Agriculture cross border trade in the greater mekong sub-region Current trends, potential and constraints   Presentation By: Mr. Oudet Souvannavong, Secretary General of the GMS-Business Forum. Regional Workshop - Tran boundary Agribusiness Development and Management in the Greater Mekong Sub-region 22 March – 2 April 2010 Mekong Institute, Khon Kaen, Thailand. 

Cross-border trade in GMS –Outline Trends Value Chains Impacts Trade Policies Development of Economic Corridors

Cross-border trade in GMS - Trends GMS represent a market of more than 400 millions people (with Thailand 65, Vietnam 85, Myanmar 48, Cambodia 14, Laos 6, and Yunnan- Quang Xi ~ 200) Cross-border trade is one key indicators of close interdependence between GMS countries. GMS Regional Economic Integration has further push GMS countries to deepen economic relationships. Since then GMS Cross-border trade is flourishing The financial crisis and economic turn down in the developed economies has further enhanced cross-border trade in the GMS.

Cross-border trade in GMS - Trends Aggregate annual cross-border trade export and import between Thailand and Cambodia-Myanmar-Laos-Yunnan (1996-2008)

Cross-border trade in GMS-Trends Cross-border export values through transit arrangement from Thailand to China through major border check point (1996-2008)

Cross-border trade in GMS-Trends Commodity traded diversified. They are: vehicle, equipment, machineries, garments and woven fabrics, construction materials, minerals, gas petroleum, chemical fertilizers, processed wood, food and beverage products, and agricultural products. Agricultural products comprise of: Grains such as: rice, maize, beans, sunflower seeds Fresh fruits and vegetables Palm oil and vegetable oil Rubber smoked sheets Marine products and fresh water aquatic products Bamboo Tapioca And others

Cross-border trade in GMS-Trends Most of agricultural products are traded through non-formal channels –via local and temporary border crossing. i.e. Large animal trade between Laos-Myanmar and Thailand-China-Vietnam Maize and jobs-tears in Northern Laos to Thailand and Vietnam A number of agricultural product traded through contract farming. i.e. Vegetables and maize from Laos to Thailand There is barter trade of agricultural products. i.e. Vegetable with oil between Thailand and Yunnan.

Cross-border trade in GMS- Value Chain Development of Global Regional Value Chain and Production Network: Regional Value Chains – supplies to regional retailers and supermarkets : Tesco, Carefour, etc. (rice, fresh vegetables, fruits, marine & aquatic products Regional agro-industry production network (rubber, coffee, maize) Formal trans-border contract farming ( vegetable, maize, livestock)

Cross-border trade in GMS- Value Chain Corporate Global and Regional Value Chain standard requirements. Quality and consistency Reliability of supply Cost, price Variety, value added, innovation Food safety Corporate social responsibility. Bio-products Organic product certification International Standards

Cross-border trade in GMS- Value Chain Role of Standards

Cross-border trade in GMS- Impacts Aspects Possible Impacts to Cross Border Trade Positive Negative Political Strong political support create conducive business environment in GMS Political sensitivity between particular countries and change of Government Policy may disrupt cross border trade and business environment Economic Higher degree of free trade and border openness Fasten the regional economic integration People have access to consumer goods and services Intra-regional and inter-regional economic disparities Unbalance due to low trade performance of countries Illegal border trade NTB and NTM and trade discrimination Concerns on local benefit and being marginalized

Cross-border trade in GMS- Impacts Aspects Possible Impacts to Cross-border Trade Positive Negative Social Increasing people mobility Mutual contact deepen mutual understanding Increased illegal activities and trafficking Migration of people Infrastructural Greater connectivity increase volume of trade Drive rapid industrialization and urbanization Creation of markets for local SMEs and farmers Under developed infrastructure limits cross-border trade expansion Infrastructures are under utilized due to poor CTS Concerns on road safety Capacity of local operators Institutional Regional cooperation harmonization of standards, rules and regulations Lack of practice in international trade Lack of standards Inappropriate Laws

Cross-border trade in GMS- Trade Policies Enhance intra GMS trade relation through cross- border trade import-export and transit. Enhance trade and investment agreements and trade policies among GMS countries. Bilateral trade agreements (GSPs) ACMECS agreements (Contract farming and development of potential border areas) GMS agreements (Cross Border Transport Agreement – CBTA) FTAs (AFTA, China – AFTA, etc.) WTO agreements.

Cross-border trade in GMS- Development of Economic Corridors GMS Governments wants to create an economic corridor network that stimulates economic growth, reduces poverty and raises the standards of living in the areas. The Goals of Economic Corridors Development are: to enhance connectivity of the Corridor areas by reducing cross-border transactions and transportation costs; to increase competitiveness through economies of scale offered by cross-border investments that are based on value-adding processes; to empower the private sector by promoting joint financial, technological, marketing, production, and other collaborations in the Economic Corridor areas; and to reduce poverty, support development of rural and border areas, and increase the earnings and provide employment to the low-income groups.

Cross-border trade in GMS- Development of Economic Corridors Develop Infrastructure support for enhancing transport and logistic linkages Facilitate Customs and Transit Services CBTA one stop CIQ services e-customs, etc.)

The GMS Economic Corridors – Regional Linkages Projected by 2012

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints EWEC The EWEC has weak link to market and industrial demand areas. The infrastructures and CTS portion from Thailand and Myanmar are not completed. Since its official launch in June 2009, only a few transport operators have been selected and registered.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints EWEC The EWEC is a specific route which excludes going outside the corridor. It is becoming a cage because transport operators cannot turn off to national transport networks. This requires operators to work with transshipping, thus increasing the cost of transportation.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints EWEC Local transport operators in the GMS are not interested to operate on long hold transport across the EWEC because of the large risk to return with empty load. EWEC’s transport registration and pre-payment guarantee fees imposed to the operators are considered expensive especially in Thailand.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints EWEC The EWEC guarantee system has limited support from national customs authorities. Transport operators are confident to use bilateral transport legislation which is based on national laws and on national shipment guarantee supported by national customs authorities. There are complex protocols for the selection of transport operators, obtaining transport permit and quota.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints NSEC The two NSECs have link with vibrant industrial zones; (i) the Kunming-Bangkok (ii) the Pearl River Delta– Guangxi– Hanoi – Ho Chi Minh City Road infrastructures need to be completed and CTS improved in both two NSECs. Transport traffic along the NSEC is high even though the CBTA protocols and complete transport infrastructures have not been put into place yet.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints EWEC In-land transport traffic between industrial zones in Thailand, in Vietnam and in the Pearl River Delta in China are increasing and growing quickly because of industrial and manufacturing logistics link between the industrial production zones.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints SEC The SEC has potential links between sea ports and industrial zones in Thailand, Cambodia and Southern Vietnam. Road infrastructure and harmonization of CTS and administration procedures are to be developed. In Cambodia: the authorities do not allow any registered broker to do bonded transit declaration from border to Inland Container Depot (ICD). They do not recognize Truck Manifest for purpose of bonding forward to ICD. There are requirements to have original copies of documents for transit at all checkpoints and stops and for bonded transfer to ICD.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints For All Very few information is provided concerning the CBTA protocol implementation. Local transport and logistics operators have low awareness about the CBTA protocols, CTS and other regulations and standard requirements for operating in the economic corridors. Operators lack expertise and technical skills and corporate management.

Cross-border trade in GMS- Development of Economic Corridors – Issue and Constraints For All Local operators especially of CMLV need to upgrade themselves to standard requirements. They have not the capacity to renew transport fleets and infrastructure because they lack funds and credit.

Cross-border trade in GMS- Development of Economic Corridors – Recommendations Strengthen the role of public and private sector in the implementation of the GMS Cross-Border Transport Agreement (CBTA). Establish public-private dialogue to enable inputs from private sector be incorporated in government policies. Accelerate the implementation of CBTA single window inspection, with harmonization of procedures and formalities. Identify Regional Value Chain and the volume of freight flows along the corridors and identify where products are and how to move them so the cost of return way of trucks can be reduced. Extend sub-transport routes to link the industrial zones and ports to the economic corridors. In the EWEC it is proposed to develop sub-routes such as the Khonkaen – Nakorn Rashashima – Bangkok – Laem Chabang and other links in Laos and Vietnam; and to complete the EWEC corridor to Myanmar.

Cross-border trade in GMS- Development of Economic Corridors – Recommendations Establish the GMS Freight Transport Association (FRETA) to standardize, certify and guarantee the transport and logistics operations in the GMS Economic Corridors. Develop Business Development Services (BDS) in order to provide regular information to National Chamber of Commerce and Industries, National Transport and Freight Forwarder Associations and the GMS-BF. Develop an efficient capacity building program for local operators. The GMS-BF and private sector should interact more with government in capacity development. Develop a special funding/credit program for the standardization and modernization of transport and logistics along the economic corridors, and for the development of business enterprises along the corridors.

References Cross-border trade and commerce in Thailand: Policy implication for establishing special border economic zones; Choen Krainara. PhD paper. Asian Institute of Technology, School of Environment, Resources and Development, Bangkok, Thailand, December 2008. Thailand cross-border trade in the GMS: Selected Social Issues; Srawooth Paitoopong; Thailand Development Research Institute; May 2007. Greater Mekong Sub-region Biodiversity Conservation Initiative; Strategic Framework and Technical Assessment 2005-2014, Manila, ADB. Facilitating cross-border trade and investment in the GMS: Establishment of GMS Freight Transport Association; Trudra Roy; TA 6228-REG, ADB December 2008. Facilitating cross-border trade and investment in the GMS:Assessment of the Capacity Development of GMS Local Chambers of Commerce and Industry; Ruth Banomyong; TA 6228-REG, ADB December 2008. Linking Greater Mekong Subregion Enterprises to International Markets: The role of Global Value Chaoins, International Production Networks and Enterprise Clusters; George Abonyi, Syracuse University for UNESCAP Studies in Trade and Investment ; November 2006. Greater Mekong Sub-Region Business Forum: Report to the Economic Corridor Forum No. 2; A private sector assessment on the issues and constraints in the development of economic corridors and priority actions and measures needed to address such issues and constraints; Phnom Penh; September 2009

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