MALAYSIA TRADE AND TRANSPORT FACILITATION ANALYSIS AND RECOMMENDATIONS FOR VIETNAM

FOREIGN TRADE UNIVERSITY DISSERTATION MALAYSIA TRADE AND TRANSPORT FACILITATION ANALYSIS AND RECOMMENDATIONS FOR VIETNAM Major: International Trade Policy and Law Nguyen Ngoc Tra My Ha

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 MySUPERVISOR: 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 Trade in goods 22

2.1.5 Trade in service 26

2.2 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

2.3 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

GATT The General Agreement on Tariffs and Trade

ICC International Chamber of Commerce

LMICs Lower middle income countries

LSCI Liner Shipping Connectivity Index

MITI Ministry of international trade and industry

OECD The Organization for Economic Co-operation and

Development SDT Special and Differential Treatment

TBT The WTO Agreement on Technical Barriers to Trade

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

VCCI Vietnam Chamber of Commerce and Industry

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

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),

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

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

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;

Chapter 3: Current status of Vietnam Trade and TransportaFacilitation;

Chapter 4: Recommendationsafor Vietnam based on lessonsalearned from Malaysia

CHAPTER I

OVERVIEW OF TRADE AND TRANSPORT FACILITATION

1.1 Definition of Trade and TransportaFacilitation

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”

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:

The Buy-Ship-Pay model identifiesathe key commercial, alogistical, 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

Prepare to export

(Commercial

Procedures)

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

Procedures)

Import(Financial Procedures)

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

Table 1.1 The tradingaacross borders indicators

Documents required to export and

import (number)

- Bankadocuments

- Customs clearanceadocuments

- Portaand terminal handling documents

- Transportadocuments Time required to export and

- Inland transport andahandling

- Customsaclearance and inspections

- Port andaterminal handling Cost required to export and

import (US$ per container)

Official costs only, no bribes

- Alladocumentation

- Inland transport andahandling

- Customsaclearance and inspections

- Port and terminalahandling

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:

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

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

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

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

1

UNECE, Trade Facilitation Implementation Guide, viewed on 14th Sep 2015,

<http://tfig.unece.org/details.html>

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

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

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,

proceduraladescriptions, formalities areadigitalized into a national databaseaand be published viaaInternet, it is extremely easy forainterested parties to accessathem Witharegard to applying foraand issuing clearance in exportationaand importation of goods, theamodernization, e.g receipt and handlingacustoms declarations via electronic portal, willaalmost certainly accelerate thoseaprocesses In additions, the reviewaof legal instruments to discoveracontradictions, duplicationsaor unnecessary will probablyabe more efficient with the support ofatechnology

CHAPTER II

CURRENT STATUS AND LESSONS OF MALAYSIA TRADE

AND TRANSPORTATION FACITILATION

2.1 Overview of the economyaand international economic relations in

Malaysia

2.1.1 The political and geographical position

Malaysia isaone of the most energetic South-East Asianaeconomies with industrial growth and politicalastability Consisting of two regionsaseparated by some 640 miles of the SouthaChina Sea, Malaysia is a multi-ethnicapopulation of 30.33 million (2015), multi-religiousafederation of 13 states and three federal territories

2.1.2 Recent economic development

Malaysia isaa highly open, upper-middle incomeaeconomy Malaysia was one

of 13 countries identifiedaby the Commission on Growth andaDevelopment in its

2008 Growth Report to havearecorded average growth of more than 7 percentaper year for 25 years oramore Economic growth was inclusive, asaMalaysia also succeeded in nearlyaeradicating poverty

From an economyadominated by the production of rawanatural resource materials, such as tinaand rubber, even as recently asathe 1970s, Malaysia today has

a diversifiedaeconomy and has become a leadingaexporter of electrical appliances, electronic parts andacomponents, palm oil, and naturalagas After the Asian financial crisis of 1997-1998, Malaysiaacontinued to post solid growth rates, averaginga5.5 percent per year from 2000-2008 Malaysia wasahit by the Global FinancialaCrisis

in 2009 but recovered rapidly, postingagrowth rates averaging 5.7 percentasince

2010

Though extreme povertyais less than 1 percent, pocketsaof poverty remain and incomeainequality remains high relative to otheradeveloped countries:

Malaysia’s giniacoefficient of income inequality stoodaat 0.41 in 2014, compared with 0.31 anda0.33 in the Republic of Korea andaJapan (both as of 2010)

Figure 2.1: Annual GDP Growth of Malaysia in 2005 – 2015 (%)

Source: http://data.worldbank.org/country/malaysia

Malaysia’s near-termaeconomic outlook remains broadlyafavorable, reflecting a well-diversifiedaeconomy, despite some risks The Governmentahas taken steps to broadenathe revenue base, in particular byaintroducing a Goods and Services Taxain 2015 and by removing fuelasubsidies in 2014 Recent increasesain the minimum wage and publicasector salaries to support households’ incomeamay prove challengingato sustain as fiscal consolidation continues, whicharaises the importance of boostingalabor productivity and increasingathe efficiency of the social protection Acceleratedaimplementation of productivity-enhancing reformsato increase the quality ofahuman capital and create more competitionain the economy will be key for Malaysia to secureaa lasting place among the ranks ofahigh-income economies Malaysia has been working toaaddress these challenges In 2010, Malaysia launched theaNew Economic Model (NEM), which aims forathe country to reach high incomeastatus by 2020 while ensuringathat growth is also sustainableaand inclusive The NEM includes aanumber of reforms to achieve economicagrowth that

is primarily drivenaby the private sector and movesathe Malaysian economy into higher value-addedaactivities in both industry andaservices

Figure 2.2: Global competitiveness Index of Malaysia and other countries in

Asia Region (2015)

Source: The World Bank

In the latestapublication of Global Competitiveness Report 2016-2017, Malaysia has already been ranked 25th out of 140 countries, compared to where it was placed 18th out of 138 countries in 2015

2.1.3 Overview of Trade regime

Trade hasabeen an engine of growth for Malaysia in thealast four decades Malaysia has a relativelyaopen trade regime and free tradeaagreements (FTAs) with most of itsaregional trading partners, including the ASEAN, Australia, China, Japan, South Korea and India Export valuesaincreased almost 8 times (from US$30 billion

in 1990 to US$234abillion in 2014), 40% of jobs in Malaysiaaare linked to export activities Malaysia is oneaof the most open economies inathe world, which is now engagingain new mega regional tradeaagreements:

2.1.3.1 WTO

Malaysiaais one of the founding members of the WTO byavirtue of its membership in the GATTasince 1957 In December 2013, Malaysia along with other WTO members signed a Trade FacilitationaAgreement which contains provisions for cooperationa between customs and otheraappropriate authorities

on tradeafacilitation and customsacompliance issues

2.1.3.2 APEC

APEC beganain 1989, when Australia hostedathe first annual meeting of Foreign and TradeaMinisters from 12 Asia-Pacific economies to discussaways to increase cooperation inathis fast-expanding region of the world Malaysiaawas one

of founding member of theaAPEC forum

2.1.3.4 Other FTAs/RTAs:

The intricacies of Malaysia’s tradeacommitments have progressively increased, beginningawith its first foray into bilateral Trade Agreements (BTAs) as followings: the Japan-Malaysia EconomicaPartnership Agreement (JMEPA), signed

in 2004 Followingathis, Malaysia signed FTAs with Pakistan (2007), Chile (2010), India (2010) and Australia (2012), all of which have come into force Moreover, Malaysia has also signed and ratified the Trade Preferential System of the Organization of the Islamic Conference (TPS-OIC) and the Developing Eight Preferential Tariff Arrangement (D8-PTA) Currently, Malaysia

is in the process of negotiating RTAs with the European Union (EU), European Free Trade Association and the US Theagovernment hope next to expand the reach

of its FTAs across the Pacific to the US and otheracountries in the Trans-Pacific Partnership (TPP)

Then, it isafound that the Malaysia is active member of popularaorganization and have effort and willing to contribute on tradealiberalization These new trade agreements come with newaopportunities for the country

2.1.4 Trade in goods

Malaysia experienced a high tradeasurplus of RM94.29 Billion in 2015 The total trade for 2015 grew by 1.2% to reach RM1.466 trillion, compared to RM1.448 trillion in the previous year 2014 Exports grew by 1.9% despiteathe challenging economicaenvironment, to reach a value of RM779.95 billion Exports during the second half of 2015 were resilient and turnedaaround sharply to record a 6.8% growth from -3.1% recorded in the first half of 2015 Imports increasedaby RM2.71 billion, aamarginal growth of 0.4% to RM685.65 billion Faster growth of exports in

2015 resulted in a higher tradeasurplus of RM94.29 billion, representing Malaysia’s achievement of 18th consecutive year of trade surplus The trade surplusaregistered a double-digit growth of 14.3%

Figure 2.3: Malaysia’s monthly external trade performance, 2008 – 2015

Source: Malaysia external trade statistics, Dec 2015

Export Picture:

In 10 years from 2006 to 2016, theaexport trend of Malaysia is steadily upwards exceptafor only one time of extreme down in 2009 due to the global economic crisis In 2015, Malaysiaaexport RM779.95 billion, grew by 1.9% notwithstandingathe challenging economic environment

Exports fromaMalaysia unexpectedly rose 1.5 percent from a year earlier to MYR 67.60 billion in August of 2016, followingaa 5.3 percent decrease in July while market estimated a 1.6 percentadrop

Figure 2.4: Malaysia’s Export Value in 10 years, 2006-2016 (MYR Million)

Source: http://www.tradingeconomics.com | Department of Statistics Malaysia

Malaysia exports mainlyaelectrical and electronic products, integrated circuits (RM277.92 Billion, accounting for 35.6% of totalaexports in 2015) This is the greatest strength of thisacountry due to the development of information technology industry and highaabundance in technologyaworkforce

Followed byachemicals and chemicalaproducts (RM55.14 Billion accounting for 7.1%), oil andagas (accounting for 6.0%), etc

In 2015, the exportasales experienced some significant increasesain:

• Palmaoil and palmabased products (+19.9 percent)

• Electrical & electronicaproducts (+3.0 percent): Continued growthadriven by demand for new applicationsaof internet of things (IoT) for wireless communicationsaand wearable devices

• Crudeapetroleum (+13.9 percent)

Table 2.1: Exporting andaimporting product and commodityastructure of

Malaysia, 2015

Product

Value (RM Million) (%)

Value (RM Million)

Source: Malaysia external trade statistics, Dec 2015

Exports roseato the US (+5.2 percent to MYR 6.9 billion) andaSingapore (+3.2 percent to MYR 10.0 billion) Exports to ASEAN increasedawith strong uptake by Thailand, Vietnamaand the Philippines and FreeaTrade Agreements (FTA) partners The largestaexport markets of Malaysia’s integratedacircuit products

Table 2.2: 10 Majoraexport and import markets ofaMalaysia, 2015

Source: Malaysia external trade statistics, Dec 2015

Imports in 2015aincreased by RM2.71 billion, a marginal growth of 0.4% to RM685.65 billion Some main category of importsais manufactured goods which accountsafor 87.6% with some major products: Electricalaand electronic products (RM201.33 billion), chemicalsaand chemical products (RM65.01 billion), petroleum products (RM 63.47 billion), etc

2.1.5 Trade in service

The serviceasector contribution to exports is behind other countries However, theaservices sector assumes an increasingashare of GDP as the economy matures, as is evident inathe case of developed countries

Figure 2.5: Service sector share of GDP (%) of Malaysia, 2015

2.2 Malaysia’s Transport Infrastructure

Malaysia wasaranked 25th in the Global EnablingaTrade Report 2015 in the transportation services category mainlyadue to its high rankings in theaquality of transportainfrastructure (ranked 14th) and quality of transportaservices (ranked

• 6.9% for sea freightavolume Malaysia hasaworld class internationalaseaports and containerahubs, such as Port Klang, PTP andaother regional ports

• 6.8% for roadafreight volume Road freight played a pivotalarole in the domestic distribution of freightaand last-mile connectivity to seaports, airportsaand rail stations

• 6.1% for rail freight volumeaRail freight was mainly contributedaby cargo volumes from SouthernaThailand which are exported throughaPenang Port and Port Klang The growthais expected to increase furtherawith the full operation of the doubleatrack project between Ipoh and PadangaBesar

Figure 2.6: Regional Standing of Malaysia with selected Asian countries in

Transport and Logistics services

Source: Master Plan 2015- 2020

Malaysia’sastanding in the regionacan be summarized as follows:

• The averageagrowth for air freightadeclined by 0.8% between 2005 and 2013 The freight volume in 2013 was 0.9 million tonesawhich accounted for only 50% that of Singapore and 25% that of Hong Kong

• Malaysia was ranked thirdabehind Hong Kong and Singapore forasea container volume However forasea freight volume, Malaysiaaachieved only 34% that of Indonesia

• Malaysia’satrade cost per container was muchalower than the other selected countriesaexcept Singapore

• In terms of the numberaof procedures involved in building aawarehouse, Malaysia had 2.6 times moreaprocedures which took 1.2 timesalonger than Hong Kong

2.2.1 Current policy and institutional landscape for urban transport

With a landaarea of 329,847 square km, Malaysia ranks 67th among all countries in the world The border ofaMalaysia with its neighbor countries is 2,669

km in totalalength Also, it has a coastline (length between land andasea including islands) of 4,675 km (PeninsularaMalaysia 2,068 km, EastaMalaysia 2,607 km) Malaysia share 2,669 km landaboundaries with a border countries Brunei 381 km, Indonesia 1,782 km andaThailand 506 km.14 Malaysia rankeda25 out of 160 countries in the World BankaLogistics Performance Index (LPI) Report 2014 and attained topaposition among the upper middle-incomeacountries The quality of the logisticsainfrastructure also has been ranked inathe top 25 positions

Efforts toaimprove the provision andaquality of urban transport in Malaysian cities stepped up with theacreation of The Land Public TransportaCommission (SPAD) in 2010 Recognizing a need to provideaunified planning, regulation/enforcement, andaoversight over the land publicatransport sector—both within and among cities—in 2010 the Governmentaof Malaysia established the Land Public TransportaCommission (SPAD), a Federal-level agencyareporting to the Prime Minister’s Department SPAD is a nationalaagency comparable to other Federal line ministries, withathe full legal backing of Malaysia’s Land Public Transport Act of 2010 Few publicaagencies in charge of publicatransport around the world have developedathis level and diversity of capabilities andaresponsibilities in such a short periodaof time SPAD has managed to doathis in (primarily) Peninsular

Integratedaplanning can improve the substantialacost of investments in urban transport isawell-quantified

Table 2.3: Malaysia’s Investment Plans in Public Transport

LRT1 & LRT2 extensions RM11 billion October 2016

MRT Line 2 & MRT Line 3 RM50 billion 2021 and 2022

Source: Land Public Transport Commission

2.2.2 Main sea ports

Malaysia’s portsaact as gateways to the nation’saeconomy, facilitatinga90%

of the country’satrade There are 5 mainaports in Malaysia: PortaKlang, Tanjung Pelepas, Penang, Kuantan, Bintuluaand other 24aports Malaysia boastsaof having two portsain the list ofathe world’s 20abusiest containeraports in terms ofathroughput volumeahandled, namely PortaKlang and Portaof TanjungaPelepas (PTP) whichawere ranked 13th and 17tharespectively (ContainerizationaInternational, 2011) Theseatwo ports are strategicallyalocated alongathe StraitsaofaMalacca, the world’sabusiest shipping laneaand among the mostastrategic, can beaconsidered world-classaports which are ableato host the world’salargest merchantavessels Bintulu Portais the world’s largestaexport terminal foraLNG while JohoraPort is the world’salargest export terminalafor palm oil and isaaccredited by London MetalaExchange to handle its warehousingafacilities andaactivities Malaysia hasaseen an impressiveagrowth among leadingaports in the recentayears, especially inaterms of containerathroughput Thisaimpressive growthain throughput wasamade possible byaamong others favorableaeconomic and tradeaconditions and the expansionain capacity of portsaplus their increasingaefficiency andaproductivity

Barring anythingadramatic, Malaysia’satrade is expected toagrow in the foreseeableafuture Local portsaare busy undertaking expansionaplan to add new berths, increase containerayard space and acquireanew cranes and portavehicles and equipment to beaable to have extra capacityaand handle greaterathroughput volumes This willaforesee well with Malaysia’saambition to become aaregional shipping hub and to reachaits target of handlinga36 million TEU by 2020, asaset in the Third Industrial MasteraPlan 2005-2020 (IMP3)

Ports inaMalaysia are classified asafederal ports, stateaports and privateaports The federal portsawere established as federalastatutory bodies which areaunder the jurisdictionaof the Ministryaof Transportation PortaKlang Authority, Penang Port Commission, Johor PortaAuthority, Kuantan PortaAuthority and BintuluaPort Authority are theamajor examples of this typeaof category Additionally, Lumut Port, SabahaPort Authority, KuchingaPort Authority, RajangaPort Authority and MiriaPort Authority are portsaowned and operated byastate government (MIMA, 2013)

Picture 2.1: Location of majoraMalaysian containeraseaports

The maritimeaindustry of Malaysiaaexperience a dramaticadevelopment since the 1970s after theaGovernment first officially announcedain the Third Malaysia Plan to makeaMalaysia graduallyabecome a well-known maritimeanation (Third Malaysia Plan, 1976) Duringathe next period of FourthaMalaysia Plan, the development andaexpansion of port facilities andainterrelated maritimeaservices, including theaestablishment of new shippingalines, were undertaken to copeawith the growth inafreight traffic and tradeadevelopment The development ofaseaports is the crucial pillarsaof foreign trade and shows out theapotential competitive advantages

of Malaysia’s hinterlands

Theacombined factors of economic liberalizationaand globalization have led

to Malaysia's increased participationain international trade In manyacountries, especially in SouthaEast Asia (SEA) regions, theadevelopments in international trade have triggered highainvestment and development in portsaand logistics infrastructure InaMalaysia, the phenomenal growthaof port throughput has been significantlyacontributing to government decisions on seaportacapacity expansion Seaportacapacity and the volume of tradeamust be in balancedaproportions to preserveaseaport performance as well as ensuring domesticaand international competitiveness

Figure 2.7: Growth of container trade (TEUs) in major Malaysian Ports

Source: The Implications of the Growth of Port Throughput on the Port Capacity: the Case of Malaysian Major Container Seaports, December 2015, Pages 84–98