EXPERT GROUP MEETING ON IMPROVING TRANSIT COOPERATION, TRADE AND TRADE FACILITATION FOR THE BENFIT OF LLDCS: CURRENT STATUS AND POLICY IMPLICATIONS

NEW YORK, 10-11 DECEMBER 2015

SYED NURUZZAMAN

STRUCTURE OF THE REPORT

• Recent economic and social trends

• International conventions and agreements

• Harmonization of customs and border crossing procedures

• Transit infrastructure

• Trade and trade facilitation

• Financing infrastructure development

• Way forward: Policy options

I. RECENT ECONOMIC AND SOCIAL TRENDS

• Robust growth replaced by growing uncertainty

• Falling commodity prices: Azerbaijan, Kazakhstan, Mongolia and Turkmenistan

• Rapid depreciation of currencies

• Lay-offs in construction activities

• Remittances faltering

II. INTERNATIONAL CONVENTIONS AND AGREEMENTS

• VPoA notes that numerous physical and non-physical barriers holding back the LLDCs

• LLDCs have acceded to international conventions and agreements: inter-country trade and transit cooperation

• Simplifying and regulating transport and transit operations

• International conventions and agreements important platforms for regional cooperation and integration

• UNECE and ESCAP providing technical assistance within the ambit of the International Convention on the Harmonization of Frontier Control of Goods (1982)

STATUS OF ACCESSION

• Resolution 48/11 recommended 7 conventions

• More have been added to the recommended ones

• All 12 LLDCs have acceded to at least 1 convention (Lao PDR)

• None have acceded to all the 21 conventions listed in Table 5

• Many conventions are yet to be acceded to by the Asian LLDCs

STATUS OF ACCESSION (CONTINUED)

• Among the 12 Asian LLDCs, most popular (9 LLDCs) is the Customs Convention on the International Transport of Goods under Cover of TIR Carnets – 1975: 40 years of fruitful experience with TIR

• Next is 8 LLDCs each acceding to the Convention on the Contract for the International Carriage of Goods by Road (CMR 1956), Convention on Road Traffic 1956, and the International Convention on the Harmonization of Frontier Control of Goods 1982 (Revised Kyoto Convention 1999).

FREE TRADE AGREEMENTS

• Very popular with LLDCs

• Armenia 9, Azerbaijan 10, Kazakhstan 14, Kyrgyzstan 9, Lao PDR 10, Mongolia 1, Nepal 3, Tajikistan 9, Turkmenistan 5 and Uzbekistan 10

• Trade impact with FTA partners:

Bhutan, Lao PDR and Nepal trade mostly with FTA partners;

most other LLDCs export 20 percent or less to FTA partners

III. CUSTOMS, HARMONIZATION OF POLICIES AND BORDER CROSSING PROCEDURES

Key transit barriers: WB

• Hard physical infrastructure barriers

lack of infrastructure

Missing links, poor maintenance, incompatible systems, obsolete technologies

Soft infrastructure barriers: different legal systems, weak coordination, lack of skilled personnel, non-compliance with conventions, lack or slow implementation of regional/sub-regional agreements

CUSTOMS, HARMONIZATION OF POLICIES AND BORDER CROSSING PROCEDURES (CONTINUED)

Procedural barriers in serving corridors

Cumbersome and large number of documents

Frequent inspections

Different technical standards

Exorbitant charges

CUSTOMS, HARMONIZATION OF POLICIES AND BORDER CROSSING PROCEDURES (CONTINUED)

Different traffic regulations

Restricted visa requirements

Different locations of various control stations

Stringent requirements for vehicle movements

REGIONAL AND SUB-REGIONAL INITIATIVES IN ADDRESSING TRANSIT BARRIERS

Asian Highway Network

Trans-Asian Railway Network

Singapore-Kunming Rail Network

CAREC Joint Customs programme

UNECE/ESCAP Electronic TIR Customs Transit System (eTIR)

REGIONAL AND SUB-REGIONAL INITIATIVES IN ADDRESSING TRANSIT BARRIERS

UNECE/ESCAP Single Window programme

Regional Single Window for ASEAN Connectivity

GMS Sub-regional Agreement for Facilitation of Cross-border Transport of Goods and People

Integrated Check Post initiative (ICP: India)

BBIN

MODELS AND METHODOLOGIES FOR CONTROL AUTHORITIES

• Secure Cross-border Transport Model: a vehicle tracking system

• Efficient Cross-border Transport Model: a model for identifying non-physical barriers, evaluate alternatives and provide optimal solutions

• Time-cost Distance Methodology: designed to identify bottlenecks along the transport corridors

COUNTRY RESULTS IN REDUCING BARRIERS THROUGH FACILITATION MEASURES

• Armenia, Azerbaijan, Bhutan, Kazakhstan, Lao PDR, Nepal, Mongolia and Tajikistan have reduced time needed to complete international trade transactions

• Azerbaijan: from 69 days in 2006 to 38 days in 2012

• Lao PDR: from 66 days in 2006 to 26 days in 2012

• Azerbaijan and Kyrgyzstan: cut down number of documents from 18 to 8 during the same period

V. TRANSIT INFRASTRUCTURE DEVELOPMENT

• Key to promoting transit trade

• LLDCs and their development partners accord high priority

• One of the 6 priority areas in VPoA

• Development of roads, rail links, dray ports and transport/development corridors receiving priority attention

• Challenges remain: poor quality trade-transport infrastructure and various inefficiencies associated with “doing business”

QUALITY OF TRADE-TRANSPORT INFRASTRUCTURE

World Bank’s Logistics Performance Index

Efficiency of clearance process

Quality of trade and transport related infrastructure

Ease of arranging competitively priced shipments

Competence and quality of logistics

Ability to track and trace consignments

Timeliness of shipments

OVERALL LPI RANKINGS

• Among the 12 LLDCs, “best” performers are Kazakhstan and Armenia with 88 and 92 rankings, way below international standard

• Rest of the LLDCs have double digit rankings, indicating urgent need for policies and measures in reducing/eliminating the listed barriers

• Survey of logistics professionals shows similar results

• World Bank’s Doing Business Report 2016: trading across borders, a new variable

Particularly difficult for LLDCs

Rankings ranging from 21 for Bhutan to 132 for Tajikistan, 159 for Uzbekistan and 172 for Afghanistan

TRANSPORT/ECONOMIC CORRIDOR APPROACH TO INFRASTRUCTURE DEVELOPMENT

CAREC initiative (6 road corridors)

19200 km corridor roads brought to good condition by 2013

1312 km roads and highways upgraded by 2013

Extending original CAREC corridors to 29,350 km by 2020

Number of projects increased from 6 in 2001 to 166 in 2015

All these have led to significant increase in transit trade

Necessary but not sufficient: must be accompanied by harmonization of customs and border crossing procedures

TRANSPORT/ECONOMIC CORRIDOR APPROACH TO INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Euro-Asian Transport Link (EATL)

jointly launched by UNECE and UNESCAP:

Phase I (2002-2007): focused on identification of Euro-Asian road and rail projects; EG vetted the results

Phase II (2008-2013): coordinated by UNECE, identified 9 rail and road corridors to link participating countries with Europe and Asia.

Identified 311 projects with an outlay of US$215 billion

Phase III: coordinated by UNECE, aims to make the EATL links operational with a focus on mobilizing financing the projects and removing administrative and physical barriers to transit trade

NETWORK APPROACH TO ROAD AND RAIL INFRASTRUCTURE DEVELOPMENT

Asian Highway Network:

29 countries have become signatory to the agreement

11 are LLDCs

Covers 142,000 km of roads, connecting 32 countries

Kazakhstan with 12,828 km of highways tops the list

Bhutan has the lowest with 170 km of roads

Quality remains a big concern

Missing links another concern

Human costs of low quality roads: high incidence of road accidents

NETWORK APPROACH TO ROAD AND RAIL INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Trans-Asian Railway Network

The Intergovernmental Agreement on the Trans-Asian Railway Network came into existence on 11 June 2009

18 countries become party to the agreement including Lao PDR, Mongolia, Nepal, Tajikistan and Uzbekistan

Armenia, Azerbaijan and Kazakhstan have signed but not yet parties to the agreement

Railways cover vast distances from hinterland/LLDCs to nearest ports: potential for huge investment

Again, often very poor quality, missing links and different standards prevent full realization of transit trade

VI. TRADE AND TRADE FACILITATION

Recent trends in world trade

WTO revised world merchandize trade growing from 3.3 percent to 2.8 percent in 2015

Asia’s growth in merchandize trade revised from 5 percent to 3.1 percent

China has slowed down

Consequently, LLDCs are being badly hit as they depend on international and transit trade for their economic growth

TRADE AND TRADE FACILITATION (CONTINUED)

Reducing trade barriers and trade costs

Various trade/transit barriers and long distances lead to high time and trade costs in exporting/importing

Transit neighbors often have poor quality or missing infrastructure, poor logistics and high customs barriers, adding to LLDCs’ already high trade costs

One study reveals that, in trading with USA and Germany, LLDCs face trade costs that are on average significantly higher than those faced by the non-LLDCs

Additional trade costs with USA range from 3 % for Kazakhstan to 174 for Bhutan, 67 per cent being the average for the group

One of the main sources of the high trade cost is the high and increasing cost of containers to export/import their goods

VII. FINANCING INFRASTRUCTURE DEVELOPMENT

Infrastructure requirements in Asia-Pacific region

Both physical infrastructure as well as removing non-physical barriers to transit trade

AP region’s total infrastructure financing requirements @ US$8.3 trillion over ten years from 2010 to 2020

US$750 billion per year

US$710 billion per year for physical infrastructure

One ESCAP estimate puts regional infrastructure requirement at US$800 billion to US$900 billion per year with US$11 trillion over next 15 years

Transport projects to cost US$350 billion per year

New sources: e.g., Asian Infrastructure Investment Bank

FINANCING INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Infrastructure requirements in Asian LLDCs

National transport infrastructure investment requirement @ US$1.3 trillion over 10 years for 11 Asian LLDCs

Afghanistan occupies the top spot with US$14 billion, followed by Kazakhstan US$11 billion, Mongolia US$9 billion, and Lao PDR US$9 billion

Yearly requirements vary from US$287 million for Azerbaijan to US$2 billion for Mongolia

FINANCING INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Sources for mobilizing investment resources

Domestic resources

Resource rents earned from natural resources range from 37 percent to 47 percent of their GDP in Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan

Tax revenue is a traditional source: 4 LLDCs have tax/GDP in excess of 20 percent but most faltering

Need for more efforts in raising resources through this traditional route

Most LLDCs are energy rich: good potential to mobilize resource by setting aside resource rents and then invest in transit infrastructure

Tax/GDP ratio: 4 LLDCs have in excess of 20 per cent. Most faltering

FINANCING INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Foreign Direct Investment

Constitutes an important source of development finance for LLDCs but highly skewed in favor of resource rich LLDCs

FDI stocks since 2000 totaled US$129 billion for Kazakhstan, US$26 billion for Turkmenistan, US$18 billion for Azerbaijan, US$17 billion for Mongolia and US$9 billion for Uzbekistan.

Others have been less successful

FINANCING INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Official development assistance

Critical for LLDCs in building their infrastructure

Strong and net positive externalities

Sub-optimal investment in infrastructure

Government investment supplemented/complemented by ODA

Total ODA commitments to all LLDCs increased from US$11.4 billion in 2000 to US$26.1 billion in 2014.

Asian LLDCs saw a decline from US$10 billion in 2010 to US$8.7 billion in 2014

FINANCING INFRASTRUCTURE DEVELOPMENT (CONTINUED)

ODA destination and sectoral composition

Afghanistan received the most ODA among Asian LLDCs: average of US$6 billion over 4 years; exceeded 10 per cent of its GDP

Less than 1 % of GDP in other LLDCs

Although low as a share of GDP, highly significant in infrastructure development particularly for non-resource rich LLDCs

Most of the ODA went to social and economic sectors

In the latter, transport and energy, trade and industry, and tourism development featured prominently

FINANCING INFRASTRUCTURE DEVELOPMENT (CONTINUED)

Other sources

Remittances

Public-private partnerships

Regional capital markets

South-south and triangular cooperation

POLICY OPTIONS

Need for improving productive capacity with support from development partners

Need to mainstream VPoA in national development strategies with a special focus on transit cooperation, trade and trade facilitation and infrastructure development

LLDCs that have not done yet should be supported in acceding to international conventions and ratifying agreements such as WTFA

POLICY OPTIONS

LLDCs and their transit partners should strengthen cooperation in promoting regional integration through enhanced intraregional trade and greater participation in regional and sub regional agreements

Technical assistance should be provided to LLDCs in undertaking country specific studies in enhancing their transit trade

LLDCs should take measures to identify transit/trade barriers and take concrete actions to overcome those

POLICY OPTIONS

LLDCs should be supported in building the capacities of their trade and transport related institutions

LLDCs should be supported by their development partners in fully utilizing various trade facilitation measures including those based on ICT

LLDCs should have full access to all types of resources in their infrastructure development efforts

LLDCs should be supported to fully benefit from their participation in economic/transport corridors

POLICY OPTIONS

LLDCs should take concrete measures to better target the scarce resources including external resources for building their infrastructure and productive capacities

LLDCs with support from their development partners need to devise strategies to use ODA, FDI and other resources in creating deeper linkages within their economies so that they can better leverage their trade potential.

LLDCs should be supported to adopt measures to raise domestic as well as external resources for their infrastructure development with a focus on domestic as well as transit infrastructure

THANK YOU