Cambodia could expand its foreign trade by up to 16 percent, adding approximately $2 billion worth of exports, by complying with a new international trade protocol that aims to slice through the red tape that slows and complicates cross-border trade.
US Ambassador William Heidt said yesterday that Cambodia’s competitiveness would improve significantly once it fully ratifies all 12 articles of the World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA).
He said compliance with the landmark global accord “would reduce the costs of exporting goods and services and ease the flow of commerce across Cambodia’s international borders that would directly boost economic growth”.
Speaking at a public stakeholder workshop held by USAID and the Ministry of Commerce aimed at helping the Kingdom implement TFA protocols, Heidt said Cambodia still faces huge challenges in meeting the agreement’s provisions, including crippling bureaucracy and opaque customs procedures that hinder greater economic inclusion and trade.
“These issues that businesses still face generally have been shown to hurt small-to medium-enterprises [SMEs] the most,” he said. “The government needs to remove these complex and burdensome procedures and drive reforms that make business operations as simple and as cost-effective as possible, especially for smaller businesses that are struggling to take off.
“If Cambodia can do this, it could expand its exports by 16 percent and add another $2 billion to the GDP from exports alone,” he added.
The TFA, which came into force globally in February, breaks down the barriers of global trade by streamlining cross-border access with electronic single windows and paperless trade systems. Analysts estimate the agreement could boost global trade by $1 trillion annually, with least developed countries (LDCs) expected to benefit most.
The agreement was negotiated with preferential treatment toward developing countries, with Cambodia given a three-to five-year timeframe to implement its 12 articles. However, the Kingdom stands to benefit from earlier compliance.
“The TFA allows for a lot of flexibility,” Heidt said, “but this does not mean that the government does not have to clearly commit to actual positive reforms like fully introducing sanitary and phytosanitary measures for the agricultural exports.”
Commerce Minister Pan Sorasak said the government has already implemented nearly 40 percent of its category A requirements, which primarily focus on transit cooperation, fees and charges, penalties and consultation meetings.
“Implementing these requirements will provide transparency, improve laws, rules and procedures and help border agencies,” he said. “But we still need to standardise customs procedures as LDCs still have the highest degree of trade costs.”
He said the government must find ways to expedite the flow of goods, especially while in transit.
“While the General Department of Customs and Excise claims that it can clear imports within 24 hours, we need to alleviate the burden on businesses by eliminating unofficial fees and face-to-face border interactions,” he said, adding, “we need to have predictability and consistency at the border”.
According to USAID data, Cambodia has met only 26 percent of its category B obligations under the TFA, which strives to apply international standards on common border procedures. It has also met just 36 percent of its category C requirements, which focuses on establishing a single window for exports, acceptance of electronic payments and pre-arrival processing, as well as establishing a trade facilitation committee that represents private sector interests.
Cambodia is routinely punching below its weight in terms of import and export efficiency as well as its connection to global value-added chains, said Nihal Pitigala, senior trade economist for the USAID Asia and the Middle East Economic Best Practices Program (AMEG).
“Cambodia, [with the exception] of its garments industry, is the only country in ASEAN that is completely lost in the diversity of global value chain linkages,” he said.
“Other countries like Malaysia, Thailand and Vietnam have been able to produce higher value-added goods primarily due to expedited trade facilitation.”
Citing the World Bank’s 2016 Doing Business Report, Pitigala noted that Cambodia has some of the highest import and export costs in the region, with $375 per single export shipment and $240 per import.
Additionally, while it took an average of four hours to process imports at the borders, total documentation time took 132 hours. For exports, it took 45 hours for compliance and 132 hours for full documentation.
“It really comes down to import and export clearance procedures that need to be improved,” he said. “On paper, Cambodia does well with imports but performs poorly with exports that are typically time-sensitive.”
Pitigala also warned that without fast-tracking the TFA requirements on cross-border inclusion, optimally meeting them in two years, Cambodia’s vital garment sector was at risk.
“If Cambodian garments lose a competitive advantage of 4 percent, it could wipe out the whole sector,” he said. “But the TFA could reduce trade costs by approximately 16 percent, according to our study, and would provide a safeguard to external shocks while also spurring diversification from neighbouring countries.”
Jon Walden, senior trade facilitator for AMEG, argued that Cambodia was bogged down by officials trying to punish small-scale smuggling rather than reining in those with powerful trade interests who operate with impunity.
“I say that you can’t catch all the smugglers, but try to catch the big boys that are breaking the laws and where the amount of revenue recovery is going to be significant,” he said. “Go for the real breaches by local companies and when you find them, hammer them.”