GSM facilitating cross border trade and investment

Summary

Rationale

Since its inception in 1992, the GMS Program has made significant strides in

developing the transportation, energy, and telecommunications infrastructure of the

subregion. To complement investments in infrastructure, GMS countries have entered

into agreements to facilitate the cross-border movement of goods and peoples in the

GMS. GMS trade and investment have benefited from these initiatives and have

contributed to the opening of the GMS economies. The People's Republic of China, as

well as Cambodia's accession to the World Trade Organization are expected to bring

unprecedented opportunities for further expanding trade in the region. As the GMS

countries become gradually integrated into the regional and global trading environments,

they have recognized the need to fast track improvements in trade, initially applying

improved trade measures among countries in the subregion as well as other trading

partners.

The growing openness of the GMS economies is creating opportunities for

enterprise in the Greater Mekong to become part of larger regional production networks.

These region-wide production networks are generally on the rise in Southeast Asia from

advantages of locating in the region and integrating with ASEAN through the ASEAN

Free Trade Area and the ASEAN Investment Area or AIA. In the GMS, small and

medium enterprises (SMEs), the basic production units, could benefit from these

developments if they are made more competitive. Efforts to develop SMEs through an

enabling policy environment, access to credit and long-term finance, and training in

product development and marketing assistance are essential to helping SMEs

participate in global production networks, thus expanding production capacities and

trade.

Flagship Objectives

The flagship program on facilitating cross-border trade and investment aims to:

(i) promote the competitiveness of the subregion by facilitating cross-border trade and

investment in the GMS, (ii) implement measures to facilitate trade, initially focusing on

customs procedures, followed by the upgrading of standards framework, the

development of trade finance, integration of freight forwarding and the introduction of

electronic data interchange (EDI), (iii) overcome existing inadequacies in information on

trade and investment to stimulate business expansion in GMS border areas, and (iv)

support small and medium enterprises and make them competitive in global markets.

These objectives are closely linked with those of enhancing private sector participation

and competitiveness.

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Key Components and Priorities

The Program has the following key components:

i) Development and maintenance of a cross-border trade and investment

information system;

ii) Development of products and services to support SMEs;

iii) Trade and customs facilitation, initially focusing on single-stop and single-

window inspection and expanding to modern border management

systems;

iv) Standards framework upgrading;

v) Facilitation of cross-border movement of goods and peoples in the GMS

vi) Development and integration of freight forwarding;

vii) Industrial development;

viii) Coordination of policies and regulation on trade-related financial and

insurance services;

ix) Development of market information networks to facilitate trade linkages

(including market access mechanisms, export promotion programs,

access to international trading companies); and

x) Development of e-commerce systems to improve the integration of the

trade transaction process (between sellers, shippers, bankers and

purchasers).

The component on cross-border trade and investment information aims to

develop and maintain cross-border trade data and information, and make them

accessible to private business in a timely and useful manner. The trade information data

base will be developed in parallel with the implementation of Single-Stop Customs

Inspection (SSCI) at the eight border pilot sites in the GMS. Training and capacity

building will be provided to border area public sector personnel and a consultation

mechanism developed with the private sector in order to ensure responsiveness of the

data base to private sector requirements (exporter, freight forwarder, banker).

Products and services to support SMEs include guides for business planning and

development, organization of trade and investment missions, market encounters to

promote matching of business opportunities, assistance in formulating business

development plans, and building networks with multinational enterprises. Subregional

cooperation will entail establishing mechanisms by which SMEs can access these

products and services to expand or generate new production capacities. Networking

among SMEs, especially those located in contiguous areas, as well as with multinational

companies, is crucial in enabling these enterprises to enter into subcontracting

arrangements, especially geared towards the export market.

Consistent with the holistic approach of the 10-Year Strategy Framework, trade

facilitation will focus on complementing efforts to reduce nonphysical barriers to trade.

The Third Trade Facilitation Working Group Meeting, held on December 2 and 3, 2003 in

Manila, agreed on the following stages of trade facilitation: (i) modern border

management systems (i.e. single-stop and single window), customs transit transport

regimes, multimodal transport operations and improving the proficiency of exporters; (ii)

the development of supportive structures for GMS exporters to meet international

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purchase orders (which includes the development of a quality standards compliance

program, trade finance and insurance schemes); (iii) the development of market

information networks to facilitate trade linkages (including market access mechanisms,

export promotion programs, access to international trading companies); and (iv) the

development of e-commerce systems to improve the integration of the trade transaction

process (between sellers, shippers, bankers and purchasers).

The first phase of cooperation in trade facilitation covers modern border

management systems, i.e. single-stop and single window customs inspection, the

harmonization of cross-border customs procedures, the development of legal

mechanisms to facilitate the implementation of common control areas at the initially at

the cross-border pilot areas of Mukdahan in Thailand and Savannakhet in Lao PDR,

Dan Savanh in Lao PDR, and Lao Bao in Viet Nam, Poipet in Cambodia and

Aranyaprathet in Thailand, and Moc Bai in Cambodia and Bavet in Viet Nam. Pilot sites

are strategically located along the economic corridors.

The Framework Agreement to Facilitate the Cross Border Movement of Goods

and Peoples in the GMS has been signed and ratified by all GMS countries (Cambodia,

the PRC, the Lao PDR, Myanmar, Thailand, Vietnam). The purpose of the Agreement is

to promote regional trade and transport in the GMS by reducing the friction in crossborder

transport by road. The Agreement has the objectives of: (i) facilitating crossborder

transport of goods and people; (ii) simplifying and harmonizing institutional

procedures relating to cross-border transport; and (iii) promoting multimodal transport.

ADB has developed in the Agreement a general set of principles and procedures for

inspection formalities (Part II and Annex 4) and for entry and exit of people (Part III and

Annex 5 with Protocol 1), goods (Part IV and Annexes 1, 3 and 6) and vehicles (Part V

and Annex 2, 7 and 8). - Ten out of the 20 annexes and protocols that will provide the

implementation arrangements for the GMS Agreement have been finalized, and Stage 1

annexes was signed in April 2004. The remaining annexes and protocols will be

negotiated in 2004 and 2005. By the end of 2005, all the annexes and protocols are

expected to have been finalized and signed. Full implementation of the Agreement and

its annexes and protocols is expected by 2006/2007.

Industrial promotion in the context of the GMS Program will focus on developing

cross-border production facilities, especially those located along economic corridors.

The area offers considerable potential for trade and tourism development, agricultural

processing, and industrial development. Processing zones along the North-South

Corridor covering the districts of Mae Sai, Chiang Saen, and Chang Kong in Thailand

have initially been identified and will be the subject of feasibility studies.

The Third Trade Facilitation Working Group Meeting (TFWG-3) agreed on the

need to study the constraints in the supply chain of the trade logistics system in the GMS

in order to develop a trade facilitation strategy for individual countries. A study planned

for 2004 will review the constraints in the following areas: (i) market access and

business linkages; (ii) access to trade finance for export production; (iii) trade documents

and procedures; (iv) modern border management; (v) international freight forwarding

development; (vi) intermodal integration. The GMS governments as well as the private

sector have highlighted the critical role of the financial sector in promoting cross-border

trade and investment. The need for a reliable payments system and harmonized banking

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regulations, as well as streamlined trade documentation procedures are issues that have

been raised by government officials in the TFWG-3. A study on these and other

impediments to trade-finance is planned for 2004 to help identify the magnitude of the

problem and the appropriate response through subregional cooperation.

Sequencing Priorities

Sequencing projects and activities implies their relative priority. In trade

facilitation, two high priority activities are approval and implementation of the Framework

Agreement on Cross-Border Facilitation targeted for 2005, and pilot-testing the concept

of single-stop customs inspection, a requisite step before the scheme can be applied

region-wide. Transparency of customs procedures crucial to customs operations could

be implemented immediately after the pilot-tests, for region-wide application of customs

facilitation measures to proceed effectively. As regards investment promotion, support

services and systems for helping SMEs become more competitive are high priority.

Activities listed for these three priorities in the development matrix are currently

supported by ADB and the Mekong Project Development Fund Facility.

Financing

Seventeen projects and activities have been identified to support the seven

components described above, of which 12 have estimated costs. It is not appropriate

however, to add up these cost estimates since in a number of cases, several activities

are closely linked and are funded under one project. Moreover, some of the projects

listed are preparatory in nature and do not reflect the cost to implement full-scale

activities.

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