Developing Border Areas and Cross-border Linkages Between Thailand and its Neighbors

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1 Developing Border Areas and Cross-border Linkages Between Thailand and its Neighbors -Some lessons from ADB Study- YASUSHI NEGISHI COUNTRY DIRECTOR THAILAND RESIDENT MISSION 21 August 2014

2 Overview of the story Challenge Macro: Strengthen the competitiveness of Region s firms Micro: Develop border area economies for local communities Opportunity CAM, LAO and MYA can promote labor-intensive industries Economic linkages in border areas can increase use of resources Response Leverage comparative advantage of border areas This requires strategies appropriate to specific border areas 2

3 Economic rationale for border area development A border is a barrier to free mobility of production inputs. This results in differences in available inputs and their prices across borders. Border areas have access to inputs to produce costcompetitive products. 3 Border areas can also serve as gateways for the wider domestic economy.

4 Mechanisms for border area development: Special economic zones (SEZ) (1) Special economic zone (SEZ) has characteristics such as 1. single management or administration; 2. well defined geographic boundaries; 3. eligible for various benefits such as tax incentives, 4. access to infrastructure services; 5. often a separate customs area and streamlined procedures. 4

5 Mechanisms for border area development: Special economic zones (SEZ) (2) Border economic zone (BEZ) has characteristics such as; 1. Guided by a clear vision and strategy; 2. Without a formal SEZ with administration and services; 3. Develop comparative advantage of a border area; 4. Focusing on specific value chains; 5. Strengthen cross-border linkages, e.g. customs procedures, logistics services, access to labor. 5

6 Mechanisms for border area development: Special economic zones (SEZ) (3) Cross-border special economic zone (CSEZ) has characteristics such as 1. Established in collaboration by two governments, 2. Synchronized rules on trade, investment, and customs. 3. Creating an interdependent operational environment for business on both sides of a border. 4. CSEZ builds on SEZs in the respective countries 6

7 Business context: border area development (e.g. SEZ) and cross-border value chains Traditionally, SEZ strategy focused on strengthening the general business environment to compensate for constraints in the area SEZs addressing particular constraints in specific value chains e.g. logistics, skills are more likely to attract competitive firms For less developed economies this can help link to sophisticated value chains such as electronics and automotives, first in labor intensive activities; with potential to upgrade For Thailand, this would be basis for upgrading to higher value activities. 7

8 8 CASE STUDIES

9 Ubon Ratchatani (Thailand) Champasak (Lao PDR) This region forms well-functioning BEZ and related cross-border cooperation. Lao PDR provides labor, commodities and some processing; and Thailand provides higher value added processing and related services (e.g. logistics). The challenge now includes: 1. to strengthen connectivity (e.g. transport linkages); 2. to expand existing trade, by building on Ubon s Charoensrie Market as a regional commodity hub; and 3. more involvement of government and business. 9

10 Sa Kaeo (Thailand) Banteay Meachey (Cambodia) Trat (Thailand) Koh Kong (Cambodia) Thai and Cambodian governments, and local communities have strong interest in developing these areas. A basic constraint to date is key differences between visions of local communities (Trat, Sa Kaeo), and perceived preferred strategy and related implementation mechanism (SEZ) of the Thai government. The local community s vision focuses on leveraging cross-border linkages through trade-related services, value added agro-processing, and tourism. Industrial development through SEZs is seen as neither feasible, given local constraints such as land, nor fitting with local aspirations for development. 10

11 Mae Sot (Thailand) Myawaddy (Myanmar): Overview Significant opportunities but also challenges for this area. There is strong interest to develop a Mae Sot SEZ. But it seems to lack a shared strategy; the appropriate mechanism is also not clear, e.g. what kind of SEZ. The case analysis suggests that such a strategy could focus on complementary development of laborintensive industries, in particular garments, linked to Myawaddy. 11

12 Mae Sot Myawaddy Cross-border special economic zone (CSEZ) Build on collaborative development of viable linked SEZs Mae Sot Strong support for Mae Sot SEZ at the government and local stakeholders. But preparation and approval of various plans for Mae Sot SEZ has faced continuing difficulties since initial approval of the concept by Cabinet in 2002; planning for a Mae Sot SEZ has been on-going since 2004 Mae Sot emerged in recent years as production base for labor-intensive industries At its peak 470 garment factories, with 20,000 migrant workers. Introduction of the Baht 300/day minimum wage in January 2013, has led to movement away from Mae Sot by garment producers. Presents basis for sound business case for SEZ focused on specific needs of upgrading in the garment value chain, IF inputs from Myawaddy SEZ 12

13 Mae Sot Myawaddy Cross-border special economic zone (CSEZ) Build on collaborative development of viable linked SEZs Myawaddy Focus on labor intensive production in garment value chain IF linked to Mae Sot Build on Myanmar Industrial Zone, now under construction Need to upgrade to SEZ and related privileges to address constraints of uncertain Myanmar business environment, and infrastructure gaps Requires general approval from the Myanmar Investment Committee (MIC) at the Union Government level, as well as approvals from the Ministry of Industry Revision of the Myanmar SEZ law is in progress Note: Myawaddy is on Myanmar first priority corridor for development 13

14 Mae Sot Myawaddy Cross-border special economic zone (CSEZ) Build on collaborative development of viable linked SEZs Facilitating Mae Sot Myawaddy garment production linkages through in-bond processing system; supported by infrastructure, trade facilitation, and HRD development initiatives. (Dr. Hiroyuki Taguchi, 2013) Requires consultative preparation of a focused strategy for border area development with explicit focus on cross-border production linkages 14

15 General conclusions from the case studies (1) Clear and coherent vision and related strategy of border area development, anchored in local conditions, is essential 1. Both local and national interests; 2. Needs to be anchored in local conditions; and 3. Consider potential spillovers to the wider domestic economy. The cases of Mae Sot (Thailand) Myawaddy (Myanmar); Sa Kaeo (Thailand) Banteay Meanchey (Cambodia); and Trat (Thailand) Koh Kong (Cambodia), all illustrate the importance of this issue for border area development and cross-border linkages. 15

16 General conclusions from the case studies (2) Strategy focused on specific (cross-border) value chains A strategy should also focus on strengthening cross-border linkages in specific value chains of joint interest, consistent with local conditions. Example: The minimum wage of Baht 300/day may seem to suggest that Mae Sot is no longer viable for garment production. However, the strategy for joint development of Mae Sot Mywawaddy based on cross-border linkages in the garment value chain could use this constraint as an opportunity. 16

17 General conclusions from the case studies (3) Collaborative development of a shared vision and strategy It is essential to align the visions and strategies of key stakeholders with respect to border area development. This vision and strategy should reflect the aspirations of the local community; and should also be consistent with broader national development priorities. This is reflected in Sa Kaeo and Trat, (and perhaps Mae Sot), where developing a shared vision and strategy is a prerequisite for effective cross-border linkages. 17

18 General conclusions from the case studies (4) There is a diversity of mechanisms for border area development and cross- border cooperation SEZ is not the only option for implementing a strategy of border area development. In some settings the focused but more informal approach of a Border Economic Zone (BEZ) may be more appropriate. The Mae Sot Myawaddy case illustrates possible application of cross-border special economic zone (CSEZ), involving the collaborative linking of SEZs on each side of the border, focused on cross-border linkages in the garment value chain. 18

19 General conclusions from the case studies (5) Align selected strategy and implementation mechanism with the neighbouring county s development strategy and local conditions Focus on cross-border linkages for mutual benefit requires collaboration in various forms, strategies and mechanisms of participating countries must be aligned from the outset. For successful development of Trat and Koh Kong, a shared cooperative strategy between Thailand and Cambodia, including the local communities, is necessary to guide specific decisions on issues such as infrastructure investment and trade facilitation measures. Similarly, for a Mae Sot Myawaddy CSEZ, Thailand and Myanmar (and the local communities) have to align their strategies and implementation mechanisms. 19

20 General conclusions from the case studies (6) Approach cross-border economic development, where possible, in the context of wider subregional (e.g. GMS) cooperation and integration Developing border areas and cross-border linkages within the wider framework of subregional cooperation can provide significant additional benefits; and facilitate such wider cooperation and development. Cross-border cooperation in logistics in Sa Kaeo (Thailand) Banteay Meanchey (Cambodia), and Trat (Thailand) Koh Kong (Cambodia), could accelerate implementation of linkages along the GMS Southern Economic Corridor with additional benefits to border areas and beyond. Similarly, a Mae Sot (Thailand) Myawaddy (Myanmar) CSEZ can link development to the GMS East West Economic Corridor (EWEC). 20

21 For more info: ADB Study Scoping Study on Developing Border Areas and Cross-border Linkages Between Thailand and its Neighbours George Abonyi, Anthony M. Zola, Eggaluck Suwannakarn THANK YOU 21