TRADE FACILITATION IN SINGAPORE AND LESSON LEARNT FOR VIETNAM

FOREIGN TRADE UNIVERSITY MASTER THESIS TRADE FACILITATION IN SINGAPORE AND LESSON LEARNT FOR VIETNAM Major: International Trade Policy and Law TRAN THUY LINH HANOI - 2016... FOREIGN T

FOREIGN TRADE UNIVERSITY

MASTER THESIS

TRADE FACILITATION IN SINGAPORE AND LESSON LEARNT FOR VIETNAM

Major: International Trade Policy and Law

TRAN THUY LINH

HANOI - 2016

FOREIGN TRADE UNIVERSITY

MASTER THESIS

Trade facilitation in Singapore and lesson learnt for Vietnam

Major: International Trade Policy and Law

Full name: Tran Thuy Linh

SUPERVISOR: Dr Trinh Thi Thu Huong

Hanoi - 2016

I would firstly like to express my gratitude to my supervisor Dr Trinh Thi Thu Huong for her useful comments, remarks and encouragement through the researching process of this master thesis This thesis is a much work better thanks to her supervision

My thanks must also go to Master of International Trade Policy and Law‟s lecturers who gave me aspiring guidance, invaluably constructive criticism and friendly advice throughout the course I am sincerely grateful to them for sharing their truthful and interesting views on a number of issues related to the thesis

Finally, I would like to thank my family and friends for all their precious support

INTRODUCTION 1

CHAPTER 1: OVERVIEW OF TRADE FACILITATION 6

1.1 Conceptualization of trade facilitation 6

1.1.1 Definition 6

1.1.2 TF Main Indicators 10

1.1.3 Impact of Trade Facilitation 15

1.2 Relevant International Organizations’ Agreements/Initiatives on Trade Facilitation 22

1.2.1 WTO's Trade Facilitation Agreement 22

1.2.2 The Facilitation Agenda in Regional Integration Initiatives 23

1.2.3 Other international organizations promoting trade facilitation 24

CHAPTER 2: THE CURRENT STATUS OF TF IN SINGAPORE 27

2.1 Overview of the Singapore economy in main trade indicators 27

2.1.1 Recent overall economic development 27

2.1.2 Foreign direct investment 28

2.1.3 International Trade 30

2.2 Transportation and logistics infrastructure in Singapore 33

2.2.1 Road infrastructure 33

2.2.2 Railway infrastructure and network 35

2.2.3 Maritime and Ports infrastructure and network 36

2.2.4 Airport infrastructure and network 38

2.3 Cross border administration 41

2.3.1 Customs overall performance 41

2.3.2 Information Technology (IT) 43

2.4 Trade facilitation performance of Singapore through indicators 46

2.4.1 Doing Business 46

2.4.2 Corruption perceptions index 48

2.4.5 Logistics performance index (LPI) 51

2.4.6 Liner Shipping Connectivity Index (LSCI) 53

2.5 The experiences behind Singapore’s performance in TF 55

2.5.1 Early awareness of TF issue and actively taking actions 55

2.5.2 Keeping transparency and efficiency in government‟s trade regulation and policies 56

2.5.3 Maintaining world-class transportations physical infrastructure 58

2.5.4 Taking advantage of advanced technological capability 59

2.5.5 Building excellent global connectivity toward a preferred Asia logistics and supply chain management hub 61

2.5.6 Government and Private sectors are pro-active in co-operation 61

CHAPTER 3: CURRENT STATUS OF TRADE FACILITATION IN VIETNAM 64

3.1 Overview of the Vietnam’s economy in main trade indicators 64

3.1.1 Recent economic development 64

3.1.2 Foreign direct investment 66

3.1.3 International trade 67

3.2 Transportation Physical Infrastructure 70

3.2.1 Road Subsector 70

3.2.2 Railway Subsector 72

3.2.3 Inland Waterway Subsector (IWT) 72

3.2.3 Seaports Subsector 73

3.2.4 Air Subsector 75

3.3 Cross border Administration 79

3.3.1 Overall of Customs performance 79

3.3.2 Adoption of Modern Approaches to Customs Administration 80

3.3.3 Information Technology 83

3.3.4 ASEAN and National Single Window 86

3.4.2 Corruption Perception Index 89

3.4.3 Global Competitve Index 90

3.4.4 Global Enabling Trade Index 91

3.4.5 Logistics Performance Index 93

3.4.6 Liner shipping connectivity index 95

3.5 Overall assessment of TF in Vietnam 95

CHAPTER 4 LESSON LEARNT FOR VIETNAM FROM SINGAPORE’S EXPERIENCES IN TRADE FACILITATION 97

4.1 Countries’ Performances Comparison 97

4.1.1 Soft Infrastructures 97

4.1.1 Hard Infrastructures 98

4.2 Lessons Learnt For Vietnam From Singapore’s Experiences 99

4.2.1 Setting the right mindset and attitude 99

4.2.2 Improving transparency and efficiency 100

4.2.3 Upgrading physical infrastructures 101

4.2.4 Enhancing public-private relationship 103

4.2.5 Increasing application of ICT 105

CONCLUSION 107

REFERENCES 109 ANNEX

Table 1: Definitions of trade facilitation 6

Table 2: Singapore international trade 2009-2015 31

Table 3: Trading Across Border in Singapore (DB 2015) 47

Table 4: Top 10 CPI 2015 48

Table 5: Liner shipping connectivity index top 10 countries in 2016 55

Table 6: Tangible benefits of TradeNet 60

Table 7 : Vietnam National Accounts 65

Table 8 : Vietnam international trade 68

Table 9 : Vietnam main seaports characteristics, 2015 74

Table 10 :Vietnam‟s annual CPI result 90

Table 11: Vietnam- Malaysia- Singapore LSCI 95

LIST OF FIGURES Figure 1: Buy-Ship-Pay Model 9

Figure 2: The Global Competitive Index Framwork 11

Figure 3: Singapore GDP at 2010 Market Price 28

Figure 4: Stock of FDI as at Year End (in SGD bil) 29

Figure 5: Singapore Customs and Trade Facilitation 42

Figure 6: Singapore GCI scorecard 49

Figure 7: ETI 2014 top 5 scorecard 51

Figure 8: Top 10 LPI economies, 2016 52

Figure 9 Vietnam in the areas measured by Doing Business 88

Figure 10: Vietnam GCI scorecard 91

Figure 11: Vietnam ETI scorecard 92

Figure 12: Vietnam‟s Logistics Performance Index (LPI) 2016 93

Figure 13: World Bank‟s Logistics Performance Index (LPI) 2010-Customs Performance 94

Chart 1: Road lane Length in Kilometres (end-of-year) 34

Chart 2: LPI of Singapore 53

Chart 3: Liner shipping connectivity index Singapore 54

Chart 4: FDI project licensed in Vietnam (2010-2015) 66

Chart 5: Exports and Imports of services in Vietnam 69

APEC : Asia-Pacific Economic Cooperation

OECD : Organisation for Economic Co-operation and Development UNECE : United Nations Economic Commission for Europe

UNCTAD : United Nations Conference on Trade And Development WTO : World Trade Organization

WCO : World Customs Organization

UN/CEFACT : United Nations Centre for Trade Facilitation and Electronic

Business

LPI : Logistics Performance Index

ETI : World Economic Forum‟s Enabling Trade Index

GCI : Global Competitiveness Index

LSCI : Liner Shipping Connectivity Index

CPI : Corruption Perception Index

GETR : The Global Enabling Trade Report

TI : Transparency International

EDI : Electronic Data Interchange

IT : Information Technology

TFA : Trade Facilitation Agreement

TFAP : Trade Facilitation Action Plan

ICT : Information and Communication Technology

ASYCUDA : Automated System for Customs Data and Management

CEFACT-UNECE : The Center for Facilitation of Procedures and Practices for

Administration, Commerce, and Transportation GATT : General Agreement on Tariffs and Trade

TTFA : Trade and Transport Facilitation Audit

TFSP : Trade Facilitation Support Program

LTA : The Land Transport Authority

ITS : Intelligent Transport System

ERP : Electronic Road Pricing systems

MPA : Maritime and Port Authority of Singapore PPT : Pasir Panjang Terminal

CAG : Changi Airport Group

SIA Cargo : Singapore Airlines Cargo

NPLs : Non-Performing Loans

SOEs : State-Owned Enterprises

TPP : The Trans-Pacific Partnership

ASW : ASEAN Single Window in custom procedure VDR : Vietnam Development Report

VPA : Vietnam Seaport Association

IWT : Inland Waterway Subsector

GDC : General Department of Customs

VCCI : Vietnam Chambers of Commerce and Industry AEO : Authorized Economic Operator

BPR : Business Process Reengineering

VCIS : Vietnam Customs Information System

NSW : National Single Window

PPP : Public-Private Partnership

INTRODUCTION

1 The research issue

In today's open and interconnected global economy, efforts to streamline, speed up, and coordinate trade processes, as much as efforts to further liberalize trade policies, will contribute to the expansion of world trade and help countries to connect to an increasingly globalized production system The recent interest in trade facilitation has come about for several reasons Tariff and quota barriers, particularly on general merchandise flows, are lower than in the past thanks to the success of multilateral and preferential trade agreements along with the global recognition of the benefits of international trade This has sharpened the focus of policy makers and traders on the costs of international trade, which can pose a substantial barrier to trade In deed, trade costs have been remained high due in part

to administrative burdens and inefficient customs procedures In
a world increasingly characterized by globalized manufacturing, just-in-time production, and integrated supply chains, there the need for global rules to facilitate trade is undeniable

As a result, trade facilitation has emerged as a key issue for the world trading system in recent years Its importance was confirmed in December 2013, when WTO members concluded the Trade Facilitation Agreement (TFA) at the WTO‟s Ninth Ministerial Conference in Bali, and in November 2014, when WTO members adopted a Protocol of Amendment to insert this new agreement into the Marrakesh Agreement Establishing the World Trade Organization While trade agreements in the past were about “negative” integration - countries lowering tariff
and non-tariff barriers - the WTO Trade Facilitation Agreement (TFA) is about positive integration - countries working together to simplify processes, share information, and cooperate on regulatory and policy goals To date, 96 WTO Members have ratified the Trade Facilitation Agreement (deposited an instrument of acceptance) Vietnam utterly could not stand beside the global trend However, the countries performance in this area is still quite modest In fact, there is a big gap in comparison with not only developed countries like Hong Kong, or Singapore but

also with other developing ones such as Malaysia Due to the fact that Vietnam also did ratify the Trade Facilitation Agreement of WTO in 15 December 2015, it has to adapt quickly and figure out how to keep up with other members Learning from experiences of top performers is absolutely one of the ways As a leading economy

in the Asia Pacific region, Singapore not only displays an impressive economic growth but also an excellent practices in Trade Facilitation Therefore, the topic "

Trade facilitation in Singapore and lesson learnt for Vietnam" is chosen to be the topic of this master thesis

2 Literature review and the most relevant previous findings

In recent years, with an increasingly important role in trade facilitation that has attracted many attentions of researchers Studies of trade facilitation related countries experiences are also focused, out of which these following researches are typical:

The publication on trade facilitation: “designing and implementing trade

facilitation in asia and the pacific 2013 update” is the outcome of a collaborative

effort between the Asian Development Bank (ADB) and the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) This reference book aims to support the implementation of trade facilitation measures in Asia and the Pacific It attempts to bridge the gap between theory and practice in trade facilitation It provides operational guidance on how to assess the status of trade facilitation, what measures and reforms are necessary, how to design trade facilitation initiatives, how to implement them at national and regional levels, and which organizations can help The book also provides lots of experiences of countries within region, one of which is Singapore - for training on regional trade policy and help shape future trade facilitation measures in Asia and the Pacific

Next relevant publication is: “Trade Facilitation through Customs Procedures: Assessment of APEC’s Progress” by APEC Policy Support Unit in October 2011” One of its main recommendations is that APEC should undertake

cases studies of effectiveness of customs procedures in the region The research emphasized: “there is a dearth of understanding about the effectiveness of customs

and related border procedures, which is essential for streamlining such procedures and minimizing transaction costs A number of APEC economies have made wide-ranging changes that would be worthy of further study to distil the wider lessons from their experiences It is recommended that APEC undertake a series of case studies on the effectiveness of customs procedures in the region, which could be used as benchmarks by others.”

From the overview of these above studies, it can be seen that trade facilitation has received a lot of interest from researchers all over the world as well as in the region However, it seems that there is very few works analysing trade facilitation

of Vietnam in comparison with Singapore This comparison is very important because the neighbouring country has had great success in facilitating trade so far Although the two countries do not contain lots of similarity in term of economic development, there absolutely some precious lesson that suitable for Vietnam situation Being an underdog-country where the awareness of the importance of trade facilitation is still weak, Vietnam definitely needs to learn experiences from top runners Therefore, it is suggested that there should exist a depth and comprehensive research on the current status of Vietnam's trade facilitation and

Singapore‟s experiences in this issue

3 The purpose of the study

The general objective of the thesis is to provide lessons learned from the experiences behind Singapore‟s excellent performance in Trade Facilitation, then to offer suggestions suitable for Vietnam To achieve this overall aim, there are specific tasks that the thesis needs to solve:

 Understanding of basic theoretical issues of trade facilitation, the impact of trade facilitation and relevant international agreement/initiatives

 Analysing the recent situation of the trade facilitation in Singapore, then identifying the core experiences behind the country‟s practices

 Assessing the overall current situation of trade facilitation in Vietnam, then identifying the shortcomings that the country is now facing

 Providing some suggestions for the future development of trade facilitation

in Vietnam by comparing the two countries performances and learning experiences

of Singapore

4 The objecti and scope of the study

The studying object of the thesis is the status of trade facilitation in Singapore and Vietnam and their underlying practices related to trade facilitation implementation The thesis refers to the theories and interpretation of some main trade facilitation indicators also

The thesis mainly analyses the performances in trade facilitation of the mentioned countries within the period of recent 10 years The recommendations are also made to improve trade facilitation situation of Vietnam in short and medium term (10 years)

above-5 New contributions of the study

In comparison with recent researches on the similar topic, the thesis provides some new contributions:

 Creating a comprehensive theoretical basis on trade facilitation: the diversification of trade facilitation definition, benefits and cost related to trade facilitation implementation and summary of latest relevant international agreement/initiatives

 Analysing the current status of trade facilitation in Vietnam in comparison with the situation in Singapore

Identifying the key experiences behind Singapore‟s excellent trade facilitation practices

 Giving the overall assessment on current issues that Vietnam has to face when dealing with trade facilitation, and then making some recommendations to improve the country situation in the future in order to soon keep up with the top performers like Singapore

6 The structure of the thesis

Besides the Introduction, Conclusion, Reference and Annex, the thesis consists of four chapters:

Chapter 1: Overview of Trade Facilitation

Chapter 2: The current status of Trade Facilitation in Singapore

Chapter 3: The current status of Trade Facilitation in Vietnam

Chapter4: Lessons learnt for Vietnam from Singapore‟s experiences

CHAPTER 1: OVERVIEW OF TRADE FACILITATION

1.1 Conceptualization of trade facilitation

1.1.1 Definition

Trade facilitation is one of the four Singapore issues set forth at the 1996 Ministerial Conference, and it is generally referred to as a reduction of transaction costs associated with unnecessary administrative burdens on cross-border movement of goods and services between sellers and buyers

Trade facilitation definition is definitely not a fixed term Its flexible scope leads to variety of definition depending on circumstances of different countries, the nature of trade agreements or what people consider as priorities The following table demonstrates the flexibility of Trade Facilitation due to different context and involved parties:

Table 1: Definitions of trade facilitation International organizations

of the international trade chain

United Nations Centre

for Trade Facilitation and

Electronic Business

(UN/CEFACT)

The simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment

World Customs

Organization (WCO)

The avoidance of unnecessary trade restrictiveness This can be achieved by applying modern techniques and technologies, while improving the quality of controls in

an internationally harmonized manner

World Trade

Organization (WTO)

The simplification and harmonization of international trade procedures, where trade procedures are the activities, practices, and formalities involved in collecting, presenting, communicating, and processing data and other information required for the movement of goods in international trade

Source: Word Trade Report 2015

In general, TF is a concept that considers the simplification, harmonization, standardization and modernization of trade procedures Its main purpose is to reduce transaction costs, time and uncertainty in international trade Nevertheless, international agencies and regional initiatives have adopted various definitions of trade facilitation, emphasizing its different aspects (table 1) The various definitions

of trade facilitation can be differentiated along at least two directions:

Broad or narrow: Narrow definitions focus on improving administrative

procedures at the border, while broad definitions include changes to behind- border measures such as technical barriers to trade as well

the-Soft or hard infrastructure: Some definitions limit trade facilitation to

improvements in trade procedures which do not require making investments in physical infrastructure (apart, perhaps, from better information technology

equipment for customs), while other definitions of trade facilitation include investments in hard infrastructure such as ports, transportation links within the country (roads, railways, etc.) and information and communications technology as well

The narrowest definitions limit trade facilitation to customs and other border operations such as, in practice, at-the-border measures For example, the WCO‟s definition of trade facilitation is associated with its mission, which is to enhance the efficiency and effectiveness of customs administration by harmonizing and simplifying customs procedures The definition by APEC also focuses on at- the-border processes and procedures These cover facilitation measures related to preparation of customs and trade documents, customs clearance procedures, border control, and release of goods

The definitions used by the UN/CEFACT and OECD reflect a broader approach to trade facilitation, covering international trade procedures and associated information flows, and payment along the entire supply chain These include some behind- the-border measures such as product standards and conformity assessment measures, business facilitation, e-commerce, trade finance, and logistics services

In the UN/CEFACT definition, “procedures” are the activities, practices, and formalities required for the movement of goods in international trade Information flows include both data and documents This view of trade facilitation encompasses both cross-border and other processes involved in international trade The rationale and scope of this definition was derived from the UN/CEFACT buy-ship-pay model (Figure 1), which lays down three main processes in international trade transactions

“Buy” refers to activities such as identifying a potential trading partner, establishing

a business contract, and placing an order “Ship” is the most complex, with five main activities: (i) preparing for export, (ii) export, (iii) transport, (iv) preparing for import, and (v) import itself “Pay” represents the payment activity from buyer to seller The various processes involved in trade transaction may be grouped into commercial, transport, regulatory, and financial procedures The Buy-Ship-Pay Model suggests the application of a total transaction approach, which not only

results in optimized regulatory procedures and government control but also in improved business processes

Figure 1: Buy-Ship-Pay Model

Source: United Nations Centre for Trade Facilitation and Electronic Business (UN/CEFAC T) 2008

On the other hand, the definition of Trade facilitation of Portugal-Perez and Wilson (2012), which divided TF measures into two dimensions: investment in

“hard” infrastructure (highways, railroads, ports, etc.) and in “soft” infrastructure (transparency, customs efficiency, institutional reforms, etc.) is an example of the second direction The research defined “soft” and “hard” dimensions of infrastructure are as follow:

Soft infrastructure:

3 Border and transport efficiency aims at quantifying the level of efficiency of customs and domestic transport that is reflected in the time, cost, and number of documents necessary for export and import procedures

4 Business and regulatory environment measures the level of development of regulations and transparency It is built on indicators of irregular payments, favoritism, government transparency, and measures to combat corruption

In this paper, trade facilitation is defined similarly with that direction Hence the analysis of each country situation will mainly focus on those four areas

1.1.2 TF Main Indicators

Given the different definitions of trade facilitation employed by international organizations and the academic literature, a wide range of trade facilitation indicators has been developed When last counted, more than a dozen indicators of trade facilitation had been developed, testifying to the importance of the subject as well as its complexity Among others, the World Bank‟s Doing Business and the Logistics Performance Index (LPI), the World Economic Forum‟s Enabling Trade Index (ETI) and Global Competitiveness Index (GCI), the Liner Shipping Connectivity Index (LSCI) by United Nations Conference on Trade and Development (UNCTAD) and the Corruption Perception Index (CPI) are the primary indicators used in this paper to demonstrate the above-mentioned 4 categories of TF

Doing Business: The Doing Business Report is a study elaborated by

the World Bank Group since 2003 that is aimed to provide objective measures of

business regulations and their enforcement across 185 economies Doing Business

2016 measures aspects of business regulation affecting domestic small and

medium-size firms in 11 areas across 189 economies Ten of these areas—starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency—are included in the distance to

frontier score and ease of doing business ranking Doing Business also measures

features of labor market regulation, which is not included in these two measures Economies are ranked on their ease of doing business, from 1-189 A high of doing business ranking means the regulatory environment is more conducive to the starting and operation of a local firm, The rankings are determined by sorting the aggregate distance to frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each topic The rankings for all economies are benchmarked to June 2015

Global Competitiveness Index: Produced by World Economic Forum, Global

Competitiveness Index (GCI) attempts to quantify the impact of a number of key factors which contribute to create the conditions for competitiveness, with particular focus on the macroeconomic environment, the quality of the country‟s institutions, and the state of the country‟s technology and supporting infrastructure It measures

“the set of institutions, factors and policies that set the sustainable current and medium-term levels of economic prosperity” (in other words, those factors that facilitate or drive productivity)

Figure 2: The Global Competitive Index Framwork

Source: The Global Competitiveness Report 2015-2016

The Global Competitiveness Report 2015-2016: provides an overview of the competitiveness performance of 140 economies
and thus continues to be the most comprehensive assessment of its kind The GCI combines 114 indicators that capture concepts that matter for productivity These indicators are grouped into 12 pillars (Figure 2): institutions, infrastructure, macroeconomic environment, health
and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation These
are in turn organized into three sub-indexes, in line with three main stages of development: basic requirements, efficiency enhancers, and innovation and sophistication factors The three sub-indexes are given different weights in the calculation of the overall Index, depending on each economy‟s stage of development, as proxied by its GDP per capita and the share of exports represented by raw materials While all of the pillars described above will matter to a certain extent for all economies, it is clear that they will affect different economies in different ways corresponding with different stages

of development in the table below:

Global Enabling Trade Index: The Global Enabling Trade Report (GETR)

series has been published by the World Economic Forum since 2008, initially on an annual basis, and biennially since 2010 From the beginning, the assessment has been based on the Enabling Trade Index (ETI) For the 2014 edition, coverage increased from 132 to 138 economies, which together account for 98.8% of world GDP and 98.3% of world merchandise trade The index is used to assess the quality

of institutions, policies and services facilitating the free flow of goods over borders and to their destinations The ETI framework captures the various dimensions of enabling trade, breaking them into four overall issue areas, called Sub-indexes: Sub-index A Market access: measures the extent and complexity of a country‟s tariff regime, as well as tariff barriers faced and preferences enjoyed by a country‟s exporters in foreign markets

Sub-index B Border administration: assesses the quality, transparency and efficiency of border administration of a country

Sub-index C Infrastructure: assesses the availability and quality of transport infrastructure of a country, associated services, and communication infrastructure, necessary to facilitate the movement of goods within the country and across the border Sub-index D Operating environment: measures the quality of key institutional factors impacting the business of importers and exporters active in a country

These four areas are in turn subdivided into components, called pillars, that capture more specific aspects within their respective broad issue areas Each of them is composed of a number of indicators

Logistic Performance Index (LPI): The indicator has been introduced by

World Bank for every two years since 2007 The LPI is based on a worldwide survey of operators on the ground (global freight forwarders and express carriers), providing feedback on the logistics “friendliness” of the countries in which they operate and those with which they trade The LPI is an interactive benchmarking tool created to help countries identify the challenges and opportunities they can face

in their performance on trade logistics and what they can do to improve their performance The LPI 2016 allows for the comparisons across 160 countries all over the world

The LPI measures the logistic friendliness of countries, ranking them according to customs, infrastructure, ease of arranging shipments, quality of logistics services, tracking, tracing and timeliness, which is explained as follow:

 Efficiency of the clearance process (i.e., speed, simplicity and predictability

of formalities) by border control agencies, including customs;

 Quality of trade and transport related infrastructure (e.g., ports, railroads, roads, information technology);

 Ease of arranging competitively priced shipments;

 Competence and quality of logistics services (e.g., transport operators, customs brokers);

 Ability to track and trace consignments;

 Timeliness of shipments in reaching destination within the scheduled or expected delivery time

Liner Shipping Connectivity Index (LSCI) is one of trade facilitation‟s

indicators that is introduced by United Nations Conference on Trade and Development (UNCTAD) This indicator captures how well countries are connected

to global shipping networks based on five components of the maritime transport sector: number of ships, their container-carrying capacity, maximum vessel size, number of services, and number of companies that deploy container ships in a country‟s ports The index is generated as follows: for each of the five components,

a country's value is divided by the maximum value of that component in 2004, and for each country, the average of the five components is calculated This average is then divided by the maximum average for 2004 and multiplied by 100 In this way, the index generates the value 100 for the country with the highest average index of the five components in 2004

The higher the index, the easier it is to access a high capacity and frequency global maritime freight transport system and thus effectively participate to international trade Therefore, LSCI can be jointly considered as a measure of connectivity to maritime shipping and as a measure of trade facilitation It reflects the strategies of container shipping lines seeking to maximize revenue through market coverage

Corruption perceptions index: first launched in 1995 by Transparency

International (TI), Corruption Perceptions Index (CPI) is a composite indicator annually ranking countries “in terms of the degree to which corruption is perceived

to exist among public officials and politicians” (Lambsdorff, 2010) This index is based on corruption related surveys provided by several sources such as the Freedom House, the Economist Intelligence Unit, the Global Insights, the Institute for Management Development or the World Economic Forum Data are rescaled, standardizing the scores using “matching percentiles” between 0 and 10, and then applying a beta-transformation to the matched scores The final CPI score for a country

is the average of these transformed values (only if, at least three sources are available)

The Corruption Perceptions Index (CPI) 2015 was launched by Transparency International (TI) on 27 January 2016 in Berlin, ranking 168 countries and territories based on the business people and country experts‟ perceptions of public sector corruption Not one of the 168 countries assessed
in the 2015 index gets a perfect score and two-thirds score below 50, on a scale from 0 (highly corrupt) to

100 (very clean) More than 6 billion people live in a country with a serious corruption problem (countries with the score less than 50)

1.1.3 Impact of Trade Facilitation

1.1.3.1 The theory and measurement of trade facilitation

Existing models of international trade can be used to better understand the trade and economic effects of the TF

Trade facilitation aims to reduce trade costs, which includes all costs apart from the cost of production incurred in getting a good from the producer to the final consumer Though trade models may differ in their assumptions, their conclusions about how a reduction in trade costs creates economic benefits are in many ways complementary

The simplest framework that can be used to understand the effect of trade facilitation is the “iceberg” model, which draws an analogy between the way trade costs reduce the value of goods to both exporters and importers and the way an iceberg melts as it moves through the ocean Inefficient trade procedures result in the importer paying a higher price for the traded good and the exporter receiving a lower price for it Compared to a tariff, inefficient trade procedures weigh more heavily on economies, since in the case of a tariff, part of the difference between what the importer pays and what the exporter receives ends up as tariff revenues to governments

If a country improves its trade procedures so that trade costs are reduced to zero, this price wedge disappears As a result, importers benefit from a lower price

at the same time that exporters receive a higher price for the traded good Trade

facilitation increases the welfare of both exporting and importing countries by improving their terms of trade, producing a “win- win” outcome

The analysis in the “iceberg” model can be extended to more general settings that allow for complex interactions between products, markets and economies The Ricardian and Heckscher-Ohlin theories of trade assume that differences

in productivity and endowments of production factors, respectively, create a basis for countries to specialize in and export the good in which they have a comparative advantage In both models, trade facilitation increases the scope for specialization and trade among countries Furthermore, the Heckscher-Ohlin model predicts that trade facilitation can improve the real income of workers in labour-abundant developing countries

The “new trade theory” associated with Krugman implies that high trade costs lead both to less trade and to a concentration of manufacturing production in developed countries This is partly explained by the operation of increasing returns

to scale in manufacturing - the average cost of production falls as the volume of production increases This economic theory suggests that small developing countries that do not wish to be overly dependent on their agricultural or natural resource sectors should have a strong interest in implementing trade facilitation reforms, as lower trade costs increase demand for developing countries‟ manufactured goods and reduce the concentration of manufacturing in bigger markets

The latest research in trade theory brings firm heterogeneity and global value chains to the fore The “new new trade theory” is meant to explain why only a few large and productive firms are able to enter the export market, while others only sell domestically In this theory, trade facilitation reduces both variable trade costs (trade costs that vary with the scale of trade) and fixed trade costs (trade costs that must be incurred prior to entering the export market), such as learning the trade procedures in a country This allows not only existing exporters to capture a larger share of the export market, but also firms with a lower level of productivity than incumbent exporters to enter the export market for the first time

Supply chain models recognize that the components embodied in complex final goods are made in many different countries As a result of this way of organizing global production, trade costs cumulate and are magnified along the value chain so that inefficient border procedures have a substantial deterrent effect

on trade Conversely, the positive effect of trade facilitation on value chain trade is magnified and will increase specialization in those production stages in which countries have a comparative advantage

1.1.3.2 Empirical Evidence on benefits of Trade Facilitation

Empirical studies of trade facilitation are limited but most of those illustrate the significance of burden associated with transport costs or other trade-related transaction costs, and hence potential trade or welfare gains from elimination of such costs Some studies focus on a particular element of trade facilitation-such as customs procedures while others model trade facilitation as efforts in multiple dimensions or as a collective effort

Modernization of customs techniques also can reduce administrative costs of customs, and thus facilitate trade A study by the Australian Department of Foreign Affairs and Trade and Chinese Ministry of Foreign Trade and Economic Cooperation (2001) focuses on the benefit of introducing information technologies

to customs administration, suggesting that moving to electronic documentation for trade would yield a cost savings of some “1.5 to 15 percent of the landed cost of an imported item.” Hertel, Walmsley and Itakura (2001) also examine the impact on trade of greater standards harmonization for e-business and automating customs procedures between Japan and Singapore They find that reforms would increase trade flows between these countries as well as their trade flows with the rest of the world

Expediting customs clearance procedures reduces the discretionary power of customs officials, thus reducing the scope for corruption More transparent border procedures and regulations are particularly burdensome for the many small and medium sized firms in developing countries, including those landlocked nations

with extremely difficult access to trade routes The introduction of EDI (electronic data interchange) systems in Chilean customs led to savings of over US$1 million per month, for a system cost of US$5 million (WTO, 2000)

Another study explicitly associates limited capacity of ports and inefficient customs procedures with time cost Hummels (2001) estimates that one-day less in delivery times— whether associated with waiting time in ports or delays in customs—on average around the world reduces landed costs of goods by 0.5 percent Said differently if developing countries were to shave off an average of 1 day in the time spent handling of all of their trade, the savings would amount to some US$240 billion annually Each year, Vietnam shipping companies lost 100 millions USD because of delay in custom procedure This figure is estimated to be

between 180-200 millions USD in 2020

Wilson, Mann, and Otsuki (2004) models trade facilitation in four dimensions- port efficiency, customs environment, regulatory environment and service sector infrastructure in order to reflect the diverse scope trade facilitation Their analysis of

75 global countries demonstrates that a catching up of below-average countries halfway to the global average in each of the four trade facilitation categories would increase world trade by approximately $377 billion dollars—an increase of about 9.7 percent About $107 billion (2.8 percent) of the total gain comes from the improvement in port efficiency and about $33 billion (0.8 percent) results from the improvement in customs environment The gain from the improvement in regulatory environment is $83 billion The largest gain comes from an improvement

in services sector infrastructure and e-business usage ($154 billion or 4.0 percent) Some studies model trade facilitation as a reduction of total trade-related transaction costs without specifying the sources Asia-Pacific region, the Asia-Pacific Economic Cooperation (APEC) (1999) find that a reduction in trade costs from trade facilitation efforts vary from 1 percent of import prices for industrial countries and the newly industrializing countries of Korea, Chinese Taipei and Singapore, to 2 percent for other developing countries The report estimates that APEC merchandise exports would increase by 3.3 percent from trade facilitation

efforts Francois, van Meijl, and van Tongeren (2003) estimates that a 1.5 percent reduction of trade-related transaction costs would result in a $78 billion increase in global welfare According to a study by Walkenhorst and Yasui (2003), welfare gains as a result of a 1 percent reduction in trade-related transaction costs are estimated to amount to about US$40 billion worldwide The APEC investigation demonstrated that trade facilitation could exceed the impact of trade liberalization and create APEC a 0.26% direct increase (nearly US$45 billion) in GDP, but the growth led by trade liberalization would be about a half of the gain from trade facilitation In addition, a recent WB research (Helble, Mann and Wilson, 2012) on aid effectiveness finds that $1 of aid for TF translates into $70 in exports for recipients

At the macro level, these look at the positive effects on the trading environment and trade volumes At the micro level, these studies assess the ease of doing trade and a firm's export performance, measured as export intensity and diversity In addition, trade facilitation benefits governments as well by enhancing the effectiveness of control methods

Reduction in trade transaction costs, which is one of the expected benefits of trade facilitation measures, does not fully capture the potential benefits associated with trade facilitation Trade facilitation is also expected to reduce uncertainties in trade transactions and a more inclusive participation of the private sector in

international trade

1.1.3.3 Potential cost of implementing Trade Facilitation measures

The above studies focus on the returns to efforts in trade facilitation Estimation of the costs associated with the efforts in trade facilitation is crucially missing in the empirical literature Analysis of such costs would be particularly important in case of capacity building design in trade facilitation as priority should

be given to the most cost effective element of trade facilitation Supply of port or IT (Information Technology) infrastructure may be highly effective, but it is likely a costly option compared to reforms of some of trade-related regulations

Some developing countries may view costs associated with implementing trade facilitation measures as prohibitive, but evidence suggests otherwise The introduction and implementation of trade facilitation measures do entail start- up costs for government agencies; however, these reforms eventually reduce government expenditures by enhancing transaction efficiency and transparency, eliminating duplicative functions, and allowing a more economical and efficient use

of administrative resources In practice, some of the initial costs are also transferred

to traders through charges for services provided

According to an OECD‟s research, several types of cost are involved in implementing trade facilitation reforms are:

(i) Institutional costs Trade facilitation generally requires a change in the

attitude of institutions involved in the facilitation process This may sometimes have

to be accompanied by the restructuring of existing institutions or the introduction of new ones These changes may entail challenges as new mechanisms are put in place

to increase information sharing and cooperation among control agencies and related ministries Implementing some trade facilitation measures may also involve the redeployment of staff to new trade support activities, as in the case of Singapore after the establishment of its electronic trade documentation single window system Clear understanding and careful management of the new measures will be key to minimizing the political fallout, and achieving timely and far-reaching trade facilitation reform

(ii) Regulatory and legislative costs Some trade facilitation measures may

require amendment of existing regulatory and/or legal systems or new legislation These entail costs as laws and regulations are harmonized with those of other trade partners to incorporate best practices and address emerging issues such as the use of electronic documents and e-commerce

(iii) Equipment and training costs Trade facilitation is often associated with

the automation and computerization of trade procedures The cost of setting up electronic data interchange systems and even internal computer networks may be

expensive for some developing economies, especially when the recurring costs of maintaining and updating both hardware and software and training staff are taken into account However, continuous advances in IT and knowledge management have made computer systems increasingly affordable, allowing progressive investments in automated systems as funds become available

These cost concerns should not deter countries from pursuing trade facilitation Trade facilitation can often be significantly achieved without investing

in a fully automated and computerized system Merely simplifying rules, procedures, and regulatory processes, and investing in port and border crossing infrastructure and equipment such as container scanners, can considerably expedite control and clearance of goods at borders As such, optimizing the use of the existing infrastructure, equipment, and human resources can yield early and significant efficiency gains

(iv) Other costs The potential loss of customs revenue is an important concern

for developing countries that derive a significant portion of government revenue from customs duties However, trade facilitation does not generally imply such revenue losses Trade facilitation measures are expected to increase trade flows, which may provide additional opportunities for revenue collection In addition, while most trade facilitation measures are expected to be revenue-neutral, the adoption of some measures, such as risk management systems and post-clearance audits, have often resulted in higher revenues for customs authorities Revenue leakages through corruption can also be expected to fall as procedures become more transparent

Overall, savings from implementing trade facilitation measures are expected to far outweigh any setup and operating costs involved in implementing them This is particularly true for some of the more advanced and far-reaching trade facilitation measures such as electronic single window, risk management, and post-clearance audit mechanisms

1.2 Relevant International Organizations’ Agreements/Initiatives on Trade Facilitation

1.2.1 WTO's Trade Facilitation Agreement

Traders from both developing and developed countries have long pointed to the vast amount of “red tape” that still exists in moving goods across borders, and which poses a particular burden on small and medium-sized enterprises As a result, trade facilitation has emerged as a key issue for the world trading system in recent years Its importance was confirmed in December 2013, when WTO members concluded the Trade Facilitation Agreement (TFA) at the WTO‟s Ninth Ministerial Conference in Bali, and in November 2014, when WTO members adopted a Protocol of Amendment to insert this new agreement into the Marrakesh Agreement Establishing the World Trade Organization The TFA will enter into force once two-thirds of WTO members have completed their domestic ratification process This agreement is now considered the most important and efficient tool to boost trade facilitation

The TFA focuses on streamlining, harmonizing and modernizing customs procedures It has enormous potential for reducing trade costs and times, particularly in developing and least-developed countries In deed, The TFA contains provisions for expediting the movement, release and clearance of goods, including goods in transit It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues It further contains provisions for technical assistance and capacity building

in this area The Agreement will help improve transparency, increase possibilities

to participate in global value chains, and reduce the scope for corruption

The TFA was the first Agreement concluded at the WTO by all of its Members The TFA is groundbreaking because it provides for assistance to developing and least-developed countries to help them implement the Agreement The Trade Facilitation Agreement Facility, launched by the WTO in July 2014, is designed to help deliver this support to them The Trade Facilitation Agreement has three sections Full text and details is now available in the WTO official website

An amendment protocol for the Trade Facilitation Agreement was adopted
by the General Council in November 2014 to bring the TFA into the WTO‟s legal framework The Agreement will enter into force when two-thirds of WTO members ratify the TFA and deposit their instruments of acceptance with the WTO Secretariat Hong Kong, China, became the first member to do so in December

2014 To date, 96 WTO Members have ratified the Trade Facilitation Agreement (deposited an instrument of acceptance).The list of WTO Members that have presented the instrument of ratification to date is now available in the organization official website

1.2.2 The Facilitation Agenda in Regional Integration Initiatives

Trade facilitation agenda also is addressed within some regional integration initiatives Those regional integration initiatives cover selected aspects of trade facilitation, mostly aspects related to customs procedures Trade facilitation principles are not implemented as enforceable agreements but rather as action programs in regional integration initiatives

1.2.2.1 The Asia-Pacific Economic Cooperation (APEC)

Within the Asia-Pacific region, the Asia-Pacific Economic Cooperation (APEC) has committed to regional trade facilitation initiatives since the launch of the Osaka Action Agenda in 1996 Its focus has been on simplification and standardization of customs procedures APEC has played a significant role in promoting trade facilitation The APEC ministers of trade endorsed a set of nonbinding principles for trade facilitation in 2001, and committed to reduce their trade costs by 5% over 5 years In an effort to reach that goal, each APEC member prepared a trade facilitation action plan (TFAP) and reported their progress annually By 2004, 1,300 items had been selected in individual countries‟ TFAPs, mainly in the subcategory of customs procedures; more than half of these had been completed and a further quarter of the measures were in progress.178 A follow- up initiative aimed at reducing trade costs by another 5% (TFAP II) was launched in

2008 Although the extent to which these initiatives have led to trade facilitation

remains unclear, the voluntary but systematic and collaborative approach to trade facilitation developed by APEC provides a potentially useful model for strengthening regional cooperation in this area, including by providing an inventory

of trade facilitation measures and by highlighting examples of best practice

1.2.2.2 Association of Southeast Asian Nations (ASEAN)

The ASEAN has taken a particularly proactive role in trade facilitation since

1993, when its members agreed to establish an ASEAN Free Trade Area Since then, the ASEAN Customs Agreement (1997), the ASEAN Framework Agreement

on the Facilitation of Goods in Transit (1998), the ASEAN Framework Agreement

on Multimodal Transport (2005), and the implementation of the ASEAN Framework Agreement on Mutual Recognition Agreements have all further contributed to facilitating intraregional trade As part of the strategy for ASEAN customs integration (2002), efforts have been made to implement the ASEAN Harmonized Tariff Nomenclature to standardize information parameters for customs release and clearance, and to establish the ASEAN customs declaration document, ASEAN cargo-processing model, and ASEAN single window The recent ASEAN Single Window Agreement (2005) is the most significant and far-reaching ASEAN commitment relating to trade facilitation The decision by ASEAN economic ministers to include logistics in the priority integration sector is another milestone commitment related to trade facilitation Regional cooperation in transport, infrastructure, standards and conformance, and information and communication technology (ICT) (e-ASEAN) also impacts on trade facilitation While these initiatives have contributed to narrowing the range of trade costs among ASEAN members, differences in trade efficiency in the individual ASEAN countries remain wide

1.2.3 Other international organizations promoting trade facilitation

The United Nations Conference on Trade and Development (UNCTAD) is

actively involved in trade facilitation at a global level among United Nations agencies It particularly encourages participation of developing countries in trade

facilitation initiatives A notable program run by the UNCTAD is Automated System for Customs Data and Management (ASYCUDA), a customs software program involving over 80 countries ASYCUDA aims at speeding up customs clearance through the introduction of computerization and simplification of procedures and thus minimizing administrative costs to the business community and the economies of countries The system handles manifests and customs declarations, accounting procedures, transit and suspense procedures Much of UNCTAD‟s trade facilitation activity has involved the transport sector

The Center for Facilitation of Procedures and Practices for Administration, Commerce, and Transportation (CEFACT-UNECE) has encouraged the harmonization and automation of customs procedures and information requirements

It issues the internationally recognized recommendations for electronic data interchange and data interchange for administration, commerce and transport

The World Customs Organization (WCO): It is now the voice of 180 Customs

administrations which operate on all continents and represent all stages of economic development With decades of experience in implementing global Customs standards, the World Customs Organization (WCO) is an important source of expertise and support for its 179 Member countries, covering 98 percent of world trade WCO standards and technical assistance delivery will support the global uniform implementation of the TFA

The World Bank has been actively supporting Trade Facilitation so far by

project lending (transport, customs, quality standards), technical assistance loans (customs modernization) and policy advice (export promotion and competition) Indeed, the Bank invests heavily in trade facilitation In fiscal year 2013, for example, the World Bank spent approximately $5.8 billion on trade facilitation projects, including: Customs and border management, streamlining documentary requirements, trade infrastructure investment, logistics and transport services, etc

In addition, the World Bank‟s trade facilitation experts have developed a range

of toolkits such as Trade and Transport Facilitation Audit (TTFA), data tools like

Logistics performance index (LPI) and publications that help developing countries

improve their trade facilitation efforts

The group is also engaged heavily in supporting implementation of the new World Trade Organization (WTO) Agreement on Trade Facilitation and the adoption of other international standards The Trade Facilitation Support Program (TFSP), managed by the World Bank Group's Trade and Competitiveness Global Practice, provides support for countries seeking assistance in aligning their trade practices with the World Trade Organization Trade Facilitation Agreement (WTO TFA).TFSP helps developing countries implement trade facilitation reforms aimed

at improving trade systems, services, and practices, potentially leading to increased

trade, investments, job creation, and private sector competitiveness

CHAPTER 2: THE CURRENT STATUS OF TF IN SINGAPORE

2.1 Overview of the Singapore economy in main trade indicators

Singapore is located in South Eastern Asia, between Malaysia and Indonesia The country's population in mid year 2015 was 5,535,002 people with 719.1 km2 land area Singapore has been a member of the Association of Southeast Asian Nations (ASEAN) since 8 August 1967 and of Asia-Pacific Economic Cooperation (APEC) since November 1989 and last but not least of World Trade Organization (WTO) since 1 January 1995 The country also did ratified the Trade Facilitation Agreement of WTO in 8 January 2015

2.1.1 Recent overall economic development

For the whole of 2015, the economy expanded by 2.0 per cent, moderating from the 3.3 per cent growth in 2014 All sectors grew in 2015, with the exception

of the manufacturing and transportation & storage sectors The wholesale & retail trade and finance & insurance sectors were the key contributors to overall GDP growth The manufacturing sector contracted by 5.2 per cent, reversing the 2.7 per cent growth in 2014 All clusters, except for the chemicals cluster, recorded a decline in output in 2015.By contrast, the services producing industries expanded by 3.4 per cent in 2015, similar to the 3.6 per cent growth in 2014 The wholesale & retail trade and finance & insurance sectors registered the strongest growth In particular, the wholesale & retail trade sector expanded by 6.1 per cent, improving from the 2.1 per cent growth in 2014 Growth was supported by both the wholesale trade and retail trade segments, with the latter driven by motor vehicle sales The finance & insurance sector grew by 5.3 per cent, slowing from the 9.1 per cent growth in 2014 Growth was supported by the fund management, insurance and others segments The construction sector expanded by 2.5 per cent in 2015, which is slower than the 3.5 per cent in 2014 The moderation in growth was largely due to sluggish private sector construction activities On the other hand, the transportation & storage sector showed a weaker performance in the last quarter of 2015 due to a drag from the water transport segment

Figure 3: Singapore GDP at 2010 Market Price

Source: yearbook of statistics singapore, 2016

For the whole of 2015, all sectors contributed positively to GDP growth, except for the manufacturing and transportation & storage sectors The wholesale & retail trade sector was the largest contributor (1.1 percentage-points) to GDP growth, followed by the finance & insurance sector (0.7 percentage-points)

Gross national income per capital in Singapore witnessed a slow gradually increase in recent year In 2015 it reached USD69,283 per capta which still relatively high in comparison with other countries in the region and remained its position in high income group

2.1.2 Foreign direct investment

Singapore has the most conductive environment for business as compared to the rest of its neighbors - and the world According to the Economist Intelligence Unit, Country Forecasts Report in 2014, the country was ranked the most attractive

as an investment location, both regionally and globally Factors taken into consideration for ranking purposes were supportive government policies, attractive labour market conditions, a sound infrastructure and financing efficiency

As a result, Singapore continued to attract significant amount of foreign capital in recent years (figure 4)

Figure 4: Stock of FDI as at Year End (in SGD bil)

Source: foreign direct investment in singapore 2014

The stock of Foreign Direct Investment (FDI) reached $1,024.6 billion as at end 2014 This is a rise of 18.0% from $868.1 billion recorded in 2013 Direct equity investment which includes paid-up capital and attributable reserves, accounted for the bulk of FDI ($938.8 billion or 91.6 per cent) Net lending from foreign direct investors contributed the remaining 8.4% (or $85.8 billion)

FDI in Singapore remained predominantly in the financial & insurance services ($515.6 billion), wholesale & retail trade ($176.6 billion) and manufacturing ($147.6 billion) sectors Investment holding companies accounted for the bulk (86.4 per cent) of FDI in the financial & insurance services sector Computer, electronic & optical products, pharmaceutical products and refined petroleum products were the main recipients of FDI in the manufacturing sector

As at end 2014, Europe ($319.6 billion or 31.2 per cent) and Asia ($267.4 billion or 25 per cent) were the top two regional sources of FDI in Singapore The top contributors from Europe were Netherlands, United Kingdom and Switzerland

Dutch investment were mainly in manufacturing and wholesale & retail trade sectors while British investment were mostly in financial & insurance services and manufacturing sectors Within Asia, Japan remained the top investor country and their investments were mostly in financial & insurance services and wholesale & retail trade sectors Hong Kong, Malaysia, India and China were other major investor countries from the region

Overall, the United States is the top contributor to FDI in Singapore, with the bulk of their FDI in the financial & insurance services, manufacturing and wholesale & retail trade sectors United States ($153.0 billion), Japan ($109.3 billion), British Virgin Islands ($87.0 billion), Cayman Islands ($77.7 billion) and Netherlands ($69.5 billion) were the top five-investor countries in Singapore

2.1.3 International Trade

In recent years, international trade in Singapore encountered moderate fluctuation due to unstable worldwide economic conditions However, it still contributes significantly in the national economic performance

As shown in table below, merchandise trade witnessed a downward trend by reducing approximately USD93 Billion from 2014 to 2015 On the other hand, service trade picked it up slightly by more than USD1 billion within the same period of time In addition, exports seemed to be dominant in merchandise trade, accounting for 54 % in total trade while import accounting for only 46% The situation is vice versa in trade in service but with a smaller difference: import 51% and export 49%