Is it time to invest in 'soft infrastructure' for region?
With the start of the Asean Economic Community (AEC) last December, it is timely to have a discussion about the ease and costs of trading within the region. No one can dispute that we have seen substantial reductions in customs duties through the Common Effective Preferential Tariff (CEPT) scheme of the Asean Free Trade Area (Afta), but what about the other complexities and costs in moving goods across our borders?
To move goods across the region you need two types of infrastructure. First there is "hard" infrastructure that consists of roads, railways, bridges, runways, wharves and container terminals. Countries have invested significant amounts of money, sometimes with the help of donors, in hard infrastructure projects. Many such projects are now operational and, in some cases, these new assets are world-class.
However, there is also the question of "soft" infrastructure and this appears to still be a work in progress. Soft infrastructure consists of the regulations, procedures, systems and capacity of the agencies that manage the borders where many of these new assets operate. For example, the significant gains for trade from building a bridge across the Mekong, allowing trucks to cross from Thailand to Laos in just two minutes, are all undone if that same truck has to wait for hours, or even days, to get onto the bridge.
In some Asean countries, it is not unheard of to have as many as 20 agencies that issue export permits -- and just as many issuing import permits -- with many goods requiring more than one permit from each side of the border. Each agency works to its own laws, using its own, often paper-based, procedures. Ultimately, the efficiency of the entire border-clearance process is judged by the agency with the least capacity to efficiently issue its permits.
According to "Trade Report 2015" by the World Trade Organization (WTO), the cost of conducting trade in developing countries, including customs clearance, logistics and average tariffs, can be equal to 219% of the value of the goods. Whichever countries can address these costs quickly will become the most competitive in the region, so this issue should be seen as a priority. So how does Asean fare? Looking at the performance of Asean members in the "Doing Business 2016" report from the World Bank, some of the statistics seem to support the WTO's findings.
In terms of export costs, Vietnam has the longest average physical export border clearance time at 57 hours, while the most expensive export clearance is that of the Philippines at US$456 per consignment. For export documentation, Laos requires 216 hours and is also the most expensive at $235.
For imports, Indonesia has the longest average clearance process at 99 hours while the Philippines again is the most expensive at $580. Import documentation in Laos averages 216 hours, while the most costly import clearance is in Vietnam at $183.
Where will the necessary soft infrastructure remedy for this come from? The cornerstones are there already. The AEC Blueprint 2025 calls for: the full rollout of national single windows and widening of the scope of the Asean Single Window; simplification and streamlining of customs procedures; implementation of national Authorised Economic Operator programmes; and addressing non-tariff barriers to trade. On top of this, we are fast closing in on the start of the WTO's Trade Facilitation Agreement (TFA) which was signed in Bali in 2013. It will begin once another 16 WTO members ratify the agreement, likely during 2017.
The TFA will require members to implement a number of articles including: pre-arrival clearance activities; border agency cooperation; ease of transit; discipline on fees and charges; greater transparency for increased trade certainty; and again -- removal of non-tariff barriers.
Work is under way on some of these key areas. Good progress has been made on national single windows in many Asean countries, with Thailand perhaps ahead of its peers, but also demonstrating the challenge of linking 40 agencies with differing levels of IT capability. As well, a number of Asean technical committees are drafting the necessary protocols and making some progress in areas including customs transit, e-origin certificates, self-certification and aspects of the Asean Single Window.
The question now is, can we find the resources to carry out these soft infrastructure projects to the same extent that has been dedicated so successfully to hard infrastructure? It may have been easy once to argue that it is more expensive to build 1,000 kilometres of new road than it is to write a new border clearance procedure. But perhaps developing modern, efficient border clearance procedures is, indeed, as expensive.
Rob Preece is course director of Excise Studies and the Southeast Asian representative for the Centre for Customs & Excise Studies at Charles Sturt University in Canberra, Australia. The Link is coordinated by Barry Elliott and Chris Catto-Smith as an interactive forum for industry professionals. We welcome all input, questions, feedback and news at: BJElliott@ABf1Consulting.com, email@example.com