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Draft Report of the Trade Facilitation Working Group for the Greater Mekong Subregion

Introduction

The concept of a working group to address issues related to trade was first agreed to by the GMS countries at the 3rd Ministerial Conference in Hanoi, April 1994. The next significant step was agreement on the terms of reference for the Trade Facilitation Working Group (TFWG) at the 7th Ministerial Conference in Manila, 1997. A related project initiated with technical assistance from ADB, and in collaboration with ESCAP, called: "The Mitigation of Non-Physical Barriers to Cross-Border Movement of Goods and People", initiated in 1995, is also now in progress.

At the 8th Ministerial Conference (October 1998, Manila) there was an endorsement of the establishment of the Trade Facilitation Working Group as a priority, including accelerating the Inception Meeting of the Working Group, to be held if possible prior to the 9th Ministerial Conference.

The rationale for a focus on trade facilitation includes: (a) the need to establish quickly an attractive trade environment in the GMS, especially to address the challenges arising from the economic crisis; (b) the need to ensure that the investment in physical infrastructure, e.g. transportation, has clear economic payoffs; and (c) the attractiveness of 'soft' infrastructure initiatives such as trade facilitation as 'high impact/low cost' in times of significant budget constraints.

An informal "Preparatory Workshop for the Inception Meeting of the Trade Facilitation Working Group" was held 17-18 March in Manila to identify, on a very preliminary and non-binding basis, possible areas of interest to the participating countries that may be considered for inclusion in the work programme of the Trade Facilitation Working Group. The areas identified in the Workshop were a first step in a process of identifying a jointly acceptable set of priority issues that will define the work programme of the Working Group. A draft report of the TFWG, based on the discussions at the preliminary meeting, was circulated to the GMS countries for their review and comments. ADB and ESCAP subsequently undertook joint Country Consultations with each GMS country to further clarify the potential areas of co-operation on trade, leading to the preparation of this report.

The GMS countries have taken important steps toward trade liberalization unilaterally or collectively in the context of their membership in one or more regional fora such as ASEAN and APEC. The GMS countries have also carried out other related reforms such as removal of non-tariff barriers through privatization, deregulation, and elimination of administrative discretion in matters of international trade. In this sense the private sector has become an important stakeholder in the overall development of the GMS countries.

The enforcement of these policies or the timetable of their implementation may vary across countries and across exit points within a country. What is important is that the general principle and commitment to liberalization requires specific and implementable measures that would facilitate the movement of goods and the flow of information relating to movement of goods and related transactions ahead of the goods themselves.

There are specific facilitation issues for consideration by individual GMS countries and for collective agreement and action. These can be classified into two groups:
- issues that are transborder in nature; and - issues that are within each country's purview, but their resolution would have implications on the rest of the GMS countries.

This distinction between issues that are transborder (across countries) and issues within countries is useful for several reasons. GMS is not a trade bloc and the GMS countries are not bound by a common set of rules or agreements that either define their trade regimes, or specify concrete liberalization steps. While it is true that several of the GMS countries are ASEAN members, this does not mean ASEAN covenants are carried over to all GMS countries without negotiations. Moreover, even among those GMS countries which are ASEAN members, they have different timetables in their liberalization programs. The contiguous nature of the GMS countries and the growing cross-border (and especially transit) transactions all suggest a compelling need to sort out trade facilitation issues. Thus, within each GMS country, there is a need to look at the alternatives for simplifying and standardizing procedures, documents, and representation of data in these documents based on best practices. For issues that are transborder in nature, it is necessary to consider the possibilities of harmonization.

Transborder Issues

The GMS Trade Facilitation Working Group will address the following issues which cut across all countries:

A. The definition, meaning, and coverage of border trade for which various individual and collective measures are to be taken through cooperation among the GMS countries to increase the movement of traded goods across borders.

B. The system of regulations and controls that dictate the movement of traded goods across borders and related cross-border information flows with a view to their harmonization among the GMS countries.

C. The extension of existing bilateral agreements related to trade to other GMS countries.

D. The application of these measures, and their timetables, within and among the GMS countries.

Each of the GMS countries has a common border with at least 3 other countries. Yet there are different understandings, scope, and manner of recording information on border trade among them. On the one hand, border trade may only refer to trade in goods originating within a certain radius of the border (e.g., 25 kilometers), carried on by individuals or firms specially allowed to engage in border trade. On the other hand, it may refer to conventional (formal) trade involving third country final destinations. Border trade may also be defined not only in terms of distance but also value of transactions.

The GMS countries need to (a) arrive at a joint or collective understanding and meaning of border trade, its coverage, and the way it is being recorded, and (b) agree on what should be addressed by the specific trade facilitation measures aimed at facilitating border trade, within the context of wider regional trade facilitation cooperation.

Each GMS country has an existing system of controls, clearance procedures, and regulations that affect the scope and manner of conducting international trade. These are exercised through different ministries and agencies of governments, which in turn may require different documentation. The agencies typically involved include the Ministry of Commerce/Trade, Customs, Health, financial institutions, etc. The GMS countries need to (a) agree on common objectives of facilitation that are sought to be realized; (b) identify the regulations and controls that impinge on these objectives; (c) agree on the cooperation activities, and (d) set a timeframe that would indicate cooperation outcomes. The systems to be addressed include the following:

(i) Procedures and Processes

Procedures and processes exist to realize a balance between control and facilitation. These determine the documents that need to be used, information content within the documents, methods of representation of data, etc. Such procedures are bound to be different across countries. Thus any attempt at harmonization must begin with a re-engineering of these procedures and processes using the best practices suggested by international and regional organizations. An example would be World Customs Organization's Guidelines for Clearance of Express Consignments.

Because goods move across borders, having common forms and standards (including definition and classification of goods) facilitates such movement. A single cargo release document with a six-country logo, common codes and captions in six languages could be an important illustration of such commonality. Where multiple documentation is needed prior to a single release document, a common code for all administrations may be useful. The Harmonized System Nomenclature (WCO HS 2000) can be used for goods classification and adopted by all GMS countries.

Each of the GMS countries has customs systems defining rules and their enforcement relating to the manner of goods movement. Through common or harmonized procedures (e.g., inspection, valuation etc.) it is possible to consider reciprocity of customs rules among the GMS countries. There may be exceptions to the reciprocity that should be exercised by each country, for example, when there is suspicion of misclassification of goods. Compulsory inspection of all goods moving from one country to another need not be enforced. The GMS countries need to (a) adopt customs systems that follow common standards or are comparable, (b) agree to waive inspection of the same goods more than once and have multiple inspection only by exception, and (c) consider mutual monitoring of the reciprocity activities. The Trade Facilitation Working Group will recommend the establishment of a Customs Subgroup to achieve these goals.

There are other systems and procedures, apart from customs, that also affect the movement of goods across borders. These apply to goods that are in transit, on consignment or in final destination, and include, among others, sanitary and phyto-sanitary (SPS) procedures, quality control checks, currency deposit requirements in the case of goods, and vehicle registration, roadworthiness inspections, vehicle standards (e.g., weight limitations), insurance coverage, and validity of drivers' licenses in the case of the transport of these goods across contiguous boundaries . Several issues require consideration: (a) identification of specific systems and procedures as subject of cooperation, (b) standardization of these systems and procedures across GMS countries, and (c) joint work program for the agreed upon measures. An example could be the adoption of International Convention on the Harmonization of Frontier Control of Goods. While considering these issues, care should be taken to avoid duplication of the work of the Transport Forum.

The contiguity of the GMS countries means that there are several checkpoints at borders and for any two countries there would be at least two checkpoints. An issue for the GMS countries to consider is simplification and coordination of border checkpoints formalities. Options for consideration include (a) joint supervision of checkpoints, (b) checkpoint only for entering goods, and (c) common facilities. The operations of these border checkpoints can also be the subject of cooperation in terms of standardized hours of services, so as to reduce waiting times at borders as goods move between countries. A good starting point could be common methodology to identify problems at border points.

There are existing or planned bilateral agreements among some GMS countries detailing working arrangements at the provincial or district level, covering systems of regulations and controls, or transport agreements on the carriage of goods across borders. Existing or planned bilateral agreements can be collectively reviewed for the following purposes: (a) determining the relevance of their provisions for trade facilitation across all GMS countries, (b) using the bilateral agreements as bases for GMS adoption, and (c) extending bilateral cooperation through the "sub-regionalization" of the agreements. To the extent that some of the GMS countries are signatories to international conventions (e.g., 1974 Kyoto Convention on Simplification and Harmonization of Customs Procedures, Istanbul Convention on Temporary Admission of Goods) or to ASEAN Agreements (e.g., ASEAN Customs Vision 2020, ASEAN Customs Code of Conduct), these could be examined as well for possible collective adoption.

One important rationale for the attention to trade facilitation issues is the need to reinforce and support the infrastructure development programs in the GMS countries so that the region's growth potential can be fully maximized. The synchronized, complementary development of infrastructure projects in the "GMS economic corridors" provide an opportunity for these trade facilitation measures to be applied in a concerted manner in these target zones as component parts of an integrated package of hardware and software projects for identified economic corridors.

Trade Facilitation Within Each Country

Subregional cooperation in trade facilitation is a two-level process. At one level, it involves agreements among the participating countries. At another level, it involves initiatives within each participating country either in preparation for or in order to implement sub-regional agreements. In this context, as part of the work program of the Trade Facilitation Working Group, each GMS countries should also address the following trade facilitation issues aimed at simplifying and standardizing procedures, documents, and representation of data:

A. Regulatory controls, procedures and processes for trade that facilitate international transactions.

B. Documentation systems that would feed into the GMS cooperation modality involving standard documentation for trade.

C. Trade facilitation initiatives that aim to reduce transaction time and cost to private businesses.

D. Trade transaction information systems that are readily accessible, reliable and accurate.

E. Institutional arrangements and systems that would help drive the process of trade facilitation.

The importance of the regulatory controls, procedures and processes for the movement of goods, the mobility of people, and the establishment of enterprises involved in international transactions cannot be overemphasized. Each country has its own set of rules and procedures, and economic agents engaged in trade face multi-stop processing. Yet there is a trend towards process and procedures simplification and one-stop processing. Each GMS countries should therefore examine how its rules and procedures can be simplified to respond to the demands of international transactions in the neighboring countries, and to encourage border trade activities.

The magnitude and degree of reduction in the number of in-country documents, steps, and signatures for the release of goods imported or exported is a key trade facilitation issue. This will dictate the lengths of time goods are delayed in reaching ultimate consignees, and therefore the costs associated with restrictions. Even if a country agrees to bilateral or multilateral arrangements using a single common document for cargo release, if the necessary requirements for accomplishing the document remain cumbersome, trade is still not facilitated. One starting point for the simplification of procedures could be the use of the United Nations Layout Key, which codifies the information required for all the steps such as import and export permits, freight forwarding, shipping, cargo inspection, and cargo release, among others.

There is the issue of special facilities for border trade. As countries have opened up to trade, special facilities have been created, or are being considered, to stimulate trade (e.g. export processing zones, bonded warehouses etc.) for specific sectors, or in specified geographic areas. Individual GMS countries should rationalize these arrangements to converge with trading partner arrangements. In some countries this may take the form of special warehouses at border areas to provide storage facilities while in others this may take the form of a joint arrangement with another country. This is especially relevant in the context of the development of "sub-regional economic corridors".

At least three elements form the information systems within a country that are basic to facilitating trade and reducing unnecessary costs: (a) full transparency of all the requirements essential for conducting international transactions across all GMS countries as well as beyond, (b) the timely availability and reliability of all this information through all types of medium, and (c) the easy accessibility of information for all those that participate in international trade transactions be they manufacturers, banks, insurance companies, freight companies, forwarders, exporters and importers, legal entities, communications services, customs authorities, government bureaucracies, financial institutions, and the general public.

Integral to the information system that must form part of in-country processes is an array of publications regularly put out by each GMS country detailing policies, regulations, and other requirements for international transactions. These include trade statistics, the scale of tariff and non-tariff measures, business licenses, and other information. In addition regular information on business opportunities in each of the GMS countries can open potential joint ventures and other forms of business collaboration.

Building of domestic improvements in trade-related information systems, cooperation among GMS countries related to information can include areas such as (a) facilitating trade information exchange, and (b) identifying sub-regional information gaps to trade and trade constraints.

In order to sort out these issues, and attempt to resolve them for eventual cross-border co-operation, each country will have to define and design an institutional arrangement that systematically draws in the various agencies of government, explore alternatives to arrive at solutions, and deliver a collective platform for such cross-border co-operation. The nature of these institutional arrangements is subject to the institutional settings, procedures, and requirements of each country. The key is to ensure that fundamental domestic coordination issues are addressed as a necessary building block of cooperation in sub-regional trade facilitation. As examples these may take the form of a National Trade Facilitation Committee, an Inter-Agency Task Force, or any other such inter-departmental co-ordinating body, located in a ministry, or in the Office of the President or Prime Minister, or created for the purpose of considering specific issues such as trade facilitation measures. What is important is the recognition that various government agencies have a common stake in facilitating international transactions. Once national co-ordination takes place, cross-border co-operation can be carried out more effectively.

Priority Tasks of the Trade Facilitation Working Group

Based on the foregoing the Trade Facilitation Working Group has adopted the following prioritized list of projects for implementation:

1. Establishment of National Institutional Arrangements for Trade Facilitation in the GMS
2. National Studies and Seminars on Regulatory, Procedural and Documentation Systems for International Trade
3. Pilot Testing Trade Facilitation Arrangements in the GMS Countries
4. Customs Cooperation in the GMS
5. Development of Common Information Systems Across the GMS Countries, and Trade Facilitation E-Communications Systems in the GMS
6. "Sub-regionalization" of Bilateral Agreements in GMS
7. Establishment of Sub-Group on Trade in Agricultural Products
8. Establishment of a Dispute Settlement Mechanism for GMS Trade
9. Establishment of a Payments System for GMS Trade

Concepts for each of these projects are presented in the Annnex.

The Meeting agreed to proceed with immediate implementation of the first four of these projects, which are already receiving support from ESCAP (Projects 1 and 2), and ADB (Projects 3 and 4) under their on-going activities. The remaining five projects will be taken up at later stage, subject to the availability of resources. In order to move forward the activity on "Customs Cooperation in the GMS" it was decided that an ad hoc Sub-Group on Customs be convened during the Senior Officials Meeting prior to the 9th Ministerial Meeting at which specific cooperation steps will be considered. It was agreed that initial agenda generation for this Sub-Group will be developed in time for the Senior Officials Meeting.

It was decided that each GMS country would designate a TFWG focal point from the ministry or agency dealing with trade matters. ESCAP and ADB agreed to monitor and report the progress of the four priority projects, which they have agreed to support, at future meetings of the TFWG.

Consultation Process

Internal (National) Consultations

A fuller discussion of trade facilitation issues at the country level and among the countries involved is needed if they are to move to a stage of implementation, joint undertaking, and even bilateral negotiations and agreements as required. In particular, it is important to institutionalize the process internally, within each country. The discussion of these issues should also benefit from a wider participation among concerned groups and economic agents that have a stake in the expansion of trade among the GMS countries.

External (Sub-Regional ) Consultations

The sub-regional (GMS) consultation process of the Trade Facilitation Working Group provides a platform to build on and contribute to in-country changes, and to develop potential agreements among countries of the GMS, to improve the movement of goods and people in the sub-region. The national consultation processes and a national coordinating body, in a form appropriate to each participating GMS country, are therefore necessary building blocks for the sub-regional consultations to formulate collective plans that become the basis for cooperation among the GMS countries in trade facilitation.

With this sub-regional consultation process, it is possible to begin a collective program of activities intended to support national and cross-national efforts at creating an environment that facilitates the movement of goods and people in the GMS. Such a program would contain, among others, policy options, technical studies, workshops/seminars, hardware/software acquisitions, and technical assistance that cumulatively reinforce the overall thrust of greater sub-regional economic development and increased trade.

Through this sub-regional consultation process the national level activities can be synchronized with the cross-national ones to ensure that there is mutual feedback and reinforcement. The Trade Facilitation Working Group will play an active role in assuring this consistency in the national and sub-regional activities.

Conclusion

The GMS Trade Facilitation Working Group has requested the Asian Development Bank and ESCAP to provide the necessary technical assistance for supporting its priority activities. TFWG has also invited other donors and representatives of the private sector to cofinance such technical assistance.

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