Cambodia: RCEP to boost trade in spite of supply chain disruptions, Moody’s says

Cambodia remains confident that the benefits of RCEP, along with free trade agreements with China and South Korea will help boost exports of its key products

The Regional Comprehensive Economic Partnership (RCEP), which came into force on Saturday, will help increase trade in goods and services between Cambodia and other signatories, according to economists at Moody’s Analytics.

RCEP consists of the 10 members of ASEAN plus China, Japan, South Korea, Australia and New Zealand. It is the world’s biggest trading bloc, with a combined gross domestic product (GDP) of $26.2 trillion, or 30 percent of global GDP. The agreement eliminates as much as 90 percent of tariffs among members over the next 20 years.

“RCEP will likely lead to an increase in exports, despite the supply chain challenges and restrictions put in place to contain the pandemic,” said Tim Uy from Moody’s Analytics research team. “Companies have been making adjustments to get around the logistical issues brought about by the pandemic, and they will continue to do so, even if the supply chain issues will likely last well into 2022. The elimination of the vast majority of tariffs on imports for over 20 countries should boost trade within the region and will be another one of the key changes companies will factor into their decisions heading into the new year,” he said.

RCEP members stand to gain $174 billion in real income by 2030, or 0.4 percent of their aggregate GDP, according to the Asian Development Bank. Moody’s Senior Economist Katrina Ell agreed that cutting tariffs is a positive move but said the value of the deal will take time to become clear.

“Exports are the backbone of economies in Southeast-Asia. The RCEP agreement is an important step forward because it helps remove trade barriers and propels intra-regional free trade,” she said. “It is too early to quantify the benefits of the agreement, but it is an important step forward to promoting trade amongst the high-growth potential region.”

One major uncertainty is how the Coronavirus pandemic will play out and what effect it will have on global supply chains, with new variants emerging and spreading in spite of successful vaccination campaigns across most of the region.

“There is still a lot of uncertainty surrounding the Omicron variant and in particular, on the economic impact it will have on the world,” Uy said. “Surging cases particularly in the West do not bode well for the global economic recovery that is just picking up steam. APAC is likely to see the surge in cases slightly later than the West owing to the timing of its vaccine rollout, and social restrictions will likely linger. Countries that have not achieved herd resilience will be hit hardest. While exacerbating supply chain issues, border restrictions are unlikely to completely halt export growth, which should still continue amidst the changing landscape brought about by the pandemic (see Indonesia for example).”

Cambodia is well ahead in terms of immunisation, having fully vaccinated 81 percent of the population, according to, behind only Brunei, Singapore, China and South Korea among the 15 RCEP signatories. The worry is that many countries that RCEP members trade with have not been as successful in their vaccination campaigns.

“The arrival of the Omicron variant increases uncertainty and downside risk about the near-term global economic recovery,” Ell said. “The surge in cases in the US and Europe could meaningfully dampen household consumption, which would flow through to weaker exports for southeast Asia. Exports have been an important strength for ASEAN in 2020 as local infection surges and associated movement controls hurt domestic demand, at times.”

Still, Cambodia remains confident that the benefits of RCEP, along with free trade agreements with China and South Korea will help boost exports of key products such as garments. The National Bank of Cambodia says the economy will grow 5 percent this year as the Covid-19 pandemic eases and the free trade deals come into force.