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Garment Manufacturer’s Association of Cambodia (GMAC) concerns In preparation for the third public/private sector consultative forum held in February 2001, the Garment Manufacturers Association of Cambodia submitted a set of proposals and concerns to the MOC concerning garment export procedures. Some of the questions and the response of Ministry officials are outlined below.
Options for change The Trade Preferences Department has commenced using electronic verification of garment exports to the US (ELVIS) and to the EU. This provides a chance for the RGC to revise the import and export documentation process. Currently traders complete an application letter and a draft of the final form, repeating much of the same information. Data from the draft form is then transcribed on to the final form by TPD officials. Traders could prepare the forms electronically and email or deliver by diskette to the Ministry of Commerce. The trader could execute the declaration through an electronic signature or physical signature on the printed form. Such forms could be available on the website under construction by MOC. The Ministry could keep track of a trader’s application by generating a unique code to refer to the trader and communicating this code only with GSP authorities in the export markets. The Ministry currently uses a unique code to verify garments shipped to the US. This may simplify the process but it cannot convert the current paper documents into an electronic process. A file is still necessary to hold the supporting documents. Monitoring tax and duty free imports Currently investors registered with CDC exporting 80 per cent or more of their total output are exempt from customs duties on all imported inputs, other investors can only be exempted on their imports of construction material and capital equipment in their first year of operation. In order to ensure that exempt investors only import goods appropriate to their business activities exporters negotiate a list of goods and prescribed quantities that may be imported duty and tax-free. This Master List is negotiated between CDC and the investor each year and more frequently when the investor requests additional goods. CDC determines the quantities according to the production capacity of the firm and its previous inventory levels and seeks the approval of the Royal Delegate of CED. Once the Master List is approved the processing of imports subject to the Master List is relatively straightforward. For each consignment, the broker/importer prepares and submits three copies of a letter seeking permission to import the goods duty free, noting the description and quantity of the goods, place of importation, invoice date and number. Copies of the invoice and bill of lading are attached. The Control Office checks off the volume of each consignment against the allowable quantity of the commodity in the Master List held by the Control Office. Five Customs officers separately check and sign each document, including the Royal Delegate of Customs who signs every page of the applicant’s file. Customs staff state that this process only takes one day if all officers are present. The Royal Delegate can delegate his authority to approve the application during his absence from the office. Problems with Master List system Despite recent improvements in the approval process – the approval of the Minister of Finance is no longer required — there are a number of problems with this system.
Potential revision The exemption system could be rationalised to improve the linkage between the production requirements of the investor and exempt imports in order to help reduce the scope for abuse of the current system. A revised system could include one or more of the following elements:
Table 3.3 shows that garment exporters enjoyed about 75 per cent of the total duty and tax exemptions over the past three years (based on first quarter records). Other CDC investors and exporters only made up 3 per cent of total exemptions by the first quarter of 2001. Therefore, automatically exempting only the key inputs of garment exporters would remove much of the current workload of monitoring exempt investors. 3.3 Source of customs duty and tax exemptions
Sources: MOEF–CED 2001 and IMF third review under the PRGF. A risk to leakage of duty free imports into the domestic market is posed by imports associated with foreign grant aid, temporary imports and privileged persons. Temporary imports could be safeguarded by payment of a bond or arranging bank guarantee. Customs bonded manufacturing warehouse Customs
is developing proposals to replace the Master List with a Customs Bonded
Manufacturing Warehouse to store tax and duty-free imports of exempt
investors under these proposed arrangements. Customs would manage the
movement of goods from the port to the warehouse and from the warehouse to
the importer’s premises when required by the importer. Such
a scheme would impose an additional and significant layer of
administration between the arrival of the goods at the port and their
receipt by the importer. The ability of the importer to quickly access
goods in storage would be at risk. Customs would have to invest
significant levels of training and capital and work closely with the
private sector to successfully operate such a bonded warehouse. The scheme
would penalise all exempt importers even though a limited number are
likely to be abusing their incentive entitlements. Cambodia
is in the difficult position of establishing a system of industrial
standards and conformity assessment. This is driven by a combination of
factors, including: the need to recognise the conformity assessment of
trading partners, for example within ASEAN; the need to comply with the
Technical Barriers to Trade and Sanitary and Phytosanitary Agreements upon
accession to the WTO; and the need to meet standards set by major trading
partners, particularly with respect to agricultural exports. These
requirements are additional to the rules of origin that RGC enforces to
gain preferential market access. MIME
sets industrial standards and manages a certification programme for local
manufacturers. The Ministry has drafted a sub-decree to establish a
quality assurance system involving relevant government agencies. Camcontrol’s
task is to enforce conformity assessment and when necessary, to take
samples of imports and domestically produced goods for testing. Camcontrol
has broad powers to search, seize and destroy goods and to close a factory
permanently for non-compliance with the law. The recently enacted Law on
the Management of Quality and Safety of Products and Services (21 June
2000) requires importers and manufacturers to provide proof of appropriate
prior examination of their products upon request by Camcontrol. If any
product is harmful to health or to fair trade or is of benefit to local
production then the exporter, importer or manufacturer shall request
Camcontrol to inspect and approve the product before it may enter into
commerce. Camcontrol is receiving technical assistance for training and
equipment with respect to sampling and testing. Camcontrol states that it
relies on certificates of quality accompanying imports and only takes a
sample for testing an export if a certificate is required by the importing
country. About 5 per cent of food imports are sampled at the government
chemical laboratory or the private microbiology laboratory. Camcontrol about commercial and health services The
GSP compliance role of Camcontrol has been to certify that the category
and quantity of garments in an export consignment is reflected in the
documentation. Camcontrol sees its role as complementary to that of CED.
CED investigates smuggling while Camcontrol provides commercial and health
services to the public. Regardless
of its conformity assessment function in the wider economy, Camcontrol
officials stop and inspect the visual condition of packaging, the labels
and expiry dates of 100 per cent of imports and exports not subject to PSI.
A fee of 0.1 per cent of the value of the consignment is charged for each
inspection. Inspecting every import and export is a significant waste of resources. Because of limited resources frequent inspections and testing tend to be poorly performed and, therefore, do not achieve their objectives. Food imports create the greatest risk to health, yet the Food and Agriculture Organization recommends that only five per cent of all food shipments should be subject to inspection and control when sufficient confidence exists that the food entries will meet the importing countries’ requirements (Food and Nutrition Papers no. 14, Manual 15 – Food Quality Control: Imported Food Inspection). Despite sampling 100 per cent of food imports, Jordan only rejected 0.6–0.9per cent of food shipments during 1996–1998. Although,
Camcontrol admits that it does not have the resources to sample and test
more than 5 per cent of food imports, its officials do undertake physical
inspections of all non-PSI imports. As
discussed at the beginning of this chapter the number of agencies involved
in clearing goods for import and export gives rise to competition and
overlap. Instead of just dealing with CED, traders have to deal with
Camcontrol and the Economic Police. Sub-decree 64 provides that CED shall
collect revenue and enforce the customs law while Camcontrol shall inspect
and certify quantity and quality of goods exported and imported.
Camcontrol and CED must perform their inspection together and only once. CED
has 1 150 staff members working at nine provincial branch offices,
the ports and airports and at head quarters. In 1999 Camcontrol had 448
staff at the same border check points performing similar inspection
functions as CED staff. About 500 people were employed by Camcontrol in
2001. CED management is concerned that CED and Camcontrol operate under
conflicting incentives. CED is trying to reduce the time and cost of
inspection by adopting a risk based selection system. Incentives for risk management However,
in order to maximise its revenue Camcontrol has an interest in inspecting
every container. Camcontrol uses a relatively low cost factor, labour, to
conduct visual inspections of imports and exports, without undertaking
more thorough quality assessments. SGS is required to inspect and assess
the quality of goods as well as to value and classify all goods being
imported under PSI. SGS profiles the risk of misdescription or
misclassification of a good submitted for PSI and will test laboratory
results if necessary. Camcontrol is not required to inspect containers
sealed by SGS, unless there is a discrepancy between the container and the
report of finding. If the level of PSI circumvention is reduced then fewer
goods will enter Cambodia requiring intervention from Camcontrol. In
general, quality control of the remaining goods should rest with the
importer. Importers have a contractual responsibility to ensure that their
products are fit for the purpose to which they are intended. Consumers
bear the responsibility to check that desired industrial standards have
been attained. In Cambodia, most of the imports that are exempt from PSI
are garment inputs, for which Camcontrol has little quality control
expertise. Most
governments do check the quality of imports that potentially affect health
and safety, for example. food, pharmaceuticals, livestock, plants, some
electrical and telecommunication equipment. However, governments try to
rely upon certification in the country of export as much as possible.
Also, risk based selection systems are used to inspect and test these
imports, relieving importers of unnecessary delays and costs. Thus
to sum up:
Most
of the trade in Cambodia is conducted by multinational enterprises. Parent
companies provide all, or most, of their funding. They use local banks to
deposit and transfer funds. Their local bank is often a branch of their
parent company’s bank. Furthermore, since most transactions in Cambodia
are undertaken in US dollars, funds are simply telegraphically transferred
between Cambodian and foreign entities. Nineteen
commercial banks currently operate in Cambodia, five of which have been
re-licensed with a minimum capital of $13 million under the new bank
licensing requirements. Banks are permitted to carry out the whole range
of banking functions, but activities in practice tend to be limited by the
small market and lack of enforceability of security. Many Cambodians
resist depositing their savings in a bank after a number of banks closed
over the past year following the introduction of the new licensing
provisions. Some of these banks have yet to refund depositors their money. The
Foreign Exchange Law prohibits any restriction on foreign exchange
operations, including transfers and all types of international settlement.
However, these transactions must be performed through a local bank. Fees
for telegraphic transfers are high, one bank charges 0.15 per cent of the
amount transferred in addition to a fixed fee of up to $35. Lending
rates are high and averaged 17.78 per cent per annum for US dollar loans
at the end of June 2001. Although these loans are secured by land or
guarantee the high interest rate reflects the lack of any secured
transaction legislation and it is reported that it can take 3 to years to
discharge a mortgage. Despite relatively high interest rates total monthly
commercial bank credit has almost doubled over the past four years, from
$125 million in January 1997 to $238 million by March 2001. One quarter of
these funds is lent to the wholesale and retail trade sector indicating
that inventory financing, and hence financing of imports, is an important
source of business to banks. At
least 50 micro finance organisations provide loans of between $100-$500 to
SMEs and farmers at interest rates of 3–5 per cent per month. Few SMEs
meet the lending criteria of commercial banks; which charge more
attractive commercial interest rates (18–24 per cent per annum). At the
fourth Public-Private Sector Forum in August 2001, the Prime Minister
encouraged the working groups to find ways to lower the cost of credit to
SMEs. The
FTB is one of two state owned banks and is the second largest bank in
terms of deposits. It will provide a letter of credit to a Cambodian
importer subject to a 20 per cent deposit, land or building collateral and
a good credit history. Its minimum acceptance fee of 0.1 per cent is
competitive in the region and about 25 per cent less than that charged by
commercial banks in Cambodia. However, due to Cambodia’s perceived
country risk importers are usually required to pay a fee of about 0.2 per
cent of the invoice value to a local branch of a foreign bank as a
confirming bank fee. In
summary, the banking sector provides a wide range of banking services but
at a relatively high cost to the consumer. Promptly enacting the necessary
financial legislation requested by the private sector and implementing
this legislation is essential to lower these costs. The
RGC provides no trade finance assistance to the private sector. There are
no export credit insurance or export guarantee schemes. In order to assist
SMEs and farmers to finance their exports the government could consider
guaranteeing export credit provided by commercial banks to SMEs meeting
certain criteria. Trade
facilitation will also be enhanced if banks work with CED to provide for
improved means of payment of duties and taxes, for example, payment by
credit card. Currently importers have to pay by cash or a cheque certified
by their bank. This creates delay and increases compliance costs. In
particular, a system permitting pre clearance payment of taxes and duties
should be introduced. CED could also regularise post clearance payment of
duties and taxes by qualifying importers. The
RGC has been considering establishing one or more industrial zones in
Cambodia and attracting domestic and foreign investment into the zones.
Given the poor condition of much of the country’s infrastructure, scarce
infrastructure development resources could be focused initially inside the
zones to bring them to an internationally competitive level. Zone
enterprises may also be able to import raw materials and intermediate
products exempt from duties and taxes for consumption within the zone. In
June 2000 the Prime Ministers of Thailand and Cambodia agreed to formulate
an integrated plan for economic co-operation. A centrepiece of the plan is
the development of industrial zones in Cambodia along the Thai border.
This year Thailand graduated from receiving GSP market access for a number
of labour intensive products. Thai manufacturers of these products are
interested to relocate their production operations to Cambodia in order to
enjoy Cambodia’s continuing GSP market access. The zones would be
located close to Thailand in order to take advantage of Thai
infrastructure, in particular, road and rail links to Thai ports. Thai
manufacturers would also benefit from Cambodian labour costs that are
approximately half of the level of Thai labour costs in Zone 3. The Thai
Board of Investment has divided Thailand into three areas or zones. Zone
Three is farthest from Bangkok and offers the most attractive investment
incentives. A
Thai developer has already commenced developing a 250 hectare zone at Koh
Kong in anticipation of enactment of the draft Industrial Zone law
currently being discussed by the Government. The site is two kilometres
from the Thai border on Cambodia’s coastline. A number of Thai
manufacturers are interested to invest. The zone is three hours by road
from Laem Chabang port. Considerable
progress has been made with the zone, the land has been purchased and
roads have been built to the Thai border and into the nearby town
including a bridge over the Prek Khao Pao River. Telephone and electricity
services are being supplied from Thailand and a water reservoir is
completed. The
developer is also assisting the RGC to improve the road to connecting Koh
Kong with National Road 4 — connecting Phnom Penh with Sihanoukville. Another site is being considered at Poipet on the Thai border. Poipet is close to Battambang (population 100 000) in Cambodia and has good road access to both Bangkok and Phnom Penh. Rail access requires upgrading. The development of this site depends upon the consolidation of a large number of small privately owned land holdings. Conflicting interests of industrial estate parties As with any commercial undertaking, successful operation of an industrial estate depends upon balancing the interests the three participating parties – the developer, the enterprise investor and the government. Box 3.4 below summarises these interests. The government sets the broad policies for the establishment and management of the zones in its legislation. Contractual arrangements further define relationships between the parties. Successful zones reflect a working partnership between the developer and the government, and recognise investors as clients. 3.4 Relative interests of industrial estate partners Developer
and Investor
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