I. INTRODUCTION

The General Department of Customs and Excise has embarked on a Customs Reform and Modernization program aimed at creating a modern customs administration that meets the requirements of the government for efficient revenue collection and for protection at the border, and that also meets the needs of the private sector for fast, straightforward and reliable international trade. This paper outlines the Reform program of the General Department of Customs and Excise in the framework of the economic reform policies of the Government of the Kingdom of Cambodia, and of the Ministry of Economy and Finance.

Government Reform Program and Policy

In its Second Mandate, the Royal Government of Cambodia has committed itself to sustained economic growth and poverty reduction. A policy statement by Samdech Prime Minister Hun Sen to the National Assembly on November 30, 1998, demonstrated the Government's strong political will and commitment to continuing a strong policy of reform in the following areas:

Economic reform is the highest priority for the Government. Its aim is to achieve sustainable economic development and to secure macro economic stability for Cambodia. This will be done through efforts to promote gradual economic growth by utilizing national capacity and potential and cooperation and assistance from overseas. A core task and precondition for the success of the economic reform process is the strengthening of the civil service and the development of good governance. A key supporting element for achieving these objectives is the need to strengthen revenue collection so that the Government can fund the various initiatives that constitute its reform program.

I. Ministry of Economy and Finance Economic Reform Policy

In carrying out the Government's policy on economic reform, the Ministry of Economy and Finance has established its own policy and work programs covering the following areas:

The Minister of Economy and Finance has taken steps to strengthen budget management capacity in the Ministry. He is also committed to broadening the tax base and improving customs administration through reform programs in both the Tax and General Department of Customs and Excise. Technical assistance is being provided by donor agencies (UNDP, IMF, AsDB, and several bilateral donors) in many areas, including the tax and customs departments.

The institutions and units under the direction of the Ministry of Economy and Finance have been directed to develop reform programs and action plans to implement the reform policies of the Royal Government and of the Ministry. This document outlines the Reform Program of the General Department of Customs and Excise.

II. CUSTOMS REFORM PROGRAM

Reform Objectives:

The General Department of Customs and Excise under the direction of the Delegate of the Royal Government in Charge of the General Department of Customs and Excise has launched an ambitious program of reform. The Customs Reform Program (CRP) is a comprehensive set of initiatives aimed at fundamentally changing and strengthening the way the Department operates. Its objective is to strengthen all aspects of the Department's operations, including its people, its organization structure, its legislative base, its systems and procedures and its facilities and infrastructure.

These initiatives are essential to prepare the department to meet the many changes and challenges facing Cambodia today. The CRP will enable the Department to meet the Government's expectations for revenue collection, and also to meet the expectations of the trading community and the general public for an efficient, professional and transparent customs service. The CRP will also ensure the Departments is prepared to meet the requirements of membership in the World Trade Organization and the ASEAN.

The program will see the development and implementation of a modern customs law and related regulations, the restructuring of the Customs Tariff, the streamlining and simplification of customs procedures to bring them in line with international standards and to improve trade facilitation, the introduction of automation, the strengthening of enforcement programs to reduce smuggling and other illegal practices, the provision of adequate facilities and equipment to enable the Department to carry out its mandate, and the enhancement of the skills, knowledge and professionalism of customs staff.

The objectives of the CRP are outlined below. Each of these objectives is supported by detailed action plans that will be monitored by the Customs Reform Steering Committee.

1. Strengthening Customs Legal Framework: The development and implementation of a revised Law on Customs to provide the legislative base for reform and to meet international commitments and standards.

The existing customs legislation (the Law on Duties on Exported and Imported Goods -1989) is inadequate to meet the needs of a modern customs administration. It is very limited in scope and does not provide the legislative base required to support the changes planned through the Customs Reform Program.

Some five years ago with the assistance of the UNDP, a draft customs code for Cambodia was developed based largely on the prevailing French Customs Code. The draft code was presented to the Council of Ministers about two years ago, but has not yet been approved. The draft law is very detailed and too complex, with some 340 articles. In addition, there is some concern that this draft code is not appropriate given the new commitments of the Government to the WTO, ASEAN, and the various conventions of the World Customs Organization (WCO) particularly the Revised Kyoto Convention on the Harmonization and Simplification of Customs Procedures.

Therefore a careful review of the draft will be undertaken and a revised draft customs law will be developed and presented for approval. There will be provision for the development of related customs regulations. This draft law will take into account the requirements of an automated customs processing system. Plans are to have the draft law completed by mid 2002. All interested parties both in Government and in the private sector will be consulted in the development of the new Customs Law.

2. Restructuring the Customs Tariff: The development and implementation of a streamlined and rationalized Customs Tariff aimed and reducing the number of tariff bands and the maximum tariff rate.

The restructuring of the Cambodian Customs Tariff is part of the Government's commitment to fiscal reform that is in turn part of its program of economic reform. These programs are supported by the International Monetary Fund through its Poverty Reduction and Growth Facility arrangement, and under a World Bank Structural Adjustment credit. The UNDP and other donor agencies are also supporting the Government's program.

The restructuring program calls for the reduction in the number of tariff bands from 12 to 4, and the reduction of the maximum customs tariff rate from 120% to 35% in 2001. In order to protect important Government revenue collections from Customs, the Government is increasing its excise duty rates at the same time its tariff rates are being reduced. The reduction of the number of tariff bands from 12 to 4 will greatly simplify the administration of the tariff. The long-term goal is to have an unweighted tariff rate of about 15% in the year 2002/2003.

3. Modernizing and Streamlining Customs Procedures : The introduction of simplified customs clearance procedures that enhance trade facilitation and improve effectiveness of operations through the application of risk management techniques.

Current customs clearance procedures are complex, labor intensive and inefficient. The Department is undertaking a fundamental review of its processes and procedures to identify areas that need to be streamlined and modernized to meet international standards and to prepare for automation. This will include examining the roles of other government departments in the importing and exporting process with a view to a long-term goal of consolidating border controls within customs to the greatest extent possible. Improvements in the clearance process will be implemented on an ongoing basis as the Department moves closer to automation. Areas to be streamlined include reporting and control of cargo, transit controls, cargo inspection and release, import declaration and revenue accounting, tariff classification and valuation, and the development of a post clearance audit program.

4. Expanding International Relations: The development of expanded multi-lateral and bi-lateral relations, including accession to the World Trade Organization, the World Customs Organization, and the ASEAN Free Trade Area.

The Government is committed to joining the World Trade Organization (WTO), and two Working Parties have been held. The General Department of Customs and Excise faces major challenges in preparing to meet the customs-related requirements of the WTO membership. These requirements relate primarily to the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the WTO Valuation Agreement). The existing methods of determining the value of imported goods for customs purposes will undergo major changes with the move to “transaction value” or the price actually paid for goods as is required under the Valuation Agreement. The development of post clearance audit will be an essential part of the introduction of the Agreement, and reflects a major change in the customs process that will benefit both the Department in terms of revenue collection and the importers in terms of trade facilitation and levels of service from Customs.

The Department recently became a member of the World Customs Organization (WCO) and will be implementing changes in operational procedures to meet the international standards of the WCO (primarily the Kyoto Convention on the simplification of Customs procedures).

The Department will increase its international enforcement liaison and co-operation efforts. This will involve more involvement with the WCO Regional Intelligence Liaison (RILO) office, increased bilateral information exchanges and the establishment of an international contact point in the Department.

5. Strengthening Enforcement : The development and implementation of an enforcement strategy and program based on the principles of risk management in order to reduce smuggling and other illegal cross border activities.

The Department faces many difficulties in its enforcement efforts at this time. Several other government agencies have assumed a customs enforcement role resulting in duplication of effort, inefficient use of resources, and ineffective anti-smuggling efforts. The Department lacks essential equipment and tools to carry out effective enforcement, training has been limited, and corrupt practices often frustrate enforcement efforts. In order to reduce smuggling the Department is developing a short-term anti-smuggling strategy that will address the highest priority smuggling areas.

In the medium to long term a comprehensive enforcement strategy will to be developed. This strategy will include a strategic threat assessment, and a detailed assessment of the effectiveness of current enforcement efforts. It will present a structured enforcement program including recommendations on organization, staffing levels and training, operational improvements to existing units, and steps to reduce internal malfeasance. The strategy will also address the issue of other government agency involvement in customs enforcement, and international co-operation. The plan will take into account the streamlining initiatives outlined in the previous section, and will ensure enforcement efforts are co-ordinated with other operational areas of the Department.

6. Automating Systems and Procedures : All Information Technology (IT) opportunities will be exploited to improve business systems, operating efficiency and service to clients. The long-term goal is fully automated systems for all customs business processes.

The Department has very limited automation at this time. Systems that are in place are not inter-connected and are mostly statistical systems or systems that provide support information for use of specialist groups (e.g. the Valuation Division system, and the statistical data system). The existing process of importing goods into Cambodia follows a traditional manual system of cargo reporting, declaration processing, revenue accounting, and clearance of goods.

Early in 2001 the Director of the General Department of Customs and Excise approved an Information Technology Framework. This Framework assesses the current state of automation in the Department, and lays out a strategic plan and an approach to IT development and implementation. The Framework also includes short-term, medium-term and long-term action plans.

Short-term actions (0 to 12 months) include enhancing the statistical data collection system, introducing an effective linkage to the SGS Valuation Support Services, and identifying new and potential “skill gaps” caused by the introduction of IT.

Medium-term activities (0 to 36 months) include creating a permanent IT organization, identifying potential automation projects, identifying potential sources of funds and technical assistance, reviewing legislation for IT implications, and conducting detailed feasibility studies of priority projects.

The long-term activities (12 to 48 months) include the development of detailed requirements statements, selection of system supplier or developer, system development and implementation, and post implementation support and review.

7. Improving Departmental Organization and Human Resources : The implementation of a new organizations structure to better meet the needs of the organization, and the development and implementation of a comprehensive human resource plan, including training and development programs.

The existing organization structure of the Department is not responsive to current requirements and circumstances, and needs to be changed. Changes have already been proposed to the organization structure of the Department. Further review and development of the organization in light of the various reform initiatives will be undertaken. Every effort will be made to increase delegation of authority and to implement monitoring and control mechanisms to ensure managers are held accountable for their decisions.

The knowledge and skills of customs officers need to be improved to prepare them to administer and manage the new systems and procedures coming under the CRP, such as the introduction of post clearance audit, and the introduction of computerization. A comprehensive training program is also required to ensure that the Government can confidently return responsibility for tariff classification and valuation to the Customs Department and phase out the PSI program. The Department will create a Customs Training Centre that will be responsible for the development and delivery of much of the training programs. Overseas training and development opportunities will be provided to staff as when available.

The Department will develop a comprehensive human resource plan. In addition to the organization structure and training requirements, other issues to be addressed in the human resource plan include staffing requirements, staff remuneration, policies on staff recruitment, rotation and promotion and an integrity program (which will include a code of conduct for customs staff).

8. Maximizing Return From PSI Operations : In the short term the goal is to maximize the return from the PSI operations. The long-term goal is to develop Customs' capacity and systems so that the responsibility for tariff classification and valuation can be returned to the Department.

The Government signed a two-year contract with the pre-shipment inspection (PSI) company Societe Generale de Surveillance SA (SGS) in 2000. The purpose of pre-shipment inspection is to further assist the General Department of Customs and Excise modernize its operations, to minimize the opportunities for fraud and fiscal evasion through misdescription, misclassification and under-valuation of goods by importers, and to facilitate trade. Customs is committed to maximizing the return from pre-shipment operations.

As an integral part of its contract, the PSI company is required to provide assistance in the modernization of Customs. This assistance includes the provision of specialized training in customs techniques and management skills, and the provision of assistance and hardware in the development of an automated customs clearance system.

In addition to maximizing the return from the PSI contract, the Department is committed to developing and modernizing its own systems and procedures, to enhancing the technical skills and capacities of its staff and strengthening its internal controls. The goal is that through the reform program the General Department of Customs and Excise will develop its capacity to the point where there will no longer be a requirement for PSI operations and they can be phased out. The assistance to be provided under the PSI contract will greatly assist in achieving this goal.

9. Improving Departmental Infrastructure: The development of an infrastructure plan to ensure the Department is provided with adequate office and examination facilities, furniture and equipment, computers and enforcement tools (vehicles, detection equipment, etc.).

Many of the Department's offices and check points are no longer adequate to meet the needs of the Department and of the trade. Buildings have become rundown and in a poor state of repair, and equipment is lacking in all areas. These inadequacies impair our capacity to do our jobs and create inconvenience and delays for importers and travelers. In addition, our offices must be refurbished or replaced in order to accommodate the widespread introduction of automation.

In order to determine specific requirements and priorities a detailed infrastructure plan will be developed. It will assist in securing funding for our infrastructure program from both Government and external sources.

10. Enhancing Service to the Public and Trade Facilitation: To improve levels and quality of service to the public and to improve trade facilitation by providing prompt, reliable and professional service to legitimate business.

The Department will strengthen its appeal and dispute resolution procedures so that traders' appeals can be promptly and fairly dealt with, in a transparent manner. The new Customs legislation will provide clear appeal procedures and dispute settlement mechanisms.

As part of the review of clearance procedures and the introduction of automation, the Department will identify opportunities to reduce the time and paperwork required to clear goods through Customs. We will consult with the trade in developing all of our new programs, to ensure that their requirements are taken into consideration

11. Management of the Reform Program : A management structure in place to manage the Customs Reform Program and ensure its success.

A Customs Reform Steering Committee is being formed at the Ministry of Economy and Finance to provide strategic direction and to monitor progress of the reform Program. Within the department a Customs Reform Working Group under the guidance of the Director of the Department has been formed to manage the reform plan. Goals and action plans are under development and the Working Group will monitor performance against them. Several Sub-Groups are in place to carry out the various projects, under the direction of the Reform Working Group.

Under the IMF Technical Cooperation Action Plan (TCAP) a resident Customs Advisor is in place and will provide a wide range of technical assistance and advice to the Department. In addition, the TCAP provides for a number of short-term technical assistance missions in various technical areas of operations.