TRANSPORT AND TRADE FACILITATION IN MALAYSIA AND LESSONS FOR VIETNAM

FOREIGN TRADE UNIVERSITY
FACULTY OF ECONOMICS & INTERNATIONAL BUSINESS
---------------***---------------

GRADUATION THESIS
Major: International Business Economics

TRANSPORT AND TRADE FACILITATION
IN MALAYSIA AND LESSONS FOR VIETNAM

Full name

: Le Quang Minh

Student’s ID

: 1111150138

Class

: A27 – High Quality Program

Intake

: 50

Supervisor

: Assoc.Prof. Trinh Thi Thu Huong

Hanoi, May 2015

i

TABLE OF CONTENT
LIST OF ABBREVIATIONS .............................................................................. iv
LIST OF TABLES................................................................................................. v
LIST OF FIGURES .............................................................................................. vi
INTRODUCTION ................................................................................................. 1
CHAPTER 1: GENERAL THEORY OF TRANSPORT AND TRADE
FACILITATION ................................................................................................... 5
1.1. Overview of trade facilitation ........................................................................... 5
1.1.1. Definition of trade facilitation.................................................................... 5
1.1.2. Benefits of trade facilitation....................................................................... 8
1.1.3. Issues of trade facilitation .......................................................................... 9
1.2. Regional and international policies on trade facilitation .............................. 13
1.2.1. Policy framework .................................................................................... 13
1.2.2. Regional and international organizations working on trade facilitation .... 14
1.2.3. International policies and strategies related to trade facilitation ............... 20
1.3. Key performance indicators of trade facilitations .......................................... 22
1.3.1. Logistics Performance Index (LPI) .......................................................... 22
1.3.2. Global Competitiveness Index (GCI) ....................................................... 24
1.3.3. Enabling Trade Index (ETI) ..................................................................... 25
1.3.4. Global Connectedness Index (GCI – DHL) .............................................. 25
1.3.5. Other indicators ....................................................................................... 26
CHAPTER 2: CURRENT STATUS OF THE DEVELOPMENT OF
TRANSPORT TO FACILITATE TRADE IN MALAYSIA IN THE PERIOD
2005 - 2014 ........................................................................................................... 27
2.1. Overview of Malaysia’s economy ................................................................... 27
2.1.1. Geographic location and political situation of Malaysia ........................... 27

2.1.2. Economic situation of Malaysia ............................................................... 29
2.1.3. Foreign trade of Malaysia ........................................................................ 30
2.1.4. Malaysia’s inward foreign direct investment............................................ 33
2.2. Overview of Malaysia government’s operation of transport and trade
facilitation............................................................................................................. 34


ii
2.2.1. Management of trade sector ..................................................................... 34
2.2.2. Customs and other border agencies .......................................................... 35
2.2.3. Management of transport sector ............................................................... 35
2.2.4. Malaysia’s plans on investing in transport and logistics ........................... 36
2.2.5. Malaysia’s participation in international transport conventions and
agreements ........................................................................................................ 37
2.3. Malaysia’s indicators of trade facilitation ..................................................... 38
2.4. Transport infrastructure in Malaysia ............................................................ 40
2.4.1. Road infrastructure and network .............................................................. 40
2.4.2. Railway infrastructure and network ......................................................... 41
2.4.3. Maritime and ports infrastructure and network ........................................ 42
2.4.4. Airport infrastructure and network ........................................................... 43
2.4.5. Inland waterway infrastructure and network ............................................ 45
2.5. Transport corridors and international supply chains in Malaysia ................ 45
2.5.1. Priority transport corridors ....................................................................... 45
2.5.2. International supply chains integration .................................................... 46
2.6. Transport and logistics services in Malaysia ................................................. 46
2.6.1. Road freight transport services ................................................................ 46
2.6.2. Railway freight transport services ............................................................ 47
2.6.3. Maritime transport and port services ........................................................ 47
2.6.4. Air freight transport services ................................................................... 48
2.6.5. Inland waterway freight services ............................................................. 49

2.6.6. Freight forwarding and warehousing services .......................................... 50
2.6.7. Express freight and postal services .......................................................... 50
2.7. Lessons learnt from transport and trade facilitation in Malaysia ................. 51
CHAPTER 3: SUGGESTIONS TO DEVELOP TRANSPORT TO
FACILITATE TRADE IN VIETNAM FROM 2015 TO 2020 BASED ON
EXPERIENCES OF MALAYSIA ...................................................................... 54
3.1. Vietnam’s practice of transport operation to facilitate trade in the period 2005
– 2014 ................................................................................................................... 54
3.1.1. Overview of Vietnam’s economic situation ............................................. 54


iii
3.1.2. Indicators of trade facilitation in Vietnam ................................................ 58
3.1.3. Transport infrastructure in Vietnam ......................................................... 62
3.1.4. Transport corridors in Vietnam ................................................................ 68
3.1.5. Provision of logistics services in Vietnam................................................ 70
3.2. Government’s perspectives of transport and trade facilitation from 2015 to
2020 ...................................................................................................................... 71
3.2.1. National dimensions ................................................................................ 71
3.2.2. Organizational framework ....................................................................... 72
3.2.3. Sectoral strategies .................................................................................... 73
3.3. Recommendations to develop transport for trade facilitation in Vietnam based
on experiences of Malaysia .................................................................................. 74
3.3.1. Recommendation for transport infrastructure ........................................... 75
3.3.2. Recommendation for transport corridors and international supply chains 76
3.3.3. Recommendation for mechanism of managing trade facilitation activities
.......................................................................................................................... 77
3.3.4. Recommendation for transport and logistics services ............................... 78
CONCLUSION .................................................................................................... 80
LIST OF REFERENCES .................................................................................... 82

APPENDIXES ..................................................................................................... 88


iv

LIST OF ABBREVIATIONS
Abbreviation
APEC
ASEAN
ASEM
ETI
EU
FDI
GATT
GCI
GSO
HCMC
ITC
IWT
KL
KLIA
KTMB
LPI
LRT
MITI
MOIT
MOT
OECD
PPP
RM

TEU
UN COMTRADE
UNCTAD
UNECE
USD
VNR
VNRA
WB
WEF
WTO

Meaning
Asia-Pacific Economic Cooperation
Asia-Pacific Economic Cooperation
Asia – European Meeting
Enabling Trade Index
European Union
Foreign direct investment
General Agreement on Tariffs and Trade
Global Competitiveness Index
General Statistics Office of Vietnam
Ho Chi Minh City
International Trade Center
Inland waterway transport
Kuala Lumpur
Kuala Lumpur International Airport
Keretapi Tanah Melayu Berhad
Logistic Performance Index
Light rail transit
Ministry of International Trade and Industry, Malaysia

Ministry of Industry and Trade, Vietnam
Ministry of Transport, Vietnam
Organization for Economic Co-operation and Development
Public – Private Partnership
Malaysia Ringgit
Twenty-foot equivalent unit
United Nations Commodity Trade Statistics Database
United Nations Conference on Trade and Development
United Nations Economic Commission for Europe
United State Dollar
Vietnam Railway
Vietnam National Railway Administration
World Bank
World Economic Forum
World Trade Organization


v

LIST OF TABLES
Table No.

Title
organization’s

Page

Table 1.1

Some Asia

facilitation

achievements

in

trade

Table 1.2

Detailed issues of transportation and logistics services
policies / strategies

22

Table 2.1

Top 5 exported products of Malaysia in 2012 - 2013

32

Table 2.2

Top 5 imported products of Malaysia in 2012 - 2013

32

Table 2.3

FDI inflows of some ASEAN nations (2008 - 2013)

34

Table 2.4

LPI score and rank of some ASEAN nations (2007 - 2014)

38

Table 2.5

ETI score and rank of some ASEAN nations (2010 - 2014)

40

Table 2.6

Recent and upcoming PPP projects in Malaysia (2011 2015)

53

Table 3.1

Top 10 highest value exporting products of Vietnam (2008
- 2013)

57

Table 3.2

ETI and some of its components of Vietnam (2009 - 2014)

61

Table 3.3

Transport infrastructure score and ranking of Vietnam and
Malaysia

61

Table 3.4

Proportion of freight volume by type of transport in
Vietnam from 2005 to 2013

62

Table 3.5

Vietnam main seaport characteristics, 2010

65

20


vi

LIST OF FIGURES

Figure No.

Title

Page

Figure 1.1

Three Pillars of Trade Logistics and Facilitation

10

Figure 1.2

Structure of policy framework for trade facilitation

13

Figure 1.3

Six key dimensions of LPI

24

Figure 2.1

Malaysia’s GDP growth from 1995 to 2014 (%)

29

Figure 2.2

Malaysia's foreign trade value and trade balance (2005 2014)

31

Figure 2.3

LPI dimensions of Malaysia and some other ASEAN
nations (2014)

39

Figure 2.4

LPI overperformers and underperformers

39

Figure 3.1

Vietnam’s GDP growth from 1995 to 2015 (%)

55

Figure 3.2

Vietnam’s foreign trade value and trade balance (2003 2013)

56

Figure 3.3

Vietnam’s Major Exports and Imports, by Country of
Origin/Destination, 2013

58

Figure 3.4

LPI and its dimensions score of Vietnam (2007 - 2014)

59

Figure 3.5

LPI and its dimensions rank of Vietnam (2007 - 2014)

60


1

INTRODUCTION
1. Study background
Recently, joining more and more regional and international organizations,
expanding diplomatic relations and making bilateral and multilateral cooperation
agreements with various countries and territories have brought a plenty of
opportunities for countries, especially for the developing ones. The biggest
advantage coming along with trade liberalization is that domestic firms are more

likely to expand their business to international market, which means growth in
exporting volume. However, the domestic firms may hardly take all advantages
from international trade liberalization if their countries fail to facilitate trade sector.
In Vietnam, despite the fact that trade activities recently have been positively
contributing to the economic growth with focus on exporting goods that we have
comparative advantages in producing, the limitations in trade facilitation have still
acted as burden for the development. Some milestones had significantly great
effects to export situation of Vietnam, such as: Vietnam became a member of
ASEAN Free Trade Area (AFTA) in 1996; the bilateral trade between the U.S and
Vietnam has developed rapidly after the signing of the U.S – Vietnam Bilateral
Trade Agreement (BTA) in 2001; Vietnam became a member of WTO in 2007 and
upcoming are various potential agreements such as ASEAN - Japan Free Trade
Agreement, Trans-Pacific Strategic Economic Partnership Agreement (TPP),
Vietnam - EU Free Trade Agreement and most importantly, ASEAN Economic
Community (AEC). These events brought promising future to our trade
liberalization and force the exporting volume to rise.
What trade liberation has brought to the world economy is remarkable, but it
will be exploited soon. Consequently, Vietnam’s competitiveness in exporting could
not be maintained strong and may not inactively respond in time to the changes in
international market if we only based on the advantages of those affairs. There has
been extreme reduce in tariffs, with some kinds of goods the tariff is a mere of just
over 0%. In addition, the quota for many products has been eliminated. It is evident
that trade facilitation will help to boost our competitiveness, to launch fresh
initiatives in new sectors and to take advantage of all chances given by trade


2
liberation. Hence, the policy makers of Vietnam need to solve the questions: to
facilitate trade, we should start from where and by which way?
Despite locating in the South East Asia region, and having various geographic,

political and social characteristics as our nation, Malaysia is at higher level of
economic development. Mastering in creating a set of solutions to facilitate trade,
Malaysia would definitely show valuable experiences and be a typical model for
Vietnam in terms of building up and developing a country comprehensively.
Regarding the mentioned background, in order to improve our competitiveness
in exporting and take advantage of opportunities offered by trade liberation, the
issue of creating facilitation as a stable factor of development in trade should be
paid appropriate attention. The issue requires policy maker of Vietnam have a clear
and comprehensive view on every related issues, and learn from other countries that
have been successful on making economic environment convenient, especially
Malaysia. Realizing the essence, urgency of the topic and also possible positive
outcome that might be produced during developing the transportation system with
purpose of facilitating trade as the Malaysian has done, the topic “Transport and
Trade facilitation in Malaysia and lessons for Vietnam” has been chosen for my
graduation thesis at Hanoi Foreign Trade University.
2. Literature review
As analyzed above, due to the fact that trade liberation has provided us with a
lot of opportunities, there have been many academic researches aiming at
investigating its impacts to the economic situation, as well as producing
recommendation to find the best way to improve Vietnam’s ability to expand our
exporting market. Meanwhile, the topic of trade facilitation has appeared lately and
remained quite new. It inarguably deserves more serious concerns from scientists.
During the time this thesis is written, there have been a few academic
materials assessing either transportation situation or trade facilitation in Malaysia
and Vietnam. Needless to say, they are quite informative and worth for reference.
Report of World Bank (WB) in 2013 named “Trade Facilitation, Value Creation,
and Competitiveness: Policy Implications for Vietnam’s Economic Growth”
highlighted the 3 key dimensions of trade facilitation with focus on physical

3
characteristics of trade flows. Another report of WB that went into details of many
aspects in creating trade facilitation named “Facilitating Trade through
Competitive, Low Carbon Transport: The Case for Vietnam’s Inland and Coastal
Waterways” wrote about the intervention of inland and coastal waterways
infrastructure together with relevant policies, theirs benefits and prospect in the
future. “Trade facilitation: Malaysia's experience” by WTO is not less informative
than the 2 papers before as it pointed out what Malaysian did to facilitate trade
mainly depending on adjusting customs and procedures. However, it seemed hard
to find anyone with deep investigation in Malaysia transportation and trade
facilitation. As Malaysia and Vietnam are both in South East Asia region and share
several similarities, it could be better if there was paper considering this issue of
Malaysia and have a connection/comparison with Vietnam.
3. Purpose of the thesis
The thesis details actual practices of developing transportation system to
facilitate trade in Malaysia in the recent 10 years then analyze the problem in
Vietnam within the same period of time. Depending Malaysian’s experience,
possible coordination among sectors and ministries would be considered so as to
recommend feasible suggestions for Vietnam to build up, adjust and maintain the
transport infrastructure to facilitate trade better.
4. Research methodologies
In order to investigating in trade facilitation, the theoretical systems of
reputable international organizations, especially the theory and regulations of WTO,
have been used as basis of the thesis. Moreover, the readers will find various sets of
data to be quoted and combined in the content; those may come from the statistical
data or reports of organizations like UN COMTRADE, WB. Using that data helps
to make critical comparison, draw logical conclusion and get lessons learned from
Malaysia. Additionally, other methods such as inductive method, qualitative method
and theoretical method will also be used.
5. The subject and scope of the thesis

The subject of the thesis is trade facilitation in Malaysia, focusing on the
changes in the effects of transport infrastructure and logistics services. Combining


4
with the practices in Vietnam, the feasibility of solutions will be examined at the
moments and give some recommendations for the development of transport in
preference to support trade facilitation.
The scope of the thesis: as it is impossible to cover all elements of trade
facilitation, the thesis will specify one of them: transport infrastructure in the recent
10 years (from 2005).
6. Structure of the thesis
This thesis is divided into 3 chapters:
-

Chapter 1: General theory of transport and trade facilitation

-

Chapter 2: Current status of the development of transport to facilitate trade
in Malaysia in the period 2005 - 2014

-

Chapter 3: Suggestions to develop transport to facilitate trade in Vietnam
from 2015 to 2020 based on experiences of Malaysia

7. Acknowledgement
I take this opportunity to express gratitude to my supervisor, Associate
Professor Trinh Thi Thu Huong, who directly guided me to complete this thesis as

well as other lecturers of Hanoi Foreign Trade University who have taught me
valuable lessons and knowledge during my 4 years studying there.


5

CHAPTER 1: GENERAL THEORY OF TRANSPORT
AND TRADE FACILITATION
1.1. Overview of trade facilitation
1.1.1. Definition of trade facilitation
The majority of the world has been successful in reducing tariffs and
eliminating commercial quotas in the recent few decades, which partially contribute
to the trend of globalization, especially in terms of international commerce. There
have been a enormous expansion and stronger connections within the international
supply chains and international value chains between highly developed countries,
developing ones and the others who are in the way of transforming. This leads to
the greater demand in supply sources all over the world and, consequently, the
growth in materials/ goods distribution. Together with the flourish of e-commerce,
these above factors has been putting governments under pressures that requires
regulations to be changed to suit with the overall movements of the development of
the world economy and manage its operation better. This demand roots in the
reason that most of the obstacles with international business nowadays do not lie in
tariff or quota, but in the lack of transparency of regulations and customs rules in
transportation system, which cause the increase in both time and cost to do business
transaction and decrease the effectiveness of the economy.
The World Bank (2005) claimed that “Trade facilitation is imperative for
development”. Indeed, investment in activities aiming at facilitating trade is
essential in order to have sustainable development. It is evident that trade
facilitation has played a key role in the development of economy in each country,
and of the whole world in general, as it helps goods and services be delivered

punctually with a lower cost, so it also helps to boost the competitiveness of each
economy. Based on that, countries can take advantages of every single chances
brought by trade linearization. It is believed that unless countries, especially those
developing, make appropriate investments on port and road systems, improve the
effectiveness in customs management and so on, they will fail to seize those
opportunities.


6
Being aware of the significance of facilitating trade at the beginning of 20th
century, WTO members agreed that trade facilitation should be treated as one of the
main issues to be considered. Trade facilitation was first analyzed in details in the
1996 Ministerial conference which took place in Singapore. The topic has received
more and more concerns from not only authorities but also entrepreneurs all over
the world afterwards. In many agreements latter such as ACV, PSI, ROO, ILP,
TBT, SPS and so on, there were some terms working on the simplification of trade
procedures, which initially reflected the spirit of trade facilitation. However, these
remained quite simple and aimed only at cutting red tapes which, in the past, was
used by various in order to protect domestic industry against external one. Not until
December 2013 did the WTO members come up with the final agreement about this
global issue, which was named “The Agreement on Trade Facilitation”. It was
part of a wilder Bali package which is the outcome of the Ministerial Conference in
Bali, Indonesia.
According to ITC (2013): “There is no commonly – used definition of trade
facilitation”. In other words, it is easy to find a lot of ways to approach to this term.
Some originated from trustful sources could be as follows.
In “The Agreement on Trade Facilitation”, WTO (2003) defined trade
facilitation as “the simplification and harmonization of international trade
procedures” with trade procedures being “the activities, practices and
formalities involved in collecting, presenting, communications and processing

data required for the movement of goods in international trade”. The Trade
Facilitation Agreement comprises of provisions for expediting the movement,
release and clearance of goods, including goods in transit. Not only arranging
measures for effective cooperation between customs and other appropriate
governments on trade facilitation and customs compliance problem, it also contains
provisions for technical support and capacity building in this section.
For United Nations Economic Commission for Europe (UNECE) and its UN
Centre for Trade Facilitation and Electronic Business (UN/CEFACT), trade
facilitation is “the simplification, standardization and harmonization of procedures
and associated information flows required to move goods from seller to buyer and


7
to make payment”; in which: simplification could be understood as process of
“eliminating all unnecessary elements and duplications in trade formalities,
processes and procedures”, standardization could be seen as “the process of
eliminating all unnecessary elements and duplications in trade formalities, processes
and procedures” and standardization is the process of “alignment of national
procedures, operations and documents with international conventions, standards and
practices”. Such a definition implies that not only the physical transit of goods is
essential in a supply chain, but also the associated information flows. What is more,
it includes, at the same time, all governmental agencies that intervene in the
movement of goods, and different commercial entities that conduct business and
move the goods. This is in accordance with discussions on the issue ongoing at the
WTO at that time.
Besides, World Bank (WB, 2006) claimed that “as the first generation of trade
reforms, trade facilitation consists mainly of easing of border restrictions to
merchandize trade and liberalization of foreign exchange markets, have been or are
being implemented by the majority of developing countries”. It is becoming
obvious that their successful integration into the world economy increasingly

depends on the realization of a series of complex, behind-border measures that fall
under the heading of trade facilitation. Broadly defined, these measures include
anything from institutional and regulatory reform to customs and port efficiency and
are inherently far more intricate and costly to implement.
In addition, other international organizations have once come up with the
understanding of trade facilitation, such as UNCTACD, APEC and so on (see more
in the appendix 1). While the WTO’s definition above has been used as basis for
WTO’s negotiation afterwards, the one of APEC might be broader as it
encompasses also customs, transportation, goods transit, bank and insurance,
business and telecommunications. Despite the diversity in the definition of trade
facilitation, it is evident that those all demand the higher level of simplification and
harmonization in import – export process and transparency in trade regulations and
operation. They also target at minimizing the complexity and reducing cost during
doing business by using many methods.


8
In short, the term “trade facilitation” within this thesis refers to the
adjustments in policy or procedures whose purpose is to cut down the cost and time
in goods transportation within a country or internationally, excluding tariffs, non –
trade barriers and import quotas.
1.1.2. Benefits of trade facilitation
Generally, all parties shall receive benefits in the event of favorable trade
facilitation. From the perspective of each country, it is obvious that the simpler the
transactions process, the greater amount of goods to be traded, consequently the
more tax coming to the pocket of the government. In addition to this, a higher level
of effectiveness and transparency in providing public services will help authorities
maintain a higher level of confidence and restrain fraud and eruption to make sure
government’s income shall not be lost. Moreover, trade facilitation will boost the
competitiveness strengths of the economy, especially in terms of exporting, hence

contribute to the growth of the economy and attract more foreign investment. From
the perspective of enterprise community, thanks to trade facilitation, it takes much
less time for the freight to reach customers, which lead to a great fall in cost of
inventory, transporting and others that might arise during the dead time. That brings
more competitive advantages to the business, especially one specializing in
providing support services. Besides these, due to the consistency and integrity in
public services of the government like customs procedures or border managements,
businesses can spend less time on paper work. From the perspectives of customers,
they are free from a great deal of cost due to cumbersome procedure or the
likelihood of late delivery.
Benefits brought about by trade facilitation could be observed at nationwide or
international level. For country management, minimizing delay and unnecessary
costs are both positive for attracting foreign investment, assistance for the economy
and creating more jobs. World Bank (2012) shows that time to export goods from
developing countries is 3 times higher than that from developed one. The number of
steps in exporting goods from developing countries is numerous, with many more
signatures to be collected than those in developed one. According to Organization
for Economic Co-operation and Development (OECD, 2011) in a research named


9
“Trade cost: What have we learned”, one day decrease in time spent at sea could
increase trade by about 4.5% for each country. So here come 4 main benefits for
countries, especially developing ones, to facilitate trade:
-

Enhance competitive advantages in trade

-

Invite foreign direct investment (FDI)

-

Encourage small and medium enterprises to join international trade

-

Accelerate the pace of economic growth

For regional or international management, the benefits of trade facilitation are
undeniable. For example, a recent WB research (Helble and Wilson, 2012) on aid
effectiveness finds that 1 dollar of aid for trade facilitation translates into 70 dollars
in exports for recipients. Another example is the APEC region: reforms in countries
that perform below the regional average could increase intra-APEC trade by USD
billion 245 (UNECE, 2010).
1.1.3. Issues of trade facilitation
As being analyzed above, trade facilitation aims at reduce time, cost and
improve the reliability during doing business transaction. However, until now, no
assumption has been officially proved yet to indicate the sources of trade
facilitation. Alberto Perez and John Wilson (WB, 2010) claimed that measures
leading to trade facilitation might be referred by 2 dimensions: one investing in
physical (or hard) infrastructure (highway, railway, port, information technology)
and the other focusing on regulatory reform (or soft infrastructure: the transparency
and effectiveness of customs, border agencies; business environments and other
institutions).
In order to have trade facilitation, each country should think about the
following suggestions:
-

Improve transportation services (including, but not limit to: transport
infrastructure, freight services)

-

Review legislation on trade

-

Restructure supply chains

Those suggestions are displayed in figure 1.1 below, referred to as 3 pillars.


10
Figure 1.1: Three Pillars of Trade Logistics and Facilitation

Source: WB, Trade Facilitation, Value Creation, and Competitiveness:
Policy Implications for Vietnam’s Economic Growth, 2013, p.20
The last pointed has been taken into consideration by UNECE (2013) as a
crucial component in transportation, or exactly, a step in Buy-Ship-Pay model of
UN/CEFACT. In their opinion, adopting a supply chain perspective makes it
possible to view and understand all possible processes and the inter-linkages
between them. It provides the framework to logically connect different actors,
procedures and requirements in one picture of the trade environment. In
emphasizing the dependencies, it becomes clear that improvements are realized
throughout the chain but changes in one area can easily be offset by stalemates in
others.
1.1.3.1. Transportation and logistics services
Logistics is the management of the flow of goods between the point of origin

and the point of consumption in order to meet some requirements, of customers or
corporations (Sunil Chopra and Peter Meindl, 2007, p.34). The resources managed
in logistics can include physical as well as abstract items. The logistics of physical
items usually involves the integration of information flow, material handling,
production, packaging, inventory, transportation, warehousing, and often security.


11
Domestic transportation is usually on the road, while international one mainly takes
place on air or sea. Additionally, this element includes services, equipments and
infrastructure to link between different kinds of transport services (especially
common in multimodal transport). Railway stations, seaports and cargo yard are
used for transit goods in domestic transport, while seaports and airports suit with
that purposes of international transport.
It should be noted that this element also contains non-transport logistics
services. The most popular is cargo warehousing, along with other services offered
at warehouse like packaging, marking, inventory management, assembling. Another
one that might be involved by banks (with insurance or trade finance) is completing
customs procedures. Needless to say, the effectiveness of logistics services depends
on the quality of infrastructure and the diversity of services provided by
governments and private businesses.
Time and cost are the two factors used to measure the effectiveness of
transportation and logistics services. Sometimes, logistics key performance
indicators (KPIs) also help to assess the ability to connect in transportation and
customers’ satisfaction.
In order to approach to trade facilitation, it should be highlighted that: Firstly,
research on the issue should not only limit to congestion, but ought to include
logistics services performed in that infrastructure. Secondly, the cooperation
between government agencies and private business is a must to enhance the
effectiveness of logistics services in trade. Well-planned infrastructure and

transportation system help decrease the time and cost in goods transport. In
summary, improvements in transportation to facilitate trade can be gauged through
time, cost and the level of uncertainty (or reliability). The table demonstrating
impact of improvements in transport infrastructure and logistics services could be
found in the the appendix 2.
1.1.3.2. Trade regulatory procedures
Legislation on trade consists of all procedures and services related to goods
transport passing through borders. It contains the collection of tariffs, the
performance of agreements, the restrictions of purchasing some particular kinds of


12
goods that might harms human health or community security and so on. There are
several reasons leading to the long time in following a procedure: cumbersome
bureaucracy, inconsistent custom, lack of transparency in information, the absence
of information and communication technology.
Obviously, essential adjustments should be taken place to simplify trade
procedures, manage better the officials and have ground for trade facilitation.
1.1.3.3. Restructuring supply chain organizations
The third factor to affect trade facilitation is the way to organize supply chain,
or in other word, restructuring the supply chains. As being analyzed before, one of
various targets of trade facilitation is to reduce cost in transport, so restructuring the
supply chain can increase value added activities for domestic firms, minimize cost
of business support services and other ones that may arise during supply chains such
as cost of goods sold, cost of manufacturing.
As intermediate products cross borders many times before being assembled
into a final good, logistics costs are key for export competitiveness. The Enabling
Trade: Valuing Growth Opportunities program, conducted by the World Economic
Forum, the World Bank and Bain & Co. in 2012, indicated that reducing supply
chain barriers could increase global gross domestic product (GDP) by USD 2.6

trillion, around 5%. This estimate relies on countries improving just two key areas
of trade facilitation – border administration and transport and communications
infrastructure – halfway to global best practice. A less ambitious scenario, that of
improvement halfway to regional best practice, would already lead to a global GDP
boost of approximately USD 1.5 trillion, or 2.6% . The highest relative GDP gains
are focused in Africa and South-East Asia.
More recent and deeper investigation of supply chain planning – both in global
multinationals and companies which are not yet exporting but would like to –
reveals a new focus. Just as the reform drive shifted from tariff reduction to border
management concerns, the new emphasis is on modularity and reliability behind the
border. Both experienced and budding exporters are keen to be able to set up their
sourcing and distribution systems in a harmonized way across countries. Ongoing
research indicates that the key to this may be to convince officials in domestically


13
focused ministries and industries that trade facilitation should be part of their
portfolio of concerns, rather than someone else’s problem.
1.2. Regional and international policies on trade facilitation
1.2.1. Policy framework
The previous section has listed 3 things contributing to trade facilitation:
transportation systems and logistics services, trade procedures and restructuring
supply chain. However, a policy framework is still in need to direct and control the
3 factors mentioned above. A policy framework refers to both regional and
international policies, which are deemed to be soft infrastructure and play a key role
in coordinating trading and transporting goods and logistics services.
Figure 1.2: Structure of policy framework for trade facilitation

Source: National Committee for International
Economic Cooperation, 2011 cited in WB, 2013, p.36

The upper figure illustrates the components of a policy framework.
At the top of the triangle lie macroeconomic policies and strategies targeting at
trade facilitation or going together with international agreements of trade promotion


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which the nation participated in. Basically, such policies and agreements shall
navigate nationwide strategies of trade facilitation. Moreover, there are also policies
compatible with some particular regions or provinces, which help plan further
programs or projects promoting local economy.
In the middle of the triangle lie several institutions including both organizational
structure (government agencies, official associations) and legal framework (law and
legislation). Its purpose is to govern fair competition in trade by facilitating the
economy and implement the policies or strategies in the upper part.
-

Organizational structure refers to a collection of management agencies
in charge of trade facilitation at a high level and organizations which
are due to adhere the regulations mentioned in legal framework.

-

Legal framework refers to law and legislation governing trade, business
activities, transport management, logistics development and building up
infrastructure.

At the bottom of the triangle lie trade competitiveness and transportation
activities. Once again, those 3 factors appearing here are including transport and
logistics services, trade regulatory procedures and supply chain development.
Synchronous cooperation of 3 parts of the triangle will surely increase trade

competitiveness of any nation. Trade competitiveness and facilitations activities
should be conducted within legal framework and organizational structure to satisfy
the demand of national policies/strategies and follow international agreements.
Smooth operation could be achieved as long as there is coordination between
government and private sector.
1.2.2. Regional and international organizations working on trade facilitation
Any country desiring to develop one (or more) of 3 pillars of trade logistics
and facilitation needs well-planned organizational structure and legal framework as
the basis to fulfill the policies/strategies (the top priority – at the top of the triangle).
Such organizational structure and legal framework must, firstly, not cause any
conflicts against any international agreements signed by the country itself, which
are created and controlled by regional or international organizations. What they try
to do are:


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-

Developing

and

administering

international

conventions

and

agreements on trade facilitation.
-

Developing relevant recommendations, guidelines, standards and other
instruments.

-

Providing relevant technical assistance and capacity building to
developing and transition economies.

-

Providing a platform for discussion of trade facilitation matters.

Some organizations play key role all over the world on this issue. They are:
1.2.2.1. World Trade Organization (WTO)
While there was no single agreement specifically focusing on a legal
framework for measures relating to trade facilitation, WTO agreements covered
some aspects of it.
The Customs Valuation Agreement and the Agreement on Rules of Origin
were both complementary General Agreement on Tariffs and Trade (GATT)
agreements relating to the classification and valuation of goods for dispatch
purposes. The Agreement on Pre-shipment Inspection (WTO, 1994) seeks to
establish regulations for conducting the pre-shipment inspection. Some sources also
believe that the Agreement on Technical Barriers to Trade (TBT) of the GATT
1994 (WTO, 1994) also has an impact on trade facilitation. This agreement included
regulations for the adoption of technical regulations and standards, and conformity
assessment so that these regulations did not become obstacles to trade. A similar
approach was adopted to establish the Agreement on the Application of Sanitary

and Phytosanitary Measures (SPS). In Articles V, VIII and X of GATT 1994
(WTO, 1994), other regulations on trade facilitation are presented. At the WTO
Ministerial Meeting held in Singapore in 1996, trade facilitation was officially
included in the agenda for the next round of trade negotiations. This round started
officially in Doha in 2001 as the Doha Development, and still has been continuing.
In negotiations WCO trade facilitation, WTO members seek to draft a new legal
framework for trade facilitation.


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The crucial foundation for trade facilitation agreement was believed to lie in
Articles V, VIII and X GATT 1994. These articles provided written rules that had
arisen since 1947 and covering:
-

Article V - Freedom of transit

-

Article VIII - Fees and formalities connected with importation and
exportation

-

Article X - Publication and administration of trade regulations

These articles were successful at capturing the basic idea of what trade
facilitation is about. The process carried out in the Negotiating Group on Trade
Facilitation (NGTF) has been reviewed whether those articles are sufficient to
promote trade facilitation through efficient border management and effective

domestic procedures. The compulsory clarification and improvement of them has
been based on proposals by WTO Member States.
1.2.2.2. United Nation Economic Commission for Europe, with United Nations
Centre for Trade Facilitation and Electronic Business (UNECE with UN/CEFACT)
One of the UNECE's most prioritized concerns toward trade activities is trade
facilitation and e-commerce. Within the UN system, UNECE is perceived as a focal
point in those areas. In 1960, its was a team was established by UNECE to work on
the the issue all over the world, which was named Working Party No. 4, then was
replaced by the United Nations Center for Trade Facilitation and Electronic
Business (UN/CEFACT). Its slogan is “Simple, Transparent and Effective
Processes for Global Commerce”. Recently, one of its more widely known
recommendations is on Single Windows for export and import information
submission (UNECE Rec.33). UNECE is also a co-founder of the United Nations
Network of Experts for Paperless Trade in Asia and the Pacific (UNNExT).
The objective of the UNECE in the area of trade facilitation and e-commerce
is to assist countries and their institutions to develop their knowledge of facilitating
national and international transactions, improve national competitiveness and their
participation in global markets through the simplification and harmonization of
processes, procedures and information flows. In general, it operates to:


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-

Support and strengthen the capacity of national institutions for trade
facilitation through advisory services and workshops.

-

Help set up national single windows for exportation - importation and

information and its operation.

-

Analyze and streamline business processes to eliminate barriers and
enhance business efficiency.

-

Support the replacement of electronic alternatives to paper documents
of the international supply chain.

-

Support business transactions without paper work.

UN/CEFACT is a subsidiary body of the Intergovernmental Commission for
Trade of the UNECE. It is governed by a bureau consisting of a President and VicePresidents who oversees the management of the UN/CEFACT. They formed a
global representation of experts from intergovernmental organizations, country
authorities and the business community.
Up until now, UN/CEFACT has published:
-

Technical standards, such as specifications illustrating how to develop
one or more commercial standards and / or recommendations.

-

Commercial standards, such as specifications that provide relevant
regulations, guidelines and/or principles within the framework of trade

facilitation and e – commerce.

-

Recommendations on trade facilitation that formally guide public
authorities, the private sector and the business community.

1.2.2.3. World Bank (WB)
The WB’s trade facilitation tasks concentrate on cutting down the costs
associated with transporting goods and services along international supply chain in
terms of money, time or reliability. It connects the poverty to international markets
by reducing trade costs or upgrading their employment, income and consumption
opportunities, thereby contributing to the World Bank Group’s central mission of
poverty reduction.
Priorities for trade facilitation and logistics include:
-

Trade finance.


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-

Improving trade corridors and regional trade facilitation frameworks.

-

Enhancing the effectiveness of border management, including customs,
police, health, quarantine, agriculture, immigration and standards
agencies.

-

Promoting markets for logistics services.

The WB has spent a great amount of budget on its institutional reform projects
and financing of trade infrastructure. A series of diagnostic and implementation tool
were established by WB to help reformers to design and implement trade
facilitation initiatives. Furthermore, it has been widely known as one of the world’s
most trustful sources of trade-related data and knowledge, technical assistance,
project/donor coordination, advisory services, research, and provides supports for
various external partnerships and global advocacy efforts.
1.2.2.4. Other organizations
The 3 organizations above (WTO, UNECE, and WB) have been recognized
for their enormous contribution to trade facilitation. In addition, other international
organizations have their own contributions into the policy framework of trade
facilitation.
The UN Economic Commission for Asia and the Pacific (UNESCAP) is a
UN’s regional commissions which was set up at the same time with OEEC, and is
the regional development arm for the Asia-Pacific region. Regarding trade
facilitation, it supports countries by:
-

Promoting simplification, harmonization and standardization of
business processes to reduce costs and the time of transaction.

-

Facilitating trade and investment, particularly trade finance and trade
online.

-

Enhancing the implementation of trade facilitation environment in the
ESCAP region.

ESCAP also runs projects for building up capacity, conducts researches,
organizes intergovernmental meetings, and provides advisory services to its
member states. ESCAP has established, in cooperation with UNECE, the United
Nations Network of Experts for Paperless Trade in Asia and the Pacific (UNNExT)