Trade Facilitation in South Asia: a reflection of selected areas

7 Th South Asia Economic Summit New Delhi 5-7 November 2014 Trade Facilitation in South Asia: a reflection of selected areas Tengfei Wang Economic Affairs Officer Trade Facilitation Unit Trade and Investment Division United Nations Economic and Social Commission for Asia and the Pacific wangt@un.org

Outline Stocktaking Trade Costs Trade Process and Procedures Implementation of trade facilitation and paperless measures Transit issue Way Forward Sustainable national trade and transport facilitation monitoring mechanism (TTFMM) Take the advantage of available trade facilitation tools

ESCAP-World Bank International Trade Cost Database ESCAP started developing a bilateral trade cost database in 2010 in an effort to increase understanding of the cost of trading between countries in Asia and the Pacific and beyond. In late 2011, United Nations ESCAP and the World Bank (WB) joined hands to develop a common standard methodology for calculating comprehensive international trade costs. The current version of database includes data from 1995 to 2013 for over 180 countries

Key findings from the ESCAP-World Bank Trade Costs database 1. All-inclusive trade costs are often much higher than tariff rates 2. Trade costs in developing countries much higher than in developed countries 3. Trade costs in agriculture much higher than trade costs in manufacturing in all income groups 4. Very different levels of trade costs in different developing regions 5. Often cheaper for developing countries to trade with faraway developed countries than to trade with neighbors

Intra- and Inter-regional trade costs of Asia and the Pacific subregions* Period ASEAN-4 East Asia-3 North and Central Asia Pacific Islands Developing Economies SAARC-4 AUS-NZL EU-3 USA ASEAN-4 2007-2012 76.46% 75.03% 389.38% 227.76% 125.31% 99.32% 109.04% 83.86% % change 7.39% 5.66% 5.19% 3.78% 0.04% 3.02% 5.13% 11.36% East Asia-3 2007-2012 75.03% 51.10% 217.62% 238.15% 124.35% 90.58% 84.35% 62.17% % change 5.66% -7.08% -9.60% -3.28% -0.50% -2.17% -5.27% -1.79% North and Central Asia 2007-2012 389.38% 217.62% 141.77% 303.96% 271.61% 325.92% 164.01% 189.23% % change 5.19% -9.60% 1.91% 23.53% -10.84% -6.37% -4.19% 3.07% Pacific Islands Developing Economies 2007-2012 227.76% 238.15% 303.96% 243.84% 314.92% 118.56% 319.96% 207.28% % change 3.78% -3.28% 23.53% 119.89% 4.99% 7.33% 31.57% -9.09% SAARC-4 2007-2012 125.31% 124.35% 271.61% 314.92% 106.07% 146.58% 114.30% 107.15% % change 0.04% -0.50% -10.84% 4.99% 1.09% 2.43% 3.83% 4.36% AUS-NZL 2007-2012 99.32% 90.58% 325.92% 118.56% 146.58% 54.52% 109.32% 99.28% % change 3.02% -2.17% -6.37% 7.33% 2.43% 3.44% 0.63% 5.05% EU-3 2007-2012 109.04% 84.35% 164.01% 319.96% 114.30% 109.32% 43.55% 65.85% % change 5.13% -5.27% -4.19% 31.57% 3.83% 0.63% -3.59% -0.67% USA 2007-2012 83.86% 62.17% 189.23% 207.28% 107.15% 99.28% 65.85% % change 11.36% -1.79% 3.07% -9.09% 4.36% 5.05% -0.67% *Based on ESCAP-World Bank trade cost database, excluding tariff costs. Percentage changes in trade cost between 2001-2004 and 2007-2010 are in parentheses. SAARC-4: Bangladesh, India, Pakistan and Sri Lanka

Bilateral Trade Costs: Selected Economies with China and USA (2006-2012) China Korea, Rep. Japan Malaysia United States Germany Thailand France Russian Federation United Kingdom United States China Brazil Philippines India South Africa Indonesia Bangladesh Sri Lanka 0 20 40 60 80 100 120 140 160

Bali, 7 December 2013

BPA: the first step to be taken before introducing other trade facilitation measures 5 6 e-single Window and paperless trading Cross Border Data Exchange 4 National Data Harmonization 3 Document Simplification & Standardization 2 Process Simplification and Harmonization 1 Business Process Analysis for Trade Facilitation

An Example of Use Case Diagram 2) Ship 2.1) Have product sampled and examined 2.2) Arrange transport 2.3) Prepare export permit Authorized Private Inspector Insurance Company Inland Haulage Importer Importer s Bank 1) Buy 3) Pay Exporter or Representative 2.4) Apply for cargo insurance 2.5) Prepare and submit customs declaration 2.6) Stuff container and transfer to port of departure Customs Bank Customs Department of Fisheries of (D0F) Carrier (Shipping Line) Exporter s Bank 2.7) Clear goods through customs Port Authority 2.8) Handle Container and stow it on vessel 2.9) Prepare documents required by importers Department of Foreign Trade Department of Consular Affairs The Central Islamic Committee Office Thailand

Activity Diagram

A Time-Procedure Chart of Trade Process Day 35 30 4 days 25 20 3 days 1 day 4 1 day 5 1 day 6 7 8 1 day 9 3 days 10 11 15 10 5 0 2 days 1 14 days 2 3 1. Buy - Conclude sales contract and trade terms 2. Have product sampled and technically examined 3. Arrange transport 4. Prepare export permit 5. Apply for cargo insurance 6. Prepare and submit customs declaration 7. Stuff container and transfer it to port of departure 8. Clear goods through customs 9. Handle container at terminal and stow it on vessel 10. Prepare documents required by importer as listed in L/C 11. Pay - Claim payment of goods 1 2 3 4 5 6 7 8 9 10 11 Process

Trade Facilitation Analysis Database (TPAD) A database of business process analyses of country and productspecific import and export procedures conducted in Asia- Pacific developing countries. Over 50 import and export process cases are included, based on studies conducted since 2009 by international organizations such as ESCAP, ECE, ADB and their member states.

Key functions of TPAD Data analysis: enables the users to compare trade process and procedures across countries TPAD is also a tool to assist researchers to standardize the BPA studies in the future

Corridors covered in South Asia Corridor Countries Linked Distance, Total Distance, Transit Products Traded Corridor 1 (Nepal corridor) Kakarvitta-Panitanki-Fulbari- Banglabandha Corridor 2 (Bhutan corridor) Phuentsholing-Jaigaon-Hasimara- Changrabandha-Burimari Nepal India - Bangladesh Bhutan India - Bangladesh 1152 km # 54 km Lentil LAA* 630 km^ 115 km Orange Fruit juice Corridor 3 (Nepal corridor) Kathmandu-Birgunj-Raxaul - Kolkata Nepal - India 1287 km $ 1047 km Carpet CSO** *Lead acid accumulator **Crude soya bean oil #Kathmandu to Dhaka. ^Thimpu to Dhaka $Kathmandu to Kolkata

Key findings and recommendations through trade process analysis General findings and recommendations (e.g., ) Trade facilitation varies across procedures, countries, products and corridors No one-fits-all solution for the entire subregion. Simplification of procedures and processes is crucial for facilitation of trade. More specific findings and recommendations (e.g.,) 18 Lack of border infrastructure at Phuentsholling Development of a mini dry port at Phuentsholing Ppening of a second international gate at Phuentsholing Construction of a bypass road from Phuentsholing to Pasakha Provision of equipment for RRCO & opening of a new road from Bolan Chaupatti (India) to Pasakha along with a land customs station Trade creation and trade capacity Political differences Lack of cooperation from one of the major parties involved Problems of coordination among stakeholders More information is available at the joint ADB-ESCAP Publication Business Process Analysis (BPA) report 2013 on selected products and transport corridors of South Asia subregional economic cooperation (SASEC)

Survey on trade facilitation and paperless trade implementation Overarching aim of the survey: to provide countries with useful policy reference and cursor on implementation of trade facilitation measures, and ultimately, to support evidence-based policy making. UNESCAP has been conducting the survey since 2012 The Survey approach has been expanded from ESCAP region to global coverage: in 2014, all four other United Nations Regional Commissions including ECA, ECE, ECLAC and ESCWA, in collaboration with OECD and Oceania Customs Organisation (OCO), are conducting the same Survey under the overall coordination of ESCAP.

Key outcomes of the Survey A annual report highlighting the key issues on trade facilitation in the region. A database including key indicators on implementation of trade facilitation measures Publication of existing import-export regulations on the Internet Stakeholder consultation on new draft regulations (prior to their finalization) Advance publication/ notification of new regulation before their implementation Separation of release from final determination of customs duties, taxes, fees and charges Risk management Post-clearance audit Independent appeal mechanism Advance ruling (on tariff classification) Expedited shipments Pre-arrival processing National single window Establishment and publication of average release times Trade facilitation measures for authorized operators 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Fully implemented Partially implemented Not implemented

Implementation of trade facilitation measures 100 90 80 70 60 50 40 30 20 10 0 TFA related measures Paperless Trade and Single Window Cross border paperless Score

Subregional performance in implementing trade facilitation measures Note: indicates the average score of each subregion. Numbers in parentheses represent relative standard deviation. Source: Wang and Duval, 2014

Costs Trade costs vs. implementing trade facilitation measures 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 0 10 20 30 40 50 60 70 80 90 100 Implemenetaton of Trade Facilitation Measures Score Source: Wang and Duval, 2014

Effect of trade facilitation implementation on direct trade costs for moving containerised cargoes per annum (US$ m) India Pakistan Bangladesh Afghanistan Sri Lanka Nepal Maldives Bhutan -2500-2000 -1500-1000 -500 0 Full Implementation Partial Implementation

Transit Issue Snow et al. (2003), in their case studies of 30 LLDCs, conclude that Bhutan, thanks to its special relationship with India, enjoys the best transit procedures. Nepal has a generally positive relationship with India. Transit to and from Nepal is subject not only to the Indian central government regulations and formalities but also those that are enforced by local governments (Chakra Infrastructure Consultants (CIC). 2001). The Afghanistan-Pakistan transit agreement has the highest legal potential among other bilateral agreements reviewed, implementation has been very challenging. (Cousin and Yann, 2014))

Why is sustainable trade facilitation monitoring mechanism important and essential? Available international cross-country trade and transport indicators are useful but not sufficiently detailed or reliable Many trade facilitation studies often done in developing countries, but One-off / Ad hoc assessment studies; Overlapping and not coordinated; No uniform method & approach Lack of ownership of results, with no follow-up Need for an integrated and sustainable mechanism: (1) To provide adequate data & information to support decision making and to monitor implementation and impact of these decisions on trade facilitation measures (2) To reduce unnecessary duplication of efforts & ensure recommendations are implemented

Integrated and Sustainable Trade & Transport Facilitation Monitoring Mechanism (TTFMM) Baseline trade and transport facilitation assessment study Formulate, update and prioritize recommendations for advancing trade facilitation Trade facilitation reform Implementation Measure, monitor and assess progress in trade facilitation Integrated Methodology: BPA+ National Human Capacity Institutional Arrangement

Support from development partners Institutional arrangement (including national human resources) National Trade and Transport Facilitation Committee (NTTFC) TTFMM implementation team leader (A senior member of NTTFC or a person appointed by NTTFC) TTFMM implementation coordinator (Secretariat of NTTFC) BPA data collection & TTFMM analysis, database and report (a national research institute) TRS data collection (Customs officers) TCD data collection (freight forwarders and drivers)

TTFMM Key Outputs TTFMM Database, including: Description, activity diagram and related rules/regulations for each trade & transport procedure for selected products along selected corridors Time, Cost, No. of documents for each process/procedure Set of Indicators (dashboard) Include Time, Cost, No. of documents for each process/procedure Average speed along the corridor Average border crossing time An annual report Presenting relevant summary information from the database to the public, as decided by the NTTFC, as well as an analysis and recommendations 30

Launch of TTFMM The publication of TTFMM was launched by UNESCAP and ADB at the Asia-Pacific Trade Facilitation Forum held on 24-25 September 2014. 31

TTFMM implementation in Bangladesh, Bhutan and Nepal (with support of ADB, ESCAP and WCO)

Take advantage of available trade facilitation tools

Summary and Recommendations Summary Trade costs are still relatively high in South Asia Countries in South Asia are at different stages of implementing trade facilitation measures Recommendations Monitoring of trade facilitation in a sustainable manner is essential and possible for all countries - it does not need to be expensive Monitoring tools are available - countries should take advantage of it. Efforts by international organizations and development partners needed to be coordinated to assist countries to establish trade facilitation monitoring mechanism - countries will be in the driving seat in the long term.

Further reading Chakra Infrastructure Consultants (CIC). 2001. Review of Progress in the Development of Transit Transport Systems in the India, Nepal and Bhutan Subregion. Kharel, P. 2009, Case for South Asian Transit Arrangement, South Asia Watch on Trade, Economics & Environment (SAWTEE) Briefing paper, No. 11. ESCAP and ADB, 2013, Towards a National Integrated and Sustainable Trade and Transport Facilitation Monitoring Mechanism: BPA+. Wang, T and Y. Duval (2013), Trade Facilitation and Paperless Trade in Asia: Results from an Expert Survey, ESCAP Trade and Investment Division, TID Working Paper No. 01/13, Bangkok. Cousin, L. and Y. Duval, 2014, Trade facilitation potential of Asian transit agreements in the context of the WTO negotiations, ESCAP Trade and Investment Division, TID Working Paper NO. 01/14, 27 January 2014. Bangkok. Wang, T and Y. Duval (2014), Trade Facilitation and Paperless Trade Implementation: 2013/14 Asia-Pacific Update, ESCAP Trade and Investment Division, TID Working Paper No. 02/14, 27 June 2014. Bangkok.