[Vietnamization] Cambodian Industries Wary of Tax-Free Trade with Vietnam

Cambodian Industries Wary of Tax-Free Trade with Vietnam

The Cambodia Daily | 10 January 2017

Cambodian businesses and industries are expressing caution about pursuing free trade with Vietnam, even as the Commerce Ministry renewed a bilateral deal eliminating tariffs for dozens of goods.

The agreement, the details of which were released last week, allows 39 goods to be exported and 29 to be imported tax-free. However, those involved in trading with Vietnam said domestic businesses face significant risks even as the deal allows them to export more to Vietnam than their Vietnamese counterparts can sell tax-free in Cambodia.

Cambodian rice for sale at a Phnom Penh market in September. (Siv Channa/The Cambodia Daily)

Vietnamese producers “already have a competitive advantage, which will be a significant threat for local manufacturers,” said Chou Ngeth, senior consultant at regional firm Emerging Market Consulting, citing both pricing and desirability.

According to the latest Vietnamese customs data, almost $2 billion of goods passed from Vietnam to Cambodia in the first 11 months of last year, dwarfing the estimated $641 million that traveled in the other direction.

There are dangers even for those Cambodian companies that are able to make inroads into Vietnamese markets, Mr. Ngeth said, with Vietnamese demand for Cambodian materials liable to be fickle.

“We may become a reserve [market] that secures their supply to satisfy Vietnam’s export commitments,” he said. “They will buy raw materials from Cambodia only if there is a local supply shortage.”

“In the long term, this could put local producers at risk by relying heavily on Vietnamese buyers,” he said.

Keo Mom, CEO of Ly Ly Food Industry, which has previously exported crackers to eight countries, including Vietnam, said there were many hurdles in shipping products into Vietnam.

“Selling Cambodian products in Vietnam is very difficult,” she said. “Even though the tax will be eased up for us, their hygiene protocol is strict.”

Ms. Mom said it took her eight months to jump through the legal hoops necessary to get her company’s product into Vietnam.

Vietnamese companies were at an advantage when facing Cambodia’s relaxed policies, she added.

“The Cambodian government should do the same thing as Vietnam to control the quality of goods that are going to increasingly flow into Cambodia through this deal,” she said.

Up to 300,000 tons of rice and 3,000 tons of unprocessed tobacco—as well as a range of other goods from biscuits and bicycles to textiles—are eligible to be exported from Cambodia tax-free. On the reverse journey, the 29 products include rice, dairy products and construction materials.

Tariff-free exports of rice may expand Cambodian producers’ options, but there is no guarantee of high returns, said Moul Sarith, secretary-general of the Cambodia Rice Federation.

“Even with the [deal], if the price is too low compared to the quality of rice, it still isn’t going to be successful,” he said. Nonetheless, “it is better to have a legal agreement than not to have one, and this shows their interest in buying our rice.”

Ho Sivyong, director of the Commerce Ministry’s export-import department, noted that the arrangement with Vietnam is a precursor to most trade across Asean becoming tariff-free by next year.