FTA Forecast Study and Handbook on Trade Analysis for Cambodia

The Project at A Glance

Cambodia has undergone a remarkable socio-economic transformation over the past decade, positioning itself as an export-oriented country. The country’s exports are concentrated among several trading partners which accord Cambodia preferential market access given its Least Developed Country (LDC) status. With LDC graduation potentially occurring in 2024, the Cambodian Government has been actively preparing its economy and industry for the potential disruptions arising from the loss of tariff preferences. Cambodia has equally signed multiple plurilateral and bilateral trade deals and is expected to negotiate additional agreements to retain preferential market access.

With funding from the GIZ, International Economics Consulting Ltd. (IEC) has assisted Cambodia with regard to two related but distinct activities under ARISE Plus Cambodia namely an FTA potential study and a handbook on analytical preparations for trade negotiations. The main purpose of the FTA potential study is to provide information to the Government to prioritise potential partners for bilateral trade agreements and to build the government officials’ capabilities in interpreting the results of the analysis. With regard to the second activity, the main purpose of the handbook is to produce a user-friendly guide to existing analytical resources that can support negotiators and analysts as they prepare for and conduct bilateral trade negotiations.

What We Found

In order to access the impact of potential FTAs in Cambodia, the first step consisted of identifying the top market priorities. A Computable General Equilibrium (CGE) model was used to identify the potential gains arising from an FTA with the countries, considering trade potential in terms of tariff revenue, welfare gains, outputs, and trade impacts. Having identified the top countries, an analysis of the market access commitments was undertaken. This included the analysis of the commitments made by the top 10 trade partners for trade in goods and trade in services.
Across the 10 countries, Cambodia holds an untapped export potential of around USD 9 billion. The European Union market has the largest unrealised potential for an amount exceeding USD 5 billion. Cambodia has significant export potential to the EU in apparel, footwear, and miscellaneous manufactured items as the highest prospective sub-sectors. Other top major markets with a high potential for exports include the United States, Japan, the United Kingdom, and Canada. An examination of the Trade Complementarity Index (TCI) of Cambodia with the ten selected trade partners indicates an overall upward trend in the trade complementarity between Cambodia’s exports and all partners’ imports.

Our Strategy and Impact

Based on the analyses of the various market access and non-market access conditions applicable by the selected partners, we provide recommendations on a structured flow of analysis to be conducted for prioritised FTA negotiations, covering specific issues to be addressed namely:

Analysis of market potential, trade complementarities and other trade indicators;
Tariff analysis of sensitive sectors/products for Trade in Goods market access conditions;
Non-Tariff Measures analysis of sensitive sectors/products for Trade in Goods market access conditions;
Market access analysis for sensitive sectors in Trade in Services;
Analysis of non-market access commitments by policy areas; and
Legal text analysis

Our Core Solutions

Understanding the sustainability provisions in FTAs is important for businesses as they seek to import or export from certain markets. At IEC, we provide our clients with a detailed analysis of the key impacts of new trade agreements on their operations and competitiveness through an assessment of tariff, and non-tariff tariff barriers, provisions on rules of origin, customs efficiency, the effectiveness of transport networks, and sustainability provisions, among others. We can help assess the opportunities in different markets, determine the feasibility and viability of projects, and benchmark the wider ecosystem to support business growth.