RISRISRIS Policy Briefs in theEasternNeighbourhood Facilitating ’sTrade Overland to India(US$415.54million in 2005),exceeding billion in2005);and(iii)riseMyanmar’s exports surpassing India’s toBangladesh (US$1.77 exports exports toBangladesh(US$2.40billionin2005), 17.83 billionin2005);(ii)phenomenalriseChina’s rise intwo-waytradebetweenIndiaandChina(US$ can beobservedfromthisrisingtrade:(i)substantial Bangladesh andMyanmar. Three noticeablefeatures has alsobeennoticedincasesoftradebetweenIndia, 1991 toaboutUS$18billionin2005.Similartrend wentupfromlessthanUS$100millionin China inrecent period. Trade betweenIndiaand due tosharpriseinbilateraltradebetweenIndiaand billion in1991toUS$23.922005,mainly Trade amongthesecountrieswent upfromUS$1.20 the thirdlargesttradingpartnerofIndiain2005. ofBangladeshtrading partner andMyanmar, and China, ontheotherhand,becamesecondlargest and fifteenthlargesttradingpartnerofChinain2005. and ;fourthlargesttradingpartnerofMyanmar; was thelargesttradingpartnerofBangladesh, robust growthoftheeconomiesinregion.India merchandise tradebetweenthemhasresultedinthe characterized by ahighincidenceofpoverty, the cooperation. Eventhoughthesecountriesare demonstrated broaderprospectsforregional and theirrapideconomicdevelopmenthas Nepal, boastatotalpopulationofabout2.5billion, namely, Bangladesh, Bhutan, China,Myanmar, and merchandise trade,bothinboundandoutbound. attention isnowbeingfocusedonfacilitationof penalising trade,differentially acrosscountries. The poor institutionsandinadequateinfrastructureare However,tariffs stillexistforcertainsensitiveproducts. trade hasdramaticallycomedown,althoughhigh- regional levels,theimportanceoftariffsasbarriersto A programme onRegional EconomicIntegrationin Asia. policy makers. India andherfiveimmediateeasternneighbours, liberalisation atunilateral,multilateraland s aresultofpersistenteffortstowardstrade This policybriefhasbeenprepared Dr. by Prabir AssociateFellow, De, of theRISwork RISasapart RIS Policy Briefs — Policy research toshapethe international development agenda are prepared tocommunicate resultsofRISresearch onspecificpolicyissuestothe (inUttaranchal) andShipkilaPass (in the seasonalandlocalisedtradeconductedthrough there isacompleteabsenceofoverlandtradeexcept but itisyettobefullyoperational. opened foroverlandtradewithMyanmarin2004 station atZokhawthar (inIndia’s Mizoram)wasalso (in India’s Manipur) in1995.Anotherlandcustom due toopeningupofthebordertradepointatMoreh increase inIndia’s overland trade withMyanmar mainly and imports.Inrecentyears,therehasbeenanoticeable showing nosubstantialpresenceofoverland exports two countriesismostlyconductedthroughsea, million annualofficialtrade(in2005)betweenthe completely differentpicture;aboutUS$535.17 high transactioncosts. and Benapole)arehighlycongestedwhichresultsin dealing tradebetween thetwocountries (e.g.Petrapole Bangladesh overlandtrade,landcustomsstations At thesametime,duetophenomenalriseinIndia- same betweenIndiaandMyanmarisverynegligible. India-Bangladesh tradeisconductedoverlandandthe passes throughseaandrestoverland.Mostof 85 percentofthemerchandisetradethisregion lesser extentthatbetween ChinaandMyanmar, around trade withBangladesh,BhutanandNepal,toa are removed (e.g.EU). The factisthatexceptIndia’s higher trade,providedthetradeandtransportbarriers contiguity couldpotentiallybenefitsubstantiallyfrom which showthattheeconomieswithgeographical themselves throughoverland. There are manystudies contiguity, whydothesecountriestradelessamong in thisregiontendtodeclineanddespitegeographical have adecadeearlier. having moretradeamongeachotherthantheyusedto Nonetheless, currentlyeconomiesinthisregionare her exportstoChina(US$249.49millionin2005). In thecaseoftradebetweenIndiaandChina, Trade between IndiaandMyanmar shows However, thequestionremains: whilethetariffs o 29 December2006 No. 1 ). Surrounding areas at these two through improved information and communication border crossings are topographically rather very technology (ICT) reduces the discretionary power of rugged, and due to lack of modern infrastructural customs officials, thus reducing the scope for support, border trade at these two places is yet to take corruption. There is also absence of continuous flow a proper shape. As a matter of fact, entire bilateral of containerised trade between the two countries. trade between India and China passes through sea. Therefore, deeper cooperation for setting in place an At a glance, overland trade between India and efficient and user friendly customs can help boost trade her immediate eastern neighbours is not the preferred and investment. Countries in this region may look way of trade transaction. Except India’s trade with into the success of Greater Mekong Subregion (GMS) Bangladesh, Bhutan and Nepal, India’s overland trade Cross-Border Transport Agreement (CBTA), which with Myanmar and China is highly localised, informal has been very successful in implementing single- and underutilised. Reasons are many, and some of them window customs clearance at all border crossings in can be summarised as follows: (a) absence of integrated GMS. Specifically, Mae Sai-Tachilek is one of the seven and harmonised transportation networks (e.g. virtually pilot points selected under the CBTA, which came in the entire region), (b) absence of adequate and active into force in December 2003, to streamline regulations overland official trade outlets and associated facilities and reduce non-physical barriers by introducing (e.g. India and Myanmar), and (c) absence of trade single-window customs clearance. By end of 2006, facilitation policy measures (e.g. inadequate land 13 border points in the GMS are expected to become customs stations). It is, therefore, important that the operational. A single-stop, single-window customs countries in this region evolve an appropriate policy to clearance system has been put in place in the facilitate overland trade in one hand and generate Dansavanh (Lao PDR)-Lao Bao (Vietnam) border adequate traffic for the upcoming regional transport crossing point since June 30, 2005. Therefore, what facilities such as India-Myanmar-Thailand trilateral follows is that in order to encourage overland trade, highway on the other. Deeper regional cooperation deeper regional cooperation among the countries in among these countries can also expand the income this region is required to adopt the single-window generating economic activities for the local people. customs clearance system at all the border crossings. Regional cooperation should also be explored to Cooperation for Facilitating Overland address the issue of ‘soft infrastructure’ like simplified Trade administrative documentation, computerization of There are several ways in which the regional documents by connecting all custom points through cooperation may help address some of the specific EDI, red and green channels in all land customs points, issues in overland trade faced by India and her and e-business usage. Learning from other countries immediate eastern neighbours. Some of the key areas in improving the usage of ICT at all custom points for such cooperation are as follows. would be useful for the countries in this region to strengthen their trade facilitation capacity. Modernising Land Customs Stations Customs is an intrinsic element of any cross border Setting up New Land Customs Stations movement of goods and services, and yields a significant influence on the national economy. The time taken for Land Customs Stations (LCSs) are gateways for the clearance of goods has an impact on the transit of goods, services and human beings among competitiveness of the countries in the global context. neighbouring countries. The present LCSs across India- With an increased emphasis on administrative reform, Myanmar are inadequate. New LCSs, particularly governance, and security, the need for an efficient and between India and Myanmar, are likely to promote effective customs administration is required urgently. trade and services. There are around 39 officially One of the major reasons for high transaction recognised LCSs which are handling India’s overland costs in trade between India and her immediate eastern trade with Bangladesh, Bhutan, China, Myanmar and neighbours seems to be cumbersome and complex cross Nepal. Apart from this, there are many inactive but border trade procedures. For example, at the key border potential LCSs at India-Myanmar border, which can crossing point between India and Bangladesh there be gradually made operational to facilitate overland are as many as 1,500 trucks queue up on both sides of trade. After 45 years, the border trade between India the border with waiting times varying between one and China is resumed at in on July and four days to complete the documentation 6, 2006, which is now the third direct border trading requirements. Expediting customs clearance procedures point between the two countries. The two sides agree 2 RIS Policy Briefs # 29 to reopen Nathu La Pass as the seasonal transit point Establishing Overland Transportation Linkages for persons, transport vehicles, and commodities Some critical components are missing in the region – engaged in border trade. Till September 28, 2006, harmonisation of railway networks, standardisation of when the trading was closed for the year at Nathu La, all weather paved roads, international airports, and the volume of border trade at this crossing point has developed border trading points – which are seriously been minuscule. About Rs. 1.97 million was the total hindering regional trade. Transport flows along road, trade between the two countries conducted through rail, air, and waterway corridors are constrained by poor Nathu La during July 6, 2006 to September 28, 2006. infrastructure condition, congestion, high costs, and Despite several shortcomings in the very first year, the lengthy delays. Parallel to this, regional trade is current value of overland trade at Nathu La is rather hampered by restrictive domestic policies, lack of intra- encouraging. However, the trade volume at Nathu La regional cooperation, and inefficient procedures for will certainly go up in coming years, if we strengthen trade documentation and clearance. All of these trade facilitating infrastructure at this border point. problems are particularly severe at border crossings, many of which pose significant bottlenecks. Setting up Industrial Zones/Free Trade Specifically, the major obstacles to trade Zones at Border enhancement between India and Bangladesh and India Needless to say, without trade, a border area becomes and Myanmar are the lack of integrated transportation a closed economy. Overland trade in this region will infrastructure and adequate border trade and transport always be beneficial to the local population. However, facilitation measures. Even though all the three its success will largely depend on the intensity of countries have undertaken trade facilitation measures growth generating trade in terms of employment aiming to reduce current physical and non-physical creation. One way to involve local people in overland barriers to transportation and transit – by means of trade mechanism is to set up industrial zones or free both visible infrastructure (such as multi-modal trade zones in the border area. For example, the corridors and terminals) and invisible infrastructure industrial zone in Lao-Vietnam border (at Lao Bao in (such as reformed policies and procedures, regulations), Vietnam) has become very popular which actually not costs of intra-regional movement of goods among these only enhanced overland trade between the two three countries are increasingly becoming decisive. countries but also generated employment to local The big opportunities lie in developing trade people. This new industrial zone has generated about routes from India to China. The Nathu La border 700 jobs for the local people till 2005 and the two- crossing with China is unlikely to constitute a major way trade between Vietnam and Laos through trade route between the two countries. The regular Dansavanh (Laos) and Lao Bao (Vietnam) border winter closures and frequent temporary closures in crossing points increased from US$ 46 million in other times might rule out the Nathu La border as a 2001 to US$ 61 million in 2005. There is another major cross-border trade route between the China good example of Gaeseong industrial complex, located and India. This border crossing would be very at the North and South Korea border, which has suitable for local trade and tourism. Strengthening generated employment for local people and also cooperation among these countries would facilitate widened the grounds for higher overland trade direct (and non-stop) railway/road/air linkage in the between the two countries. The industrial complex is region. located at the North Korea and South Korea border at Average road condition and railway system inside Gaeseong (inside North Korean territory) where about Myanmar needs to be rebuilt. Roads leading from 15 South Korean companies have set up manufacturing Myanmar to India require widening and better facilities till 2006 which has generated about 1500 maintenance to allow efficient movement of larger new jobs for North Koreans. trucks. Development of regional economic corridors Therefore, in order to sustain overland trade, a taking countries in the region will facilitate investments local (bottom-up) approach would be much beneficial. as well as spur economic growth in the region. In this Because of countries’ dependencies on their own trade connection, greater economic and/or commercial objectives and their own trading patterns, trade cooperation may be sought from the developed facilitation measures aiming to achieve greatest gains countries of Asia which have better technological for an individual country might come from very local expertise on transport and communications: for (micro) development because it is the local conditions example, Japan, and Malaysia are the obvious choices. that actually mobilise overland trade. Towards this direction, India-Myanmar-Thailand RIS Policy Briefs # 29 3 Trilateral Highway from Moreh (in India) to Mae Sot of this region for setting up new railway network and/ (in Thailand) through Bagan (in Myanmar) is or modernisation of rolling stocks in their countries. commendable. Railways can play a positive role in integrating Allowing Transit Trade the region which will promote bulk transnational Uninterrupted road or railway connectivity across movement of goods and services. India has also been border positively influences the trade in goods and playing an active role in linking Bhutan with India’s services. Since countries in this region are geographically railway network, and also helping Nepal in interlinked and regional trade is growing very fast, extending the railway line from Birganj to inside deeper regional cooperation would be most desired to the country. Apparently, the major needs are two make the countries agree to transit of goods moving folds – (a) to link India’s Manipur with India’s main from one to another country within and/or outside the railway corridor, and (b) to re-establish and renovate region. The prominent example is GMS’s East-West railway networks in Myanmar and Bangladesh. Economic Corridor, which has been promoted to connect Harmonisation of railway track in this region is very the Andaman Sea (the Myanmar coast) through Thailand much essential. Indian Railways is actively engaged and Laos with the South China Sea (at Danang in in harmonization and construction of railway tracks Vietnam). All this has happened only due to acceptance in North Eastern Region of India. Considering the of the ‘Treaty of Transit and Trade’, or what is called GMS projects already sanctioned and under construction, CBTA. Nonetheless, following Article V of General Diphu- Karong-Imphal-Moreh rail link (in Indian Agreement of Tariffs and Trade (GATT), countries in side) is identified for development which will link this region should accord similar arrangement. India with ASEAN. Although at present construction work is being carried out in Diphu -Karong section, Concluding Remarks linking Karong with Morea via Imphal would link The key objective of the regional cooperation in trade India with Thailand provided railway system on the should be to achieve more rapid growth in trade other side (Myanmar) is also developed simultaneously. through improvements in transport and logistics. Since Without having a compatible and strong railway countries in this region are geographically contiguous, system inside Myanmar and Bangladesh, closer deeper regional cooperation towards facilitating communication between India and her immediate overland trade will be fruitful in terms of mobilising eastern neighbours will not be possible. Indian local resources and income generating activities. government has come forward and extended US$ 56 However, in order to gain anything meaningful from million credit line to the Myanmar government for the overland trade, associated soft infrastructure to upgradation of 640 km railway system between support trade facilitation should be in place. These Mandalay and Yangon. Similar initiative should be include: (i) approval and implementation of required taken up for up-gradation of railway network system legal and policy reforms; (ii) implementation of in southern (Yangon to Dawei) and northern effective border crossing and transport services; (iii) (Mandalay to Kalay) Myanmar. Apart from training effective agreement on trade and transit treaties; (iv) the railway personnel of some of the countries in this customs modernisation and setting up of new LCSs; region through BIMSTEC Transport Cooperation (v) involvement of local economy in border trade; and project, India should extend credit line to other LDCs (vii) uninterrupted overland transportation linkages.

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