Korea-Cambodia FTA Agreement Reached... Automobile and Machinery Exports Expected to Expand

Among All Items, Tariffs to Be Abolished for Korea 95.6% and Cambodia 93.8%

[Sejong=Asia Economy Reporter Kwon Haeyoung] South Korea and Cambodia have finalized a Free Trade Agreement (FTA) that entails tariff elimination on 95.6% and 93.8% of all items, respectively. The additional market opening resulting from this FTA is expected to expand exports of Korean companies in the automobile and machinery sectors.

Yoo Myung-hee, Chief Negotiator of the Ministry of Trade, Industry and Energy, and Pan Sorasak, Minister of Commerce of Cambodia, signed a joint declaration on the conclusion of the Korea-Cambodia FTA negotiations on the 3rd at Lotte Hotel in Sogong-dong, Jung-gu, Seoul. The two countries began negotiations in July last year and conducted the entire process remotely, concluding the negotiations in seven months, the shortest period among FTA agreements.

Cambodia has recorded an economic growth rate of over 7% annually for the past 10 years and has a high growth potential with 65% of its population under 35 years old. Trade volume with South Korea has steadily increased, reaching 1 billion USD as of 2019.

Under this FTA, South Korea will eliminate tariffs on 95.6% of all items, and Cambodia on 93.8%. Until now, Cambodia had eliminated tariffs on 93% of all items and 52.4% of import value based on the Regional Comprehensive Economic Partnership (RCEP), but through this FTA, it will additionally open 0.8 percentage points of all items and 19.8 percentage points (approximately 110 million USD) of total import value.

On our side, tariff elimination on Cambodia’s largest export items such as cargo trucks (tariff rate 15%), passenger cars (35%), construction heavy equipment (15%), as well as agricultural and marine products like strawberries (7%) and gim (seaweed) (15%) will secure competitiveness in the Cambodian market. In particular, an expansion of exports by construction machinery companies is expected. The tariff rate on construction heavy equipment will be reduced from the current 15% to 0% over a maximum of 15 years. South Korea will gain a competitive edge over Japan, Europe, and the United States, which impose general tariffs (15%), and will also be able to compete with China, which exports construction heavy equipment to Cambodia tariff-free.

The two countries also agreed to eliminate mutual tariffs on items with established supply chains to strengthen the value chain between them. In particular, Cambodia will eliminate tariffs on knitted fabrics (7%), while South Korea will eliminate tariffs on clothing (5%). The rules of origin requirements for clothing items will also be relaxed, improving export conditions for Korean textile and clothing companies.

Additionally, they agreed to continue expanding the New Southern FTA network and to pursue a win-win FTA that establishes a comprehensive cooperation foundation in economic and health sectors.

Both sides plan to formally sign the Korea-Cambodia FTA agreement as soon as possible.

Yoo Myung-hee, Chief Negotiator of the Ministry of Trade, Industry and Energy, stated, "The Korea-Cambodia FTA will be a solid foundation for both countries to overcome the challenges posed by COVID-19 and achieve sustainable economic growth together," adding, "We hope that both countries will achieve more trade, investment, and cooperation and move toward a path of shared prosperity."

This content was produced with the assistance of AI translation services.