Trade facilitation in selected landlocked countries in asia (studies in trade and investment)

Implementation of trade facilitation reform programmes and measures istherefore becoming an increasingly important tool for establishing a more transparent,consistent and predictable env

Its mandate is to foster cooperation between its 53 members and 9 associate members.ESCAP provides the strategic link between global and country-level programmes andissues It supports Governments of the region in consolidating regional positions andadvocates regional approaches to meeting the region’s unique socio-economicchallenges in a globalizing world The ESCAP office is located in Bangkok, Thailand.Please visit our website at www.unescap.org for further information.

The shaded areas of the map indicate ESCAP members and associate members.

LANDLOCKED COUNTRIES IN ASIA

Trade and Investment Division

The designations employed and the presentation of the material in thispublication do not imply the expression of any opinion whatsoever on the part of theSecretariat of the United Nations concerning the legal status of any country, territory,city or area, or its authorities, or concerning the delimitation of its frontiers or boundaries

Mention of firm names and commercial products does not imply theendorsement of the United Nations

All material in this publication may be freely quoted or reprinted, butacknowledgement is requested, together with a copy of the publication containing thequotation of reprint

The use of this publication for any commercial purpose, including resale, isprohibited unless permission is first obtained from the Trade and Investment Division,ESCAP, Bangkok Requests for permission should state the purpose and the extent ofreproduction

c

Over the past two decades, many countries in the ESCAP region underwentextensive political and economic transformations as borders opened and states joinedthe world economy The newly independent states in the Caucasus and Central Asia inparticular, have experienced major structural changes with the transformation from acentrally-planned to a market-oriented economic system.

With no direct access to the sea and to the world’s major markets, transformationand economic development have been particularly challenging for landlocked countries

In today’s globalized world, where international trade and transport play an increasinglyvital role, this is a major disadvantage These countries have put great effort intoliberalizing their trade regimes and upgrading physical infrastructure Despite theseefforts, market access for landlocked countries is still hampered by bottlenecks to trade,such as cumbersome and non-transparent trade and customs procedures, excessivepaperwork with redundant data, duplicated inspections, inadequate fees and charges,and poor inter-agency coordination as well as ICT infrastructure

Implementation of trade facilitation reform programmes and measures istherefore becoming an increasingly important tool for establishing a more transparent,consistent and predictable environment for international trade in landlocked countries

A primary goal of trade facilitation is to streamline and harmonize international tradeprocedures and information flows, and improve countries’ overall business environmentthrough reducing administrative bottlenecks to cross border trade Trade facilitation,therefore, greatly contributes to reducing trade transaction costs and enhancing countries’competitiveness

In the view of the significance of trade facilitation to landlocked countries, theESCAP has conducted this study with the aim of increasing understanding of the specifictrade facilitation issues and conditions in the selected landlocked countries of theCaucasus and Central Asian subregion These countries include Armenia, Azerbaijan,Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan, in which ESCAPundertook advisory missions during the period of 2003 - 2006 The findings of these

advisory missions are contained in this study entitled Trade Facilitation in Selected

Landlocked Countries in Asia.

It is our hope that this study will build upon the accomplishments of the advisorymissions and serve Governments and traders alike as a background document supportingdomestic trade facilitation reforms

Trade Facilitation in Selected Landlocked Countries in Asia was prepared by

Ms Maria Misovicova and Ms Ying Qiu, both Economic Affairs Officers of TradeEfficiency and Facilitation Section, Trade and Investment Division, under the guidanceand overall responsibility of Mr Xuan Zengpei, Director of the ESCAP Trade andInvestment Division and Mr Noordin Azhari, Chief, Trade Efficiency and FacilitationSection

Initial field research and other valuable contributions were made by Mr GohWoon Chung, Senior Manager, Mr Tan Gek Huat and Mr Lee Yow Jinn, both associateconsultants; all from the International Trade Institute of Singapore Pte Ltd

The full text of this publication is available for download on the web site ofthe ESCAP Trade and Investment Division (http://www.unescap.org/tid/)

Preface iii

Acknowledgements iv

PART ONE TRADE FACILITATION IN SELECTED LANDLOCKED COUNTRIES IN ASIA I Introduction 12

1 Background 12

2 Importance of trade facilitation for landlocked countries 14

3 Rationales 17

4 Objectives and structure 18

II Trade facilitation in the Asia-Pacific Region 19

1 Definition and scope 19

2 Benefits and importance 21

3 Components and key stakeholders 23

4 Factors influencing trade facilitation development in the region 25

III Policy recommendations to enhance the institutional infrastructure for trade facilitation in the selected landlocked countries 29

1 National trade facilitation strategy 34

2 Institutional mechanism for trade facilitation 34

3 Trade regulatory environment 37

4 Trade and customs procedures and documentation 37

5 Trade and customs enforcement 39

6 Trade finance 40

7 Application of ICT/ Electronic Trade Documentation System 41

8 Strengthening regional and subregional cooperation: the role of ESCAP 42

9 Conclusion 44

Annex 1 46

PART TWO COUNTRY STUDIES I Armenia 56

II Azerbaijan 78

III Kazakhstan 93

IV Kyrgyzstan 103

V Mongolia 122

VI Tajikistan 133

VII Uzbekistan 142

1 Distance from the seven landlocked countries to their closest seaports 14

2 Ranking of the seven selected countries in the Asia-Pacific region: (GDP per capita in USD) 15

3 Trade agreements of the seven selected countries 16

4 Processes, parties and procedures involved in international trade transaction 20

5 ESCAP Trade Facilitation Framework guidelines and country status 32

LIST OF FIGURES 1 Exports of the seven landlocked countries in 2001-2005 15

2 Main components of trade facilitation 24

3 Key stakeholders in trade facilitation 25

4 Diagrammatic presentation of ESCAP Trade Facilitation Framework 29

5 Example of a trade and/or transport facilitation committee 36

Azerbaijan Chamber of Commerce and Industry

Armenian Development Agency

Asian Development Bank

Association of International Road Carriers of Armenia

Armenian Development Gateway

Asia-Pacific Economic Cooperation

Armenia Trade and Transport Facilitation Committee

Asia-Pacific Research and Training Network on Trade

Association of Southeast Asian Nations

automated systems of customs data administration

National Trade and Transport Facilitation Committee of AzerbaijanAzerbaijan Interbank Payment System

Central Asia Regional Economic Cooperation

cargo customs declarations

Chambers of Commerce and Industry of the Republic of Armeniacustoms declaration form

Center of Economic Reforms

Cost, insurance, freight

customs, immigration and quarantine

Commonwealth of Independent States

Cabinet of Ministers

Digital Development Initiative

Department of Information Technology Development of ArmeniaDrug and Medical Technology Agency of Armenia

Digital Trade and Transportation Network

European Article Number

Economic Cooperation Organization

electronic data interchange

ETDS Steering Committee

Economic and Social Commission for Asia and the Pacific

free economic zones

foreign direct investment

Foreign Investment and Foreign Trade Agency of Mongolia

Financial Sector Adjustment Facility of Kyrgyzstan

free trade agreement

General Agreement on Tariff and Trade

gross domestic product

harmonized system

information communication technology

International Monetary Fund

International Organization for Standards

Information Technology

International Trade Centre

International Trade Institute of Singapore

lead agency

Mongolian Agency for Standardization and Metrology

Mongolian Customs General Administration

Ministry of Economic Development of the Government of AzerbaijanMinistry of Economy and Trade of the Government of TajikistanMinistry of External Trade and Industry of the Government of KyrgyzstanMinistry of Foreign Economic Relations of the Government of Uzbekistanmost favored nation

Ministry of Industry and Trade of the Government of KazakhstanMongolia National Chamber of Commerce and Industry

Ministry of Transport and Communications of the Government ofKyrgyzstan

Ministry of Trade and Economic Development of the Government ofArmania

National Committee for Simplification of Procedures for Transport andTrade of the Government of Armenia

non-governmental organization

single administrative documentDepartment of Standardization, Metrology and Certification of theGovernment of Armenia

State Customs CommitteeShanghai Cooperation Organizationsmall and medium enterprisesstandard operating proceduresSpecial Programme for the Economies of Central AsiaSecure Sockets Layer

State Tax Service of the Government of Armeniatrade facilitation

Trade Facilitation Advisory Committeetax identification number

Trade and Investment ProgrammeTransports Internationaux RoutiersTransport Corridor Europe Caucasus AsiaUnique Consignment Reference

United Nations Centre for Trade Facilitation and Electronic BusinessUnited Nations Conference on Trade and Development

United Nations Electronic Data Interchange for Administration,Commerce and Transport

United States Agency for International Developmentvalue added tax

World Customs OrganizationWorld Trade Organization

PART ONE

TRADE FACILITATION IN SELECTED LANDLOCKED

COUNTRIES IN ASIA

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I INTRODUCTION

1 BACKGROUND

Growth in trade, increasing numbers of bilateral and regional trade arrangementsand changes in basic business practices have created an environment that presentsGovernments with increasing demands to create measures that facilitate the flow ofgoods and services across national borders Although tariffs have been significantlyreduced by multilateral trade liberalization under GATT/WTO, the cost of trading stillremains substantial Enormous amounts of time and money are wasted because ofcumbersome and non-transparent trade procedures, which are hampering trade andstifling economic development Studies show that the cost of trade procedures mayrange from 2 to 15 per cent of the value of traded goods.1

Landlocked countries are among the most affected High trade transaction costsand inefficiencies in areas such as customs and transport can be a stumbling block totheir integration into the global economy and may impair export competitiveness or theinflow of foreign investment Excessive paperwork and procedures, high transport costs– both direct and indirect – unfavourable regulatory frameworks, insufficient coordinationamong institutions and lack of transparency in trade-related rules, regulations andprocedures are still problems in many countries in the Asia-Pacific region Aiming toreach solutions to those challenges, Governments, business and intergovernmentalorganizations have turned to the subject of trade facilitation

In order to better understand the trade facilitation conditions in landlockedcountries in the Asia-Pacific region, ESCAP conducted advisory missions in severalcountries of the Caucasus and Central Asia during the period 2003-2006 In 2003-

2004, the ESCAP advisory team undertook its first set of advisory missions to Armenia,Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan.The team comprised experts from the secretariat and from the International TradeInstitute of Singapore (ITIS) The team met with numerous public and private sectortrade facilitation stakeholders in those countries They jointly reviewed the existingsituation with regard to the overall trade facilitation framework and the application ofinformation and communication technologies (ICT) in trade payments and tradedocumentation The team explained the concept of a holistic approach to trade facilitation

and the ESCAP Trade Facilitation Framework, a step-by-step methodology for

identifying trade facilitation conditions and bottlenecks to trade

During 2005-2006, ESCAP implemented a project entitled “InstitutionalCapacity Building for International Trade and Transport for the Landlocked and TransitCountries The project covered Kazakhstan, Kyrgyzstan, the Lao’s People DemocraticRepublic, Mongolia, Tajikistan and Uzbekistan Its purpose was to assist the

1 APEC, APEC Economies: Realizing the benefits of trade facilitation, a report prepared for the APEC

Ministerial Meeting; (APEC, Mexico, 2002)

Governments in establishing national coordination mechanisms for trade and transportfacilitation and applying the ESCAP tools to the development of the national actionplans for trade and transport facilitation Other outputs were also developed under thisproject, including: (a) a study on national coordination mechanisms for trade andtransport facilitation; (b) a study on legal regimes for transport; (c) guidelines forapplication of ITC for trade and transport facilitation; and (d) an online database fortrade and transport facilitation2.

The ESCAP advisory team included the experts from the Trade and InvestmentDivision, the Transport and Tourism Division, and the Information, Communication andSpace Technology Division Under this project, five national workshops includingadvisory services in Kazakhstan, Kyrgyzstan, the Lao People’s Democratic Republic,Mongolia and Tajikistan were held During these workshops, the secretariat assisted inidentifying the existing impediments for establishing national coordination mechanismand analysing the current trade and transport facilitation environment in the countriesinvolved The national action plans were developed using the ESCAP Trade FacilitationFramework, the time-cost/distance model and other ESCAP tools Generally, the actionplans deal with the following areas:

(i) Coordination mechanisms for trade and transport facilitation;

(ii) Legal frameworks for transport;

(iii) Trade and customs laws and regulations;

(iv) Simplification and harmonization of documentation and procedures;

(v) Application of the ESCAP time/cost-distance model;

(vi) Information dissemination;

(vii) Application of ICT; and

(viii) Capacity-building for trade and transport facilitation implementation

This study combines the findings from the above advisory missions with theresults of the national workshops It focuses on the seven landlocked countries in theCaucasus and Central Asia, which are facing similar challenges arising from theireconomic transformation For this reason findings from the national workshop andadvisory services organized in the Lao People’s Democratic Republic will be addressedseparately

2 These studies are available at http://www.unescap.org/tid/.

2 IMPORTANCE OF TRADE FACILITATION FOR LANDLOCKED COUNTRIES

Countries without direct access to the sea that must transit most of their exportsand imports across foreign territories are referred to as landlocked countries For alllandlocked countries in the world, the average distance to the closest seaport is 1,370 km.Most of the countries concerned belong to the most remote countries among all landlocked

countries (see table 1) This geographical remoteness makes them dependent on

neighbouring transit countries for their external trade They depend on the neighbouringcountries’ transit infrastructure, political stability, administrative procedures and practices

in addition to good cross-border political relations

Table 1 Distance from the seven landlocked countries to their closest seaports

Source: ESCAP secretariat.

In addition to being landlocked, six out of the seven selected countries are alsotransforming their economies from a centrally planned to a market-based system3 Suchtransformation processes present tremendous political, economic and social challenges.Transitional economies therefore face particular macro and microeconomic difficulties,

as they need to create new, fundamentally different government institutions and reformtheir legislative, monetary, financial and tax systems in order to provide conditions forprivately owned enterprises, price liberalization and free market competition As evidenced

by the figures in table 2, most of the seven countries are among the poorest nations in

the ESCAP region4 The majority are characterized by low per capita GDP, poor capacity

to export, low income levels, limited domestic savings capacity and a generally low level

of economic development

3 Mongolia is the only landlocked developing country in the study which is not in transition However, it possesses some economic features that could be attributed to countries in transition.

4 ESCAP has 53 members and 9 associate members.

Table 2 Ranking of the seven selected countries in the Asia-Pacific region:

(GDP per capita in USD)

Source: ESCAP secretariat calculation based on data from the United Nations Statistics Division,

2005, http://unstats.un.org/unsd/cdb/cdb_help/cdb_quick_start.asp

Figure 1 Exports of the seven landlocked countries in 2001 - 2005

Source: ESCAP, based on IMF, Direction of Trade Statistics: (Washington D.C., IMF, 2006)

GDP per capita

Ranking in Asia- Pacific

GDP per capita

Ranking in Asia- Pacific

GDP per capita

Ranking in Asia- Pacific

GDP per capita

Ranking in Asia- Pacific

Most of the selected countries have concluded a number of free trade agreements

(FTAs) among themselves (see table 3) and maintain divergent trade policies While

Armenia, Kyrgyzstan and Mongolia are Members of the WTO, the remaining are still

in the process of accession However, these countries cannot rely solely on preferentialtrade concessions to increase export competitiveness In order to be competitive on thesupply side, they have to raise the quality of their export products in order to competeworldwide New high value added consumer products, which meet international qualitystandards, have to be developed and new markets need to be explored Furthermore,both the physical bottlenecks as well as non-tariff and administrative barriers have to

be removed and institutional infrastructures need to be upgraded to support theirindustrial and trade development

Table 3 Trade agreements of the seven selected countries

Source: ESCAP secretariat

Notes: CIS (Commonwealth of Independent States), EEC (Eurasian Economic Community) and ECOTA (Economic Cooperation Organization Trade Agreement), Bilateral Agreements (BAs)

Much work also needs to be done in the area of standards and harmonization.Harmonized standards are essential for ensuring better market access Differences inthe standards applied in these countries and international standards for industrialproducts also act as impediments to export competitiveness Where harmonization ofstandards and technical regulations is not immediately possible, experience shows thatthe respective authorities should try to create a simple and transparent framework foradopting and applying their national technical regulations and standards and increaseawareness on how to meet these requirements Confidence can be further increased bymutual recognition agreements between the national conformity assessment bodies

Kazakhstan Kyrgyzstan Moldova Russian Federation Turkmenistan Ukraine

Georgia Kyrgyzstan

Kazakhstan Moldova Russian Federation Ukraine Uzbekistan Mongolia

In the countries concerned, major difficulties in the smooth flow of trade acrossborders come in the form of administrative and procedural deficiencies According tothe findings of the advisory missions, such deficiencies include:

• Lack of transparency leading to discretionary practices by authorities;

• Insufficient access to information on trade and customs laws, regulations andprocedures;

• Complicated and non-standardized procedures for customs clearance and inspections;

• Absence of effective coordination among the stakeholders at the national level;

• Lack of coordination with neighbouring countries with regard to harmonization ofprocedures and documentary requirements;

• Underdeveloped logistics services and multimodal transport;

• Insufficient application of ICT; and

• Lack of trained and competent human resources as well as institutional capacities

Trade facilitation plays a vital role for landlocked countries, as the benefits fromthe removal of such deficiencies can be much greater to companies than the removal oftariff barriers With the reduced time and cost of trade transactions, companies couldenjoy better competitiveness in international markets Trade facilitation is also a majorfactor in attracting foreign investment, especially supply-chain related investment, wherethe existence of an efficient import and export processes is essential Transparency,simplification and harmonization of import, export and transit formalities andinformation flows are central in this regard

3 RATIONALES

Landlocked countries in the Asia-Pacific region are worthy of study for fivereasons First, apart from a few mission reports that suffer from lack of comprehensivenessand analysis, there is a dearth of information on the latest developments in trade facilitationparticularly regarding the development of soft infrastructure for trade facilitation Little isknown, for example, about the true state of the development of trade facilitation systems

in these countries, the problems confronted by these countries in their process of tradefacilitation reform and implementation of action plans, and what policy recommendationscould be proposed to help these countries to overcome these obstacles and barriers

Second, there is a need to raise awareness on trade facilitation reform Despiteprogress in developing free trade agreements and transit transport systems, the importance

of trade facilitation reform, to a certain degree, has been overlooked A few reasons forthis include a lack of strong political will and commitment, high direct and indirect costsinvolved in improving physical and institutional infrastructures as well as weak humancapacity-building Therefore, raising awareness can definitely help consensus-building.Consensus-building provides these countries with greater assistance in achievingmeaningful subregional integration and in becoming effectively and beneficially integratedparts of the global economy

Third, the findings of this study can serve as a useful reference for landlockedcountries in other regions, with which they share many characteristics and problems.These problems include a) physical isolation, geographical dispersal and distance fromthe main markets; b) low level of participation in the multilateral trading system and aminimal share of total world trade; c) minimal or no export diversification: concentration

of exports on very few products; d) inadequate infrastructure; e) low competitiveness;f) considerable difficulties in attracting foreign investment; and g) high transport costs.Thus, the policy recommendations provided by this study may not be limited to theseven selected countries; they may apply to other developing and least-developedcountries where similar problems exist

Fourth, this study provides background information and analysis on how toharmonize and streamline different projects and regional programmes on trade facilitationinitiated by different international, regional and subregional organizations and agencies.The United Nations and its regional commissions have an important role to play inproviding regional and subregional forums for policy dialogue and consensus-building

on trade facilitation and liberalization policies They also have the knowledge on theregional and subregional trade facilitation conditions as well as implementation needsand capacity-building priorities to meet these needs

Cooperation between landlocked countries and their transit neighbours raisescomplex economic, trade and legal issues that require dialogues to find mutually acceptablesolutions for trade facilitation Improvement in understanding the status of tradefacilitation reforms in these countries can support international, regional and subregionaltechnical cooperation in the field

4 OBJECTIVES AND STRUCTURE

The overall aim of the study is to enhance the understanding on the tradefacilitation conditions including problems and policy recommendations (with a particularemphasis on the institutional infrastructure of trade facilitation) in the landlockedcountries of the Asia-Pacific region, particularly Armenia, Azerbaijan, Kazakhstan,Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan

This study is divided into two parts Part One consists of three chapters,providing the background and regional level analysis Chapter I offers an introduction

to this publication, which explains the importance of trade facilitation for the selectedcountries, rationales, aim, objectives and structure of the study Chapter II reviewstrade facilitation in the Asia-Pacific region It explains the scope of trade facilitation,discusses key stakeholders involved as well as factors influencing trade facilitationconditions in the region Chapter III not only provides policy recommendations toenhance the institutional infrastructure of trade facilitation in the selected landlockedcountries as a whole, but also highlights the role that ESCAP can play to promote tradefacilitation at the regional and subregional levels

Part Two consists of seven chapters, each devoted to the study of the institutionalinfrastructure and trade facilitation conditions in the countries concerned

II TRADE FACILITATION IN THE ASIA-PACIFIC REGION

1 DEFINITION AND SCOPE

Trade facilitation is often referred to as the “plumbing of international trade”and focuses on the efficient implementation of trade rules and regulations In a narrowsense, trade facilitation relates to streamlining the customs and other border agenciesprocedures and related documentary requirements In a broader sense, it relates tostreamlining the processes, procedures and information flows throughout the entireinternational supply chain In relation to the United Nations Millennium DevelopmentGoals, trade facilitation might expand its scope by including development of tradeinfrastructure (such as transport networks, port facilities, logistics services and ICTinfrastructure)

Although there is no universal definition for trade facilitation, it is generallyagreed that trade facilitation does not include tariff liberalization or the development ofphysical infrastructure for trade, such as construction of roads or railways The WTOdescribes trade facilitation as “the simplification and harmonization of internationaltrade procedures” covering the “activities, practices and formalities involved incollecting, presenting, communicating and processing data and other informationrequired for the movement of goods in international trade”

In general, trade facilitation refers to simplification, standardization andharmonization of trade processes, procedures and related information flows.5 Traditionally,such information flows are in the form of paper documents, and trade procedures involvingthe handling of paper documents Basic trade facilitation efforts therefore focus onmeasures to reduce border formalities, procedures and documents Apart from thesemeasures the improvement of physical movement of the goods through trade facilitationmust also address:

• Establishment of a favourable legal and regulatory environment

• Supply of better (transparent, predictable, uniform) services, implying an adequatelegal environment, appropriate transport and communications infrastructure,organized services provider companies

• Use of modern information and communications technology applications

5 Trade facilitation definitions by other agencies include the following:

• OECD: “Simplification and standardization of procedures and associated information flows required to move goods internationally from seller to buyer and to pass payments in the other direction.”

• UNECE: UN/CEFACT defines trade facilitation as “the simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment Within this 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 the cross border and other processes involved in international trade.”

• APEC: “Trade facilitation generally refers to the simplification, harmonization, use of new technologies, and other measures to address procedural and administrative impediments to trade.”

• Increased awareness of all concerned actors regarding the potential benefits that theymay achieve through trade facilitation

• Simplification of payment systems

• Placing of an order and preparation for export

• Export

• Transport

• Preparation for import

• Import

These involve various processes, actors and procedures as described in table 4.

The processes showed in the table are determined mainly by the individual countries’laws and regulations, commercial terms of doing business and product characteristics,which may add to the complexity of the international trade transaction process Tradefacilitation aims to address this complexity and make the processes involved in internationaltrade transactions easier

Table 4 Processes, parties and procedures involved in international trade transaction

Source: ESCAP secretariat.

6 UN/CEFACT, Reference Model of the International Supply Chain with a special reference to Trade Facilitation and Trade Security,(UN/CEFACT, Geneva, 2003)

Commercial Buyer

Seller

x Establish contract x Order goods x Advice on delivery x Request Payment

x Collect, transport and deliver goods x Provide waybills/bills of lading, goods receipts, status report

Customs and other

border agencies,

licensing authorities

x Obtain licenses (import/export) x Submit customs declaration and other related documents (such as carrier note, invoice, waybill/bill of lading, packing list, customs valuation form, certificate of origin, import license/export permit)

x Apply trade security/risk management procedures x Clear goods for export/import

Banks

x Provide credit rating/credit x Arrange insurance x Execute payment

2 BENEFITS AND IMPORTANCE

Trade facilitation is a diverse and challenging subject with enormous potentialbenefits for both business and Governments, aimed at reducing administrative bottlenecks

in international trade It is an investment with real returns in terms of overall tradetransaction cost reduction, increased competitiveness of exports, new options for betterdoor-to-door logistics and increased revenue collections and controls It is generallyrecognized that well-targeted trade facilitation measures, such as establishment of singlewindow facilities at border-crossing points and ports, introduction of a singleadministrative document (replacing a number of trade documents) and application of riskmanagement techniques, could be beneficial to both Governments and business.Governments could benefit from enhanced revenue collection, foreign trade statisticsand administrative controls, while business benefits from faster customs clearance, lowertrade transaction costs and reduced delays From a country perspective, trade facilitationcould lead to better trade and economic performance and bring about regional integration

In this connection, ICT is a necessary tool for enhancing the efficient implementation oftrade facilitation measures as well as increasing transparency and predictability in border-crossing operations, while at the same time restraining human factors and discretionarypractices

Trade costs are not only reflected in direct monetary outlays associated withaspects of internation trade, such as tariffs, freight, insurance and transport, but also inindirect expenses such as time and uncertainty A study by Hummels (2001) found thatfor United States of America imports, the time cost of one day in transit is equivalent to

an ad valorem tariff rate of 0.8 per cent, yielding the equivalent of a 16 per cent tariff on anaverage ocean shipment of 20 days An ESCAP time-cost/distance study using a modifiedgravity model estimated that, on average, each additional day that a product is delayedreduces trade by at least 1 per cent To put it differently, each day of delay is equivalent

to a country distancing itself from its trade partners by 85 km on average Delays canhave an even greater impact on developing country exports and exports of time-sensitivegoods, such as perishable agricultural products

Several studies have tried to estimate the potential welfare gains which could

be attained from the implementation of trade facilitation According to the Asia-PacificEconomic Cooperation (APEC), a 5 per cent reduction in trade transaction costs for trade

in goods by 2006 will raise its collective GDP by 0.9 per cent, which, in absolute terms,represents about US$ 154 billion.7 The Organization for Economic Co-operation andDevelopment (OECD) calculates that a modest 1 per cent reduction in the of tradetransaction costs of the value of traded goods would bring annual gains of about US$ 40billion on a global basis In relative terms, most of these gains would benefit developingcountries.8 The World Bank report on global economic prospects for 2004 estimates that

7 APEC, APEC Economies: Realizing the benefits of trade facilitation, a report prepared for the

APEC Ministerial Meeting; (APEC, Mexico, 2002)

8 OECD, Quantitative Assessment of the Benefits of Trade Facilitation, TD/TC/WP(2003)31/

FINAL; (OECD, Paris, 2003).

enhancing capacity in global trade facilitation would increase world trade of manufacturinggoods by approximately US$ 377 billion, which means an increase of about 9.7 per cent.9

Because of the clear benefits of trade facilitation, a number of internationalorganizations have focused their work on this issue The World Customs Organizationhas been spearheading attempts to harmonize and standardize customs operations,through numerous international conventions and other tools, including Convention onthe Simplification and Harmonization of Customs procedures (known as the RevisedKyoto Convention), Temporary Admission Convention, Harmonized CommodityDescription and Coding System (HS Convention), Unique Consignment Reference (UCR),Customs Data Model, SAFE Framework of Standards to secure and facilitate globaltrade, Risk Management Guide, Immediate Release Guidelines, Time Release Study andothers

Under WTO, there are several provisions providing multilateral rules relateddirectly or indirectly to trade facilitation These include the General Agreement on Tariffsand Trade (GATT) 1994, Articles V (freedom of transit), VII (valuation for customspurposes), VIII (fees and formalities connected with importation and exportation) and X(publication and administration of trade regulations) It also includes the Agreement onImplementation of Article VII of the GATT 1994 (known as the Customs ValuationAgreement), the Agreement on Rules of Origin, the Agreement on Application of Sanitaryand Phytosanitary Measures (SPS), the Agreement on Technical Barriers to Trade (TBT),the Agreement on Import Licensing Procedures, the Agreement on Pre-shipmentInspection and the General Agreement on Trade in Services (GATS) (particularly inrelation to transport and logistic services) The inclusion of trade facilitation in the DohaRound negotiations reinforced its importance, although the scope was narrowed toGATT Articles V, VIII and X

The World Bank has developed the Trade and Transport Facilitation Toolkit

for Audit, Analysis and Remedial Actions and The Customs Modernization Handbook.

It has numerous trade facilitation programmes for transitional, developing and developed countries worldwide The World Bank has also initiated the Global FacilitationPartnership for Transportation and Trade, which is a web-based information-sharingplatform dedicated to trade and transport facilitation (www.gfptt.org)

least-Several United Nations agencies develop and maintain trade and transportfacilitation instruments, such as international conventions, standards, recommendations,guidelines and best practices, and provide technical assistance on capacity-building toimplement them Through its Centre for Trade Facilitation and Electronic Business (UN/CEFACT), the United Nations Economic Commission for Europe (UNECE) has beendeveloping such instruments for trade procedures and documents as well as for electronicbusiness Examples of this include United Nations Layout Key, the United NationsElectronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT)and United Nations Trade Data Elements Directory (UNTDED)

9 World Bank, Global Economic Prospects 2004; (World Bank, Washington D.C., 2004)

United Nations Conference on Trade and Development (UNCTAD) is mainlyproviding the countries with technical assistance and capacity-building support for theimplementation of trade and transport facilitation as well as research and analysis in thisarea Apart from this, UNCTAD developed two tools, ASYCUDA10 and ACIS,11 which arebeing implemented in a number of developing countries.

ESCAP is actively assisting its member countries in: (a) promoting thesimplification, harmonization and standardization of trade procedures and documents toreduce the trade transaction costs; (b) facilitating trade and investment flows, in particularregarding trade finance and e-commerce; and (c) promoting the application of its TradeFacilitation Framework12 and other tools

As discussed in the previous chapters, traders in landlocked countries have toface additional obstacles to international trade and transport These arise from theirremoteness from the sea and main world markets, and the fact that they have to use theterritory of other countries to transit their exported and imported goods These countriesneed tailored trade facilitation strategies and action plans to implement existingconventions and best practices If the landlocked countries are to fully benefit from theregion’s trade facilitation measures, the neighbouring transit countries also have getinvolved in trade facilitation efforts They need to adopt an integrated approach totrade and transport facilitation, which is being advocated by ESCAP, to strengthenregional cooperation and specific transport corridor-based initiatives These efforts have

to be accompanied by adequate technical assistance and capacity-building supportprogrammes

3 COMPONENTS AND KEY STAKEHOLDERS

Trade facilitation cuts across a wide range of areas such as governmentregulations and controls, business efficiency, transportation, ICT, logistics services, andthe financial sector Therefore, there are several factors that have direct impacts on thecountry’s trade facilitation reform programmes and measures These factors could befurther categorized into two areas One of them is the “physical aspects” or physicalinfrastructure of trade facilitation, which covers transportation infrastructure andassociated costs, logistics development and the physical supply chain The other involves

the so-called “soft aspects” or institutional infrastructure (see figure 2), which includes

trade facilitation strategy and work programme, legislation and regulations, trade andcustoms documentation, customs clearance and inspection, and trade finance withsupporting blocks comprised of automation and ICT application, electronic tradedocumentation system, institutional mechanisms and human resource development

10 ASYCUDA stands for the Automated System for Customs Data It is a computerized customs management system to handle trade documents, based on Electronic Data Interchange (EDI) and EDIFACT (see www.asycuda.org).

11 ACIS is an Advanced Cargo Information System designed to improve transport efficiency by tracking cargo (rail, road, river) on modes of transport and interfaces (ports, internal clearance depots) (see www.railtracker.org).

12 For further explanations see Chapter III.

Figure 2 Main components of trade facilitation

The physical trade facilitation infrastructure depends, to some extent, on thelevel of funding, project management, and market and monopolistic pricing decisions.These are usually straightforward issues However, the institutional infrastructure oftrade facilitation is more complex as it involves a confluence of the different interests ofthe various parties In addition, despite the amount of resources committed solely to thephysical infrastructure of trade facilitation, without a properly functioning institutionalinfrastructure, this would not meet the main objective of trade facilitation: the efficientmovement of goods internationally

International trade involves a number of actors, including manufacturers,suppliers, customers, exporters, importers, freight forwarders, carriers, banks, insurancecompanies, transport operators, customs, health authorities, port authorities, licensingauthorities and inspection agencies

These actors can be divided into three main types: government agencies, serviceproviders and traders Government agencies such as ministries of trade, finance/customs,transport, health, agriculture, ICT, veterinary, plant and quarantine agencies areresponsible for devising trade facilitation strategies, reform programmes, and laws andregulations to ensure the smooth flow of goods and information in a secure environment.Customs authorities have a specialized role here, which traditionally was to control theentry and exit of goods and collect revenues Later, this role was extended to ensureborder security and port administration Recently, the focus has shifted from enforcement

to trade facilitation with the use of pre-arrival clearances, the authorized operators concept,green lanes and post-clearance audits, increasingly employing ICT applications andadvanced cargo information

Service providers such as customs brokers, freight forwarders, third partylogistics operators, and carriers, provide trade and transport solutions in accordancewith national and international regulations and practices Traders not only depend onthe services provided by these enterprises, but also must meet the regulatory requirements

of government agencies for moving goods across borders

Trade facilitation therefore affects a wide group of stakeholders from the public

and private sectors (see figure 3) It is essential for all stakeholders with a direct interest

in improving border operations that reform measures be planned and implemented in acoordinated manner Experience has proved that partnerships between the public andprivate sectors are important to cater to the needs of all actors

Figure 3 Key stakeholders in trade facilitation

4 FACTORS INFLUENCING TRADE FACILITATION DEVELOPMENT IN THE REGION

Although work on trade facilitation has been ongoing in the Asia-Pacific regionfor almost two decades, it has been brought into sharper focus by factors such as (a) theinclusion of the issue in the WTO Doha Round by the Doha Ministerial Declaration in

2001, (b) the increased international attention to trade security, (c) just-in-time operations,and (d) regional trade facilitation initiatives

4.1 Trade facilitation as a part of the WTO Doha Round

The inclusion of trade facilitation in the WTO Doha Round by the DohaMinisterial Declaration in 2001, and the initiation of trade facilitation negotiations by theso-called “July Package”13 in 2004 has further raised global awareness of the importance

of trade facilitation and put this issue at the forefront of the development agenda of mostdeveloping countries The WTO negotiations focus on the clarification and improvement

of the existing provisions of three GATT Articles: V (freedom of transit,) VIII (fees andformalities connected with importation and exportation), and X (publication andadministration of trade regulations)

13 The WTO Doha Work Programme, Decision Adopted by the General Council on 1 August 2004 (WT/L/579), is often referred to as the July Package.

Article V of GATT sets out the basic principles allowing for freedom of transitthrough the territory of each member but provides no guidelines on how these principlesshould be applied Some proposals were made to strengthen and operationalize thisarticle by introducing new binding rules, among others, relating to non-discriminationbetween modes of transport, carriers, the routes chosen and types of consignment.Additional proposals included limitations on inspections and controls for goods in transit,

or minimizing transit formalities as much as possible

Article VIII recognizes the need for simplifying fees, charges and import/exportformalities and documentation It does not, however, provide any mandatory requirements

in this area Questions were raised with regard to the inadequate fees and charges, whichshould be minimized and levied only for services rendered and simplification andharmonization of customs and other border agencies’ procedures and related documentaryrequirements As traders prefer simple procedures, swift movement of goods acrossborders and the rapid flow of information in support of the movement of goods, measurescatering for simplified procedures, such as a single window or “one-stop” solution, pre-arrival clearance and post-clearance audit, have been advocated

Article X focuses on ensuring transparency through the publication andavailability of trade-related laws and regulations to all parties concerned The main issuescover installation of inquiry points, publication of trade-related laws and regulations onthe Internet, availability of advance rulings and more systematic feedback on new andamended trade-related rules and regulations by traders

The participants in these negotiations have widely recognized that tradefacilitation is a “win-win” opportunity for all countries regardless of their level ofdevelopment However, it is important to find a balance between future trade facilitationobligations and the capacities of developing countries to implement them Identification

of the countries’ trade facilitation priorities and matching them with proper technicalassistance and capacity-building support are essential These issues have to be addressedadequately

4.2 Trade security

Trade security has become an important component of the modern trade anddevelopment thinking Due to recent international developments pointing to increasesecurity risks, many stakeholders have called for a new approach to border operations

As a consequence, some major actors in international trade are focusing on minimizingthe security risks associated with the international flow of goods (especially containercargoes) and services This raised many concerns that the new security measures wouldundermine the progress made in trade facilitation and impose an additional burden ondeveloping economies which could adversely affect their access to foreign markets

The risk that some least developed countries, landlocked developing countries,small island developing countries and economies in transition could be further marginalized

on account of their inability to comply with new security measures cannot beunderestimated The need to ensure the security of the global supply chain14 need not be

at the expense of trade facilitation and trade efficiency In fact, trade security and tradefacilitation can complement one another and be mutually reinforcing.15 Strengtheningtrade facilitation can contribute towards the security of the global supply chain securityand vice versa

4.3 Just-in-time operations and the need for a swift information flow

The use of modern transport inventory techniques, the increasing use ofmultimodal transport, and the emergence of global chains and electronic commerce haveall made transparency and speed at the borders vital for trade efficiency Modernbusinesses involving just-in-time operations and IT-based processes, which haveaccelerated the pace of doing business, constantly increase demand for the fast andpredictable release of goods and the swift flow of services It is therefore important toensure that trade efficiency and facilitation measures are properly integrated into nationaland regional trade policy programmes

In fact, the countries/subregions that have implemented modern trade methodsbased on the rapid flow of data and information, and have simplified procedures using ITsolutions, throughout the international supply chain, have succeeded in substantiallyreducing time delays Such solutions include paperless environments, ICT-enabled singlewindow facilities and Internet-based systems, which enable a fast exchange of data andinformation electronically.16 Experience shows that such systems are being establishedmainly for the purpose of integrating logistical and transport services in countries withmaritime transport These could serve as good examples for landlocked countries inbuilding their customs-based single window facilities

4.4 Regional trade facilitation initiatives

Another phenomenon underlining the vital role that trade facilitation plays ineconomic development is an incremental proliferation of free trade agreements containingtrade facilitation provisions as well as trade facilitation initiatives pursued at thesubregional level Examples include the FTA between Singapore and Australia, theAgreement on the South Asian Free Trade Area or the Pacific Agreement on CloserEconomic Relations, as well as trade facilitation initiatives

14 In the International Trade Procedures Working Group (CEFACT/2003/IT016) supply chain is defined as the entirety of processes, process steps, organizations and suppliers to get a product moved across international borders from the manufacturer to the point of delivery, as defined by the purchaser.

15 This was one of the major themes of the meetings “Achieving Trade Security within a

Standardized, Efficient and Transparent International Framework” UNECE, February, 2003, and

“Facilitating Trade in a Secure Environment” joint meeting of WCO and UNECE, November 2003.

16 A few examples of electronic single window facilities in the Asia-Pacific region are TradeNet in Singapore, Dagang Net in Malaysia, GAMAS in Mongolia and TradeLink and the Digital Trade and Transportation Network (DTTN) in Hong Kong, China.

Furthermore, APEC member countries developed the APEC Trade FacilitationAction Plan,17 including the menu of trade facilitation actions and measures, which outlinesthe scope and time frames for implementation of trade facilitation initiatives and measures.APEC has also been encouraging its members to include trade facilitation provisions andbest practices in their bilateral trade agreements.

Trade facilitation has been identified as the fundamental strategy for ASEANcustoms integration since 2002 Under this strategy, efforts have been taken to implementthe ASEAN Harmonized Tariff Nomenclature, standardize information parameters forcustoms release and clearance, and establish the ASEAN Customs Declaration Documentand the ASEAN Cargo Processing Model Moreover, ASEAN has undertaken variousinitiatives and measures directly or indirectly related to trade facilitation The ASEANAgreement on Customs (1997), the ASEAN Framework Agreement on the Facilitation ofGoods in Transit (1998), ASEAN Framework Agreement on Multimodal Transport (2005)and the implementation of the ASEAN Framework Agreement on Mutual RecognitionAgreements are examples of these efforts The recent ASEAN Single Window agreement

is the most significant and far-reaching ASEAN commitment relating to trade facilitation.Before the ASEAN Single Window can be implemented, many of the conditions that willexpedite and accelerate cargo clearance must be acheived at the national level

In addition, there are several other regional and subregional agencies andgroupings, which have put trade facilitation on their agendas, including the AsianDevelopment Bank (ADB), Economic Cooperation Organization (ECO) and South AsianAssociation for Regional Cooperation (SAARC)

17 See http://www.apec.org/apec/apec_groups/committees/committee_on_trade.html

III POLICY RECOMMENDATIONS TO ENHANCE

THE INSTITUTIONAL INFRASTRUCTURE FOR TRADE FACILITATION IN THE SELECTED LANDLOCKED

COUNTRIES

During the advisory missions, the ESCAP Trade Facilitation Framework18 wasused as a major tool for identifying trade facilitation conditions in the seven countries.The Framework is a guiding tool, which employs a step-by-step approach for governments

to identify problematic areas and bottlenecks in international trade and suggests remedialactions to address them The Framework consists of the following eight stages whichcountries can use to map their trade facilitation conditions:

(Ai) Collect feedback, analyse, asses and prioritize needs

(Aii) Establish the trade facilitation institutional structure

(Bi) Revise trade and customs laws and regulations

(Bii) Simplify, standardize and harmonize import/export documentation andcustoms procedures

(Biii) Implement effective trade and customs enforcement

(Biv) Implement effective information dissemination

(Bv) Apply ICT

(Bvi) Review and assess the results

Figure 4 Diagrammatic presentation of ESCAP Trade Facilitation Framework

Source: ESCAP Trade Facilitation Framework: A guiding tool, (United Nations, 2004), p 6.

18 English and Russian versions are available at http://www.unescap.org/tid/trprom.asp

By applying all stages of the Framework in the individual countries, the secretariatworked with the national stakeholders to develop country progress map with regard totheir trade facilitation conditions and institutional infrastructure Table 5 contains asummary of this mapping exercise and includes an index of trade facilitation conditions ineach of the selected countries It indicates that Mongolia (index ranking: 21), followed byAzerbaijan (index ranking: 19) are the most progressive countries in terms of reforms andadoption of trade facilitation measures They are followed by Armenia (index ranking:17), Kazakhstan (index ranking: 15), Uzbekistan (index ranking: 14), Kyrgyzstan (indexranking: 11) and Tajikistan (index ranking: 7).

The results of the mapping provided the advisory teams with a basis for policyrecommendations for the whole region as well as for each country The policyrecommendations were developed in seven areas related to the institutional infrastructurefor trade facilitation, namely:

• National trade facilitation strategy

• Institutional mechanism for trade facilitation

• Trade regulatory environment

• Trade and customs procedures and documentation

• Trade and customs enforcement

• Trade finance

• Application of ICT/Electronic Trade Documentation System

They will be elaborated in this chapter

The overall objective of the policy recommendations is to assist the countriesconcerned to reduce trade transaction costs, which will in turn contribute towardsenhancing their competitiveness Specifically these recommendations indicate that thecountries should pursue trade facilitation in a more coordinated manner and as the part

of a comprehensive trade development strategy The recommendations therefore focus

on areas where a measurable impact is achievable and will support regional activities thatare concerned with the following measures:

• Establishing new/or reinforcing existing trade/transport facilitation bodies

• Adopting new or implementing existing legislation related to electronic commerce,electronic documentation exchange, risk management techniques

• Harmonizing national policies, simplifying regulations and administrative procedures,documentation and practices relevant to trade facilitation

• Developing sets of national trade documents (including both business to business(B2B) and business to government (B2G) documents) based on standardized commondata elements;19

19 Such sets can contain sanitary/phytosanitary certificates, invoices, orders, quotations,

consignment document dispatch Notices, international consignment notes, shipment instructions, forwarding instructions, packing lists and bill of lading.

• Introducing single window facilities to fulfill regulatory requirements for export/import/transit operations

• Developing electronic trade documentation systems using ICT applications

• Establishing joint border-crossing points

• Providing targeted capacity-building support to implement effective trade facilitationmeasures

• Raising the private sector’s awareness of trade facilitation measures

In Kazakhstan, Kyrgyzstan, Mongolia and Tajikistan, these measures were furtherdetailed in the national action plans for the implementation of trade and transportfacilitation.20

Some of the measures, especially those relating to the introduction of singlewindow facilities and electronic trade documentation systems, are costly and highlydependent on the existence of proper ICT infrastructure On the other hand, suchmeasures can help to minimize the human factor in border-crossing operations and makethem more transparent and predictable

20 The national action plans can be found at: http://www.unescap.org/tid/itt/mtg/nw.asp

Country Stages

Armenia Azerbaijan Kazakhstan Kyrgyzstan Mongolia Tajikistan Uzbekistan

Ai – Collect feedback, analyse, assess and prioritize needs

Aii – Establish the trade facilitation institutional structure

Bi – Revise trade and customs laws and regulations

Bi – 1: Obtain a clear understanding of the overall trade legislative

and regulatory framework

3 3 3 3 3 X 3

Bi – 2: Review the import-export laws to determine relevance and

conformity with international conventions and obligations

3 3 3 3 3 X 3

Bi – 3: Review customs act to assess conformity with international

conventions and recommendations

3 3 3 X 3 3 3

Bi – 4: Review bilateral, regional and multilateral agreements on

trade, transport and transit to determine whether existing legislation

has incorporated elements of these agreements

3 3 3 3 3 3 3

Bii – Simplify, standardize and harmonize import-export

documentation and customs procedures

Bii –1: Classify all tradable products and identify agencies

involved in implementing trade controls

3 3 3 3 3 3 3

Bii –3: Streamline, simplify and harmonize trade document

processing

3 3 X X 3 X X

Source: ESCAP secretariat, 2006

Note: Each “(“ is given a ranking index of “1”, while each “X” is given a ranking index of “0”.

Biii – 4: Implement systematic pre-inspection and post-audit

programme

Biv – Implement effective information dissemination

Bv – Apply information communication technology

Bv –1: Develop blueprint for Electronic Trade Documentation

System (ETDS)

Bv –4: Automating internal processes of agencies involved in

ETDS

1 NATIONAL TRADE FACILITATION STRATEGY

Currently, none of the seven countries has an integrated trade facilitation strategy

or reform programme Improvements have been made in individual areas, such as draftingnew trade laws and regulations, streamlining trade procedures and customs modernization.This, in particular, is the case of Armenia, Kyrgyzstan and Mongolia, which are members

of WTO However, an overall guideline or reform programme needs to be developed tolay down clear objectives and priorities for various implementing government agenciesand stakeholders to follow and measures to implement The guideline shall also ensuregreater transparency for the private sector

Being landlocked, these countries depend heavily on transit conditions in othercountries in the region, that is the Russian Federation, the China, Pakistan, and theIslamic Republic of Iran Their national trade facilitation reforms should be made incongruence with regional initiatives or groups that are implementing similar cross-bordertrade facilitation measures Experience shows that trade facilitation measures are mosteffective when they are based on an integrated national and regional trade facilitationstrategy and action plans

As such, it is recommended that the various Governments, in cooperation withthe private sector, conduct a detailed stakeholder needs analysis to identify, assess andprioritize trade facilitation reform needs (see ESCAP Trade Facilitation Framework Stageitem Ai) A trade facilitation survey could be carried out every two years to review theresults and assess whether improvements have been achieved to address the problematicareas All information gathered could help define national and regional trade facilitationstrategies based on situation and gap analysis Only then can the needs be prioritizedand an implementation plan and action items be developed

The next step is be the consensus stage to obtain agreement from allstakeholders on targets and set concrete and realistic time limits in order to reach thesetargets Public-private partnership plays a key role in this process Strategicimplementation can only work if it is backed by political will and if it is reflects the needs

of the private sector It is recommended that the focus of this exercise should be more onenforcing existing laws and regulations, and implementing commitments made underregional and international agreements as well as identifying priority technical assistanceprojects in these areas

2 INSTITUTIONAL MECHANISM FOR TRADE FACILITATION

Government agencies and the private sector should become involved in tradefacilitation to assess the various organizational capabilities to determine a suitableinstitutional mechanism Typically, key government organs and private sector bodiesinvolved in trade facilitation include the following:

• Ministry of Trade/Commerce

• Customs authority under the Ministry of Finance

• Ministry of Industry

• Ministry of Agriculture

• Ministry of Transport

• Ministry of ICT

• Agency for Standardization, Metrology and Certification

• Plant, veterinary, quarantine agencies;

• Chambers of Commerce and Industry

of Trade/Commerce At the same time, an integrated approach to trade and transportfacilitation will be ensured

2.2 Trade facilitation advisory committee

In six of the seven countries, there is no specific government driver orinstitutional coordination mechanism responsible specifically for trade facilitation.21 Aformal trade facilitation advisory committee (TFAC) (see ESCAP Trade FacilitationFramework Stage Aii-2) should be established and headed by a country lead agency topromote trade and transport facilitation This TFAC must have the political power topursue the national trade facilitation agenda and to enforce trade facilitationimplementation It is recommended that a reporting mechanism be introduced into theTFAC and a lead agency be identified In this way, new proposals, methods, proceduresand systems that are recommended by TFAC will have a formal link to the lead agency,which can then take the appropriate actions to implement relevant changes

Cooperation between the public and private sectors is a fundamental prerequisitefor success of trade facilitation A partnership between public and private sectorrepresentatives will help to better define the real needs, improve transparency andinformation flows and encourage viable and sustainable solutions that follow economiccriteria without becoming sidetracked by political considerations

21 Only Mongolia has established a functioning trade and transport facilitation coordination mechanism For further details see Part Two.

The structure of the Committee, which contains elements of trade and transportfacilitation, and which is being recommended to landlocked and transit countries by

ESCAP, is shown in figure 5 The Committee promotes public-private partnerships in

trade and transport facilitation

Figure 5 Example of a trade and/or transport facilitation committee

Source: Study on National Coordination Mechanisms for Trade and Transport

Facilitation in the ESCAP Region forth coming, ESCAP, December 2006,

http://www.unescap.org/tid/itt/index.asp

Currently, the private sector participation in trade facilitation reforms in theeconomies in transition appears to be marginal This is partly a legacy of the past whenthere was no open dialogue and no private sector Other factors are the currentpredominance of State-owned enterprises and, at least partially, a lack of awareness andcapacity

3 TRADE REGULATORY ENVIRONMENT

The trade regulatory environment is an inherent part of any trade regime,governing the conduct of trade operations and providing a ground for trade facilitationsystem The regulatory environment establishes the level of compliance that tradershave to abide by while conducting export, import or transit operations

The trade regime varies among the countries concerned Those that are WTOmembers have liberalized their trade regimes and adjusted legislation to abide by themultilateral rules Changes and amendments have been made to the regulations governingtrade regimes in these countries In addition, in preparation for WTO accession, some ofthe countries had to make changes to their legislation and policies to make them conform

to international conventions and standards However, most of these regulations still lackthe desired degree of transparency Bureaucratic procedures are burdensome and time-consuming for investors and traders Approvals and licences may require approval byseveral ministries

Continued reforms are needed to overhaul the remnants of the old Soviet traderegime in most of the selected countries and to fulfill WTO commitments in those countrieswhere they apply Adapting to the legislative and institutional framework necessitated

by WTO accession continues to be one of the key challenges It is necessary to adoptnew laws and regulations with concomitant enforcement and revise existing ones inorder to ensure harmonization with international conventions and standards

In terms of the guidelines advocated by the ESCAP Trade Facilitation FrameworkStage Bi, the lead agency should carry out various recommended steps and methodologies,i.e the outlined in from Steps Bi-1 to Bi-5 on a periodic basis to review and implementnecessary changes to reflect development in the external trade and global investmentenvironment

4 TRADE AND CUSTOMS PROCEDURES AND DOCUMENTATION

Traders have to deal with an extensive amount of trade documentation to meetthe procedural requirements for exportation, importation or the transit of goods Anaverage international trade transaction involves the use of about 40 trade documents,which are usually not standardized and contain redundant and repetitive information.22

Completing such excessive documentation is time-consuming and results in additionalavoidable costs to traders

22 According to APEC, such redundant and repetitive information covers 200 data elements on average, 30 of which are repeated at least 30 times For details, please see APEC (1996).

Facilitating Cross Border Flows APEC Business Advisory Council http://www.apec.org/apec/

publications/all_publications/apec_business_advisory.html