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Cambodia’s new trade strategy

Phnom Penh - Cambodian Independence Monument. flickr/ Sébastien Bertrand

Trade sector reform has gained new momentum after a bold reform agenda announced by Prime Minister Hun Sen at the Government-Private Sector Forum in March this year- including the withdrawal of the inspection of the Cambodia Import-Export and Fraud Repression Directorate General (Camcontrol) at the international gateways and the abolishment of the state-owned Kampuchea Shipping Agency and Brokers (Kamsab).

The ongoing trade war between the US and China has forced Cambodian policy makers to accelerate trade and investment policy reforms in order to maintain the competitiveness of the country’s economy.

The current bottlenecks of Cambodia’s trade strategy are the narrow export market, complex regulations and informal fees, and high trade logistics cost. According the Cambodia Trade Integration Strategy 2019-2023 by the Ministry of Commerce, around 80% of Cambodia’s exports are sold to just 8 partner countries, mostly to the EU and US.

Textiles, clothing, footwear and travel goods exports to Europe and the USA (markets that import 70% of total Cambodian exports of goods) are reliant on preferential treatment. The threat to remove the Everything but Arms (EBA) by the EU and the Generalised System of Preferences (GSP) by the US will adversely affect Cambodia’s export to these two main markets.

Trade diversification strategy has been promoted recently, especially to explore and expand export markets to Asia. ASEAN is regarded as the key driver of regional integration and trade facilitation. Sanitary and Phyto-Sanitary (SPS) measures, complying with agricultural and food standards and adhering to preferential origin rules, have been identified as a key constraint for Cambodia’s export to ASEAN.

Currently only around one fifth of Cambodia’s exports are sold to ASEAN Member States. The use of tariff preferences among Cambodian businesses is low and only relatively few Cambodian companies apply for preferential certificates of origin under ASEAN related Free Trade Agreements.

Cambodia’s trade logistics costs are high compared that neighbouring countries. The contribution of transport and logistics to the total exported value added reached 14 percent, double the corresponding number in Thailand and 3.5 times that of Malaysia or Vietnam.

The report by the Ministry of Commerce also highlights that the supply chain links between foreign and domestic firms are weak. Cambodian Small and Medium-sized Enterprises are facing with complex regulations and standards (including export processes, technical measures, and registration).

In order to facilitate trade, effective cooperation between customs, other line agencies, appropriate authorities on trade facilitation and customs compliance issues needs to be promoted. In terms of trade facilitation measures, Cambodia has introduced many measures to facilitate areas such as customs automation, national single window, one stop border posts, customs risk measures, E-permit and customs, phytosanitary certificates, certificates of Cambodian origin, and trade registration.

The report suggests that, in the short term, Cambodia needs to reduce trade logistics costs to remain competitive. Since informal costs appear to be included in the current value of logistics costs, it is urgent for the government to design and adopt a comprehensive integrity strategy considering international good practices for border management operations and to implement modern automation systems for border management and port operations by digitalizing/automating processes entailing cross- border trade to the extent technologically feasible will reduce face-to-face interaction and remove informal payments.

The Cambodian government has also recognized the important linkage between trade facilitation and digital economy development strategy which include closing the digital gap by enhancing spectrum reallocation and mandating passive infrastructure sharing among telecom operators; elaborating a Digital Skills Readiness Strategy; adopting laws in e-commerce, cybersecurity, and data protection and privacy; and aligning e orts toward implementation of the Digital Government Strategy.

It seems there is a strong political will to reform the trade sector, driven by both external and internal factors. Next steps would be to carry out the trade strategy 2019-2023 prepared by the Ministry of Commerce. Leadership, institutional capacity, integrated coordination mechanism among the line ministries, technical support from development partners, and the participation from the private sector are critical to concretise the trade strategy.

Reducing informal fees is one of the top priorities to improve business climate and trade performance of the Kingdom.

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