Trade and transport facilitation (ESCAP):

Needs and Priorities for Trade Facilitation in the UNESCAP region

UNESCAP Background paper

8th Consultative Meeting of 

Executive Heads of Sub-Regional Organizations

Background:

         

            Countries in the ESCAP region are aware that globalization – the removal of barriers to free trade and the closer integration of national economies can lead to trade related economic growth. They also recognize that trade liberalization and market access must go hand in hand with access to market through the removal of non-tariff barriers and non- physical bottlenecks in trade and transport. In that context trade facilitation has emerged as one of the new issues to be discussed for inclusion in the new round of multilateral trade negotiations during the 5th WTO ministerial meeting to be held in Cancun this year. It has also become increasingly a major issue in bilateral and/or regional trade agreements.

           

            The objective of trade facilitation is to further reduce international trade transactions costs through harmonization, standardization and simplification of international trade procedures and documentation. Past trade agreements have focused on reducing tariff barriers or quantitative non-tariff barriers. However, the reductions in these traditional barriers to trade has led many countries to shift attention to less-obvious non-tariff barriers, such as unnecessary or inefficient trade procedures and documentation.

          

Transport Facilitation seeks to reduce the delivered cost of exports and imports, free trade routes from delays and uncertainties, provide alternate trade, reduce loss, damage and deterioration enroute, and open the way for export expansion. At a more specific level transport facilitation seeks to harmonize the legal framework relating to cross border and transit transport

 

Rationale for Trade Facilitation:

          

            The link between trade and development is now well established. Many of the countries in the ESCAP region owe a large part of their economic growth to trade development. In order for international trade to continue to support the development of the region, countries need to enhance regional trade competitiveness. Trade facilitation, through its contribution to a reduction in international trade transaction costs, may be a central element of national and regional trade competitiveness strategies.

 

            Aside from its rather obvious contribution to trade competitiveness and export growth, trade facilitation efforts can also lead to increased foreign direct investment (FDI). A significant share of FDI comes in the form of production facilities designed to produce goods to be exported to other countries. Regional trade facilitation efforts can therefore attract more FDI to small and mid-size economies who could now advertise themselves as gateways to a large and growing regional market rather than just a small domestic market.

 

Another benefit of trade facilitation is that it can increase participation of SMEs in international trade. SMEs often lack the resources to deal with complex international trade procedures. Regional trade facilitation can also be particularly beneficial to the least developed and developing countries who have negotiated preferential access to the EU or other attractive export markets. Indeed, many of these preferential arrangements have complex rules-of-origin requirements that generally allow sourcing of material from other specific developing or LDC countries in a region.

 

Impediments to trade facilitation:

            

            ESCAP has conducted a number of capacity building workshops on trade facilitation in recent years. Most member countries recognize the importance and benefits of trade facilitation, but point out a number of issues that make implementation of trade facilitation measures relatively difficult.

 

First among these, is the perceived potential loss of revenue from customs duty. Trade facilitation programs, which often require major changes in the operations of customs, increase the perceived uncertainty associated with Customs revenue. However, experience has shown that many trade facilitation measures, such as post-audit systems (whereby customs facilitate entry of goods but can conduct audit post entry that result in heavy fines for violators), can in fact increase that revenue.

 

Another key issue it that trade facilitation may require significant institutional change: new institutions may need to be created, which often require close cooperation between many different ministries and the private sector. Existing institutions, such as the Department of Customs or the Ministry of Trade, may need to be restructured, as some of the staff activities may need to change jobs. A third possible impediment to trade facilitation, as argued by participant to ESCAP workshops on trade facilitation, is the lack of government resources necessary to automate and computerize trade procedures. While this is an important issue, automation and computerization may be considered the last step of a trade facilitation programme. Many countries in the region have not yet implemented the first steps of a typical trade facilitation program, including creation of a national trade and transport facilitation body (or a trade procedures committee), and harmonization and standardization of trade documents based on the UN layout key.

 

Status of regional trade facilitation in the UNESCAP region:

   

            The ESCAP region is very diverse in many ways, including the degree to which ESCAP members have implemented trade facilitation measures. The South East Asian and East Asian economies appear  to be farthest along the path of regional trade facilitation, thanks to the ASEAN, AFTA, and also APEC and the GMS initiatives. Most Governments are convinced of the need for further regional integration, as shown by the large number of regional trade initiatives and proposals among East Asian member countries. Cross-border facilitation initiatives supported by ADB and UNESCAP are helping in lowering regional trade transaction costs.

 

The pace of progress in South Asia in regional trade facilitation, is rather slow due to many unresolved issues among member countries. The Central Asian member countries have also made slow progress in trade facilitation, because of a general lack of regional trade infrastructure (a prerequisite to trade facilitation) and political and historical difficulty for countries in the region to cooperate with each other.

 

 

UNESCAP trade facilitation initiatives:

 

            Trade facilitation is one of the priority areas of focus of ESCAP Trade and Investment Division. Past activities have included technical assistance to selected south and Southeast Asian countries on alignment of trade documents based on the widely-accepted United national Layout Key (UNLK) standard. More recent activities have focused on awareness raising and institutional capacity building projects in the Greater Mekong Subregion, promoting creation of trade facilitation institutions characterized by both public and private sector participation. These activities culminated in the publication of ESCAP Trade Facilitation Handbook earlier this year.

 

            On-going activities are focused on providing advisory services to countries of Central Asia, the Caucasus and Mongolia on trade facilitation and the development of electronic commerce and payment systems. National workshops on trade finance infrastructure development are also being organized, as the availability of effective trade financing instruments and institutions is seen as a key issue for trade facilitation in the region.

 

            ESCAP trade facilitation activities also have constantly focused on building members’ capacity in developing a conducive electronic commerce environment. The UNCTAD-ESCAP Regional Conference on E-commerce Strategy for Development held in Bangkok in 2002, is expected to be followed by a number of capacity building activities focused on SME development and legal and regulatory e-commerce issues.

 

            ESCAP trade facilitation activities have also been accompanied by a number of transport facilitation activities, with a particular focus on transit transport and landlocked member countries...

 

           UNESCAP’s initiatives in transport facilitation have included the following;

Harmonization of legal regimes relating to land transport through the implementation of resolution 48/11,

Facilitation of fast turn-around time in port through simplification of documents and implementation of the FAL connection,

Assisting governments with development of freight forwarding and multimodal transport, including the establishment and strengthening of national freight forwarders associations,

Capacity building in freights forwarding, multimodal transport and logistics including the training of trainers.

Future initiatives of UNESCAP:

      

            Trade and transport issues are inextricably linked and it is not possible to draw a clear line between trade facilitation and transport facilitation. With this in mind, the ESCAP secretariat has adopted a multi- disciplinary approach in developing and implementing the work programme mandated by regional member countries.

  

            The trade and transport divisions in the ESCAP secretariat are thus working together on subjects relating to the harmonization of legal regimes, cross border facilitation, transit transport and capacity building in trade and transport facilitation.

    

            The ESCAP work programme relating to transport facilitation is being developed and implemented in accordance with the New Delhi Action Plan phase II adopted at the Ministerial Conference on Infrastructure held from 12 to 17 November 2001 in Seoul, Republic of Korea. The work progress also takes into account resolution S6/180 of 21 December 2001 and resolution S7/242 of 20 December 2002 on the particular needs and problems of landlocked developing countries.

     

            For transit transport issues to be addressed effectively a comprehensive approach is required, involving relevant government ministries, agencies and the private sector, yet many landlocked countries and their transit neighbours have not established and maintained the effectiveness of facilitation boards or committees.  As a result, the essential co-ordination and cooperation required for effective action has been constrained.  

       

            The Trade and Investment Division and the Transport and Tourism Division of the ESCAP secretariat have thus developed two methodologies; firstly, a cost-time model to identify, isolate, and deal with procedural, institutional, and regulatory bottlenecks on specific trade and transport corridors, and secondly, a step by step methodology to assess and monitor the status and progress of trade and transport facilitation. It is envisaged that the two divisions will work together to implement a multilayer project that would assist developing ESCAP member countries to establish and strengthen trade and transport facilitation committees to undertake corridor studies leading to improve trade and transport facilitation measures.

 

Regional Priorities and Recommendations:

 

Trade facilitation is a broad and complex topic. In fact, there is no agreement on the definition of trade facilitation. Nonetheless, ESCAP trade facilitation activities are based on the following regional priorities in this area:

 

            1. Development of trade facilitation related institutions in the region: As the absence of trade facilitation institutions at the national level, make any regional cooperation efforts very difficult, regional Organizations should encourage development of national trade facilitation institution to make the regional efforts more effective.

 

            2. Adoption/implementation of standard tools and practices for trade facilitation: While trade facilitation is increasingly taking centre stage in current trade negotiations, it is not a new issue. Regional Organizations in Asia have an important role to play in encouraging adoption of widely accepted international trade standards, tools and practices, including relevant trade and transport facilitation conventions (e.g., the Revised Kyoto Convention).

 

            3. Development and harmonization of e-commerce laws and regulations: Systematic use of e-commerce and paperless trading procedures, as in Singapore or other “trade hub” countries, has been identified as an effective way to facilitate trade and reduce international transaction costs. However, the development of electronic trade requires a sound legal and regulatory framework that will allow effective protection and control of traders. Regional Organizations should work together in promoting and building capacity for the development of harmonized e-commerce legal frameworks in the region.

 

            4. Development of trade finance infrastructure: The availability and type of trade financing is often an important factor in whether a potential trade transaction will succeed or fail, particularly for the benefit of  SMEs. Regional Organizations may work toward the development of forums where trade finance infrastructure development may be discussed.

 

            5. Formalization of the operation and facilitation of transit transport arrangements:  There is a need to ensure a consistent, and to the extent possible, harmonized legal regime for transit transport across the region to avoid overlapping and sometimes contradictory obligations.

 

            6. Simplification and harmonization of transit transport documentation: With the potential growth in transit transport through landlocked countries, both landlocked and neighbouring transit countries can benefit from actions taken to increase the efficiency of transit transport.  As road transport takes on an increasingly important role in providing transit transport services, there is need to consider equitable approaches to the charging of transit/road maintenance fees.

 

            7. Development of transport and ICT infrastructure: An integrated approach of transport and ICT is needed to balance competing priorities in the development of road rail and other infrastructure as well as to select the most effective route on a commercial basis.  The role of the private sector in providing and managing infrastructure facilities along transit corridors could be enhanced in this area.

 

Conclusion:

 

UNESCAP is keenly aware of the need for our regional and sub-regional Organizations to work closer together. One idea for other regional Organizations to consider is to collaborate with UNESCAP on the organization of a Regional Asia-Pacific conference or expert group meeting where regional Organizations in each UNESCAP sub-regions would share their current experience and best practices in regional integration and trade facilitation.

 

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