Status and Challenges of Trade Facilitation and Supply Chain Efficiency Improvements in Malaysia: Economic Corridors for Trade Facilitation 1

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1 Release as received Status and Challenges of Trade Facilitation and Supply Chain Efficiency Improvements in Malaysia: Economic Corridors for Trade Facilitation 1 by Marianne Wong Mee Wan Senior Assistant Director of Customs The Royal Malaysian Customs Department prepared for Asia-Pacific Trade Facilitation Forum 2011: Trade Facilitation beyond Borders: International Supply Chain Efficiency This opinions, figures and estimates set forth in this publication are the responsibility of the author and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. 1

2 1. Introduction 1.1 Cross border economic corridors are meant to attract investment and generate economic activities along a region. 1.2 Amongst the major sub-regional initiatives in the ASEAN region through which several economic corridors are implemented and which involve Malaysia are as follows: The Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) which has identified 5 economic corridors namely: i. Extended Songkla-Penang-Medan Economic Corridor; ii. iii. iv. the Straits of Melaka Economic Corridor; the Banda Acheh-Medan-Pekanbaru-Palembang Economic Corridor; the Melaka-Dumai Economic Corridor; and v. the Ranong-Phuket-Bandah-Acheh Economic Corridor The Brunei Darussalam, Indonesia, Malaysia, and the Philippines-East ASEAN Growth Area (BIMP-EAGA) The Nanning-Singapore Economic Corridor which is an initiative in Southeast Asia and would connect China (starts from Nanning), Vietnam, Laos, Cambodia, Thailand, Malaysia and Singapore with modern road and rail links, and cross-border economic initiatives. The Corridor is planned to better connect neighbouring economies, and encourage development across the ASEAN-China Free Trade Area The ASEAN Customs Transit System (ACTS) which will be implemented under the provision of Protocol 7 of the ASEAN Framework Agreement for Goods In-Transit (AFAFGT) to facilitate flow of goods across Member States of ASEAN within the ASEAN Economic Community. 2. Institutional Issues 2.1 The Asian Strategy and Leadership Institute of Malaysia is leading the Nanning- Singapore Economic Corridor development in Malaysia with the support from the Ministry of Transport and the Ministry of International Trade and Industries as key players. 2.2 Three (the Protocol 1, Protocol 2 and Protocol 7) of the nine protocols in AFAFGT are legal instruments for the implementation of goods In-Transit within ASEAN known as the ASEAN Customs Transit System (ACTS). In Malaysia, Protocol 2 on the Designation of Frontier Posts and Protocol 7 on the procedure and technical aspect of ACTS, are under the purview of the Customs Administration who work closely with the Ministry of Transport to ensure that Protocol 2 is synchronized with Protocol 1 which governs the designation of Transit Transport Routes and Facilities. 2

3 2.3 The Lead Agency for the overall implementation of trade facilitation initiatives in Malaysia is the Ministry of International Trade and Industries. 2.4 Coordination across agencies involved is indeed one of the main issues encountered in Malaysia for the implementation of national/regional trade facilitation measures. The current practice is through regular and/or scheduled meetings among the agencies involved, who would try to maintain their respective group of officers/experts. 3. Status and Challenges of Implementation 3.1 An economic corridor is established with infrastructure as a starting point, but to bring to life an economic corridor requires the concerted efforts of diverse players such as the government, business and civil society. When a corridor stretches across national boundaries, particularly when the countries to be integrated differ in level of economic development, greater challenge is encountered in the implementation of the corridor. Thus, in ASEAN where Member States differ in level of economic development, implementation of economic corridors is indeed not an easy task. 3.2 Though ASEAN governments have voiced their support for the Nanning-Singapore Economic Corridor project, there is little substantial progress made by the ASEAN countries other than the Guangxi government. 3.3 The IMT-GT corridors do not seem to be efficient as much time is taken during loading/unloading, administrative and customs formalities. One of the main characteristics of the IMT-GT corridors are that short sea shipping is also involved and thus require specialized equipment and facilities. 3.4 One of the core elements to realize an ASEAN single market and production base in the ASEAN economic Community is free flow of goods within ASEAN. In this regard, ASEAN is placing great effort and focus on the ACTS to kick-start a pilot project in due course, involving Thailand, Malaysia and Singapore. 3.5 In the current environment of ASEAN whereby individual Member State has its own customs regime and legislation as well as different level of computerization, various challenges are bound to exist in the implementation of the ACTS as well as of other economic corridors. Amongst the challenges are: i. Implementation strategy plan needs to take into consideration Member States level of readiness in terms of IT infrastructure and computerization of customs procedures; ii. Despite having a set of agreed criteria by all Member States, trust among ASEAN Member States is a crucial factor for an Authorized Transit Trader which is approved and registered by the departure country to be recognized by the transit country/countries and destination country/countries; iii. Privileged facilities for Authorized Transit Trader need to be identified and agreed by all ASEAN Member States; 3

4 iv. Determination, registration and monitoring of Authorized Transit Trader and security are undertaken by the departure country despite the fact that the transit country/countries are subject to higher risk; v. Procedure and mechanism for customs debt recovery process need to be established and agreed by all ASEAN Member States; vi. A business process agreed by all ASEAN Members has to be established to determine information requirement (including source, usage and users of information) before a single transit declaration document can be developed using international standards. The business process has to cater for computerized and non-computerized environment as well as a combination the two scenarios; vii. Goods in transit which is sensitive and/or prohibited in one ASEAN Member State may not be treated the same in another; viii. The Frontier Posts need to be negotiated between neighbouring countries concerned. 3.6 Provisions of Protocol 7 have been formulated to address most areas of concern of ASEAN Member States. Detail guidelines and procedures will be described in Annexes and Appendices to the Protocol. 3.7 The Protocol 7 with its Technical Appendix is expected to be signed by the end of There is still outstanding issue to be resolved with regard to the Protocol The implementation of ACTS requires a secured communication network connecting all ASAN Member States for the exchange of electronic messages/documents. 3.9 Financial constraint remains an issue and implementation of the pilot project of the ACTS is very much dependent on external funding. 4. Lessons Learned 4.1 Domestic network can serve as a starting point, but real success depends on networks becoming integrated across borders. 4.2 Planning and preparation costs are almost always high, Up-front external financial and other support are required for some projects to be successful. 4.3 Differences exist in financial resources that countries can bring forward to share cost burden for administration and joint undertakings. 4.4 Trust could be lacking and view/recommendation from independent experts tend to be more acceptable by the countries concerned. 4.5 Barriers exist to trade and doing business on a regional scale and bringing these barriers down will require a framework for negotiating and implementing agreements. 4

5 5. The Way Forward 5.1 Government agencies involved in cross-border infrastructure projects have to play a bigger role including managing the infrastructure and providing the legal and regulatory framework for economic engagement. 5.2 Transport rules and regulations should be relaxed and harmonized in order to promote efficient cross-border logistics and transportation as well as to reduce cost. 5.3 There must be public-private consultations to ensure that the economic environment is supportive of business and that infrastructure projects meet the user requirements. 5.4 Engage discussion at the ministerial and senior official levels to enhance smoother border crossing. 5.5 Market the region to the new investors through various awareness and out-reach programs. 5.6 Organizations/Bodies such as ESCAP, ADB and UNNExT could help in the areas mentioned in paragraph 5.3, 5.4 and 5.5 to ensure economic corridors do contribute effectively to trade facilitation and development.. 6. Conclusion Trade and transport facilitation play a very important role in supporting economic growth within the region. The various stakeholders involved in integration - the governments, business/private sectors and civil society have to work together for the successful implementation of economic corridors in the region