UAE-Cambodia CEPA goes into effect: Here’s how free trade pacts lift growth

Cambodia is now the fifth country that will trade with the UAE under the Comprehensive Economic Partnership Agreement (CEPA) as the deal went into effect starting February.

The CEPA is designed to boost bilateral trade by removing or reducing tariffs on over 92 per cent of product lines, facilitating smoother trade transactions and improving market access for service exports.

The deal is expected to add 0.015 per cent to the UAE economy by 2031.

UAE-Cambodia bilateral trade

Notably, non-oil trade between the UAE and Cambodia reached over $407m in 2022, marking a 33 per cent increase compared to the previous year and 50 per cent increase compared to 2020.

Amidst promising economic outlook in Cambodia, whose GDP grew 5.2 per cent in 2022, the CEPA is expected to unlock new export opportunities for the UAE in sectors such as machinery, oils and lubricants, and automotive parts, while Cambodia anticipates increased exports in grains, fruits, meats, processed foods, apparel, footwear, and leather goods.

Additionally, the agreement will enhance investment flows between the two nations, in priority sectors such as logistics, infrastructure, travel, tourism, and renewable energy. By the end of 2020, bilateral foreign direct investment (FDI) stood at $3.8m, with total UAE investment flows into Cambodia reaching nearly $3m by the first half of 2022.

Dr. Thani bin Ahmed Al Zeyoudi, UAE Minister of State for Foreign Trade, hailed the CEPA as a significant milestone in bolstering bilateral relations and strengthening the country’s presence in the ASEAN region. He emphasised the importance of open, rules-based trade in fostering economic prosperity and global stability.

The benefits of the deal include:

• Market expansion: The UAE-Cambodia CEPA unlocks vast opportunities for market expansion, covering an extensive array of over 92 per cent of tariff lines, and providing UAE businesses with privileged access to Cambodia’s thriving and diverse consumer base.
• Investment opportunities: The agreement encourages bilateral investments by offering a conducive environment for UAE investors in Cambodia and vice versa, promoting economic growth, job creation, and technological advancements.
• Support for SMEs: The UAE-Cambodia CEPA includes provisions to support Small and Medium-sized Enterprises (SMEs), offering them a platform to expand their reach, access new markets, and contribute significantly to the economic growth of both nations.
• Boost to service sector: With a focus on the service sector, the agreement enhances market access for UAE service providers in Cambodia, facilitating collaboration in areas such as finance, healthcare, education, and other service-oriented industries.
• Streamlined customs procedures: Businesses benefit from simplified and expedited customs procedures.

The UAE’s pursuit of trade agreements under the CEPA framework is paying of dividends as the country boosts inbound and outbound flow of goods and services, solidifying its position as a global economic hub.

S&P Global Market Intelligence highlights the impact of the CEPA deals on the trade flows through the ports of Jebel Ali and Dubai Airports. The market data firm noted in a blog last year: “With Jebel Ali, the UAE already has the most important regional port and one of the leading ports globally. Likewise for air transport, the Dubai airport is a critical hinge for air travel and transport between the commercial centers of Asia and Europe.”

“In 2021, the latest year for which comprehensive trade data for the UAE is currently available, re-exports already accounted for 45 per cent of total exports (including re-exports) from the UAE. The CEPAs will cement this position and hand the ports opportunities to develop further.”

CEPA deals

In addition to Cambodia, the UAE has inked similar agreements with four other countries – India, Israel, Indonesia and Turkey.

According to the UAE government, similar free trade negotiations are ongoing with 26 countries. The UAE is currently in negotiations with Malaysia, Vietnam, Thailand, Philippines, Ukraine, and Serbia.

Read: India-UAE partnership: Leading the regionalisation of trade through the decades