Trade Facilitation Needs Assessment in South Asia A Case Study of Eastern Sub Region

Transcription

1 Trade Facilitation Needs Assessment in South Asia A Case Study of Eastern Sub Region By Pranav Kumar & Chandan Mukherjee CUTS Centre for International Trade, Economics & Environment 1

2 Contents I. Introduction II. Objective, Research Methodology and Limitations of the Study II.1 Objective II.2 Research Methodology II.3 Limitation of the Project III. Trade Facilitation: Reducing Trade Transactions Cost IV. SAFTA Negotiation & Trade Facilitation V. Eastern Region of Indian Sub-Continent VI. Overview of the Conditions in South Asia India, Bangladesh, Nepal, & Bhutan VI.1. Port Efficiency and Infrastructure VI.2. Transportation VI.3. Border Crossing and Customs VI.4. Standards and Technical Regulations VII. Trade Facilitation in Bangladesh VII.1.General Business Environment VII.2.Transport infrastructure VII.3. Land Ports VII.4.Customs Procedure VII.5. Ongoing Trade facilitation Project in Bangladesh Ports VIII. Trade Facilitation in Nepal VIII.1 Transport Infrastructure VIII.2 Movement of Export/Import through Airways VIII.3 Customs Related Problems in Nepal IX. Trade Facilitation in India IX.1 Transport Infrastructure IX.1.2 Air Transport Facility in India IX.3 Customs Procedures The Current State IX.3.1 Export & Import Procedures IX.3.2 Cargo Dwell time and Port/Airport Logistics X Trade Facilitation in Bhutan 2

3 XI. Major Trade Transport Corridor of Eastern Region XI.1. Chittagong- Dhaka Corridor XI.2. West Bengal Dhaka Corridor XI.3. West Bengal North South Trade Transport Corridor XI.4.Bangladesh-North-Eastern India Corridor XI.5. Bangladesh Nepal Corridor through Phulbari Banglabandh Transit Route XI.6. Indo Nepal Transit Corridor XII. Major Recommendations 3

4 I. Introduction Trade Facilitation Needs Assessment in South Asia A Case Study of Eastern Sub-region The trade performance of South Asian countries over the past two decades has been poor relative to the other regions. Exports from South Asia have only doubled over the past twenty years to approximately $100 billion. The combined share of South Asia in global trade is only little over one percent. On the contrary exports from East Asia during the same period grew ten times. As a result South Asia s share in total exports from developing countries has also declined reflecting both South Asia s limited trade integration with the rest of the world and the low level of intra regional trade. South Asia s intra regional trade as a percent of its total trade volume is not even 5 percent. Several arguments have been advanced for low intra-regional trade among South Asian countries, which include lack of trade complementarities, absence of trade preferences, and lack of liberal trade policies etc. However, with growing openness and pressure to reduce cost to remain competitive, South Asian countries have also realised the importance of various trade facilitation measures. At present there are numerous hurdles in trade facilitation, hindering the promotion of intra regional trade and expanding exports from these countries. The lack of harmonised transport systems, frequent reloading of goods, port congestion affecting turnover time of ships, complicated customs clearance procedures, non transparent administrative procedures at the customs are often the centre of trade constraints. Within South Asia, the eastern region comprising Bangladesh, Bhutan, West Bengal & seven North-Eastern states and Nepal are relatively more backward and underdeveloped. This sub-region of Indian sub-continent is home to about half a billion people and is one of the poorest regions in the world. The three countries Bangladesh, Bhutan and Nepal - located in the region are least developed countries (LDCs). Further, major part of this subregion is landlocked (Bhutan, Nepal and North-Eastern states of India). However, the region has rich reserves of natural resources. The present study is aimed at assessing the needs of trade facilitation measures in the Eastern region of the Indian subcontinent. It involves Bangladesh, Bhutan, Nepal, and West Bengal and North-Eastern states of India. A major part of this region is landlocked with no good access to major seaports. There are only two major ports Kolkata and Chittagong, which, cater to the needs of landlocked countries like Nepal, Bhutan and North-Eastern states of India. Both these seaports are far away and require a long distance to be covered via road or rail. The lack of efficient road and rail network further adds to the cost trade transaction. Given the prevailing situation a field study was conducted to evaluate the existing situations, in Bangladesh, Nepal, Bhutan and West Bengal targeting the main stakeholders and policymakers. The major transport corridors, which were chosen for field study, were 4

5 Dhaka-Chittagong, Petrapole-Benapole, Phulbari-Banglabandh, Indo-Nepal trade through Raxaul. Following this a diagnostic survey was also conducted to know what could be possible remedial measures to address these problems. II. Objective, Research Methodology and Limitations of the Study II.1 Objective Multilateral trade negotiations, along with preferential trading arrangements (PTAs) and unilateral liberalisation efforts, have succeeded in bringing down tariffs and establishing rules on non-tariff barriers (NTBs). This has happened not only in developed countries but also in the developing world. However, though the traditional trade barriers gradually disappeared, the costs of inefficient administration and cumbersome trade procedures commonly termed, as national barriers have become increasingly visible stumbling blocks in the countries. Given these concerns, issues on Trade Facilitation are negotiated as part of the Doha Development Round of the World Trade Organisation (WTO). The issue for improving the standards and procedures in customs is indeed noncontroversial in both economic and managerial terms. This is especially more relevant for South Asian countries where customs procedures and practices often add exorbitantly to the cost of doing business. A review of trade facilitation and transport logistics in the region reveals chink in the armour, including: dilapidated ports and poor transport infrastructure, weak regulatory environments, and inferior service-sector infrastructure etc. Delays at seaports due to congestion and outdated infrastructure, for example, cost the exporters hugely throughout the region. Furthermore, landlocked countries in the region confront additional delays due to traffic jams on roads and at transit often caused by inadequate road networks, and hence have to depend on transit facilities provided by other countries. With recent additional controls put in place, especially on security grounds, the delays for exporters, in particular, have become even longer and more problematic. While it would, therefore, seem logical that countries of South Asia should welcome a multilateral agreement on trade facilitation, there still remains ambivalence in most of the countries. The main concern being that while the costs of implementing a multilateral agreement on trade facilitation would be borne by the states, the benefits would largely accrue to the private sector and would not flow through in the form of enhanced revenue collections, thereby leaving national budgets in greater deficit. Collective and concrete action to lower trade barriers, advance domestic reform, and support capacity building in the region is becoming increasingly important. In particular, measures to facilitate trade and lower logistics costs in South Asia are among the most important steps to promote intra-regional trade and economic integration. Since South Asia is a heterogeneous group comprising of large developing countries like India and Pakistan and four LDCs. So naturally the trade facilitation needs of the countries also vary. India is not only a large economy but it has a long coastal line. It has more than thousand big and small ports, which accentuates India s need to undertake TF measures. 5

6 Besides, small, medium, large importers and exporters that are found in India would present different need for TF measures. Nepal and Bhutan are land-locked country and it has to rely heavily on India for transit facilities. Bangladesh is a least developed country (LDC) and India too have transit issues with Bangladesh (which has been reluctant to offer transit facilities to the north-eastern part of India). Given this background, Consumer Unity & Trust Society, Jaipur with the support from United Nations Development Programme (UNDP) regional centre, Colombo, has implemented a project entitled, Trade Facilitation Needs Assessment in South Asia. The objective of the project is to explore some of the major policy issues related to the trade facilitation in the select countries of South Asia - Bangladesh, Nepal, Bhutan and India (West Bengal state), and to suggest approaches that would fit the interests and priorities these countries. The project aims to identifying some prevalent trade procedural problems in the select countries of the South Asia that impede the free flow of goods and other trade activities among the countries. The main thrust will be to conduct Needs Assessments study for TF measures in these select countries. This will be accomplished through diagnostic interviews with policy experts, exporters and importers. The ultimate purpose is to advocate some scenario planning of these countries as a prelude to further action by the respective government. II.2 Research Methodology The research study on Trade Facilitation Needs Assessment in South Asia has been done on the select South Asian countries Nepal, Bangladesh, Bhutan and India (West Bengal). The overall research is designed into three parts: literature survey, field survey, and regional consultation. The research methodology is imbued keeping in focus that it encompasses dual level of analysis - Needs Assessment through Diagnostic Studies. The crux of the study is Need Assessment i.e., identifying some prevalent trade procedural problems in the select countries of the South Asia that impede the free flow of goods and activities among the countries. The study is pursued by interviewing different stakeholders, including: exporters; importers; shipping agents; port authorities; customs officials; carrying and forwarding agents; business chambers; banking personals; government officials; economists; researchers; freight forwarders; personals attached with the transportation process; export/import associations; and export promotion bureau. These stakeholders are directly or indirectly related to the export/import activities/processes in these countries. The data (both qualitative and quantitative) was collected from the stakeholders through a set, targeted and structured questionnaire, covering a number of questions addressing all the possible issues starting from transit issues, customs dispute settlement, licensing and registration process, import financing, dwell time, problem related to moving freight within the country, to problem faced in other countries etc. The method of selecting stakeholder was based on deliberate sampling, involving purposive or deliberate selection of the stakeholders related to the field to extract the maximum information requisite for the 6

7 project. Two field researchers were engaged to carry out the field research in the four project countries. Once the procedural problems (like the ones related to customs administration, border management, transit, transportation and financing etc.) were identified, diagnostic interviews were conducted by interacting with relevant government departments and other experts in the project countries. This round intended to identify answers to the trade facilitation problems that also helped to bifurcate the problems into domestic issues and international issues in order to ensure the relevant platforms (multilateral or bilateral) for raising and addressing the trade facilitation issues. The study also considered the degree of regional cooperation that would be necessary to make the reformed system work optimally. The research paper prepared on the project comprises of: extensive literature survey on the identified problems; quantitative and qualitative analyses based on the secondary data; and finally, the processed and analysed quantitative and qualitative primary data collected from the field survey. There was also one-day regional consultation of the project where the research paper was presented before the experts comprising of trade policy officials, representatives of trade promotion bodies, WTO exerts, among others, to provide the discussion forum to the relevant actors on need based approach to trade facilitation. II.3 Limitations of the Project Every research project has some inherited limitations that spill out mostly from the scope of the study, research methodology and the constraints (money, time and other resources) associated with the project. However, the incidental limitations associated with the project always provides an opportunity to the researchers for further study of the issue and work on the areas which are left untouched by the previous studies. The research project Trade Facilitation Needs Assessment in South Asia also has its base on the limitation of other studies. However, it has also some inherited limitations, which provides opportunity to the other researchers. The main limitations as faced by the researcher while under going the study include: What came up often from the discussion with the stakeholders is the formation of a common South Asian Association for Regional Cooperation (SAARC) standard, rules and regulation. Undertaking the study in only four countries of South Asia (India, Bangladesh, Nepal, Bhutan) and leaving the other SAARC nations out of the ambit of the study has restricted the scope of the study. Inclusion of Pakistan and Sri Lanka would have made the study more comprehensive and helped to provide a more substantial position for South Asia. Incorporation of a developed Asian country in the study would have helped to identify and compare the standard procedures related to trade facilitation in that country vis-à-vis the project countries and would have served the purpose of benchmarking the present facility available in project countries. However, financial resource and time constraint restricted the scope of the study. 7

8 The inputs from the field could not be collected more extensively by interacting with more stakeholders and also more of the land ports in Bangladesh could not be covered in the study due to the time limitation of the project. Due to the same constraints, all the ports, both (land and sea) could not be covered in India and bought directly under the ambit of the study. For most of the information on India (other than West Bengal and North-East corridor) the researcher had to depend on secondary sources. There has also been difficulty of retrieving published data from various government and other agencies on issues related to trade facilitation. Besides, the websites of the different agencies are not up to date to provide the required information on the trade facilitation issues of the given countries. The whole research paper is based on the application of qualitative analysis. Application of quantitative analysis is beyond the scope of the study, which would have revealed more information on the issues and provided better chance for comparative analysis in the study. There has been some non-participation/reluctance/indifference from the government agencies and other stakeholders to reveal information. Their feedbacks/cooperation would have provided more in-depth information to the researchers. III. Trade Facilitation: Reducing Trade Transactions Cost Trade facilitation is a concept aimed towards reducing the complexity in international trade transaction resulting in reduction in cost of the trade transaction. It ensures that all the activities take place in an efficient, transparent and predictable manner to make information on border requirements and customs procedures easily available and accessible to all interested parties through out the trade chain. Although there is no universally agreed definition of trade facilitation, it basically deals with (a) modernization of customs procedures & port infrastructure (b) harmonization and streamlining of applicable laws, standards, regulations and regulatory requirements; (c) simplification of administrative and commercial formalities, procedures and documents; (d) standardisation and integration of information and requirements; (e) use of technologies so as to exchange information efficiently and finally transparency. The basic objective is to facilitate trade by creating a competitive, congenial environment, convenient procedures and modern infrastructure support. Trade facilitation also helps to reduce the unnecessary burdens of bureaucracy on companies, broaden market access, increase the participation of small and medium sized enterprises (SMEs) in international trade, and checks corruption. It is also an instrument to improve public finance by minimising administrative costs resulting in saving of resources for redeployment. In practical terms, trade facilitation focuses on creating efficiency and reducing costs across the entire transaction process. Efficient trade procedures allow goods 8

9 to travel to customers cheaply, quickly and safely, which has a dynamic effect on competitiveness. It is argued that everyone gains from trade facilitation measure. Governments gain because efficient border procedures make them able to process more goods and improve control of fraud, thus increasing government revenue. Businesses gain because if they can deliver goods more quickly to their customers they are more competitive. Finally consumers gain because they are not paying the costs of lengthy border delays. If a trade process gets delayed and cost rises, it is ultimately the consumers who bear the loss. Studies indicate that even modest reductions in trade transaction costs, such as lengthy border procedures, translate into significantly increased trade. This is true for both rich and poor countries, but developing countries would show higher relative trade gains because of the relative inefficiency of their current systems. Taking into account how trade facilitation measures to reduce transaction costs affect different sectors of the economy and different types of traders, OECD research shows that developing countries stand to gain two thirds of total world welfare benefits from trade facilitation. A study by UNCTAD (2001) shows that a one percent reduction in the cost of maritime and air transport services could increase Asian GDP by US $33.3 billion. Another study by Walkenhorst and Yusui (2003) states that welfare gains as a result of a 1 percent reduction in trade transaction costs are estimated to amount to about US$40 billion world wide 1. Hummels (2001) estimated 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 0.8 percent. Expediting customs clearance procedures reduces the discretionary power of customs official, reducing scope of corruption. Non transparent border procedures and regulations are burdensome for many small and medium sized firms in developing countries including those landlocked countries with extremely poor access to trade routes. World Bank s Global Economic Prospects 2004 shows increased trade facilitation measures even halfway to the global average around the world in areas related to regulatory transparency, customs efficiency, and administration of trade rules could increase trade by $377billion 2. Logistical system also influences investment. Multinational firms make their decision about the location of the plant facility in a particular country based on the export and import rules of the country. In general, sound-enabling policies - including good governance, institutions and property rights can help attract more investment and encourage growth (Chia and Dobson, 1997). Chile is saving approximately US$ million each month through automation and a greater use of risk assessment. Singapore declared that a proper implementation of trade facilitation measures helped it to save on an average 1% of its GDP. However some of the developing countries are reticent to commit to trade facilitation process. One reason is that for developing countries in particular improvement in inefficient customs system places multiple demands on the limited resources. Another important issue is that government has to fund some of the reforms before they see any 1 Source: US Bureau of Census; adopted from world bank (2002) 2 Source: Wilson, Mann and Otsuki (2003) 9

10 benefits in terms of increased revenue and trade. It is also difficult to quantify the level of reforms required to reap the benefit from such reform measures. Box1: Facilitation Indicators and Related Areas that Need Reform The ambit of Trade Facilitation is very broad and touches upon several areas. While some of these falls directly under initiatives that need to be taken by the Government, others involve a partnership between private stakeholders and Government initiatives. The main indicators of trade facilitation and the areas of reform required in them are briefly presented below. Port Logistics Cargo Dwell time Warehousing facilities (including refrigerated warehouses for perishables) Rail and road links from hinterland to ports Customs Procedures Electronic Data Interface (EDI) Signature less, Internet based process for filing customs related documents. Trust based systems Post clearance audit Pre Shipment Inspection Agreements (PSI) Risk analysis and assessment Standards Harmonization Reform of domestic Standards setting and monitoring authorities Moving towards regional and global convergence on standards Mutual Recognitions Agreements on standards Business Mobility Movement of Professionals and transparent visa systems Adequate Financial systems including Banking, Insurance and Clearance mechanism Trade Information and E-business facilities Proper channels and access to market information, legal systems and standards and regulations Availability of information electronically through the internet E-Business infrastructure to enable to business-to-business contacts Administrative Transparency and Professionalism Simple and transparent procedures for export and import Non-discriminatory approach to enforcement based on risk assessment techniques Public Private cooperation and information sharing to improve enforcement and compliance IV. SAFTA Negotiation & Trade Facilitation South Asia is one of the least integrated regions into the world economy. Their combined share in global trade is not even 2% as against 20% share in world population. Not only this, the degree of regional integration among them is also at a very low level. The intraregional trade is only 5% of their total trade. In this era of intense competition, where, 10

11 producers are exploring for all avenues to cut down cost of production and increase competitiveness, reducing trade transaction cost is extremely important. Trade facilitation in South Asia has become increasingly important, as the region has adopted more open trade policies since the late 1980 s. India, Pakistan, Bangladesh, Srilanka, Maldives, Nepal and Bhutan formed the South Asian Association of Regional Cooperation (SAARC). This started with the SAARC preferential trade agreement (SAPTA). The SAARC members initiated the South Asian Free Trade Agreement (SAFTA), with effect from January 01, The governments of the SAARC countries agreed to strengthen the economic cooperation through integrating more closely transport systems and harmonising standards to maximize the realization of the region s potential for trade and development for the benefit of their people in a sprit of mutual accommodation, with full respect for the principles of sovereignty equality, independence and territorial integrity of all states through the SAFTA agreement. Article 8 of the SAFTA deals with trade facilitation measures. The contracting states agreed to support and complement SAFTA for mutual benefit. The agreement includes- Box 2: Article 8: Additional Measures Harmonization of standards, reciprocal recognition of tests and accreditation of testing laboratories of Contracting States and certification of products; Simplification and harmonization of customs clearance procedure; Harmonization of national customs classification based on HS coding system; Customs cooperation to resolve dispute at customs entry points; Simplification and harmonization of import licensing and registration procedures; Simplification of banking procedures for import financing; Transit facilities for efficient intra-saarc trade, especially for the land-locked Contracting States; Removal of barriers to intra-saarc investments; Macroeconomic consultations; Rules for fair competition and the promotion of venture capital; Development of communication systems and transport infrastructure; Making exceptions to their foreign exchange restrictions, if any, relating to payments for products under the SAFTA scheme, as well as repatriation of such payments without prejudice to their rights under Article XVIII of the General Agreement on Tariffs and Trade (GATT) and the relevant provisions of Articles of Treaty of the International Monetary Fund (IMF); and Simplification of procedures for business visas. The objective of the agreement is to ensure better trade facilitation in the region. This would facilitate greater intra regional trade in South Asia by removing the non-tariff barrier- including transaction costs and behind the border barrier. Constraints in supply chains and trade logistics include a number of increasingly important barriers to exports from South Asian countries. The lack of harmonised transport systems, frequent reloading of goods, port congestion-affecting turn over time of ships, complicated customs clearance procedures, non transparent administrative procedure at the customs are often at the centre 11

12 of trade constraints. These constraints are more serious for developing countries than for developed countries. V. Eastern Region of Indian Sub-Continent The eastern region of Indian sub-continent, comprising Bangladesh, Bhutan, eastern India (West Bengal and the North-Eastern States), and Nepal, is home to about half a billion people and is one of the poorest regions in the world. More than half the population lives on less than US$1 a day. The population of the region is expected to double in the next 25 years, which would further exacerbate problems of poverty and unemployment. Paradoxically, this region is endowed with abundant natural resources fertile soil, water, minerals, and energy resources which are untapped because of poor connectivity & infrastructure and lack of market access. There is an urgent need to realise the importance of interdependencies among the countries. Nepal and Bhutan along with the seven North- Eastern Indian states are landlocked. The North-Eastern region of India is connected to the rest of the country by a narrow land corridor (referred to as the chicken s neck in the subregion) of 22 kilometers between Bangladesh and Nepal. This landlocked region, a natural hinterland to Chittagong port of Bangladesh, trades with the rest of India and the world through this congested land corridor, with relatively much high transportation costs. The Indian state of West Bengal and Bangladesh are strategically located to play a pivotal and catalytic role in promoting greater sub-regional economic cooperation and reducing poverty in the region. Poor transport infrastructure is considered to be the major impediment to development of this region. As major part of the region is landlocked good rail and road transport infrastructure is recognized as a prerequisite and foundation on which governments can plan and implement their economic and social development programs. Box 3: Tea Export from Assam The tea from Assam, a major export item of the region, is shipped to Europe via Kolkata port. The transportation cost includes a trucking route of more than 1400 kilometers to Kolkata port. By making use of Chittagong port for export of Assamese tea the transport distance is reduced by almost 60 percent. The consignments from both Nepal and Bhutan to third country are also routed through Kolkata port, which cause delays and add up to costs. The development of some of the important transport corridors such as West Bengal Corridor, Dhaka-Chittagong and Petrapole-Benapole along with the improvement of access and capacity will remove a critical bottleneck in the movement of freight and passengers from the northern parts of West Bengal, Nepal, Bhutan and the North-Eastern states of India to the ports of Kolkata, Haldia and Chittagong. In this sub-region West Bengal is an important artery because it borders Bangladesh to the East; Nepal to the North-West; Bhutan to the North-East; and the states of Bihar, Jharkand, 12

13 and Orissa to the west; Sikkim to the north; and Assam to the east. Traffic from India s North-Eastern states must pass through West Bengal to reach an Indian port. VI. Overview of the Conditions in South Asia India, Bangladesh, Nepal, & Bhutan Trade facilitation in South Asia has become increasingly important, as the region has adopted more open trade policies in 1980s and more actively since 1990s. The brief outline of efficiency and capacity constraints in South Asia is highlighted in the following section - a) Port Efficiency and infrastructure; b) Transportation including road and railways; c) customs efficiency and infrastructure; and d) Standards & Technical Regulations VI.1 Port Efficiency and Infrastructure Air and Maritime ports play a pivotal role in trade for South Asia. However both are generally considered less competitive than those of in East Asia. There are three types of Maritime ports a) Transshipment hubs, b) regional hub ports, and c) regional seaports (Subramaniam and Arnold, 2001). Transshipment hubs are located on or close to major shipping routes and attract frequent calls by the larger shipping agents. The port of Srilanka is the only transshipment hub in South Asia and is the most developed and successful port in the region. Nhava Sheva port, India s largest port, is considered as the regional hub port. Regional seaports handle feeder services from the major transshipments hubs; examples are the ports of Kolkata and Haldia in India and the Chittagong in Bangladesh. South Asia s port efficiency is reflected in a number of problems. There is congestion in regional hub ports, regional seaports and in associated seaports and this delays delivery on time. An important example is the Nhava Sheva port in 2004, where continued problem of congestion lead to estimated loss of around Rs. 800 crore a month because of delayed shipments (Business standard, august 06, 2004). Delays in regional seaport are longer. In contrast to transshipment hubs and regional hub ports, regional seaports do not operate on the fixed day of the week schedule. This can cause delays and uncertainty in turn around time at the ports. Subramaniam and Arnold (2001) also highlight the problem of excessive delays in moving cargoes through the ports of Calcutta and Chittagong in Bangladesh and the associated impact in trade. VI.2 Transportation The lack of proper cross border transit points and road connections across the region are major hindrances to intra regional trade. The lack of integrated transport networks in the region clearly raises cargo-shipping cost. The problem is more critical for the landlocked countries like Nepal and Bhutan. In addition the perennial labour problems in the region cause delays in transit and congestion in land transport network. Inland roads are a major means of moving goods across South Asia. For instance, India has an extensive 3.3 million km road network making it one of the largest in the world. However a number of road corridors in the region is not maintained and are of limited capacity. This makes it expensive to move commodities across long distances with countries imposing load limits. In India the percentage of paved roads at 56 percent is 13

14 lower that than in countries of East Asia, which averages 88 percent. The cost of road transport is also high. The average transport costs on the Kolkata Petrapole route between Bangladesh and India is Rs 2543 which is about 40 percent higher than other highways (Das and Pohit, 2004). It takes almost 15 days for a container from New Delhi to reach Dhaka, because it comes by sea via Singapore, and the cost is as high as US$2,500. This would otherwise cost only $500 and take just 5 to 6 days. There is no direct system of transportation between the two capitals. The distance between Dhaka and Delhi by water is 7,162 kilometers while it is only 2300 kilometers by road, which could be covered within 2-3 days by road. At the number of border points the trucks and trains come up to the border and unload just on the opposite side. The existing means of transporting Nepal s goods to Bangladesh through Indian territory is not suitable because the Nepali trucks while crossing the Indian territory are escorted from Kakorvita up to Banglabandh by Indian Security forces. Bangladesh s goods also come to Nepal under similar conditions. There is also a train track between Raxaul in India, Rohanpur in Nepal and Rajshahi in Bangladesh. This train route is via Katihar in India. However, the operation of the route requires bilateral agreement among the three countries. Nepal allows Indian trucks all over its territory but India allows Nepali vehicles only in some designated routes. Costs are also high because of high vehicle maintenance cost. Road transport is also affected due to ageing bridges and lack of capacity. This in turn limits truck and cargo weight and therefore causing inefficiency in freight movement. All these conditions prevent shippers from taking the most efficient routes and thereby extending time and cost which impede opportunities for international and intra- regional trade. The estimated cost of sending the equivalent of a 20-foot container of freight by road from the Port of Kolkata to Birgunj is about INR The cost of moving a container by rail from Kolkata to Raxaul on the Indian side of the border at Birgunj is INR 15,000-20,000. There are train tracks from Bangladesh to North-Eastern states of India, but the system is not operative, as Bangladesh does not provide the transit facility to India. Rail track also exists between Bangladesh and Nepal but is not being used. There have been a number of projects to upgrade railway networks over the past decade. However, problem is still persisting. The types of rail gauge also vary among countries and regions. Railways in India and Bangladesh suffer from overstaffing, poor maintenance and old rolling stock (Subramaniam and Arnold, 2001). Bangladesh railways have serious problems with the maintenance especially in the parts of the country where there is flooding problem. Due to this the railway sector has lost share to the roads sector and exporters consequently making limited use of railway. VI.3 Border Crossing and Customs Border crossings mostly includes inter related infrastructure and facilities such as customs, clearance, check posts, truck waiting areas, storage depots, rail yards and loading and unloading areas at ports. The border at Benapole is repeatedly one of the most developed in the region with facilities for warehousing, well develop services and other facilities. In sharp contrast some of the borders do not have this facilitates (Subramaniam and Arnold, 14

15 2001). Problem arises when customs clearance centers are located far away from the border. Facilities such as sanitary and phytosanitary testing laboratory in Kolkata is located one thousand kilometers from the customs facility at Birgunj, Nepal. Exporters pay additional fees for vehicle detention charges for weeks while waiting for test results. This along with affecting the cost affects the quality of the product. There are also delays in transaction in border crossings. Some of these delays are associated with preparation of the customs documents and inspections due to the lack of standard documents. At the Indo-Bangladesh border a consignment needs at least 22 documents, more than 55 signatures, and a minimum 116 copies for the final approval (RIS, 2004). Each country requires different documents such as transit export and import declarations. Exporters must prepare separate document at each side of the border. Further more the region uses different classification systems for commodities. This leads to general lack of transparency and problems in product classifications in trade. There are also other administrative problems with the customs that continue in the region, including like limitations on the staff-working hour, lack of uniformity applied import duty rates, among others. Non transparent inspection procedure in many countries reduces efficiency and slows customs clearance time. The resulting issue is the requirement of dedicated improvement in the customs clearance in South Asia. Countries in South Asia too some extent has moved over the past decades to improve customs. Example includes India has launched a modernization project in customs, which include leveraging Electronic Data Interchange (EDI) technology, which allows exchanging documents and forma electronically to streamline clearance. In Bangladesh the steps required for export /import clearance of fibers, fabric and garments have been reduced by 75 percent. Nepal is currently undertaking reforms under a three-year Customs Reforms and Modernization Action Plan. Reforms include upgrading physical facilities, administrative structures and automation of customs, and simplification and harmonization of procedures. The reforms resulted in a revenue increase by Rs. 900 million in the first six months of 2004 from the same period in the previous year. EDI systems are yet to be implemented in Bhutan and Nepal. 15

16 Box 4: Border Documentation in South Asia 3 India to Bangladesh For India Customs- Customs Export Declaration, Bill of Lading, Invoices, Packing Lists, Letter of Credit Nepal to India For Bangladesh Customs- Importer pass Book, and for goods for EPZ (bonded warehouse licenses, Value bonded Forum, Risk and Duty Bond For Nepal s customs- Customs Export Declaration, Duty Insurance Certificate, Invoice, Packing List, certificate of Origin, Certificates of Registration (income tax, VAT, company), Letter of Credit For India Customs- Customs Transit Document, Duty Insurance, Invoice, Packing List, Letter of Credit, Certificate of Origin Bangladesh to Nepal For Bangladesh Customs- Export Registration Certificate, Invoice, Letter of Credit, Packing List, Certificate of Origin, Truck receipt. For Nepal Customs- Customs Import Declaration, Invoice, Packing List, Certificate of Origin, Import License. Letter of Credit, Health Quarantine, Certificate and Equipment Interchange Receipt and Duty Insurance Coverage for Containers. Bangladesh Ports Indian Ports Exports- Export Bill of Entry, Invoice, Packing List, Export Permit, Undertaking by Export of Company of Out pass Statement on Letterhead, Risk Bond Imports- Customs Transit Declaration, Bill of Loading, Invoice, Packing List, Certificate of Origin, Import License, Letter of Credit, Health/Quarantine Certificate, Equipment Interchange Receipt and Duty Insurance Coverage for Containers Exports- Customs Transit Document 3 Source: Subramanian U and J Arnold, Forging Sub regional Links in Transportation and Logistics in South Asia, The World Bank,

17 VI.4 Standards & Technical Regulations South Asian countries confront challenges and can realise opportunities for market expansion in meeting standards and technical regulations. These measures are directly related to trade facilitation. World Bank report highlights that in South Asia firms report standards and technical regulations as very important to export success at a higher percentage than countries in other regions and these are critical for all the countries in South Asia. Standards as a means to facilitate trade are critical for all the countries in South Asia. There is in general absence of harmonisation and equivalence of national standard among the South Asian countries. Nepalese and Bangladeshi exporters often fail to present quarantine and health standard certificate at the border with India. The certificates given by the Bangladesh Standard Testing Institute (BSTI) is also sometimes not accepted by the Bureau of Indian Standard (BIS) in India. This frequently enforces the requirement of testing the Bangladeshi products by BIS and get it certified in India. These countries also face problems related to standards in exporting frozen foods and other items to US and EU market due to lack of capacity to fulfill the EU and US standards on their import items. This acts as a non-tariff barrier and impacts the exports of the countries like Bangladesh in South Asia in the areas in which a larger section of the population is dependent to earn the livelihood. It is quite imperative that while the industry needs to comply with sanitary and phytosanitary (SPS) measures in agricultural trade, firms also must address increasing pressures to comply with national pollution laws to protect biodiversity. There is also urgent need to harmonise food standards across the South Asian countries to stimulate regional and international trade opportunities to greater extent. Standards also play an important non-trade barrier for the export of the South Asian countries. For example, Nepal s woolen carpets industry was severely affected when Germany, an importer of 90 percent of the products, required eco-labels on the products (Shrestha and Shakya, 2002). The Indian coffee industry also had many difficulties in meeting the market standards. South Asian countries have recognized the importance of harmonization of standards in the context of trade facilitation. In 1999, SAARC and the EU signed memorandum of Understanding to enhance cooperation to assist the harmonization of SAARC standards (EUROPA, 2004). India and Nepal included issues of standards in discussions on their bilateral agreement (Hindu Business Line, August 10, 2001). The Nepal Bureau of standards and Metrology tried to harmonize national standards such as ISO, and provides the Nepalese industries with quality assurance, consignment inspections and programs of environmental labeling for export industries (Shrestha and Shakya, 2002). VII. Trade Facilitation & Bangladesh The trade policy reforms initiated in the early 1990s by Bangladesh signaled a major departure from the highly protectionist, inward-oriented import-substitution policies of the past. The intended objectives were to increase trade integration with the world, enhance domestic competition, and bring domestic relative prices more into alignment with international prices. These developments would promote efficiency in resource use, lead to 17

18 productivity growth, spur activities with comparative advantage, encourage technological progress and diffusion and thus generate dynamic gains. The reforms undertaken in 1990s, included tariff cuts and rationalisation, elimination of quantitative restrictions, adoption of a unified exchange rate system, switching from a fixed to a more flexible exchange rate regime, and current account convertibility. There were also some accompanying measures to liberalize the domestic economy and improve market. One of the principal indicators of global economic integration is trade openness, which is generally measured by the ratio of total trade (exports plus imports) to GDP. This ratio (for merchandise trade) has increased considerably in Bangladesh in recent years: from 17.6 percent in 1990 to around 29.4 percent in To a large extent, this reflects impacts of significant reductions in import tariffs and in quantitative restrictions on imports, as well as considerable progress on exchange liberalisation. However, there still exist significant barriers, which impact adversely on Bangladesh s export competitiveness. In this era of globalisation exporters have no choice but to compete in international prices, regardless of how much their profit margins are squeezed. These policy measures relate to trade related infrastructure and domestic (behind the border) factors, which are crucial for achieving higher productivity and export competitiveness. VII.1 General Business Environment Persistent corruption, poor infrastructure and the high cost of finance are the main hindrance to higher export competitiveness in Bangladesh (May 2005, World Bank report). Bangladesh imposes a number of prohibitions and restrictions on imports. Corruption also serves as a non-tariff barrier. According to the U.S. Department of Commerce reports business people consider Bangladesh Customs to be a thoroughly corrupt organization in which officials routinely exert their power to influence the tariff value of imports and to expedite or delay import and export processing at the ports. Policy and regulations in Bangladesh are often not clear, consistent, or publicized. Businesses must always turn to civil servants to get action, yet may not receive at times, even with the support of higher political levels. Unhelpful treatment of businesses by some [government] officials, coupled with other negatives in the investment climate, raise start-up and operational costs, add to risk, and tend to counteract the [government s] praiseworthy investment incentives. Customs clearance bribes impose a heavy cost on business, as they often hit exporters twice - first when raw material component are imported and second when clearance is sought for the export of processed goods. Transparency International, a Berlin based private rating agency, has placed Bangladesh last on its cross-country corruption ratings. While this indictment may be little too harsh for Bangladesh, the problem of endemic corruption in Bangladesh is undeniable. In a recent survey, about 60 percent of the 1001 firms surveyed in Dhaka and Chittagong areas viewed corruption as a major constraint to business operation and growth. 4 In yet another World Bank s report Doing Business 2003, on average, 7 procedures are involved in starting a business in Bangladesh. This compares favorably relative to other 4 Bangladesh Growth and Export Competitiveness Report, May 2005, The World Bank 18

19 benchmark countries. On average, it takes about 30 days to clear these procedures in Bangladesh, which again is relatively good--only Niger and Chile among the comparator countries have a shorter duration. However, the cost of even these relatively few procedures is extremely high in Bangladesh. However, despite having fewer procedures, the cost of starting a business (in US dollars) is higher in Bangladesh than in China, India, Indonesia, Sri Lanka, Thailand, and Vietnam. The same cost, expressed as a share of percapita GNI, is higher in Bangladesh than in any other country except Niger in the comparator group. A complementary measure based on surveys of executives corroborates that starting a business is more onerous in Bangladesh; of all comparator countries in Asia, Bangladesh ranks lowest on a question rating the difficulty of starting a formal business in terms of administrative burden, ranking 77th out of the 102 surveyed countries. Table 1: Cost of Doing Business: Bangladesh Vs. Competitors Starting a Business Enforcing Contracts No. Of Proced ures Duratio n (Days) Cost (US$) No. of Proced ures Duratio n (Days) Cost (US$) Cost (% GNI Per Capita) Cost (% GNI Per capita) Bangladesh India Sri Lanka China Thailand Malaysia Source: Bangladesh Growth and Competitiveness Report 2005, The World Bank Similarly, while the number o f procedures involved in getting a business contract enforced is relatively low in Bangladesh, the cost of clearing these is quite high--the average cost of enforcing a contract in Bangladesh is almost three times its per-capita GNI, the highest such ratio among the comparator group. VII.2 Transport Infrastructure Poor transport infrastructure significantly increase the trade transaction cost and thus hamper export competitiveness. Bangladesh has an extensive transport system, including 236,728 km of roads, 2700 km of railways, 6,000 km of waterways, two major seaports (Chittagong and Mongla), three internationals airports and nine domestic airports. Despite a relatively high density of its road network, poor road conditions and lack of transportation seriously impair private activity, particularly on account of: poor construction of roads and bridges; lack of maintenance of roads and waterways; and a lack of integration of different modes of transportation (which makes long-haul transport very difficult). Out of the total road network (1.6 per square km area) only 9.53% are paved, much below to other developing countries. Public spending on road maintenance falls well short of what is needed. For example, expenditure by LGED on rural road maintenance was about Tk 1.7 billion in FYOO as opposed to an assessed requirement of Tk 2.4 billion. 19

20 The road network consists of 3,086 km of national highways, 1,751 km of regional highways, 13,877 km of district roads, 35, 582 km of sub district roads, 45,055 km of union roads and 137,377 km of village roads. However, still there is an inadequate supply of transport modes to meet demand. The government has created a strategic transport policy through its ministry of communication and aimed to create a more efficient transport system for passengers and freight over the long-term period of 30 years. The objective is to introduce an integrated multimodal transport system (across rail, bus, taxi and water services and terminals) to assist economical transport and ease interchange, growth of traffic commensurate with economic demands, and a reduction of transport costs of goods for export. The policy also encourages private sector participation on a build operate transfer (BOT) basis, including a method of taxation through tolls. The policy also aims to provide coordination across various government agencies. Port of Chittagong, administered by Chittagong Port Authority is the largest of the seaports, handling around 80% of the sea borne merchandise imports and 75% of the merchandise exports. The port is the integral part of the sub regional transport and logistics chain connecting Bangladesh and North-Eastern India, Bhutan and Nepal to Europe, North America and South East Asia. The port is plagued by labor problems, poor management, and lack of equipment--a situation that is fairly symptomatic of the rest of the sector s problems as well. The cargo yards at Chittagong are severely congested as containers are filled and emptied in port, and cargo-handling equipment is often out of commission for want of spare parts. Box 5: Chittagong Port: Some Facts Its container terminal handles only lifts per berth a day, well below the UNCTAD productivity standard of 230 lifts a day. Capacity is to handle 0.2 million TEUS (twenty feet equivalent units per annum) handled 0.69 million of TEUS in With average 15% export growth per annum, should be required to handle million TEUS by Ship turnaround time is 5-9 days, significantly above the 1-day standard of more efficient ports. Handling charges for a 20-foot container have been estimated at $640 (of which $250 is for unofficial tolls) compared to $220 in Colombo and $360 in Bangkok Customs procedures at ports require more documents and take longer than at other regional ports. Results of the ICA surveys exemplify this: for instance, Bangladeshi firms reported an average 11.7 days to get their last shipment of goods through customs, compared with Malaysia (3.4 days), China and India (both 7.5 days), and Philippines (10.2 days), 48 endorsements for release of goods. Sources: Various Mongla Port is the second seaport situated in South-Western part of Bangladesh, at the confluence of the River Passur and Mongla, about 131 Km. upstream from the Bay of Bengal. The port is well protected by the natural mangrove forest of Sunderbans, which 20