Cross-Border Infrastructure: A Toolkit Logistics, Trade Costs, Infrastructure: Beyond Borders Session on Planning & Policy Rita Nangia Asian Development Bank The views expressed here are those of the presenter and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Directors, or the governments they represent.

Cross-Border Infrastructure: A Toolkit Session Description The session will cover the soft side of the cross-border infrastructure, namely  Asia’s logistic challenges  Customs facilitation and harmonization of policies  Cross border trade and transit arrangements  Security and ISPS

Cross-Border Infrastructure: A Toolkit Trends in Integration Intra-regional trade now accounts for 55% of Asia’s total trade compared to 43% in the early 1990s, and is higher than the 46% for NAFTA and only modestly lower than the 62% figure for the 15 European Union countries Most of this increase in intra-regional trade has been due to lowering trade barriers, physical connectivity and the rising share of intra-regional trade in East Asia Intra-regional passenger traffic in Asia has almost doubled from about 500 billion passenger-kilometers per year to close to 1 trillion passenger-kilometers. For example, intra-ASEAN travel has increased from 11 million tourists in 1994 to 23 million tourists in 2004

Cross-Border Infrastructure: A Toolkit Cross-Border Complexity Shifting focus from trade barriers to enhanced competitiveness Improved logistics at the heart of moving from unconnected subconnection networks. The possibility for countries to “participate” in these production networks has been limited by the quality of their inter-country infrastructure networks. Landlocked countries, certain regions of countries, and hinterlands located far away from the centers actively participating in the regional production process face the risk of marginalization.

Cross-Border Infrastructure: A Toolkit Barriers Differential perspectives of local planners and central planner regarding importance of cross-border infrastructure Pricing and subsidies issues Financial resource, capital market distortions, and inadequate institutional arrangements to deal with currency and other risks Membership to WTO (harmonization of tax regimes and access to markets ) Length of political cycle vs. long gestation periods of cross- border infrastructure Borders an opportunity for connecting isolated communities

Cross-Border Infrastructure: A Toolkit Barriers ( continued ) Regulations lead to more Legal regulations Implementation problems Lack of strong leadership and ownership Institutional and human capacity of partners Local barriers to economic growth in general (e.g., local labor laws) Stage of development Balance between hard infrastructure and software aspects

Cross-Border Infrastructure: A Toolkit Logistic Challenges Getting commodities to global market - a major driver of economic growth and poverty reduction in Asia Transport infrastructure affects overall costs and value addition  Logistics account for 20% of GDP in PRC compared to 10% in USA  It can amount to two thirds of final costs of industrial and food production in PRC, but only 10% in USA Not only hard infrastructure, but how this is delivered in terms of logistics services

Cross-Border Infrastructure: A Toolkit Logistics Costs Technological advances have reduced the overall logistics costs in the United States; however, logistics costs for developing countries remain uncompetitive because of high land transport and fuel costs. Overall logistics costs for North America fell from 11% of their GDP in 1997 to 9.9% in For the same time period, the share of PRC’s logistics cost to their GDP rose from 16.9% to 17.9%; while India’s logistics costs rose from 15.4% to 17.4%.

Cross-Border Infrastructure: A Toolkit Some Definitions What is Logistics ?  Logistics is about the efficient flow of goods, services, and information from the point of origin of raw materials to the point of consumption of the final product, including all the intermediate planning, locational, implementing, and controlling decisions. What do we mean by multi-modal transport?  When the goods move from one mode of transport to another seamlessly, without storage or human handling in between.

Cross-Border Infrastructure: A Toolkit Some Definitions ( continued ) Just-In-Time (JIT):  It requires the logistical service to deliver goods within the precise time windows. It synchronizes the logistical services into the production procedures with the minimal level of stocks. Quick Response (QR):  It is an extended JIT logistics concept that requires close cooperation of different partners in the production/ consumption chains with the effective information exchanges, which provide the basic conditions (time intervals) for previsions, optimizations, and marketing

Cross-Border Infrastructure: A Toolkit Ultimate Objective Is to Get Goods... To the right place In the right time In the right state With the right price

Cross-Border Infrastructure: A Toolkit Trade Movements Source: Doing Business 2006, World Bank CountryRank New Zealand2 Singapore3 USA28 Malaysia38 Thailand65 PRC83 Cambodia99 Viet Nam107

Cross-Border Infrastructure: A Toolkit Trends in Logistics Costs Source: Alexandre Rodrigues, Donald Bowersox & Roger Calantone. Estimation of Global and National Logistic Expenditures: 2002 Data Update. Journal of Business Logistics vol. 26 (2) 2005

Cross-Border Infrastructure: A Toolkit Logistics Efficiency Depends On... Infrastructure network (inter-modal platform) Operational efficiency (transfer operations) Market framework (international transport policy support) Pre- and post-haulage information exchanges

Cross-Border Infrastructure: A Toolkit Flow Network * * * * * * * * * * * * * * * * * * ** * * * * * ** * * *

Cross-Border Infrastructure: A Toolkit Substantive Content of Current Regional Cooperation in Infrastructure, Facilities, and Services Source: Prabir De. Effect of Transaction Costs on International Integration in the Asian Economic Community. In Asian Economic Cooperation and Integration. Manila: ADB.

Cross-Border Infrastructure: A Toolkit Key Messages Soft aspects are as important as the modern efficient network of infrastructure. Key governance issues need attention from policy makers and other stakeholders.