47025-001: Supporting Participation in the South Asia Subregional Economic Cooperation Trade Facilitation Program
Project Data Sheet (PDS): Details
The TA will help strengthen the technical and institutional capacity of Bhutan's Customs, by better aligning procedures and practices with internationally accepted standards. The TA has three main components: (i) supporting Bhutan's accession to the Revised Kyoto Convention (RKC); (ii) enhancing the capacity of customs automation; and (iii) establishing a functional national trade facilitation body. (i) Supporting Bhutan's accession to the RKC. The TA will assist in preparing the necessary legal, administrative, and technical documents necessary for Bhutan's accession to the RKC. It will conduct a regulatory impact assessment on the proposed amendments to Bhutan's laws, rules, and regulations, which are required to ensure Bhutan's compliance with the General Annex of the RKC. The TA will promote understanding and awareness of key stakeholders in Bhutan of the RKC, its benefits, and implications. In collaboration with the World Customs Organization (WCO), the TA will conduct technical training on the General Annex of the RKC for relevant customs officials. Initially, the TA will involve customs but in the course of implementation, other government agencies may be involved. (ii) Enhancing Capacity of Customs Automation. The TA will support system upgrades to the Regulatory Audit Management Information System (RAMIS). The implementation of customs facilitation measures will be brought in line with the RKC through provision of technical expertise, and limited software and hardware assistance. The TA will carry out a comprehensive training needs assessment for customs automation, and based on this assessment, conduct training for relevant customs officials at headquarters and at key border checkpoints. (iii) Establishing a Functional National Trade Facilitation Body. As part of the ADB-financed SASEC Trade Facilitation Program, the Royal Government of Bhutan issued an executive order to establish the National Trade Facilitation Committee (NTFC) of Bhutan in February 2013. The role of the NTFC will be to ensure proper coordination and smooth implementation of the cross-sectoral SASEC Trade Facilitation Program. The NTFC has eight members: the Chair (Secretary of the Ministry of Finance); five Directors (from ministries of Economic Affairs, Agriculture and Forest, Home and Cultural Affairs, and the Department of Revenue and Customs [DRC]); one Deputy Governor (Royal Monetary Authority); and one Secretary General (Bhutan Chamber of Commerce and Industries). The TA will provide strategic and technical advice to the Royal Government of Bhutan in support of effective operations of the NTFC. It will support meetings of the NTFC, and provide capacity to and support the operations of the NTFC Secretariat. The TA will conduct a study to identify possibilities to render the operations of the NTFC self-sustaining.
Project Rationale and Linkage to Country/Regional Strategy
The International Finance Corporation/World Bank's 2013 Doing Business report ranks Bhutan 172 out of 185 countries in its trading across borders category, largely due to infrastructure bottlenecks. In addition, Bhutan's trade competitiveness and market opportunities are hampered by (i) regulatory constraints, (ii) complicated trade procedures and formalities, (iii) absence of fully automated customs system, and (iv) weak coordination among domestic agencies. These barriers contribute to an estimated 38 days required to both import and export a standard container, at a cost of $2,230 (export) and $2,330 (import), placing Bhutan below the South Asia regional average in each component, and negatively impacting the country's trade potential. (i) Regulatory Constraints. Bhutan's regulatory framework for cross-border trade is complex. A lack of comprehensive import and export regulations has led to a current legal framework consisting of subsidiary legislation, such as notifications and regulations issued by various agencies. This creates overlap and complicates the legal context for trade. Further, most of Bhutan's customs practices are not aligned with international standards as outlined in the RKC. Although Bhutan became a member of the WCO in 2002, the country has not yet signed the RKC. Many regulatory documents do not conform to international standards such as the United Nations Layout Key, and the United Nations Trade Data Elements Directories: data elements on Bhutan's forms are neither coded nor do they use international codes. (ii) Complex Trade Procedures and Formalities. Several trade restrictions remain in place, affecting mostly imports, including import/export license by road from third countries, registration, and prior import/export approvals. These procedures require more documents and increase the time and cost of trading, making the current trade environment restrictive. For example, exporting oranges from Bhutan to Bangladesh requires 16 documents, takes 15 days, and costs $1,852 per truck. (iii) Lack of Fully Automated Customs Management System. Bhutan customs procedures are not generally considered a major barrier to the business climate. Although only 3.3% of manufacturing businesses view customs as a major constraint, Bhutan customs could still do better to facilitate trade. Bhutan is currently applying the Bhutan Automated Customs System (BACS) to provide trade statistics and process declarations. This only allows for semi-automated clearance, however, and does not provide real-time linkages between regional offices. BACS is also slow and unstable: in particular, updating of information in the system is not easy and requires additional manual processing. There is no risk management system linked to the BACS. Recently, the DRC included a customs functionality in RAMIS which is being developed and implemented with ADB's support. (iv) Weak Coordination of Government Agencies Involved in Trade. Currently, 11 domestic agencies are involved in entry/exit clearance of goods, including customs, quarantine, health, agriculture, forestry, environment, economic affairs, narcotics control agency, immigration, army border control, and information and communication. Not all of these agencies are present at border crossings and stations. There is no integrated clearance workflow and limited sharing of data or information among different agencies. Although working relationships are good, the absence of collaboration and sharing of information adds to the time for traders and the burden for customs. In addition, there is no forum that (i) could serve as an institution to promote trade facilitation, and (ii) where public and private entities engaged in international trade can discuss problems and jointly seek solutions. ADB's strategy is to support improvements in trade facilitation though a combination of interventions at the policy and institutional level, as well as in developing the physical infrastructure that enables trade. The SASEC Trade Facilitation Program loan/grant for Bhutan ($11.67 million) was approved on 29 November 2012 to provide assistance in reducing policy, institutional, and technical constraints to trade facilitation. The Program loan aims to (i) establish a modern and effective customs management system through accession to, and alignment with the RKC and the Framework of Standards to Secure and Facilitate Global Trade (SAFE); (ii) streamline and increase transparency of trade processes and procedures through support to the implementation of a National Single Window; and (iii) improve services and information for traders through the establishment of trade portals and trade facilitation committees. The funds from the Program loan will be released in two tranches and are anchored on Bhutan's compliance to agreed tranche conditions. The first tranche release was approved in May 2013 and the second tranche will follow 18 months after the first tranche release. The proposed TA will provide needed assistance to Bhutan in fulfilling the conditions set in the loan agreement, and at the same time support the overall SASEC trade facilitation sector.
Reduction in time and cost for Bhutan's trade
Description of Outcome
Better alignment of Bhutan customs procedures and practices with internationally accepted standards
Progress Towards Outcome
Bhutan acceded to the Revised Kyoto Convention in September 2014, and is committed to implementing necessary measures to bring regulatory frameworks and procedures into line with the General Annex of the Convention. The amended Customs Act and Rule and Regulatory Impact Assessment, drafted with assistance from the TA, will be submitted to Cabinet in 2015, for approval by the National Assembly and National Council in the winter session, January 2016.
Description of Project Outputs
1. Bhutan accedes to the Revised Kyoto Convention (RKC) 2. Enhanced capacity of customs automation 3. A functional national trade facilitation body
Status of Operation/Construction or Implementation Progress
1.1 Bhutan acceded to the Revised Kyoto Convention 15 September 2014, as the ninety-eighth contracting party. The technical assistance is supporting implementation of the General Annex of the RKC. Training was delivered on implementation of specific modules of the RKC delivered 9-13 June 2014 in Thimphu, Bhutan for the Department of Revenue and Customs, together with external stakeholders for sensitization purposes. Further, a nation-wide series of RKC awareness-raising workshops and consultations with all stakeholders was successfully conducted by the Department of Revenue and Customs during October and November 2014. 1.2 A Regulatory Impact Assessment Report (based upon amendments made to Bhutan's Customs Act and Rule) has been certified by the Department of Revenue and Customs. 1.3. Comprehensive consultations with public and private sector stakeholders have been held on the proposed amended Customs Act and Rule (October 2014). 2.1 User Acceptance Testing of the Customs module within RAMIS has continued through the final quarter of 2014, and necessary adjustments made. 2.2 Schedule of roll out of all Customs sub-modules of RAMIS for 2015 has been agreed. 3. Support rendered to Bhutan's National Trade Facilitation Committee in strategic planning, and logistical convening of first four General Meetings of the Committee (January, May, September, and October 2014), together with budgetary support for proposed capacity-building activities.
Stakeholder Communication, Participation and Consultation
During Project Design
The SASEC Transport and Trade Facilitation Working Group (TFTWG) met in Kolkata, India in March 2012 and in Thimphu, Bhutan in November 2012, where continued support from ADB was requested for the implementation of priority trade facilitation measures in SASEC countries. In particular, the DRC of Bhutan requested ADB to provide specific technical support to strengthen the capacity of Bhutan's Customs in trade facilitation. In November 2012, an ADB mission to Thimphu, Bhutan met with the Ministry of Finance (Department of Public Accounts [DPA]) and the DRC to further discuss TA requirements. The SASEC Trade Facilitation Week held in Bangkok, Thailand in March 2013, together with an ADB mission to Thimphu, Bhutan in April 2013 that met with DRC and DPA, identified specific customs components for inclusion in the TA. All consulted parties agreed on the expected impacts and outcomes of the TA with strong support for the TA design and implementation.
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