, China, Japan, South Korea, and New Zealand, has the scope to stimulate economic development across the region. This is particularly significant given the uncertainties resulting from the ongoing conflict in Ukraine and the US-China trade tensions.
“The war in Ukraine is not helping, and the US-China trade tension is not providing certainty in the market. RCEP is the alternative source that can provide a certain buffer during times of uncertainty,” Siphana asserted.
Sokheng Sim, Secretary of State at the Ministry of Commerce, highlighted the complexities and long negotiation process that led to the RCEP’s establishment, taking eight years due to a variety of factors including economic disparities within ASEAN and protecting the interests of farmers and the agricultural sector.
Sim said, “We have different levels of development, and we have to face associations and NGOs who are out there to protect their interests, like farmers.”
Professional services to benefit
However, the forum also emphasized the potential benefits for Cambodian companies and professional service providers, such as lawyers, architects, and accountants. According to Vanseka Sok, managing partner of Sethalay Law Office, “We benefit a lot in the e-commerce section, consumer protection law, and competition law. This is the benefit as a young country.”
The President of AmCham Cambodia, Devin Barta, underscored the human resource challenges presented by the RCEP. “When RCEP and trade take off, we need vocational skills that are in demand by the industries and we also need management and leadership skills in the workforce,” Barta stated.
Finally, Dr. Siphana concluded the discussion with an optimistic outlook for Cambodia. “Twenty years ago when we joined the WTO, we did not have the private sector… Twenty years later, we have the middle class, we have the wealth, educated workforce, and resources. I believe that now is the time for Cambodia and Cambodian companies to move up to the next stage of development by embracing the trade and investment opportunities offered under the RCEP,” he said.
The RCEP represents a new phase in Cambodia’s economic evolution and an opportunity to integrate more deeply into the global economy. The optimism surrounding this development suggests a positive trajectory for Cambodia as it moves to tap into the myriad opportunities presented by the RCEP agreement.
Additional benefits that the RCEP brings to the table for Cambodia were discussed by panelist Vanseka Sok. “As a Least Developing country, we had to push for fair trade and RCEP is all about free trade. It helps SMEs and they can access the flows of funds that can be cheaper. Right now the market is open and it is you who drive the market for the benefit of Cambodia,” she said.
E-commerce and legal protections
The RCEP could also potentially revolutionize e-commerce and legal protections for consumers within Cambodia. “We benefit a lot in the e-commerce section, consumer protection law, and competition law. This is the benefit as a young country,” added Sok.
One topic that came up repeatedly was the importance of adequately preparing the workforce for the demands of this new economic landscape. Devin Barta, the President of AmCham Cambodia, emphasized the need to develop vocational, management, and leadership skills in the Cambodian workforce to meet the new challenges posed by the RCEP.
“When RCEP and trade take off, we need vocational skills that are in demand by the industries and we also need management and leadership skills in the workforce. This will be a boon to manufacturers and companies coming into Cambodia,” said Barta.
Barta further emphasized the significant social benefits the RCEP could bring to Cambodia, stating, “This partnership (RCEP) is all about generating new jobs, increasing disposable income, and improving the quality of lives.”
Dr. Siphana also underscored the significance of the RCEP for the country’s future. He noted that the country’s recent socioeconomic changes should be utilized to reap maximum benefits from the RCEP.
Siphana concluded, “I believe that now is the time for Cambodia and Cambodian companies to move up to the next stage of development by embracing the trade and investment opportunities offered under the RCEP.”
Given these insights, the RCEP appears to be a critical instrument for Cambodia’s economic development. Its potential to diversify and strengthen the economy, create jobs, and improve quality of life is clear. As foreign companies look to Cambodia as a gateway to the broader ASEAN market, it becomes crucial for the Cambodian workforce and businesses to embrace the challenges and opportunities that lie ahead.