Geneva, December Improving Logistics for Trade through South-South and Triangular Cooperation

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1 Multi-year expert meeting on international cooperation: South South cooperation and regional integration Geneva, December 2009 Improving Logistics for Trade through South-South and Triangular Cooperation By Takashi Tsuchiya Director-General Trade and Economic Cooperation Department Japan External Trade Organization (JETRO) Logistics The views expressed are those of the author and do not necessarily reflect the views of UNCTAD 1

2 Improving Logistics for Trade through South South and Triangular Cooperation Session 3: Leveraging Opportunities for South South Trade in Agriculture and Triangular Cooperation UNCTAD Expert Meeting on South South Cooperation and Regional Integration Geneva, Switzerland December 15 th, 2009 Logistics Takashi Tsuchiya Director General Trade and Economic Cooperation Department Japan External Trade Organization (JETRO) 2

3 Reduction of Service Link Costs within Production Networks Contribute to the Progress of South South Trade. 3

4 The Two Contributing Factors for Reducing Service Link Costs 1. Improvement of Hard and Soft Logistics Infrastructure 2. Reduction of Tariff and Non Tariff Barriers through Promotion of FTAs 4

5 Improvement of Hard and Soft Logistics Infrastructure (Case of ASEAN) 5

6 Overview of Land Transport in ASEAN Impossible to achieve economic integration (including FTAs) without a smooth logistics environment Guangzhou Kunming View in the past: air and sea seen as major transport modes; land used only as contingency. Nanning Lang Son Hanoi Progress in hard infrastructure improvement and regional economic integration, especially through FTAs, has led to more efficient transportation for small volume and frequent shipping, thereby improving supply chain management. Hong Kong Hai Phong Vientiane Yangon Savannakhet Myawady Da Nang Bangkok Ho Chi Minh Phnom Penh View today: land transport has become a viable and advantageous option, being seen as faster than sea and cheaper than air. Kuala Lumpur Singapore Practical information still lacking; firms needed to know: How much can land transport shorten lead times? How does land transport compare to sea, in terms of cost? What are possible issues with land transport (e.g., quality, punctuality)? 6

7 ASEAN Logistics Network Map Study by JETRO Objective: Clarify Present Situation of ASEAN s Logistics Networks in Response to Business Sector s Needs Identify issues and propose measures for their improvement Pass on comments from business sector to government bodies Structure: Survey of eight priority routes Transportation modes: land, air and sea Areas examined: door to door costs, time and quality (risks) AND Logistics database (CD ROM) Examines both hard & soft infrastructure User friendly (web browser compatible) Please visit JETRO Online Bookshop ( 7

8 Trial Transport (Bangkok Hanoi) JETRO ASEAN Logistics Network Map Loaded trucks ran from Bangkok and Hanoi, meeting at Savannakhet, where containers were transshipped. In order to secure return cargos and thereby reduce costs, transport needs for both directions were synchronized (Conducted in November 2007) Hanoi 700km *EWEC: East West Economic Corridor Loaded Transshipment of Loaded Containers Densavan (Lao PDR) /Lao Bao (Vietnam) EWEC* 250km Loaded 750km Bangkok Mukdahan (Thailand)/ Savannakhet (Lao PDR) (2 nd Mekong Bridge) 8

9 Estimation of Improvement: Time JETRO ASEAN Logistics Network Map 96:00 84:00 72:00 Single Stop Service at borders seen as most effective for saving time. Thailand Lao PDR Vietnam Time Model Trial Transport including waiting times for return cargo Synchronized with opening times of customs offices + shorter transshipment times 60:00 Synchronized + Single stop Time (h) 48:00 36:00 24:00 12:00 0:00 Bangkok Mukdahan / Savannakhet Densavan / Lao Bao Hanoi Transport Process 9

10 Keys to Success for Land Transport (Bangkok Hanoi) ASEAN Logistics Network Map Costs Time Quality Boost cooperation among carriers and information sharing among shippers to promote collaborative transport Improve institutional frameworks for LCL, support backup service operators at borders Build freight distribution centers near borders to adjust cargo volumes Deregulate corporate market entry restrictions Promote Green Logistics skills Expedite customs clearance Fully implement Single Window & Single Stop Service Extend service hours of customs Adopt Authorized Economic Operator Systems Allow cross border movement of trucks/trailers, in order to eliminate the usage of cranes for transshipment of containers Introduce GPS cargo monitoring system Develop human resources in logistics Introduce equipment for proper handling of materials Allow cross border movement of trucks/trailers, in order to eliminate the usage of cranes for transshipment of containers Add warehouses, better roads, street lights, etc. Faster! 10

11 JETRO Projects for Improvement of Logistics Environment JETRO is conducting supporting projects to make concrete improvements in logistics environments, with a focus on human resource development Thailand, Philippines, Indonesia The Thai National Shipper s Council started a logistics training program, supported by JETRO and the Japan Institute of Logistics System (JILS), to develop human resources in logistics. The program provides training and certification for improving skills of logistics staff. Similar programs are under preparation in the Philippines and Indonesia. As a first step, JETRO launched a Pilot Consultation project, in which Japanese logistics experts offer guidance to local firms, with the aim of creating successful cases, ahead of a wider program. CLMVs For further economic development of CLMV countries (Cambodia, Lao PDR, Myanmar and Vietnam), it is vital for these countries to build not only hard infrastructure, but innovate in building soft infrastructure, such as human resource development. Towards this aim, JETRO is holding Logistics Workshops in CLMV countries, in which Japanese experts offer models and example scenarios for upgrading logistics services and management, targeting both the public and private sectors. Improved soft infrastructure can reduce such examples of poor cargo handling 11

12 Policy Recommendations to Administrative Bodies JETRO disseminates information gathered through its logistics studies and makes policy recommendations to administrative and international bodies (UN ESCAP, ASEAN Secretariat, ADB, APEC, etc.) APEC Supply Chain Connectivity Symposium, May 2009, Singapore APEC Seminar Capacity Building for Sharing Success Factors of Improvement of Investment Environment on 27 July 2009, Singapore 12

13 JETRO Survey on Business Needs in Mekong Region* Objective*: grasp business needs and strategies of Japanese/non Japanese companies in Mekong region to identify necessary issues for the further promotion of investment and industrial development. Time period: July 25 th to October 2 nd, 2009 Method: interview of individual companies Number of companies interviewed: 125 (Japanese affiliated: 95, non Japanese:30) Thailand: 42, Vietnam: 25, Cambodia: 17, Lao PDR: 15, Myanmar: 13, Others (regional headquarters in Singapore, etc.): 13 Industrial sectors covered: automobiles (two and four wheel) and parts: 16, textiles/apparel: 16, food processing: 15, electric appliances and parts: 14, wood processing: 3, chemicals/petrochemicals: 2, steel: 2 Trading companies: 15, Tourism: 5, Finance: 4, Logistics: 10, Others: 23 *Survey was conducted based on requests made at the July 30 th, 2009 AMEICC WEC WG The survey results were reported by JETRO CEO, Yasuo Hayashi, at the Mekong Japan Economic Ministers Meeting in Hua Hin, Thailand on October 24, *Mekong region: China's Yunnan province, Myanmar, Thailand, Lao PDR, Cambodia and Vietnam. 13

14 Recommendations for Policy Responses based on JETRO Survey Improvements in hard infrastructure Development/improvement of: 1. Deep seaports (e.g., Cai Mep Thi Vai, Ranong, Dawei) 2. Industrial roads linking ports, industrial areas and markets 3. Industrial railways (e.g., Ranong port Bangkok, Yangon Dawei port) 4. Logistics parks (e.g., Thanalene in Lao PDR) 5. R&D facilities and high tech industrial parks (e.g., Bangkok, Hanoi) 6. Power and communication facilities 7. Infrastructure in metropolitan areas: road and mass transportation systems (e.g., Hanoi, Ho Chi Minh City, Bangkok, Phnom Penh) Improvements in soft infrastructure 1. Facilitation of customs clearance systems (e customs, green lane, harmonization of document formats (e.g., certificate of origin)) 2. Prompt implementation of Cross border Transportation Agreement (CBTA) and abolishment of transshipment requirement 3. Improvement of transparency in taxation and regulatory systems 4. Others: development of human resources, nurturing of supporting industries and improvement of special economic zone administration 14

15 Importance of Both Hard & Soft Infrastructure A study by ERIA (the Economic Research Institute for ASEAN and East Asia) suggests that improvements in hard and soft infrastructure need to be pursued in parallel together with industrial development in order to enhance the region's economic power 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2.0% 5.3% 8.9% Additional GDP gains (SEC and EWEC * ) 0.2% 4.6% 8.1% 2.4% 4.2% 4.2% 2.1% 4.1% 7.3% 0.6% 0.4% 0.4% 0.5% Dawei Phnom Penh Ho Chi Minh Mawlamyine Savannakhet Da Nang Source: ERIA survey *Note: SEC= Southern Economic Corridor; EWEC= East West Economic Corridor 2.4% 4.2% Highway construction only Customs facilitation only Highway construction + Customs facilitation Highway construction with customs facilitation has the largest effect 15

16 Reduction of Tariff and Non Tariff Barriers through Promotion of FTAs 16

17 FTAs in Effect in the Asia Pacific Region The number of FTAs has increased rapidly since 2000 FTA DATE Australia New Zealand January 1983 Laos Thailand June 1991 ASEAN Free Trade Area (AFTA) January 1992 (start of tariff reduction January 1993) Singapore New Zealand January 2001 Japan Singapore November 2002 Singapore Australia July 2003 ASEAN China July 2003 January 2004 (EH for agricultural and fisheries products) July 2005 (start of tariff reduction for non agricultural products) (Source) Governments Thailand India September 2004 (start of Early Harvest) Thailand Australia January 2005 Thailand New Zealand July 2005 Singapore India August 2005 Singapore ROK March 2006 Trans Pacific Strategic Economic Partnership May 2006 Japan Malaysia July 2006 ASEAN South Korea (ROK) June 2007 Japan Thailand November 2007 Japan Indonesia July 2008 Japan Brunei July 2008 China New Zealand October 2008 ASEAN Japan December 2008 (Japan, Singapore, Laos, Vienam, Myanmar, Brunei Malaysia and Thailand in effect) Japan Philippine December 2008 Singapore China January 2009 Japan Vietnam October

18 Utilization of FTAs Between Third Countries by Japanese Affiliated Companies in Asia Pacific region Japanese affiliated companies in the Asia Pacific and South Asia Regions utilize AFTA most, a JETRO survey showed. (Units: Number, %) FTA Number %share AFTA ASEAN China Thailand India Thailand Australia ASEAN Korea Australia New Zealand Thailand New Zealand Australia Singapore South Asian Free Trade Area (SAFTA) Singapore India India Sri Lanka Singapore New Zealand Malaysia Pakistan Total number of times FTAs have been used (Notes) 1.The survey was conducted between September 25 and October 31, The survey subjects were Japanese companies operating enterprises with a ratio of capital contribution of 10% or more in any of 13 nations (ASEAN7 [Thailand, Malaysia, Indonesia, the Philippines, Singapore, Vietnam, Myanmar], India, Pakistan, Sri Lanka, Bangladesh, Australia, and New Zealand). The number of valid responses was 1,852, and the valid response rate was 36.8%. 2. The number of FTA utilizations was determined by responses to a question as to whether the companies had used an FTA in conducting exports from one signatory nation to another signatory nation. (Source) Survey of Japanese Affiliated Firms in Asia and Oceania (FY2008), JETRO 18

19 Utilization of FTAs in Thailand and Malaysia (Exports) is Steadily Increasing Thailand (US$ million, %) Trading Partner Total value of exports utilizing FTA Share to the total exports Country/Region AFTA 5,146 5,509 7,865 10, AFTA(excluding Singapore) 4,942 5,299 7,609 10, ASEAN China 614 1,450 1,769 1, Thailand India (82 items of the Early Harvest Scheme) Malaysia Total Thailand Australia 2,122 2,764 4,067 4, AFTA 2,921 3,071 3,924 4, AFTA(excluding Singapore) 2,731 2,898 3,736 4, ASEAN China 274 1,043 1,629 1, AFTA 8,066 8,580 11,789 15, AFTA(excluding Singapore) 7,673 8,197 11,345 14, ASEAN China 888 2,493 3,398 3, (Notes) 1. The share to the total exports is: the value of exports utilizing FTA divided by the total value of exports. Total value of exports includes items for which tariffs have been eliminated on a MFN basis by the trading partner. 2. Malaysia's trade figures with South Korea are based on June to December 2007 results. (Sources) Prepared based on Thailand Ministry of Commerce, Malaysia Ministry of International Trade and Industry, and trade statistics of various countries. 19

20 Main Trade Items among the 82 Thailand India Early Harvest Categories (by value) Japanese manufacturers in Thailand utilize the Thailand India FTA to export to India Exports Items (Unit: Millions of dollars, %) Annual average growth rate Polycarbonates Air conditioners CRTs for TVs Epoxy resins Total exports ,519 1,815 2, Imports Gear boxes Total imports 877 1,138 1,275 1,625 2, Balance of trade (Note) Gear boxes until 2006 were HS code From 2007, a portion of has been incorporated in (Source) Thai trade statistics 20

21 Thailand Australia FTA Boosts Thailand s Automotive Exports to Australia Australian imports from Japan are replaced by imports form Thailand, as a result of the Thai Australia FTA (Unit: Millions of dollars, %) Passenger cars Commercial cars (Source) Australian trade statistics Share change compared to 2004 Total value of imports 8,141 9,268 9,482 11,651 Share Japan Germany ROK Thailand Total value of imports 2,556 3,040 3,343 4,596 Share Thailand Japan US Total value of imports 103, , , ,887 Value of imports from Thailand Share of Thai imports to total 2,767 3,663 4,723 6,

22 Rules of Origin in Major FTAs in the Asia Pacific Region Rules of origin need to be harmonized so that a co equal approach to determining the origin of goods can be utilized FTA Criteria to determine origin Co equal Japan Malaysia Either the 40% or more of cumulative added value criteria or the change in tariff classification criteria. Value added criteria Change in tariff classification criteria Dual criteria ASEAN ROK ASEAN Free Trade Agreement (AFTA) ASEAN Australia New Zealand ASEAN India China ASEAN Singapore New Zealand Singapore Australia Thailand Australia Thailand New Zealand Singapore ROK Thailand India (only the 82 Early Harvest items) Either the 40% or more of cumulative added value criteria or the change in tariff classification criteria. Either the 40% or more of cumulative added value criteria or the change in tariff classification criteria. Either the 40% or more of cumulative added value criteria or the change in tariff classification criteria. Either the 40% or more of cumulative added value criteria or the change in tariff classification criteria. 40% or more of cumulative added value. 40% or more of cumulative added value. 50% or more of cumulative added value. (For some categories, 30% or more.) Change in tariff classification criteria (at 4 digit or 6 digit HS level) But for some categories, a cumulative added value criteria also applies. Change in tariff classification criteria (at 4 digit or 6 digit HS level) But for some categories, a cumulative added value criteria also applies. Change in tariff classification criteria (at 4 digit or 6 digit HS level) But for some categories, a cumulative added value criteria also applies. Both the 40% or more of cumulative added value criteria and the change in tariff classification (at 6 digit HS level) criteria must be met. But for some items only the change in tariff classification (at 4 digit or 6 digit HS level) or only the added value criteria applies. Singapore India Both the 40% or more of cumulative added value criteria and the change in tariff classification (at 4 digit or 6 digit HS level) criteria must be met. For a fairly large number of items, however, only the change in tariff classification criteria is applied. Note: Note: The above rules of origin are those provided in the FTA to apply to a majority of categories; there are exceptions, depending on category. Source: FTA agreements 22

23 Non tariff Measures Can be Detrimental to the Smooth Flow of Goods in ASEAN Source: Mitsuyo Ando. ASEAN Economic Community, JETRO

24 Thank you very much for your kind attention! For more information on the ASEAN Logistics Network Map, please contact: Asian Cooperation Division Trade and Economic Cooperation Department Japan External Organization (JETRO) Copyright (C) 2009 JETRO. All rights reserved. 24

25 Appendix JETRO s Activities Targeting Developing Countries (Ex. Case: African countries) 25

26 IMPLEMENTATION GUIDELINES FOR PROGRAMS JETRO, as Japan s trade and investment promotional arm, provides assistance for developing countries in fostering growth of export industries and supporting industries, helping to improve systems for doing business and training human resources in these areas, utilizing our expertise in these areas. Taking a country s own efforts as a starting point, we perform a comprehensive analysis of the country s stage of development, the number of Japanese companies already in the country and the needs of the Japanese market and government. We then select and implement appropriate support programs for each country. The main tools employed in our programs include: dispatch of Japanese experts to countries, offering of training courses in Japan, helping with participation in exhibitions in Japan and overseas, and arranging business meetings with potential Japanese partners. 26

27 Support Programs for Export Industry Development (Africa) To assist developing countries in exporting their products, JETRO dispatches experts to and receives trainees from such countries. In this and other ways, JETRO helps African firms enter the Japan market, offering advice on improving products and marketing to suit Japanese consumers Examples: Shea butter soap from Ghana ( ) JETRO worked on developing products using shea butter from Ghana and assisted in exporting the products to Japan. JETRO cooperated with Tree of Life Co., Ltd. to initiate local production and sell shea butter soap in Japan. Coffee from Zambia ( ) In cooperation with 11 Japanese companies and about 140 retail outlets, JETRO implemented a campaign to sell coffee from Zambia. When this campaign was very well received, JETRO cooperated with the Specialty Coffee Association of Japan to sponsor tasting sessions and consultations on Zambian coffee led by experts. Cut roses from East Africa ( ) JETRO conducted import monitoring inspections, assisted with exhibit installations at exhibitions and negotiations with Japanese firms and accepted trainees. As a result, imports of cut roses from Kenya grew from about 4 million stems in 2005 to about 11.6 million in Imports from Ethiopia grew rapidly, from a mere 260 stems of roses in 2005 to about 7.1 million in

28 TICAD IV Follow up Coffee At the 4 th Tokyo International Conference on African Development (TICAD IV) held in Yokohama, Japan in May 2008, JETRO was designated to play a role in assisting African products access into the Japanese market, as part of the Action Plan of the Yokohama Declaration. Coffee is among the products for which JETRO has enhanced activities according to the Action Plan. Working with the Eastern African Fine Coffee Association (EAFCA) as a partner, JETRO has been providing the following assistance: Fiscal Year 2008 In order to introduce EAFCA coffee to Japanese buyers, JETRO set up a booth for EAFCA members at Specialty Coffee Association of Japan (SCAJ) exhibition and hosted a seminar in the exhibition site. JETRO also arranged for EAFCA members to visit Japanese importers and retail stores for them to learn about the Japanese market. (JETRO covered travel expenses for an EAFCA representative.) JETRO organized and dispatched a buying mission for Japanese importers to Kenya, Rwanda and Malawi, with good success: One mission participant purchased approx. 17 tons of Cameroon grown coffee. Another purchased approx. 3 tons of Rwandan grown coffee. Fiscal Year 2009 JETRO sent an expert on Japanese food safety and pesticide residues rules to Africa twice. His mission was to prepare exporters for their doing business with potential Japanese partners. JETRO again set up a booth for EAFCA members at an SCAJ exhibition and hosted a seminar and tasting session. This time, JETRO arranged one on one business meetings for the members. Currently some business negotiations are underway. JETRO also arranged for EAFCA members to visit a quarantine station and several importers. (JETRO covered travel expense for an EAFCA representative.) Changes in Japan s Coffee Imports by Volume ( ) Unit: tons <Rwanda> (38 th place) (30 th place) 2009 (Jan Aug) 45.6 <Cameroon> (nil) (38 th place) 2009 (Jan Aug) 17.2 <Kenya> (18 th place) (18 th place) 2009 (Jan Aug) <Tanzania> ,934.0 (9 th place) ,629.8 (7 th place) 2009 (Jan Aug) 12,391.6 <Ethiopia> ,874.5 (5 th place) ,284.6 (6 th place) 2009 (Jan Aug) Source: Ministry of Finance trade statistics. 28

29 Development and Import Demonstration Projects in FY 2007 (Africa) In order to support the export of products from developing countries, JETRO publicly solicits the initiatives by the Japanese private sector (private companies, NGOs, etc.) for development and import projects, providing some financial supports to the private sector. This project started from FY The following four initiatives were adopted and implemented in the same fiscal year. Kenya Kiondo bags (baskets) Although baskets from Kenya were already being imported to Japan, JETRO subsidized a project to further improve these products. A Japanese company provided guidance via a local NPO on making the bags more convenient to use, and thereby more attractive to Japanese consumers. Malawi Pu erh tea This project aimed at introducing to Japan a new kind of fermented tea made from Malawian tea leaves. The value added to the product aimed at bringing greater benefit to local growers. Mauritius Cotton products JETRO subsidized a project to sell cotton products in Japan, including T shirts, polo shirts and dress shirts made in Mauritius, where the apparel industry is active. Kenya Cut flowers JETRO subsidized a project to locally develop packages of cut flower products (such as bouquets) with increased values for sale in the Japanese market. 29

30 Development and Import Demonstration Projects in Africa (FY 2008) Mixed Spices: Tanzania To assist in the development of processed products using spices grown on the island of Zanzibar in Tanzania, a Japanese company provided advice on producing spice powders locally and conducted market research in Japan through surveys and sample distribution, as well as packaging production and recipe creation. In February 2009, the firm completed its formulation of a new product, Zanzibar Mixed Spices, a combination of seven spices packaged with a recipe book, and began marketing it to a wide range of retailers. Unprocessed Spices: Uganda, Ethiopia, and Madagascar To help develop imports of organic cacao and vanilla beans from Uganda, mustard seeds from Ethiopia, and vanilla beans and pink pepper from Madagascar, a Japanese company created prototype products and plans to provide assistance in acquiring local organic JAS certification. Dried Vegetables: Egypt In this project, a Japanese firm provided assistance in an import development project for molokheiya, assisting with efforts to develop and import functional food ingredients such as spinach. After analyzing and inspecting sample imports of molokheiya and spinach, it verified that these products were suitable for the Japanese market, in terms of both quality and safety. Jams and Herbal Teas: Kenya Here, a Japanese firm helped in the development of herbal teas and jams made from herbs and fruits produced in the Meru region of Kenya. As a result of its guidance and training for local producers, sale of herbal tea in new packaging was realized in Japan in April 2009, and for hibiscus and papaya jam in August

31 Kenyan Hand knit Bags Made from Sisal Fiber Below shows how a product was improved for the Japanese market through guidance provided by a Japanese expert: Before After Photos provided by Fair Trade Company 31

32 Introduction of JETRO JETRO (Japan External Trade Organization) is a government-related organization that works to promote mutual trade and investment between Japan and the rest of the world, originally established in ( JETRO has been conducting studies on logistics environments in ASEAN and India since 2006, as one of the important factors of investment conditions. JETRO also conducts projects to support improvement of logistics management for business sectors in ASEAN, to support the region s economic integration through enhancing ASEAN s industrial competitiveness. 32

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