Digital Trade Facilitation in Cambodia: Progress and Future Priority

SOK KHA

SOK KHA

A Cambodian delegation from the Ministry of Commerce and Customs were among the participants at the Asia-Pacific Trade Facilitation Forum (APTFF) 2019, held in New Delhi. In collaboration with the Government of India as the host country, the Forum was co-organized by the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) and Asian Development Bank (ADB). The Forum focused on digital and sustainable trade facilitation measures by investigating opportunities and challenges from trade digitalization for sustainable development of the region.

As far as trade is concerned, the Cambodian government has given trade facilitation priorities to all leading sectors, which are making good steady progress. The areas of progress include particularly the adoption and application of modern ICT to trade-related services; including customs risk management, customs automation, national single window, and certificates of origin.

Despite the significant improvements, the annual Doing Business reports still rank Cambodia’s poorly at 115 out of 190 economies globally on “Ease of Trading Across Borders”. For this reason, this article aims to examine the progress and priorities relating to the acceleration of digital trade facilitation in Cambodia. It proceeds by first presenting the significance of trade facilitation in Cambodia before highlighting the progress and future priorities in Cambodia’s digital trade facilitation implementation. The last section provides a concluding summary.

Significance of trade facilitation in Cambodia

Cambodia had been largely an agrarian country until the mid-1990s when the economy undertook a significant transition toward industrialization. The industrial sector has since been growing steadily, opening the country and the people to many new opportunities. The opportunities have created conditions contributing to the country’s economic growth and development.

Merchandise trade has been the key growth driver, following the adoption of an outward-looking approach, which focuses on liberalizing the country’s economy to increase trade activities and attract foreign investment. For example, Cambodia joined the Association of Southeast Asian Nations (ASEAN) in 1999 and WTO in 2004. Broadly, they are the two main multilateral institutions helping Cambodia to expand its export markets. Holding their memberships have enabled Cambodia to attract more foreign investors through greater, more secure access to overseas markets and the improvement of the country’s business environment and international image.

Cambodia’s industrialization process has thus far largely relied on trade preferential treatments such as the European Union’s Everything But Arms (EBA) and the United States of America’s Generalized System of Preferences (GSP), both of which grant Cambodia duty and quota preferential export access of goods to the EU and US markets. Cambodia’s main merchandise export is apparel and footwear from the garment and textile industry, which has grown quickly to become the country’s largest industrial sector. The government’s efforts to accelerate and diversify trade have seen some success, with a surge in imports and exports of other goods. The merchandise export volume grew from US$1.5 billion in 2001 to US$16.5 billion in 2017. The largest export markets for Cambodia’s products include the EU, the US, Japan, China, Canada, Singapore, Thailand, and Vietnam.

The import volume also grew from US$1.5 billion to US$14.6 billion during the same period. Textiles and related garment industry inputs accounted for the largest share. The largest exporting countries to Cambodia include China, Thailand, Vietnam, Singapore, Japan, and South Korea.

Despite the significant improvements, major trade bottlenecks remain, whereby import-export activities are relatively costly with excessive and time-consuming documentation process and low trade logistics performance amongst others. A cross-country comparison study shows that ‘Ease of Doing Business’ in Cambodia still lacks behind its competitors. The fact that Cambodia was ranked poorly, at 115 out of 190 economies globally on Ease of Trading Across Borders, is worrisome and means that further improvement measures, particularly trade facilitation reforms, must build up momentum.

Trade facilitation is significant because it is meant to expedite movement, clearance, and release of goods, including goods in transit. A sizable body of research has examined and provided strong evidences on positive linkages between trade facilitation, trade growth, and development. For example, various studies show that the improvement in port and information infrastructures, more rapid customs clearance time, or regulatory reforms to remove duplicative technical requirements on imports and exports have positive impacts on trade expansion and competitiveness.

Indeed, trade facilitation has become even more crucial as Cambodia is looking for alternative market access abroad, particularly in the contexts that the country’s duty and quota preferential access privileges to traditional markets in the EU and the US under the EBA and the GSP that Cambodia enjoys as a Least Developed Country (LDC) will at some point come to an end.

Progress in Cambodia’s digital trade facilitation implementation

Following the accession to ASEAN and WTO, Cambodia has made rigorous reform efforts in trade facilitation. Observable improvements have been taking place, particularly in the application of modern information and communication technologies (ICT) to simplify and automate international trade procedures. This is commonly referred to as digital trade facilitation. The improvements are good signs demonstrating the government’s commitments to the ASEAN and WTO agreements.

The key agreement within ASEAN is ATIGA, which has a number of chapters that deal directly with trade facilitation. For example, Chapter 5 describes the ASEAN Trade Facilitation Work Program, which covers measures related to customs, trade procedures, standards and conformance, sanitary and phytosanitary, and ASEAN single window. It also elaborates the ASEAN guiding principles on trade facilitation, i.e., transparency, communications and consultation, simplification, practicability and efficiency, non-discrimination, consistency and predictability, harmonization, standardization and recognition, modernization and use of new technology, and due process and cooperation.

The WTO adopted TFA in 2014. The aim was to enable developing and least-developed countries to build their capacity and receive assistance needed to reap the full benefits of the agreement. In 2016, Cambodia ratified the WTO TFA, completed an assessment of its trade facilitation framework in light of TFA requirements, and developed a road map to implement the agreement. The country submitted its category A, B and C notifications regarding the implementation of the various provisions of the TFA to WTO in August 2017. As of September 2019, Cambodia had notified 60.9 percent under Category A, 19.3 percent under Category B, and 19.7 percent under Category C. Falling under Category C, which signifies assistance and support needs for capacity building and institutional reforms, are nine measures: (1) information available through internet, (2) notification, (3) pre-arrival processing, (4) electronic payment, (5) authorised operators, (6) perishable goods, (7) border agency cooperation, (8) national single window, and (9) transit.

Cambodia’s reform efforts have seen progress in the implementation of digital trade facilitation measures in the Ministry of Commerce and Customs. Reforms to automation of certain trade-related processes have kicked off one after another in these two leading agencies.

The Ministry of Commerce has an important role to play as a facilitator in advancing trade facilitation agenda in Cambodia, especially for those commitments that have been agreed under ASEAN and WTO agreements. The ministry has implemented online business registration and online Certificate of Origin (CO) application systems.

Cambodian Customs is another leading agency undertaking various reform and modernization programs to fulfil its missions of revenue collection, trade facilitation, and prevention of customs offences. They introduced the automated customs processing system called Automated System on Customs Data (ASYCUDA) in 2008 in order to facilitate export, import, and goods in transit. The ASYCUDA system is now implemented at all ports and checkpoints, and it covers all Single Administrative Declarations (SAD) and trade volume data.

At the same time, e-Customs has also been developed by in-house resources to complement the ASYCUDA on certain procedures, including General Goods and Petroleum Product Transportation Permit Management Module, Customs Summary Declaration and De-minimis Module, International and National Customs Transit Module, Guarantee Deposit Management Module, Container Scanning Result Module, Petroleum Product Transport Document Management Module, QIP Transport Document Management Module, e-Payment Module, among others. Cambodian Customs has also launched mobile apps such as the Customs Tariff and Customs Clearance Handbook with the purpose of strengthening transparency in trade-related information.

Work to establish a fully operational and well performing Cambodia’s National Single Window (CNSW) is ongoing. CNSW is built, managed, and operated by Customs. It is a trade facilitation automation platform for customs clearance procedures, which consolidates all documentation processes into a single, ICT-based submission for both importers and exporters. Cambodian Customs has advanced CNSW implementation significantly with the announcement of the completion of Phase 2 implementation on 1 July 2019. Traders can now, for instance, request Rules of Origin (RoO) Certificates required for tariff preferences in the ASEAN Economic Community (AEC).

The Ministry of Economy and Finance (MEF), to which Customs belongs, also launched Cambodia’s National Trade Repository (NTR) portal in late 2015 to conform to ASEAN requirements and to respond to the mandates under the ASEAN NTM Work Program and WTO TFA. The NTR serves as “the official source for all regulatory information relevant to traders who wish to import goods into Cambodia or export to other countries”, and it makes information related to trade legislation and policies available to a broad range of stakeholders.

On the macro view, Cambodia has also scored relatively well in the UN Global Survey on Digital and Sustainable Trade Facilitation with regard to the application of modern ICT to trade-related services. They include the internet connectivity at Customs and other trade control agencies, electronic submission of customs declaration, electronic application and issuance of CO, the automation of Customs systems, and electronic payment of customs duties and fees to a full-fledged electronic single window system.

However, Cambodia’s digital trade facilitation implementation has continued to face certain challenges – both legal and technical aspects. On the one hand, Cambodia lacks the legal and regulatory frameworks for electronic transactions and signatures as well as for accessing and sharing information and data. On the other hand, other trade-related agencies have not deployed the ICT system to simplify and automate their trade-related procedures. At the time of this writing, there is an overall absence of institutional coordinating mechanisms to address the challenges.

Future priorities in digital trade facilitation implementation in Cambodia

There is an overall need to build a stronger reform momentum to push the digital trade facilitation implementation to a higher level.

On the legal front, there has been some progress in enacting statutes and regulations governing electronic transactions and data sharing. They include e-commerce and consumer protection laws, cybersecurity and privacy laws, and data governance and data protection laws. Following 10 years in the making, the final drafts of the e-commerce and consumer protection laws were endorsed by the government in July 2019 and approved by the National Assembly in early October 2019.

Progress on other enabling legal frameworks need to move forward more rapidly. Implementing these laws require strong regulations, for which relevant ministries can be under-equipped to produce if they lack the understanding and fail to engage inputs from the private sector in a consistent and inclusive manner. Therefore, raising awareness and building a more comprehensive understanding among relevant government agencies about their legal responsibilities, with some reference to international models and best practices, are as much crucial as establishing legal and regulatory frameworks itself.

On the technical front, the lack of human capacity and financial resources as well as ambiguous attitude toward ‘change’ at other trade-related agencies make their adoption of ICT challenging. It highlights the needs for strong political support and leadership, effective inter-ministerial coordination and dialogues among all relevant agencies, and resource mobilization to support the development, management, and operation of ICT applications.

There have so far been multiple discussions related to the establishment of the National Trade Facilitation Committee (NTFC). This institutional coordinating mechanism is meant to coordinate trade-related policies, facilitate intra and inter-agencies collaborations, enhance accountability and transparency of trade-related government agencies, strengthen capacity on trade-related issues, develop feedback systems to receive complaints and record obstacles, and monitor and improve the overall trading environment. NTFC can also support trade-related agencies to set up their respective strategic plans to secure budget for their implementation of ICT system. However, at the time of writing this article, there has neither been a formal consensus on the role, duties and tasks of the NTFC, nor a government sub-decree creating it yet.

Conclusion

Embracing an open and liberal market economy where merchandise trade has become the key growth driver, Cambodia has made remarkable improvements in trade facilitations, whereby the government has made rigorous trade reform efforts, including the use of modern information and communication technologies to simplify and automate international trade procedures. However, certain legal and technical issues have constrained the implementation progress of digital trade facilitation.

In order to move forward, work for the establishment of NTFC must progress without any further delay. It must act as a coordinating platform for resource mobilisation to strengthen human, technical, and organizational capacity to enhance digital trade facilitation implementations. Some development programs are already in place, where Cambodia may consider leveraging its support, i.e., UNCTAD Empowerment Program on National Trade Facilitation Bodies, EU-ASEAN Regional Integration Support (ARISE Plus). A full empowerment of the lead agencies and the encouragement of greater participation from both relevant public agencies and trader communities should also be promoted to secure a broader participation from relevant stakeholders. In conclusion, political support and long-term commitments from the top government executives are key to build and promote a full-functioning NTFC that will enable Cambodia to fully fulfil its trade liberalization and facilitation commitments.

This article first appeared in the Asian Vision Institute (AVI)’s Policy Brief Issue: 2019, No. 13. AVI is an independent think tank based in Cambodia.