Cambodia’s export of garments, textiles and footwear to South Korea is poised to go up following the Cambodia-South Korea Free Trade Agreement (CKFTA) which was signed into law by the government in January this year. The agreement is expected to be ratified in June.

The agreement also presents opportunities for value-added investments in Cambodia’s downstream processing industries through a “plus one business model”, in which South Korean companies could expand their supply chain network not only in China but also Vietnam or Thailand.

According to a release, the agreement should boost trade between the two countries with South Korea agreeing to remove tariffs on 95.6% of products imported from Cambodia while Cambodia will eliminate duties on 93.8% of imported goods.

Cambodia-South Korea bilateral trade was valued at $885 million in 2020 and grew by 9% to $965 million in 2021 (bilateral trade had reached over $1 billion before the pandemic).

Further, Cambodia imported over $600 million from South Korea in 2021 while exports reached $341 million to the East Asian nation.

Meanwhile, the CKFTA falls under South Korea’s “New Southern Policy”. The policy, is considered to be Seoul’s first unified diplomatic initiative and aims to advance relations with ASEAN and India.

In addition to increasing trade, Cambodia is hoping South Korean firms can help diversify its economy away from its mainstays of garment and textile manufacturing, and tourism.

Garment and textile manufacturing make up some 80% of Cambodia’s exports, contributes to 30% of GDP, and employs over 800,000 workers nationwide. The tourism industry contributes 12%  of GDP. The government plans to increase non-textile and garment exports to 15%  as well as processed agricultural goods to 12%  by 2025.

There are more than 300 South Korean manufacturing firms in Cambodia that are mostly operating in the light manufacturing industry, producing goods such as clothing, footwear, travel bags, and footwear.

Cambodia exports raw agricultural products including rubber, fruits and starches to South Korea as well as electrical and electronic components. Cambodia relies on South Korea for more advanced electronic and assembled goods that require highly developed technology.

Although electronics constitute a small portion of Cambodia’s exports to South Korea ($35 million), the former has identified the electronics and automotive industries as priority industries that will help promote the country in the global value chain.

Cambodia has the potential to become an automotive and electronic component production hub and complement its neighbours, Thailand and Vietnam, who have well-established automotive and electronic manufacturing centers respectively.

The country’s strategic location along the Mekong Delta is helping Cambodia to become an alternative supply base for electronic and automotive spare parts for factories in Thailand and Vietnam.

Creating added value in the agriculture sector is one strategy the government is banking on to diversify Cambodia’s economy. The country’s flat terrain and access to vast water sources mean agriculture holds considerable potential for development.

Cambodia exports agricultural products to over 68 countries, which generated gross revenue of $4.68 billion in 2021. The main raw products exported are rice, rubber, tobacco, mangoes, bananas, corn, pepper, palm oil and cashew nuts. ASEAN Briefing

Source from: ASEAN Briefing (May 30, 2022). FTA to boost Cambodia-Korea trade​. Khmer Times. https://www.khmertimeskh.com/501083217/fta-to-boost-cambodia-korea-trade/