Chapter 14 : Trade, Commerce, and Customs Procedures
1. Cambodia’s Trading Relationships
Since 1993, Cambodia has benefited from a considerable increase in international trade and is now party to a number of trade agreements. Perhaps the most significant of these are Cambodia’s membership of the World Trade Organization (“WTO”) and the Association of Southeast Asian Nations (“ASEAN”) Free Trade Area (“AFTA”), which Cambodia entered into in 2004 and 1999, respectively. Both of these schemes have already led to important tariﬀ reductions, and should facilitate further trade liberalization both regionally and internationally.
In addition to the AFTA, Cambodia is also eligible for Preferential Tariff Reductions that are granted under Free Trade Agreements (“FTAs”) that ASEAN has concluded with Korea, Japan, India, China, Australia and New Zealand, although different ASEAN states will implement the FTA at different times, particularly CLMV states (Cambodia, Laos, Myanmar and Vietnam).
The ASEAN-Australia-New Zealand Free Trade Agreement (“AANZFTA”) was concluded on 27 February 2009, and the government has adopted the Law on Adoption of the Agreement Establishing the ASEAN-Australia-New Zealand Free Trade Area, aimed at progressively liberalizing and facilitating trade in goods among the parties through progressive elimination of tariﬀ and non-tariﬀ barriers, as well as liberating trade in services among the parties, covering many sectors. With reference to this agreement, the schedules for reduction and elimination of Cambodian import duties for the period 2009-2025 have been promulgated.
For trade in goods, the AANZFTA provides reduced rates compared to MFN, but not as favorable as AFTA. Imports from Australia and New Zealand under AANZFTA will be largely duty free by 2025. Note that Cambodian exports to Australia and New Zealand may be largely duty free and quota free. A key benefit of the AANZFTA, as with other FTAs, is that content will be counted in for origination on a regional basis for manufactured goods.
The ASEAN-China Free Trade Agreement (“ACFTA”) is the FTA that covers the largest population in the world. It is a comprehensive cluster of agreements on goods, services, investment, intellectual property and dispute settlement. The initial framework was created in 2004. The ACFTA was ratified by Cambodia for Trade in Goods on 6 Feb 2008.
Cambodia has reached the 2015 deadline set under the ACFTA to bring nearly all of its customs duties on goods from China within the zero to five percent range. These tariff rates will be subsequently reduced to 0% not later than 1 January 2020.
The ASEAN-Korea Free Trade Agreement (“AKFTA”) was concluded on 1 May 2006 as an agreement mostly on goods but was later extended with agreements on services (1 May 2009) and Investment (2 June 2009). Cambodia ratified the AKFTA on 6 February 2008.
For Cambodia, all tariffs for products listed in Normal Track will be eliminated by 1 January 2018.
The ASEAN India Free Trade Area (“AIFTA”) was concluded 13 August 2009. It entered into force from 1 January 2010 after ratification by India and one ASEAN states. Under the AIFTA, trade in goods was already finalized
As far as the Trade in Goods is concerned, AIFTA provides as follows for Cambodia depending on the track which has been chosen for the goods. Normal Track 1 goods were reduced from 1 January 2010 and will be eliminated from 31 Dec 2018. The reductions for goods placed under Normal Track 2 and the Sensitive Track with some exceptions also started from 1 January 2010 but elimination will only be carried out by 31 December 2021. The Highly Sensitive List has three different reductions.
Customs duties on goods on the Highly Sensitive List will be eliminated by 31 December 2024.
The ASEAN-Japan Comprehensive Economic Partnership Agreement (“AJCEP”) entered into force on 1 December 2008. It finally became effective for Cambodia from 1 December 2009. The AJCEP provides for Trade in Goods and Trade in Services and a panel of sub-committee has been created to further the discussions on the service sector. However, the AJCEP also provides for rules on Sanitary and Phytosanitary measures, mostly to promote investment and other issues.
The Rules of Origin apply for 40 percent of the “regional value content” or change in tariff classification, whichever the importer chooses. Specific rules on calculation and documentation are provided. There is a remarkable special rule for IT products: assembly in one of the states of the region suffices for origin, no need to refer to tariff classification change or regional value content, but there are some exceptions.
As a developing country, Cambodia also benefits from preferential access to the markets of developed countries. For example, Cambodia enjoys Most-Favored Nation (“MFN”) status from the United States, the European Union (“EU”), and other developed countries and since 2001 has benefited from the EU’s “Everything But Arms” initiative (“EBA”) – part of the EU’s Generalized System of Preferences (GSP). Cambodia is also entitled to privileges under the respective programs of the US and Japan.
However, for products to enjoy the EBA rates, they must meet the Rule of Origin (“ROO”) requirement that at least 40 percent of the contents must have originated in Cambodia. Nevertheless, special waivers allow for certain Cambodian textile products to have cumulative origin with ASEAN countries or the EU. Similarly, for exports from Cambodia to the US, to benefit from the GSP there is a ROO requirement of 35 percent, although qualifying member countries of ASEAN – namely Cambodia, Thailand, Indonesia, and the Philippines – are treated as one country, which again provides for cumulative origin.
Cambodia’s largest export commodities include garments, rubber and timber with most goods being sent to the US and EU. Major imports include petroleum products, construction materials, vehicles and motorcycles while major trading partners include Thailand, Hong Kong, Singapore and China.
2. Cambodia and the World Trade Organization
Cambodia’s international trade and investment framework has made a big leap with WTO accession, which will have a significant impact on all sectors and all fields of business. Whilst the General Agreement on Tariﬀs and Trade (“GATT”) and the General Agreement on Trade in Services (“GATS”) are likely to have the biggest eﬀect on Cambodia’s international trade, the Agreements on Trade Related Aspects of Intellectual Property (“TRIPS”), the Customs Valuation Agreement (“CVA”), and agriculture, anti-dumping and import licensing procedures will also have a bearing on the country’s international trading relationships. In order to ensure full compliance with WTO standards, the country has committed itself to institutional reform.
3. The General Agreement on Tariﬀs and Trade
As a result of the GATT, Cambodia is obliged to address both tariﬀ and non-tariﬀ barriers to trade. For example, Article 11 necessitates the general elimination of quantitative restrictions (bar certain exceptions permitted for reasons of necessity). To those ends, Cambodia promised upon accession, not to introduce, re-introduce or apply other non-tariﬀ measures such as licensing, quotas, prohibitions, bans and other restrictions having equivalent eﬀect that cannot be justified under the provisions of the WTO agreements.
One benefit of WTO membership is the MFN mechanism alluded to above. This principle provides that if a contracting state grants any advantage, favor, privilege or immunity to another in respect of a certain product, it is obliged to accord the same benefit immediately and unconditionally to all other contracting parties regarding like products. Therefore, Cambodian exports to other WTO members are guaranteed these favorable rates and Cambodia must reciprocally apply the accepted MFN rates to goods imported from other contracting parties. Successive rounds of negotiation have resulted in a gradual lowering of MFN tariﬀs.
The WTO agreement provides for bound tariﬀ rates, which set the maximum legal rate that may be applied to imports. In general, Cambodia’s “applied rates” (i.e. the rates that are actually levied) are similar to the bound rates bar a few exceptions. Importantly, upon accession, Cambodia pledged to bind 100 percent of tariﬀ lines. The principle of “national treatment” in Article 3 adds a further layer of protection to Cambodian exports because it obliges member states to treat imports no less favorably than products of national origin.
4. The General Agreement on Trade in Services
This agreement forms another component of the “single WTO package” and as such is binding on Cambodia and all other member states. Once again, the MFN principle applies to all services (except one-oﬀ, temporary exemptions) and so treatment “no less favorable” than that extended to one country’s service providers must similarly be oﬀered to all other WTO members. This applies on the basis of four “types” or “modes” of supply (rather than specific service sectors);
- cross-border supply (services supplied from one country to another);
- consumption abroad (where a consumer from one member state makes use of a service in another state);
- commercial presence (where a foreign business wishes to set up a subsidiary or branch operation to provide a service in the other country); and
- movement of natural persons (where individuals travel from their home country to supply services abroad).
Cambodia does have some MFN exemptions, with intended unlimited duration, although these are limited to audio-visual services, land transport, internal waterways and maritime transport. Members are also allowed to invoke specific limitations on market access and national treatment in their Schedule of Specific Commitments.
Cambodia provides market access or national treatment for the cross-border supply, consumption abroad and commercial presence of almost all services. There are some limitations applicable to the following sectors but most do not comprise arduous barriers;
- banking and financial services;
- health-related and social services;
- tourism and travel services; and
- pipeline transport services.
5. Agreement on Trade Related Aspects of Intellectual Property
During the accession negotiations, Cambodia requested a 2009 deadline for the implementation of the Agreement on Trade Related Aspects of Intellectual Property (TRIPS), but ultimately agreed to apply it no later than 1 January 2007. As required by the WTO, Cambodia has passed intellectual property laws that conform with TRIPS including;
- the Patent Law;
- the Trademarks Law; and
- the Law on Copyright and Related Rights.
To complete the legal framework on intellectual property, it is also anticipated that other laws and regulations will be adopted such as;
- the Law on Layout Designs of Integrated Circuits;
- the Law on Plant Variety Protection;
- the Law on Geographical Indications including Appellation of Origin; and
- the Law on Protection of Undisclosed Information.
6. Customs Valuation Agreement (“CVA”)
Other important aspect of Cambodia’s WTO accession are the implications it will have for the way in which customs duties are assessed and collected (see the section on Customs Valuation below for more details). Cambodia committed to implementing the WTO CVA by 1 January 2009 and is currently in the process of extensively reforming its customs regime. To that end, 2007 saw the passing of a new Law on Customs which has now entered into force.
7. The Association of Southeast Asian Nations
The Association of Southeast Asian Nations (“ASEAN”) was formed by its original five members in 1967 to promote economic, social and cultural development in the Southeast Asian region through inter-state integration and cooperation. ASEAN’s membership has now grown to 10 countries with Cambodia being the most recent to join in 1999.
8. The ASEAN Free Trade Area and Common Eﬀective Preferential Tariﬀ Scheme
The ASEAN Free Trade Area (“AFTA”) was established in 1992 with the aim of promoting the region’s competitive advantage as a single production unit. Eliminating tariﬀ and non-tariﬀ barriers to trade between the member countries will encourage greater economic eﬃciency, productivity and competitiveness. Importantly, investors in Cambodia can benefit from tariﬀ rates established under AFTA’s Common Eﬀective Preferential Tariﬀ Scheme (“CEPT”) that are often considerably lower than those under the WTO. Thus, although each ASEAN member is free to impose tariﬀs on goods entering from outside ASEAN, based on its national schedules, for goods originating within ASEAN, member states must apply a tariﬀ rate of no higher than five percent. The CEPT scheme covers a broad array of products, detailed in each member’s CEPT inclusion list.
As a new member, Cambodia has been granted additional time to implement the reductions but was obliged to bring rates within the accepted zero to five percent band by 2010 and to eliminate them by 2015 according to Annex 2 of the Protocol for the Accession of Cambodia to the ASEAN Agreements, 1999; and Article 1 of the Protocol to Amend the CEPT Scheme for AFTA for the Elimination of Import Duties, 2003.
- It is possible for ASEAN members to exclude certain products from the CEPT in two cases;
temporary exclusions – products for which tariﬀs will ultimately be lowered to zero to five percent but which are being protected temporarily by a delay in tariﬀ reductions; and
- general exceptions – products that an ASEAN member deems necessary for the protection of national security, public morals, the protection of humans, animals, or plant life and health and protection of Articles of artistic, historic, or archaeological value.
It should also be noted that currently CEPT does not apply to unprocessed agricultural products, although these will be gradually phased into the scheme in the future.
As under the EU’s EBA and the US’s Generalized System of Preferences, CEPT rates are subject to the satisfaction of a ROO local content requirement and it must be shown that 40 percent of a product’s contents originate from any ASEAN member country. This requirement refers to both single-country and cumulative ASEAN content.
9. Cambodia’s Domestic Customs Regime
Cambodia’s new Law on Customs came into force in July 2007. The legislation provides for the assessment and collection of duties, taxes and fees on imported and exported goods as well as the control and regulation of the movement, storage and transit of such goods. Moreover, the Law on Customs is an important development in the implementation of Cambodia’s international trade policy and promotion and application of international standards.
The Law on Customs provides that certain goods are wholly exempt from import duties and taxes. These include;
- goods temporarily imported into Cambodia (i.e. for transit or trans-shipment);
- goods used for or by, foreign diplomatic or consular missions, international organizations, and agencies of technical cooperation of other governments for use in the exercise of their oﬃcial functions;
- goods for personal use by oﬃcial personnel of such missions and organizations;
- goods originating in Cambodia or returning from abroad for which duties and taxes have previously been paid (providing that they have not been enhanced in value);
- goods exempted under the provision of any other law of Cambodia; and
- items donated for charity, goods for research and scientific purposes and samples and goods of no commercial value for exhibition.
Certain other goods and materials may be partially exempt or relieved from import duties where this is specifically provided for by any other law of Cambodia. In addition, a partial exemption may be granted with respect to;
- seeds and breeding animals for agriculture;
- goods expected to undergo repair, processing, or testing;
- goods re-imported in the same state;
- goods imported by the government for public purposes; and
- goods for temporary admission.
Importantly, this list is non-exhaustive, and partial exemption or relief may also be granted to other goods determined by Prakas (regulation) of the Ministry of Economy and Finance (“MEF”).
For goods that cannot be wholly or partially exempted from import duty, this is levied at a rate of 7 percent, 15 percent or 35 percent, as listed in the 2012 Customs Tariﬀ book.
10. Customs Clearance Procedure
Imported goods must be declared to a customs oﬃce or other location as determined by the director of the General Department of Customs and Excise (“GDCE”). The persons engaged or involved in the commercial or institutional import or export of goods must ensure that accurate documentation is kept, including the receipt of payment of customs duty and taxes (in accordance with what has been declared to customs), accounting books, records and other information pertaining to import or export, including that contained in electronic format.
Those who report goods to the customs oﬃce have an obligation to answer truthfully any question asked by a customs oﬃcer with respect to the goods and where a customs oﬃce so requests, make the goods available for inspection by customs in the manner prescribed by the director of customs.
In addition, there are certain goods, listed in Sub-Decree 209 (relating to putting into use prohibited and restricted goods, dated 31 December 2007), for which importation or exportation requires a license or permission, or an equivalent jurisdiction letter from the Ministry or competent specialized unit.
11. Customs Valuation
Article 21 of the Law on Customs sets out the procedure by which the value of imported goods is determined for the purpose of customs duty calculation. A number of methods are detailed, to be applied in the order provided by the WTO CVA.
Therefore, ideally the customs value of imported goods shall be the transaction value (“TV”), this being the price actually paid or payable for goods when sold for export to Cambodia. If, however, the transaction value of the imported goods cannot be determined, then the customs value shall be firstly the transaction value of identical goods and if this method is also unfeasible, then secondly the transaction value of similar goods.
If none of the three methods contemplated above is possible, then the customs value of the imported goods will be based on a deductive method (i.e. on sale price in the importing country). If this too is unfeasible, then the computed method is used (i.e. based on the cost of materials, fabrication, and profit in the country of production). As permitted by the WTO CVA, the order of application of these two methods may be reversed at the request of the importer.
Finally, where all else fails, customs value is to be determined by using reasonable means consistent with the principles and provisions referred to elsewhere in Article 21 of the Law on Customs and on the basis of data available in the customs territory, subject to certain limitations. Article 21 also makes clear that all matters related to the determination of customs value are to be ultimately regulated by a Prakas of the MEF.
12. Customs Bonded Warehouses
A customs bonded warehouse (“CBW”) is a building, place or an area that is used to store, process, display or provide for the sale of goods for which import duties are deferred or for other related purposes subject to customs control. To qualify, a CBW must meet certain requirements established by the GDCE of the MEF.
13. Tax Incentive for Operator and Goods’ Owner
Goods can be stored in a CBW for a maximum of two years from the date of registration of the customs declaration. As an exception, the time limit may be extended by up to 12 months by the GDCE at the request of the CBW operator provided that the goods are in good condition.
There are three categories of CBW;
- public warehouses, which are licensed by the MEF, may be operated by an agency of the government or by any person and which are open to any person who has the right to store the goods in the warehouses;
- private warehouses, which are licensed by the director of the GDCE and are to be used solely by specified persons to store goods for their own specific uses, including operators of duty-free shops; and
- special warehouses, which are licensed by the director of the GDCE, are a type of warehouse for goods that may present a hazard or could aﬀect the quality of other goods or could require special storage facilities.
Each CBW license will determine conditions for owners and operators, including the location, construction and layout of premises and procedures for control and handling of goods. In certain circumstances, the MEF may authorize the establishment of customs manufacturing bonded warehouses (“CMBWs”), which are a type of factory used to process and produce goods in the CBW. Goods so processed and/or produced in the CMBW can be exported and/or released for the domestic market.
The application of taxes, duties, and restrictions with respect to imported goods stored in a CBW shall be suspended until the goods have been released from the CBW for domestic use or export. Similarly, taxes and duties applicable to raw materials, components, machines, equipment and things for production with respect to a CMBW operator will also be suspended if the end products are for export, except those goods that are subject to export taxes.
14. License Fee and Guarantee Deposit
At the end of the calendar year, a CBW operator must pay an annual license fee at the rate of one percent of the monthly average taxes and duties of the goods stored in the CBW. If the license is issued after 1 July, the first annual license fee will be 50 percent of one percent of the average monthly taxes and duties of the goods in store.
CBW operators are also required to pay a guaranteed deposit equal to five percent of the annual taxes and duties applicable to the goods stored in the CBW. For the first year of operation, the amount of guaranteed deposit will be determined by the director of the GDCE. The customs administration has the right to adjust the amount of guaranteed deposit if necessary, which may be paid in cash or other instruments.
The Law on Customs sets forth a regime of penalties to be applied to any person who commits a customs oﬀence. These are as follows;
- any person who commits minor violations (including inaccuracies and omissions when completing declarations) that have no impact on duties or taxes is subject to administrative fines of KHR 100,000 (approximately USD 25) to KHR 500,000 (approximately USD 125);
- any person who commits violations of provisions that involve the evasion of duty or taxes where the goods are not prohibited or restricted, is subject to administrative fines of between one and three times the duty and tax evaded, and to a judicial penalty of confiscation of the goods or imprisonment for one month to one year;
- any person who obstructs or impedes a customs oﬃcer is subject to administrative fines of KHR 1 million (approximately USD 250) to KHR 5 million (approximately USD 1,250) or a judicial penalty of imprisonment for one to six months or both; and
- where a violation involves goods that are prohibited or restricted under the provisions of Article 8 of the LOC, the oﬀender will be subject to an administrative fine of up to three times the value of the goods or conveyance and other things used to conceal smuggled goods or imprisonment for one to five years, or both.
Chapter 15 : Immigration and Naturalization
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