MALAYSIA TRADE AND TRANSPORT FACILITATION ANALYSIS AND RECOMMENDATIONS FOR VIETNAM

MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

DISSERTATION

MALAYSIA TRADE AND TRANSPORT FACILITATION
ANALYSIS AND RECOMMENDATIONS FOR VIETNAM

Major: International Trade Policy and Law

Nguyen Ngoc Tra My

Hanoi - 2017


MINISTRY OF EDUCATION AND TRAINING
FOREIGN TRADE UNIVERSITY

DISSERTATION

Malaysia Trade and Transport Facilitation analysis and
recommendations for Vietnam

Major: International Trade Policy and Law

Full Name: Nguyen Ngoc Tra My
SUPERVISOR: Assoc. Prof, Dr Trinh Thi Thu Huong

Hanoi - 2017

TABLE OF CONTENTS
INTRODUCTION ................................................................................................. 1
CHAPTER I. OVERVIEW OF TRADE AND TRANSPORT
FACILITATION ................................................................................................... 6
1.1. Definition of Trade and Transport Facilitation ......................................... 6
1.1.1. Definition ............................................................................................... 6
1.1.2.

Indicators of TF .................................................................................. 7

1.1.2.1.

Doing Business/Trading Across Borders ...............................................................8

1.1.2.2.

Logistics Performance Index ................................................................................9

1.1.2.3.

OECD TF indicators ............................................................................................ 10

1.1.2.4.

Liner Shipping Connectivity Index (LSCI) ............................................................ 11

1.2. Principles of implementing Trade and Transportation Facilitation ....... 12
1.3. Benefits of Trade and Transportation Facilitation .................................. 13
1.4. Implementation of Trade and Transportation Facilitation ..................... 16
CHAPTER II. CURRENT STATUS AND LESSONS OF MALAYSIA TRADE

AND TRANSPORTATION FACITILATION .................................................. 18
2.1.

Overview of the economy and international economic relations in

Malaysia ............................................................................................................ 18
2.1.1.

The political and geographical position ............................................ 18

2.1.2.

Recent economic development .......................................................... 18

2.1.3.

Overview of Trade regime ................................................................. 20

2.1.3.1.

WTO.................................................................................................................. 20

2.1.3.2.

APEC ................................................................................................................. 21

2.1.3.4.

Other FTAs/RTAs: .............................................................................................. 21

2.1.4.
2.1.5.

2.2.

Trade in goods .................................................................................. 22
Trade in service................................................................................................. 26

Malaysia’s Transport Infrastructure .................................................... 26

2.2.1.

Current policy and institutional landscape for urban transport ....... 28

2.2.2.

Main sea ports ................................................................................... 29

2.2.3.

Priority transport corridors, including transit corridors ................... 32

2.2.4.

IT infrastructure ............................................................................... 34


2.3.

Malaysia Trade and transportation facilitation indicators .................. 38

2.3.1.

OECD trade facilitation indicators ................................................... 38

2.3.2.

Logistics Performance Index (LPI) .................................................. 40

2.3.3.

Doing Business score ........................................................................ 41

2.3.4. Liner Shipping Connectivity Index (LSCI) .......................................... 43
2.4.

Government and the trade and transport sectors ................................. 44

2.5.

Lessons learned from Malaysia ............................................................. 48

CHAPTER III CURRENT STATUS OF VIETNAM TRADE AND
TRANSPORTATION FACITILATION AND COMPARISON WITH
MALAYSIA. ........................................................................................................ 51
3.1.

Overview of the economy and foreign exchange of Vietnam................ 51

3.2.

Vietnam’s transportation infrastructure .............................................. 53

3.2.1.

National Road and expressways Network ......................................... 54

3.2.2.

Railway transportation ...................................................................... 55

3.2.3.

Maritime Transportation .................................................................. 55

3.2.4.

Transport corridors, including transit corridors ............................... 58

3.2.5. Vietnam’s IT infrastructure and Customs procedures ......................... 59
3.3.

The Trade and transport facilitation indicators of Vietnam ................ 62

3.3.1.

Doing Business/Trade across borders ............................................... 62

3.3.2. OECD indicators .................................................................................. 66
3.3.3. Logistics Performance Index................................................................ 68

3.3.4. Liner Shipping Connectivity Index ...................................................... 71
3.4.

Trade facilitation progress in Vietnam ................................................. 73

3.4.1.

Simplification .................................................................................... 73

3.4.2.

Transparency .................................................................................... 74

3.4.3.

Harmonization .................................................................................. 75

3.4.4.

Use of modern technology................................................................. 75

3.4.5.

Cooperation....................................................................................... 76

CHAPTER IV: RECOMMENDATIONS FOR VIETNAM BASED ON
LESSONS LEARNED FROM MALAYSIA ...................................................... 79


4.1.

Shortcomings of Vietnam’s Trade Facilitation. .................................... 79

4.2.

Recommendations for Vietnam based on lessons learned from

Malaysia ............................................................................................................ 82
4.2.1.

Develop a policy framework and strong institutional capacity ......... 82

4.2.2.

Build infrastructure and transport services ...................................... 84

4.2.3.

Recommendations with regards to IT and customs clearance .......... 87

4.2.4.

Restructure the supply chain ............................................................ 89

4.2.5.

Strengthen Human capital in logistic industry ................................. 90

CONCLUSION .................................................................................................... 93
REFERENCES .................................................................................................... 94

ABBREVIATION
APEC

Asia-Pacific Economic Cooperation

ASEAN

Association of Southeast Asian Nations

ASW

ASEAN Single Window

FDI

Foreign Direct Investment

GATT

The General Agreement on Tariffs and Trade

ICC

International Chamber of Commerce

IMF

International Monetary Fund

IT

Information Technology

LDC

Least-developed Country

LMICs

Lower middle income countries

LSCI

Liner Shipping Connectivity Index

MITI

Ministry of international trade and industry

MYR

Malaysia Ringgit

N/A

Not available

OECD

The

Organization

for

Economic

Co-operation

and

Development
SDT

Special and Differential Treatment

TBT

The WTO Agreement on Technical Barriers to Trade

TF

Trade Facilitation

TTF

Trade and Transport Facilitation

TFA

The WTO Agreement on Trade Facilitation

UN/CEFACT

The United Nations Centre for Trade Facilitation and
Electronic Business


UNCTAD

The United Nations Conference on Trade and Development

UNECE

The United Nations Economic Commission for Europe

USD

United States Dollar

VCCI

Vietnam Chamber of Commerce and Industry

WCO

The World Customs Organization

WTO

The World Trade Organization


LIST OF FIGURES AND PICTURES
Figure 2.1: Annual GDP Growth of Malaysia in 2005 – 2015 (%) .................... 19
Figure 2.2: Global competitiveness Index of Malaysia and other countries in
Asia Region (2015) ............................................................................................... 20
Figure 2.3: Malaysia’s monthly external trade performance, 2008 – 2015....... 22
Figure 2.4: Malaysia’s Export Value in 10 years, 2006-2016 (MYR Million) ... 23
Figure 2.5: Service sector share of GDP (%) of Malaysia, 2015 ....................... 26
Figure 2.6: Regional Standing of Malaysia with selected Asian countries in
Transport and Logistics services. ....................................................................... 27
Picture 2.1: Location of major Malaysian container seaports........................... 30
Figure 2.7: Growth of container trade (TEUs) in major Malaysian Ports. ...... 31
Figure 2.8: Corridors and Transit Trade of Malaysia ....................................... 32
Figure 2.9: Malaysia’s National Single Window ................................................ 36
Figure 2.10: OECD Indicators of Malaysia’s Trade Facilitation Performance
(2015) .................................................................................................................... 38
Figure 2.11: How Malaysia and comparator economies rank on the ease of
trading across borders (2015) ............................................................................. 42
Figure 2.12: Liner Shipping Connectivity Index of Malaysia in 2004 – 2015 ... 44
Figure 3.1: Export structure by product in 2014 (% total exports) .................. 52
Figure 3.2: Top 5 partners of Vietnam in 2014 (exports, millions of USD) ...... 52
Figure 3.3: Vietnam’s trade facilitation performance: OECD indicators ........ 67
Figure 3.4: Logistics Performance Index of Vietnam in 2007 – 2016 (Selected
indexes) ................................................................................................................ 69
Figure 3.5: Components of Logistics Performance Index of Vietnam and
Malaysia (2016) .................................................................................................... 71

Figure 3.6: Liner Shipping Connectivity Index of Vietnam compared to
Malaysia in 2004 – 2015. ..................................................................................... 72


LIST OF TABLES

Table 1.1 The trading across borders indicators ................................................. 9
Table 2.2: 10 Major export and import markets of Malaysia, 2015 ................. 25
Table 2.3: Malaysia’s Investment Plans in Public Transport............................ 29
Table 2.4: Logistics Performance Index of South-East Asian countries, 2016. 40
Table 2.5: Summary of predefined stages and documents for trading across
borders in Malaysia ............................................................................................. 43
Table 3.1: Total merchandise trade of Vietnam in 2005 – 2015 ........................ 52
Table 3.2: Trade across borders of Vietnam in 2014-2015 (compared to
Malaysia’s) ........................................................................................................... 63
Table 3.3: Time and cost wasted in export and import process in Vietnam
(2016) .................................................................................................................... 64
Table 3.4: Documents required to export and import of Vietnam (Compared to
Malaysia’s) ........................................................................................................... 65
Table 3.5: Logistics Performance Index of Vietnam in 2007-2016 .................... 68
Table 3.6: Logistics Performance Index of Vietnam compared to Malaysia in 2016
.............................................................................................................................. 70


1

INTRODUCTION
1. Rationale
Tradeafacilitationaisaaanew concept in international trade. Tradeafacilitation is
commonasense that the rulesahelp toasimplify andaharmonize internationalatrade

procedures; aincluding the procedures and documentsarelated to the collection,
presentation, and handlingainformation necessary for internationalacommercial
transactions.
WTO Agreement on TradeaFacilitation was finally concluded in 2013 after a
long time ofaintensive efforts to prepare andanegotiate of allamembers. Up to now,
according to thealatest news from WTO Center, there have been 96acountries that
approved TFA (Iceland ratified TheaAgreement in 31st October 2016). Vietnam is a
member of WTOaand apparently has to comply with thearegulations of WTO
Agreements inageneral and TFA in particular.
Trade plays anaimportant role especially in contributing to the economic
growth of Vietnam. The rapid growth of trade in nearly two decades was achieved
by the process of internationalaeconomic integration with theareduction of trade
barriers and engagementawith the partner through a varietyaof agreements.
However, with advances in the process of implementingainternational commitments,
the advantages of freeatrade in contributing to the growthaof trade are reaching
certain limits. It is time to have a newaapproach to enhance competitiveness,
promote Vietnam’s effectiveagrowth of export andaimport.
On 15thaDecember 2015, Vietnamaratified and became the 54th country to
ratify the WTO TF. It is worth mentioning, after becomingaa member of the TFA,
Vietnam will receiveatechnical assistance from internationalaorganizations and
foreign customs authorities to implementathe Agreement. This alsoameans that it
should create favorableaconditions for Vietnam to implementathe commitments
related to trade facilitation, such as free trade agreements (FTAs), Free Trade
Agreements ASEAN (AFTA), theaAgreement on Trans-Pacific partnership (TPP),
the Vietnam - Eurasia Economic Union Free TradeaAgreement (VN - EAEU FTA),


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etc. However, in theacontext of such aadeveloping country, legal system isastill not

yet complete, the number of small and medium enterprises is significant amount
(over 90 percent), situationaof smuggling, trade fraudais worse and worse, then the
efficient application of TF Agreement is really a big challenge.
Within the SoutheastaAsia countries, Malaysia isaone of the most powerful
economies, most diversifiedaand fastestagrowing in the region. Since thearedirection
of economicadevelopment from inwardsainto outwards, foreign trade activitiesaof
Malaysia became very dynamic. It is the mainadriving force to promote economic
growth of this country. Malaysiaais mainly focused on the exportaindustry to
develop economy. Accordingly, the total import-export turnoveratakes high
proportion of Malaysia's annualaGDP (from 60 to 80 percent). By taking
competitive advantagesaof relatively cheap but highaquality labor force, developed
infrastructure systems, politicalastability and a weaker currency, Malaysia has
attracted majoraforeign investment flows, especially fromaJapan and Taiwan.
Malaysia also has appropriateapolicies that are worth to learn to develop
international trade as incentives for investmentaprojects (including domestic and
foreign investments) and tax exemptionsafor projects producing export goods,
focused policies on simplifyingathe procedures and paperwork related to exports,
separated Authority in exports (MATRADE), etc. It can be said that Malaysia is a
typical country in the region thatasucceeded in adopting and promoting measures to
facilitateatrade.
Research on theaissues of trade facilitation is an active contribution to
improve business competitiveness and partly improveathe efficiency of international
economic integration. In particular, the studyaof learning from theaexperiences of
countries with similarascale of economy and strategies of development in the region
to withdraw the lessons will shortenatime of deployment and adoption of trade
facilitation policies of Vietnam on the way to implementaTFA. Based on the
assessment of the strengthsaand weaknesses, we can see theachallenge for Vietnam
are not only reducing the costaand time of logistics foraexports but also improving
transport infrastructure, restructuringasupply chain, creating addedavalue for export,

3

and support trade goods of high added value. This study is basedaon analysis and
comparison of activities to facilitate trade of neighboringacountry Malaysia, then the
author proposesarecommendations to support the activities to bridge policies in
trade facilitation in afield of logistics and the strategic planning to facilitateanational
trade, strengthen competitiveness of the country and helpathe economy to grow
sustainably.
2. LiteratureaReview
There haveabeen some studies about trade facilitation of Vietnam which are
conductedaby the World Bank such as “Connecting to Compete 2016: Trade
logistics in the Global Economy. The Logistics performance Index and its
indicators”, OECD TradeaFacilitation Indicators – Vietnam (OECD Trade and
AgricultureaDirectorate) providing overview of theaindicators of tradeafacilitation of
Vietnam; “Policies to enhance tradeafacilitation in South Asia and Southeast Asia”
(Anthony Bayley, Asian Development Bank Institute, 2014) recommending some
policies for the regionaincluding Vietnam, etc.
Severalaresearch in forms of reports, presentationsaand papers on trade
facilitation in the contextaof Vietnam. Some studies conducted by the Government
and other state offices, almost belong to theaoutstanding project "Implementation of
Trade Facilitation Agreement of World TradeaOrganization in Vietnam”, the studies
byaexperts and scholars “The WTO Agreement on TradeaFacilitation: Opportunities
and challenges for Vietnam” (Trinh Thi Thu Huong and Phan Thi Thu Hien, 2015);
“Customs

and

TradeaFacilitation

in

Vietnam:

Current

Situation

and

Recommendations” (Ninh Ngoc Hai, 2014); “Transport sector and tradeafacilitation
in Vietnam: Assessment and recommendations” (Nhu Quynh Hoa, 2014), “The
WTO Agreement on TradeaFacilitation and Policy Implications for Vietnam”
(Hoang Thai Hung, 2015), etc.
However, there isafew researches based on analyzing policiesaof trade
facilitation in the context of otheracountries and make recommendations for
Vietnam's case. There are someastudy named “Customs and tradeafacilitation in


4

Hong Kong and lessons for Vietnam” (Vu Thi Huong, 2015); “ASEAN cooperation
on trade facilitation andarecommendations for Vietnam” (Vu Kim Dung, 2014). The
proposals for domestic policies can be approachedaand considered further from a
slightly different viewpoint by learningalessons from other countries.
3. Researchaobjective
The objective ofathe dissertation is to evaluating Malaysia’sacase on trade
facilitationaimplementation

and

based

on

domesticastatus,

proposing

recommendationafor Vietnam to facilitateatrade activities.
4. Scopeaof the Thesis
Tradeafacilitation activities of Malaysia and Vietnam inaperiod from 2005 to
October 2016.
The dissertation focuses on several amain areas of trade and transport
facilitation: Policyaand Regulation, Infrastructureaand Transportation.
5. Researchamethodology
The dissertationauses some researchamethods as follows:
- Collecting andaanalyzing the data, statisticsaand information relatingato the
activities of tradeafacilitation in Malaysia andaVietnam (in respect of TF indicators).
- Evaluateaand compare the status of tradeafacilitation operation in both country to
find out the successalessons from case of Malaysia, simultaneously indicate the
shortcomingsaand causes of existingalimitations in the case of Vietnam.
- Makeaconclusions by deductiveareasoning.
6. Structureaof the Dissertation
Regardlessaof the introduction, conclusionaand references, the dissertationais
divided into 4 chapters:
Chapter 1: Overview of trade and transportafacilitation;
Chapter 2: Currentastatus and lessons of MalaysiaaTrade and Transport Facilitation;

5

Chapter 3: Current status of Vietnam Trade and TransportaFacilitation;
Chapter 4: Recommendationsafor Vietnam based on lessonsalearned from Malaysia.


6

CHAPTER I
OVERVIEW OF TRADE AND TRANSPORT FACILITATION
1.1. Definition of Trade and TransportaFacilitation
1.1.1. Definition
Tradeafacilitation has not been defined precisely and uniquelyauntil now.
General Agreement onaTariffs and Trade (GATT) 1947 firstamentioned the concept
of “Tradeafacilitation”. It became a popular theme of discussion since around 1996
and called as a reduction of transaction costs associated with unnecessary
administrative burdens on cross-borderamovement of goods and services between
sellers and buyers. Due to the flexibility of its scope, theadefinition of trade
facilitation variesadepending on context and involvedaparties.
The World Trade Organization (WTO) defines tradeafacilitation as “the
simplificationaand harmonization ofainternational trade procedures, where trade
procedures are theaactivities, practices, andaformalities involved in collecting,
presenting, acommunicating, and processingadata and other informationarequired for
the movement of goods in internationalatrade”. Simplificationais the process of
deleting all trade “red-tape” such as unnecessary tradeaformalities, processes and
procedures. Harmonization is the connection between domestic procedures,
regulations and the sameacriteria of other countries, as well as integratedaregional
process.
The World CustomsaOrganization (WCO) defines tradeafacilitation as “the
avoidance ofaunnecessary trade restrictiveness. This can be achieved by applying

modern techniques andatechnologies, while improving the qualityaof controls in an
internationally harmonizedamanner”. The organization foraEconomic Co-operation
and Development (OECD) defines tradeafacilitation as the “simplificationaand
standardization of procedures andaassociated information flowsarequired to move
goods internationally from sellerato buyer and to pass payments in the other
direction”.


7

In the scopeaof this dissertation, the author focusedaon several main areas of trade
facilitation and transportation: Policy and Regulation, Infrastructure and
Transportation, Customsaprocedures, and Logistics service.
1.1.2. Indicators of TF
An appropriate internationalasupply chain should ensure that goods are ordered,
shipped and paidafor while complying with regulatoryarequirements and supporting
trade security. To identify main processesaand involved parties in an appropriate
international supplyachain, UN/CEFACT developed the Buy-Ship-Payamodel which
is illustrated as follows:

Prepare to export
(Commercial
Procedures)

Export->Transport->Prepare to import
(Transport Procedures - Regulatory
Procedures)

Import
(Financial

Procedures)

The Buy-Ship-Pay model identifiesathe key commercial,

a

logistical,

regulatory, paymentaprocedures involved in the international supply chain and
provides anaoverview of the information exchangedabetween the parties throughout
its various steps. These are also majoracomponents of trade facilitation.
The customsaclearance also plays an important role in international trade. All
of imported, exported goods and goodsain transit within the territory of a nation
shall be subjectedato that nation’s customs regulationsaand procedures. It requires a
considerable amount of time and cost foratraders to comply with those regulations
andaprocedures, e.g. making declarations, providing relevantadocuments, cost of
storageaand preservation of goodsawaiting for inspection.


8

1.1.2.1.

DoingaBusiness/Trading Across Borders

Today, tradingabetween economies easier is increasingly important for
business. Excessiveadocument requirements, burdensome customs procedures,
inefficient port operations and inadequateainfrastructure all lead to extra costs and
delays for exporters andaimporters, stifling trade potential.
DoingaBusiness measures the time and cost (excludingatariffs and the time

and cost for sea transport) associated with exportingaand importing a standard
shipment of goods byasea transport, and the number of documents necessary to
complete the transaction. The indicatorsaprovides predefined stages such as
documentationarequirements and procedures at customs and other regulatory
agencies as well as at the port. They also cover tradealogistics, including the time
and cost of inlandatransport to the largest business city. The rankingaof economies
on the ease of tradingaacross borders is determinedaby sorting their distance to
frontier scores for trading acrossaborders. These scores are the simple average of the
distance to frontier scores for each of the componentaindicators. To make the data
comparable across economies, DoingaBusiness uses several assumptions about the
business and the tradedagoods.
The business studied must be locatedain the economy’s largestabusiness city
and be a private, limitedaliability company, domestically owned and does not
operate with specialaexport or import privileges.
DoingaBusiness is given by InternationalaFinance Corporation (IFC) of the
World Bank. This report providesaa quantitative measure of regulations for i)
starting a business, ii) dealingawith construction permits, iii) protecting investors,
iv) registeringaproperty, v) getting credit, vi) protectingainvestors, vii) payingataxes,
viii) trading acrossaborders, ix) enforcingacontract and x) closingaa business as they
apply to domestic small andamedium-size enterprises.


9

Table 1.1 The tradingaacross borders indicators
Documents required to export and

-

Bankadocuments

import (number)

-

Customs clearanceadocuments

-

Portaand terminal handling documents

-

Transportadocuments

-

Obtaining, filling outaand submitting

Time required to export and

allathe documents

import (days)
(Does not include sea transport

-

Inland transport andahandling

time)

-

Customsaclearance and inspections

-

Port andaterminal handling

-

Alladocumentation

import (US$ per container)

-

Inland transport andahandling

Official costs only, no bribes

-

Customsaclearance and inspections

-

Port and terminalahandling

Cost

required to export

and

Tradeaacross borders indicator measuresathe time and cost (excluding tariffs)
associated with exporting and importing a standardized cargo of goods by sea
transport. The timeaand cost necessary to complete every official procedure for
exporting and importingathe goods are recorded; however, theatime and cost for sea
transport are notaincluded. All documents needed by the traderato export or import
the goodsaacross the border are also recorded.
1.1.2.2.

LogisticsaPerformance Index

The LPI is a multi-dimensionalaassessment of logisticaperformance made by the
World Bank. It usesanumbers of assessment made by nearly 1,000 international
freight forwarders and express carriers to compare trade logisticsaprofiles of 160
countries in the world. The World Bank's LPIasurvey consists of two parts offering
two different perspectives: internationalaand domestic. In the international part,
there are sixakey dimensions of logistics performance:


10

Efficiencyaof the customs clearanceaprocess ("Custom")
Quality of tradeaand related infrastructure ("Infrastructure")
Theaease of arranging competitively pricedashipments ("Ease of arranging
shipments")

Competenceaandaquality of logisticsaservices-trucking, forwarding, and
customabrokerage ("Quality of logisticsaservices")
Abilityato track and traceaconsignments ("Tracking andatracing")
The frequencyawith which shipmentsareach consignees withinascheduled or
expected deliveryatimes ("Timeliness")
The sixaLPI indicators was divided intoatwo main categories:
Areasafor policy regulations, indicating mainainputs to the supplyachain
(customs, ainfrastructure, aand quality of logistics services)
Serviceadelivery performance outcomes (timeliness, internationalashipments,
and tracking andatracing)
Because LPI measures the availability andaquality of logistics and key
transportaservices, as well as government services, it becomesaan interactive
benchmarking tool created to helpacountries identify the challenges and
opportunities they faceain their performance on tradealogistics and what they can do
to improve their performance.
1.1.2.3.

OECD TF indicators

To help government improve theiraborder procedures, reduce tradeacosts, boost
trade flows and reapagreater benefits from internationalatrade, OECD has developed
a set of tradeafacilitation indicators that identify areas foraaction and enable the
potential impact of reforms to be assessed. These indicators commensurateawith
main fields in the economy. Thanks to them, countriesacan determine priority of
each field inatradeafacilitation strategy, measure the impact of policyareform, and
evaluate the effect of tradeafacilitation measures. These indicators include:


11

AdvanceaRulings: Prior statements by the administrationato requesting trader
concerning theaclassification, origin, valuationamethod, etc, applied to
specific goods atathe time of importation; the rulesaand process applied to
such statements.
AppealaProcedures: The possibilityaand modalities to appealaadministrative
decisions byaborder agencies
Co-operation-External: Cooperationawith neighboringaand third countries
Co-operation- Internal: Cooperation between various borderaagencies of the
country; controladelegation to customsaauthorities.
Fees and Charges: Disciplinesaon the fees and charges imposedaon imports
and exports
Formalities-Automation: Electronic exchangeaof date; automated border
procedures; use ofarisk management.
Formalities-Documents: aSimplification of tradeadocuments; harmonization
inaaccordance with internationalastandards; acceptanceaof copies.
Formalities-Procedures: Streamliningaof border controls; singleasubmission
points

for

all

requiredadocumentation

(single

windows);

post

clearanceaaudits; authorizedaeconomic operators.
Governance

and

Impartiality:

Customs

structuresaand

functions;

accountability; ethicsapolicy.
InformationaAvailability: Publication of tradeainformation
1.1.2.4.

LineraShipping ConnectivityaIndex (LSCI)

The LineraShipping Connectivity Indexacaptures how well countriesaare connected
to globalashipping networks. It is computed by the UnitedaNations Conference on
Trade and Development (UNCTAD) basedaon five components of theamaritime
transport sector: number ofaships, their container-carryingacapacity, maximum


12

vesselasize, number of services, and numberaof companies that deploy container
shipsain a country's ports.
The liner shippingaconnectivity index (LSCI) aims atacapturing a country's

integrationalevel into global liner shippinganetworks. A country's access toaworld
markets dependsalargely on their transportaconnectivity, especially in regard to
regularashipping servicesafor the import and export ofamanufactured goods.
Tradeafacilitation encompasses customsaefficiency and other physical and
regulatoryaenvironments where tradeatakes place, harmonizationaof standards and
conformance to internationalaregulations, and the logistics of movingagoods and
associated documentationathrough countries andaports. Though collection ofatrade
facilitation data has improvedaover the last decade, dataathat allow meaningful
evaluation, aespecially for developingaeconomies, are lacking. The qualityaand
accessibility of portsaand roads affect logisticsaperformance. Access to global
shippingaand air freightanetworks and the quality and accessibilityaof ports and
roads

affectalogistics

performance.

Maritimeatransport

is

the

backboneaof

international trade and a keyaengine drivingaglobalization. Around 80 peracent of
global tradeaby volume and over 70aper cent by value isacarried by sea and is
handled by portsaworldwide; these sharesaare even higher in theacase of most
developingacountries. A total of 60 per cent of worldaseaborne trade byavolume is
loaded, and 57 per centaunloaded, in developing-countryaports. That is aaremarkable

shift away from previousapatterns, in which developingaeconomies served mainly as
loadingaareas for raw materials and naturalaresources.
1.2. Principlesaof implementing Trade andaTransportation Facilitation
This studyafocuses on analyzing regulatory aspect of tradeafacilitation only.
Within thisascope, the purpose of tradeafacilitation basically is to enhanceathe
efficiency of the administrationaof trade in goods, inaother words, to improve the
legalasystem in a manner that expeditesatrade. Most of regulations andaprocedures
on trade in goodsaare applicable at border, hence thoseaaccount for the majority
amongalegal instruments which are subjectato improvement. According to theatheory


13

of UNECE, such improvementashall be implemented based on the 4aprinciples of
tradeafacilitation as follow:
- Transparency: ato promote theaopenness and accountabilityaof any action
taken by the governmentaor authorities. Information about, includingabut not limited
inalaws, regulations andaadministrative decisions of generalaapplication, budgets,
procurementadecisions and meetings, shouldabe disclosed in a way that theapublic
can readily accessaand use it. Regulatory informationashould be published and
disseminatedaprior to enforcement to allowaparties concerned to take note ofait and
make necessaryachanges. Furthermore, relevantastakeholders and the general public
shouldabe invited to participate in the legislativeaprocess;
- Simplification: toaeliminate all unnecessary elements andaduplications in
trade formalities, processesaand procedures;
- Harmonization: toaalign national procedures, operationsaand documents
with internationalaconventions,

standards

and practices,

e.g.

adoptingaand

implementing the sameastandards as partner countries, oraas part of a regional
integrationaprocess;
- Standardization: to develop formatsafor practices and procedures,
documentsaand information internationallyaagreed by various parties. Standardsaare
then used to alignaand, eventually, harmonize practicesaand methods1.
The modernizationaof procedures mentioned in definitions of tradeafacilitation, is
just one of measuresato attain transparency and simplification. Ifaregulations,
procedural descriptions, formalitiesaare digitalized into a national databaseaand be
published via Internet, it isaextremely easy for interested partiesato access them.
1.3. Benefitsaof Trade and TransportationaFacilitation
The aforementioned Buy-Ship-Pay modeladeveloped by UN/CEFACT
describesaan ordinary international transactionaincluding 7 stages: to buy, prepare
foraexport, export, transport, prepare foraimport, import, and pay. Each stage
consistsaof several steps which requiresatime and costs to carryaout. If there is delay
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14

in aastep, the following ones willabe affected and additional costs willaarise, not to
mentionatime and costs accrue from lackaof transparency, sudden change in
regulations, duplicationain procedure, corruption, orabureaucracy. These costs,

which areadue to trade procedures, areaestimated to contribute to aalarge proportion
of transactionacost, for instance, betweena1 and 15% of importavalue (OECD, cited
inaPoten, 2013). Studies haveafound that: 1 additionaladay of delay in shipping
reducesatrade by 1%, equivalent to a countryagetting 70 km furtheraaway (Djankov,
Freund and Pham, a2006); 1-dayadelay is equivalent to 0,5%atariff (Ponten, 2013);
every extraaday needed to readyagoods for import/export reducesatrade value by
around 4%; anaextra day that goods spendaat the border has a greateranegative
impact on tradeaflows than an extra day spentaat sea for delivering a containeraof
goods (Korinek andaSourdin, 2011). One ofaobjectives of tradeafacilitation is to
eliminate suchadelays, therefore expediteainternational trade. It hasabeen proved that
a reduction of 1aday in importation/exportationamay result anaincrease of 4% in
internationalatrade value; or a reductionaof 4 days in importation/exportationamay
raise theagrowth rate of GDP per capita bya0.1% (WTO, 2012, cited inaPoten, 2013).
Apart from trade costareduction which is beneficial toaenterprises, trade
facilitation bringsaother benefits to the government, forainstance, the efficiency of
control ataborder is improvedain aspect of time andacost, thus administrative
expensesawhich the government incurs will beareduced; the more tradeafacilitation
measures are taken, the moreatraders, investors are attractedato the country, etc. In
brief, theabenefits resulted fromaimplementation of tradeafacilitation measures can
beasummarized as follows:
The benefits of tradeafacilitation to businessesainclude: cutting costs and
reducingadelays; faster customsaclearance and release throughapredictable official
intervention;

simple

commercialaframework

for

doing both

domesticaand

international trade; enhancedacompetitiveness (Poten 2013). Especially, Smallaand
medium-sizedaenterprises (SMEs) account foravast majority of the businessasector
particularlyain developing and the leastadeveloped countries and playaimportant role
in development of theaeconomy. However, SMEs in developingacountries always


15

sufferamore from higher tradeaadministration costs than largeraenterprises because
theyagenerally have less accessato information and lackaexperience inainternational
trade. Inaaddition, they alsoahave to face with complexaand unclear procedure. Trade
facilitation, throughasimplifying and harmonizingadocument and procedure, allow
SMEs satisfying custom procedureastandards with lower costaand more efficiency.
As a result, tradeafacilitation also reduces the gap betweenaSMEs and large
enterprises. Generally, justalarge enterprises with richacapital andaexperience, high
quality humanaresources, as well asabroad relations can gainamuch from complex
tradeaenvironment. Thanks to tradeafacilitation, documents andaprocedures are
simplifiedaand harmonized step byastep which help SMEs toacompete fairly with
largeaenterprises in internationalatrade
Foragovernments, trade facilitation mayaincrease the effectiveness ofacontrol
methods; make the deploymentaof resources more effective andaefficient; correct the
revenueayields;

improve

the

compliance

ofatraders;

accelerate

economic

development; andaencourage foreignainvestment. Foreignadirect investors willabase
on trade costs ofaimporting and exportingagoods and services beforeamaking an
investment decision. Becauseatrade facilitation will improveainfrastructure and
overall tradingaconditions, a country thatahas committed itself toafacilitating trade
will tend toasecure more FDIs and becomeamore integrated into regionalaand global
productionanetworks.
The connection betweenabusinesses and governmentsain tradeafacilitation can
be explainedaas follows: When tradeafacilitation measures are taken, companies
couldabe more effectively control theiraflow of goods betweenacountries, as their
goods couldanow easier entering otheracountries with less restrictions, asawell as
huge quantities ofagoods from otheracountries could easily infiltrateathe domestic’s
market. This willaprobably result in a more efficientadistribution of resources among
theasociety. In addition, fasteracustoms clearance and goodsarelease, less restrictions
to tradeawould lead to a sequence of cuttingacosts for goods, forainstance by
reducing logisticafees. Therefore, economicadevelopments are accelerated, andawill
attract and encourageamore and more foreignainvestments.


16

1.4. Implementationaof Trade and TransportationaFacilitation

This studyafocuses on analyzing regulatoryaaspect of trade facilitationaonly.
Within this scope, theapurpose of trade facilitation basicallyais to enhanceathe
efficiency of theaadministration of trade in goods, inaother words, to improve the
legal systemain a manner that expeditesatrade. Most of regulationsaand procedures
on trade inagoods are applicable ataborder, hence those accountafor the majority
among legalainstruments which are subjectato improvement. According to theatheory
of UNECE, suchaimprovement shall be implemented based on thea4 principles of
trade facilitationaas follow:
- Transparency: to promoteathe openness and accountabilityaof any action
takenaby the government or authorities. Informationaabout, including but notalimited
in laws, regulations andaadministrative decisions of generalaapplication, budgets,
procurement decisionsaand meetings, should be disclosedain a way that the public
can readily accessaand use it. Regulatory informationashould be published and
disseminatedaprior to enforcement to allow partiesaconcerned to take note of it and
make necessaryachanges. Furthermore, relevantastakeholders and the generalapublic
should be invited toaparticipate in the legislative process;
- Simplification: to eliminateaall unnecessary elements andaduplications in
trade formalities, processesaand procedures;
- Harmonization: toaalign national procedures, operationsaand documents
with internationalaconventions,

standards

and practices,

e.g.

adoptingaand

implementing the sameastandards as partner countries, or asapart of a regional

integrationaprocess;
- Standardization: to developaformats for practices andaprocedures,
documents and informationainternationally agreed by various parties. Standardsaare
then used to alignaand, eventually, harmonize practicesaand methods2.
The modernizationaof procedures mentioned inadefinitions of trade facilitation, is
just one of measures to attainatransparency and simplification. If regulations,
2

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