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THIS
CHAPTER EXAMINES constraints and potential improvements to the process of
importing and exporting in Cambodia. Customs activities are discussed in
most detail, with some consideration of trade finance and transportation.
The chapter concludes by examining the draft law and strategy of the
government’s plan to introduce export processing zones in order to
concentrate scarce infrastructure and trade facilitation resources. The RGC has made significant improvements in processes and procedures for trade facilitation over recent years. Such improvements include:
The
Working Groups are: Export Processing Industries; Manufacturing and
Distribution; Energy and Infrastructure; Tourism; Law, Tax and Governance;
Banking, Financial Services and Insurance; and Agro-processing. Despite these achievements significant impediments to trade remain. These impediments reflect three themes that run throughout much of Cambodian administration. These themes are:
Preconditions for customs reform Strengthening the ability of the Customs and Excise Department (CED) to fulfil its trade facilitation mandate more efficiently will not be possible until a number of preconditions take place. These preconditions require giving CED the resources to be accountable and rationalizing the environment of external agencies with which CED shares the front line. Customs accountability Effective
customs reform requires an environment where the interests of customs
staff are allied to the efficiency goals of reform. But under existing
conditions there are incentives for staff to increase rather than decrease
the number and duration of human interventions in the processing of
imports and exports in order to maximise their individual ‘fee’
income. One approach would be to reduce the number of processing steps and
bundle informal payments previously paid at each step into one general
payment. However, individual staff members would resist such a change
unless they believe their share of the bundled ‘fees’ would not
decline. Cambodia’s
ratio of average annual civil service salary to GDP per capita was 1.1 per
cent in 2001. This compares very unfavourably to the sub Saharan African
average ratio of 5.8 in the mid 1990s and is well below private sector
wages even for unskilled workers in Cambodia. (The
2001 annual minimum wage for unskilled garment workers in Cambodia is
$600–$45 per month basic salary and a $5 per month bonus for zero
absentees.) The 1997 Socioeconomic Survey of Cambodia estimated a national
poverty income line of $0.50 per day, just $0.10 less than the average
civil service salary. Thus the pressures for Cambodian civil servants to
engage in additional income generating activities just to meet basic
household expenditures is substantial. The RGC is undertaking a Civil
Service Reform strategy to increase civil service remuneration. However,
by 2006 average compensation including allowances is planned to reach $49
a month and $86 per month for category A (non education) staff —
expected to be about 21 per cent of the total civil service in 2006. Few
other government positions provide as much opportunity for accepting
informal payments as the CED. The CED collected $222 million of revenue
from imports in 2000. With 1 150 employees this represents an amount
of $190 000 when averaged over every employee. Informally extracting
even a small fraction of this sum from importers would significantly
increase employee compensation. Some evidence of the level of extraction is indicated by the size of the informal price (‘concession fee’) now required to secure a customs border post. It is widely accepted that CED employees bid to be appointed to key customs posts. The successful bidder recovers the cost of the concession fee by subjecting traders to informal fees. The value of the concession fee for a senior post is rumoured to have increased significantly, from $2 000 a few years ago to $10 000 today. Therefore, the successful bidder has to recover informal fees worth five times more from traders than in the past before breaking even. Furthermore, by distributing the informal payments among border staff and whoever receives the concession fee proceeds, a constituency is formed to oppose any change to the status quo. Match accountability with reward The
recognised challenge is to regularise formal and informal staff
remuneration into a transparent and equitable system. The idea would be to
have salaries commensurate with the level of service expected from them in
a modern customs organisation. Income from non-transparent informal fees
could be factored into salaries, and be subject to enforcement of
significant penalties for any acceptance of informal fees. Many
countries have improved customs accountability and efficiency by
establishing revenue authorities operating independently of other government
departments (see box 3.1). In countries where the civil service is
constrained by limited labour and financial resources, revenue authorities
have been able to enhance revenue collections at little additional cost. One
option for increasing the autonomy and accountability of the Customs
Department, would be to negotiate performance targets with senior Customs
management and revise the salary structure and level of employment of
customs officers. No matter what systems and incentives are in place to ensure that CED officials and traders act according to the rules, customs administration relies to a large extent upon the voluntary compliance of participants. A sense of fairness and a common respect for the rule of law encourages voluntary compliance. Therefore, enhancing the capacity of CED to achieve its objectives requires commitment at the most senior levels of Government to universal enforcement of customs laws. Traders and CED staff would be willing to co-operate and comply with customs policies and procedures if they knew that their compliance would be respected by all levels of society. 3.1
Customs and revenue authorities Revenue
Authorities are independent legal entities, autonomous from traditional
line ministry governance. They are generally managed by a board of
directors comprising public and private sector representatives and are
accountable to the Minister of Finance or directly accountable to the
legislative assembly. They are independent of the civil service personnel
code and may set their own salary structure, often pegged to the private
sector, as well as recruitment and termination policies. Supporting their
greater levels of accountability and flexibility is their financial
autonomy from budget appropriations. The Board contracts with the Minister
to raise an expected level of revenue and to finance the operations of the
authority from the revenue raised. RAs
generally combine customs and tax services in order to benefit from
efficiencies of sharing administration costs, for example information
technology, and joint auditing and intelligence gathering. Uganda,
Tanzania, Rwanda, Zambia, Malawi have
recently restructured their customs departments into RAs in Africa, Latin
America and Asia. In general, revenue evasion has declined while revenue
collected per staff member has increased. In Tanzania revenue collected
per customs staff member tripled after a revenue authority was
established. These benefits must be measured against the one-time costs of establishing the RA. Experience in East Africa shows that it is important to continue to address the underlying structural problems after the RA is established, that is, the legal system, procedural issues and information technology. Rationalise the roles of other agencies at border check points The
public/ private sector consultation working groups have been concerned at
the number of government agencies involved in processing and inspecting
imports and exports at Cambodia’s borders. In response, at the fourth
Public/Private Sector Forum in August 2001, the Prime Minister stated that
the number of inspections at the border on imports and exports would be
halved. How this is to be achieved is currently being assessed by
concerned agencies. Current legislation permits any one of ten agencies to
be represented at international checkpoints, with at least five always
present. A
recent regulation, sub-decree number 64 (approved by the Prime Minister in
July 2001),
has tried to rationalise the presence of government agencies at border
checkpoints. The Sub decree sets out the roles and responsibilities of
certain agencies authorised to work at Cambodia’s border checkpoints.
Camcontrol, the Police Frontier Defence Department and CED are to be
represented at every border checkpoint. Camcontrol is an agency
established by the Ministry of Commerce to monitor the quality of imports
and exports. See later in this chapter.
KAMSAB is represented at both ports together with the port authority. KAMSAB
is the
Kampuchea Shipping Agency and Broker. KAMSAB is a state owned enterprise
authorised to handle shipping agent and customs brokerage functions within
Sihanoukville and Phnom Penh ports. In addition, at the 28 land and river
border check points the ‘chief’ of the border operations is a
representative of either the provincial governor or the administrator of
the nearest provincial city. The central government provides the local authorities significant input into the control of each border checkpoint. The responsibilities of the ‘chief’ include the following wide powers:
However,
despite, the intent of the sub-decree to comprehensively regulate the
activities of agencies at the border, the following agencies are
authorised by other legislation and government agreements to conduct
inspections and collect fees from traders.
In
addition to rationalising the role of these agencies sub-decree 64 seeks
to co-ordinate the activities of the agencies. In this respect policies
are having some effect, at least for agencies covered by the sub-decree.
Article 25 provides that inspections may take place only once and any
agency not present during the inspection cannot inspect the goods a second
time. Both Camcontrol and CED state they are complying with this
provision. This
duplication of agency intervention in the trading process raises the
uncertainty and cost of both importing production inputs and exporting
Cambodian products. The CED has the frontline responsibility for ensuring
goods are properly declared and revenue collected. The CED could conduct
most, if not all, of the inspection functions being conducted by other
agencies. Skilled teams could be organised by CED to manage a risk based
sample selection system for imports affecting health and safety. These
teams may comprise representatives of other agencies Ministry of Health (MOH),
MAFF or Camcontrol officials. Without
addressing the activities of other agencies at the borders, strengthening
the capacity of CED will not, on its own, meet the Government’s trade
facilitation goals. Civil service reform The RGC has formulated a comprehensive strategy for rationalizing the composition and compensation of government employees. A civil service census began in mid 1999 leading to the elimination of 5 per cent of the workforce who were identified as ‘ghost’ workers. Between 2002 and 2006 job classification will been simplified into four basic categories based on education levels and a ‘super category A’ comprising senior officials. Average base salary and allowances will be increased to above the current minimum wage reaching about $49 in 2006. For example, maximum compensation for category A staff would be $92. Additional functional allowances will be provided to 2000 priority staff members. The overall civil service workforce would increase by 4.8 per cent reflecting a 16 per cent increase in education staffing and 18 per cent decrease in other sectors. Four
container shipping companies compete for the container traffic through
Sihanoukville port. More shipping companies compete for the bulk cargo
trade. Most containers are transhipped through Singapore. The port and all transport related services within the port are government owned except for a new oil terminal which was built by a joint venture between Sokimex and Marubeni. Shipping operators regard the port to be well managed. Import volume handled by the port has increased significantly from 0.5 million tonnes in 1995 to 1.5 million tonnes in 2000. Most of this volume is bulk cargo — 0.55 million tonnes of cement and 0.3 million tonnes of fuel. Total exports have remained more stable at a modest 0.15 million tonnes. Exports are dominated by a rapid growth of garment containers making up for declining volumes of timber exports. Port charges Shipping
profit margins are said to be so fine that the loss of one container can
mean the operator makes a loss on that voyage. Competition has reduced the
shipping rate for a container from Sihanoukville to Singapore by about 20
per cent over the past 12 months. A fee of $200 per container is charged
from Sihanoukville to Singapore (1 000 km), this compares to an
approximate fee of $230 for the longer distance from Bangkok to Singapore
(1 500 km).
Shipping operators blame their small margins on the high port charges.
They argue that port charges are the highest in the region and four times
higher than a comparably sized feeder port such as Songkhla in Thailand. Songkhla
has
a maximum annual capacity of 72 000 TEUs. Sihanoukville port handled
about 65 000 containers in 2000. Sihanoukville Port provides all
services, including stevedoring and cargo storage. The high cost of fuel
discourages vessels from bunkering at the port. An example of an
adverse effect of the high charges relates to use
of the ports two new mobile cranes. High charges prompt shipping companies
to serve the port with vessels fitted with on-board cranes, even though
such vessels have higher operating costs than vessels without cranes. Cambodian
registered vessels are permitted a 20 per cent discount on all charges
associated with navigating through the international channel and a 50 per
cent discount on channel dues and 20 per cent discount on tonnage dues if
involved in domestic cargo transport (proclamation number 53 PR PWT F, 17
January 1997).
The treatment is inconsistent with WTO rules on non discrimination of
transport charges. The high port charges have contributed to a pre-tax port income in 2000 of CR 33 billion, or $5.28 per tonne of cargo handled (WTO Q&A July 2001). By comparison Bangkok port, although larger and able to spread its fixed costs over more ship visits and cargo earned $1.81 per tonne of cargo handled in 2000. The pre-tax income of Sihanoukville Port was exactly 50 per cent of its revenue in 2000, suggesting that the government is extracting a very rate of high return, given the port’s position as the main international port in the country. Port procedures The
pratique committee that greets each vessel comprises about 10 people,
representing the port, CED, Immigration, Police and KAMSAB. KAMSAB is a
state owned enterprise that is appointed by the port to handle shipping
agency and customs brokerage functions within Sihanoukville and Phnom Penh
ports. Its operations within both ports earn KAMSAB significant profits
— CR 4 billion ($1 million) pre tax profit in 2000 — representing 68
per cent of its total revenue. The
size of the pratique committee appears to be unnecessarily large and
involves agencies with little interest in the cargo carried or health
conditions on board. The size could be explained by the reported practice
of each member of the committee receiving an informal payment of $20. Ten
copies of the cargo manifest are given to CED.
This is an unnecessarily high number of copies. The International
Maritime Organisation Convention on Facilitation of International Maritime
Traffic, 1965, recommends that public authorities require no more than
four copies of the manifest. Shipping companies comment that it is
possible to purchase copies of the cargo manifest of competitors in order
to gain commercial information about rates and customers. Foreign
trade participants argue that for goods not being pre inspected only 25
per cent of the volume of goods shipped to Cambodia are being declared to
CED for entry. This evidence derives from a comparison of ship’s
manifests with import declarations. The CED is apparently unaware of the
extent of such under declaration. There appears to be no systematic
reconciliation of all ship’s manifests with import declarations. This
would be an urgent area for change. Before CED becomes fully computerised,
a stand alone manifest and declaration database could be constructed to
reconcile cargo arrival with cargo clearance. Although the port is able to handle vessels 24 hours a day, informal payments are necessary to encourage customs and immigration services to operate beyond 5pm (suggested to be $200–$300 per vessel). Also, despite average vessel turn around time of 10–12 hours, customs clearance still takes about 8 days for imports and 10–14 days for exports. Phnom Penh port Cambodia
has traditionally relied upon river transportation. Phnom Penh port has
been rehabilitated and can handle vessels up to 6000 DWT at high water.
Over 95 per cent of cargo handled by the port is international. However,
cargo volumes at the port have been declining recently and are now about
25 per cent of the volume handled by Sihanoukville port down from equality
in the mid 1990s. The port handled about 45 000 tonnes of
international trade and 10 000 tonnes of local trade in 1999 down
from 640 000 tonnes and 22 000 tonnes respectively in 1997. There
are a number of reasons for this decline.
In
2000, transit port and cargo handling charges were estimated to be about
$20 per tonne, including charter costs, by the Mekong River
Commission.(Vinning 2001). It costs about $7 per tonne to transport by
road from Phnom Penh to Sihanoukville. The
recent transit trade agreement signed by Vietnam and Cambodia should ease
these costs when ratified by the Government of Vietnam. Both governments
have agreed to require only one inspection for transit trade within their
countries. The agreement provides that the border check point office may
approve transit through Vietnam rather than sending the documents to the
Ministry of Transport in Ha Noi for approval. It also provides for transit
of goods that are prohibited in one country being able to be transited
through that country. This will permit certain chemicals to be imported by
the Cambodian garment industry via Vietnam, that are prohibited or
restricted for import into Vietnam. Road transport Inland
road transportation has increased by an average of 400 000 tonnes
each year since 1994 to 3.2 million tonnes in 1999. This is almost double
the volume carried by sea or rail (JICA 2001). The
road transport industry in Cambodia is relatively competitive. Forty four
land transport operators are registered with MOC and many more operators
are unregistered. The presence of small, unregistered operators places
downward pressure on road freight prices. These operators likely evade VAT
and income tax and use smuggled petroleum. The 230 kilometre road journey
along Cambodia’s best road, NR–4, from Phnom Penh to Sihanoukville
costs about $120–$185 for a container, which is lower than typical rates
for an OECD country. However, rates increase on other roads that are
subject to lower driving speeds of 20 to 50 km/hour due to the poor
condition of the road. Rates for distances over 100 kilometres vary from
137 to 467 riel/tonne/km. Roads at the village level are often dirt tracks
used only by ox carts. Truck
operators not only have to contend with poor road quality on provincial
roads but illegal check points have been established by the police around
towns and cities. Informal fees amounting to $10 were reported between
Battambang and Phnom Penh, and as high as $60 between Takeo City and the
Vietnamese border in July 2000. The informal fee for a container being
trucked from Phnom Penh to Sihanoukville is $20 or between 11 per cent and
17 per cent of the formal freight rate. Rail transport Two domestic rail routes connect Phnom Penh with Poipet and Sihanoukville. Rail freight rates are about 20 per cent lower than road freight rates over these routes, however, the poor condition of the track limits capacity and speed. Rail only carried 270 000 tonnes of freight in 1999, or 8 per cent of the volume carried by road. Almost all freight carried by rail was bulk cement and petroleum. (In 1999 rail freight comprised 78 per cent cement and 10 per cent petroleum.) The RGC has estimated that track and rolling stock rehabilitation projects will cost $70 million. If rehabilitated and linked to the Thai rail network, the cost of bilateral trade could be reduced significantly, especially between provinces outside of Bangkok. Cambodia
has opened more than thirty land and river crossing border check points
with its neighbours – the majority with Thailand and nine with Vietnam.
Exports to neighbouring countries are a small share of total exports that
are dominated by the GSP garment trade with Europe and the US. However,
Cambodia imported almost one third of its total reported imports from
Thailand and Vietnam in the first half of this year – mainly petroleum. Cambodia
imported $46 million (about 10 per cent of total imports) of goods from
Vietnam in the first six months of 2001, comprising mainly petroleum and
some garment inputs. Cambodia exported $10 million of goods to Vietnam
(about 2 per cent of total exports), comprising natural rubber and
processed rubber trees, soybeans and disassembled motorcycles. Cambodia
imported $93 million of goods (about 20 per cent of total imports) from
Thailand over this period, comprising mainly petroleum and sugar, but also
new motorcycles, construction material, garment inputs, rice and
pharmaceuticals. Cambodia only exported about $2 million of fish,
condensed milk and cigarettes to Thailand over this period. Reported trade
with Lao PDR was very small. Border
markets have developed on the Thai side of the border where Cambodian
farmers can sell their produce and purchase from a wide range of household
goods. Cambodian residents of the border area are able to enter into
Thailand and Vietnam using day passes authorised by the respective central
governments to be issued locally. The cost of the pass is reported to be a
disincentive to small farmers trading rice in the markets. However,
Cambodians are able to return home and enter non-commercial quantities of
goods duty and tax-free into Cambodia. Cambodian
border residents sell low value home grown produce but purchase much
higher value household goods. Given their relatively low cost access to
Thai consumers, border markets are likely to significantly contribute to
the development of border household agricultural production. The RGC is
aware of the potential of border markets and is discussing with the Thai
Government ways to improve the operation of the markets at their Joint
Thai–Cambodian Border Trade meeting scheduled for late September. The
border markets are also contributing to increased smuggling into Cambodia.
Petroleum and beverage producers say that border residents are being
organised to smuggle goods across the border. For example, border
residents are reported to purchase portable tanks of nitrogen gas at the
Thai border market carry them into Cambodia without paying duties and
taxes and sell them to a local distributor. The distributor takes the
tanks to Phnom Penh for resale. Vietnam
has banned the import of cigarettes and second hand goods, including
vehicles, spare parts and electrical appliances (Article 5 of September
2000 Agreement on Transit of Goods between Cambodia and Vietnam).
These goods are, therefore, at risk of being smuggled into Vietnam from
Cambodia. Eyewitness reports suggest that warehouses exist in no man’s
land between the two country’s borders. The warehouses are stocked with
cigarettes supplied by trucks driven through the Cambodian check point.
Individual Vietnamese conceal cartons of cigarettes under their shirts and
deliver them over the Vietnamese border. Some observers consider that as
much as 80 per cent of the cigarettes imported into Cambodia are smuggled
into Vietnam. The
Government of Vietnam recently cracked down on this cigarette trade. One
smuggler was sentenced to death, 22 government officials including 11
Customs officers were dismissed, convicted and imprisoned for 2 to 14
years. Both governments in August 2001 agreed to set up a working group to
formulate a memorandum of understanding between their customs services.
The memorandum is expected to cover controlling smuggling, simplifying
procedures, exchange of information and human resource development. The
RGC signed an memorandum of understanding (MOU) with Thai Customs in 1999.
The parties agree to provide assistance when requested within the
authority of their domestic laws. In particular the parties agree to
assist in the research and evaluation of new procedures; train and
exchange personnel; exchange information; co-operate to simplify and
harmonize procedures and prevent and investigate offences. As
discussed above, a number of government agencies are involved with
regulating foreign trade at Cambodia’s borders. Strengthening the
ability of the CED to control border smuggling is not sufficient. All
agencies should be committed to control smuggling and should co-ordinate
their efforts. Review of customs procedures and administration IMF institutional strengthening of CED Following
a 1999 IMF review of CED administration after Cambodia joined ASEAN, a
long term customs advisor began working with the CED in April 2001. A work
plan has been agreed with CED management for the next two years that will
seek to strengthen all aspects of CED’s operations, including human
resources, organisation structure, legislation, systems and procedures and
infrastructure. Important elements of this review work involve transit
control, control of exempt imports, cargo inspection, prepayment, advance
rulings, and post clearance audit. |