Improving Access

Congestion has been a growing problem, counteracting advances in trade facilitation. In the case of the PRC, Ma and Zhang (2009) found that in Shanghai, inefficiencies from overloading the physical infrastructure are compounded by a lack of collaboration among stakeholders. Trade facilitation and administrative procedures at customs are unreliable, and the customs transit system needs to be rationalized in order to reduce inspection times and simplify declarations and the documentation process. Shanghai's congestion is reducing its competitiveness in the region, thus endangering its status as a hub and gateway to international markets and suppliers. In recent years, the number of transshipped containers from Shanghai via Hong Kong, China has accounted for as much as 20% of Shanghai's total container throughput. On the other hand, Suzhou Park in the PRC includes free-trade zones with streamlined customs procedures and dedicated transport routes to ports, and has thereby reduced both costs and waiting times (Hausman, Lee, and Subramanian 2005).

In the case of Indonesia, Patunru, Nurridzki, and Rivayani (2009) found that soft infrastructure plays a vital role in constraining port efficiency, more so than hard infrastructure, although the two are interlinked. Sea port competitiveness may suffer from poor physical infrastructure such as inadequate channel depth, shortage of berths, and limited cargo handling equipment, and storage and transit areas, but it may also suffer from limitations in soft infrastructure, such as labor skills, regulation, bureaucracy, and other institutional factors affecting port capacity utilization. Lack of direct competition between ports controlled by the same government authority is also a critical factor. Yet port performance is crucial to the Indonesian archipelago.⁵

Increasing port efficiency enables countries to reap large economies of scale, reducing the average time shipments spend at sea and in ports. Shipping also tends to become more frequent, facilitating timely delivery. In addition, a densely traded route enables an effective use of hub and spoke arrangements, in which small container vessels feed shipments into a hub where containers are aggregated into much larger and faster container ships for longer hauls. Indeed, a recent study found that given transport costs constitute roughly 20% ad valorem tax-equivalent on import prices in East Asia, a 10% increase in port capacity has the effect of a 0.3% to 0.5% across the board tariff cut (Abe and Wilson 2009)

Trade growth along a particular shipping route also encourages entry—and where permitted, new competition tends to drive down shipping margins, particularly when complemented by an effective competition policy that constrains monopoly power and removes barriers to entry (Brooks 2005). Hummels, Lugovsky, and Skiba (2007) found that ocean liners charge much higher freight rates for goods whose import demand is relatively inelastic, indicating that shipping firms are most likely exercising market power. In 2006, one in six importer-exporter pairs was served by a single liner service; over half were served by three or fewer.

To raise competitiveness and efficiency, ICT is an increasingly productive complement to physical infrastructure. ICT helps to reduce the costs of finding suppliers, agreeing on contracts, monitoring their implementation, and tracking the location and status of shipments. Fink, Matoo, and Neagu (2002) found that higher telecommunications costs dampen bilateral trade flows, especially for differentiated (rather than homogeneous) products. In particular, as smaller shipments of a wider variety of higher value-added products proliferate, the demand for ICT services rises. The same is true as the growth of trade in services outpaces that in manufactures. Trade in services such as banking and business services, or communications, are highly dependent on well-developed ICT infrastructure in both exporting and importing countries. While the private sector is especially adept in the ICT sector, the need for mutually interfacing logistics services at both ends of a trade route is an area where regional cooperation could help users to share information, learn from best practices, and coordinate capacity building to enhance trade.

To ensure that some areas are not left behind, improved trade facilitation is vital for connecting remote areas and landlocked countries with regional and global markets. Asia's 12 landlocked countries⁶—Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan, Kyrgyz Republic, Lao People's Democratic Republic (PDR), Mongolia, Nepal, Tajikistan, Turkmenistan, and Uzbekistan—are especially disadvantaged. Most are 700–1,000 km from the nearest port; four (Kazakhstan, Kyrgyz Republic, Tajikistan, and Uzbekistan) are over 3,000 km from the sea (United Nations Economic and Social Commission for Asia and the Pacific [UNESCAP] 2006). These countries struggle with poor physical infrastructure, small domestic markets that are remote from world markets, and a high vulnerability to external shocks. Unless transported by air at high cost, traded goods from these countries must transit through at least one neighboring state. The impacts of customs and transport inefficiencies hamper access to global markets, deter foreign direct investment (FDI), and raise the cost of imports, compounding components of trade cost margins severely for these economies.⁷

In small and less-developed economies, such as Cambodia, Lao PDR, Mongolia, and Viet Nam, border procedures are often cumbersome and time consuming. Inland transport is particularly slow and expensive in South Asia where, unsurprisingly, intra-regional trade is low. These costs account for around 88% of total trade transport costs in the subregion (De 2009). Land border crossings are overcrowded and complex requirements expand possibilities for corruption and encourage informal trade. Greater policy attention to efficiency concerns could easily reduce delays and monetary costs. There is therefore a strong case for subregional cooperation to facilitate trade so as to raise exporters' competitiveness in this subregion.

At the international level, cooperation through preferential trade and investment agreements that strengthen structural reforms and increase the attractiveness of a location for foreign investment can leverage domestic policy actions and their impacts on growth, equity, and efficiency, and may help to reduce corruption. Cross-border cooperation in building and maintaining soft infrastructure can therefore lead synergistically to a reduction in trade costs and stimulate further investment in physical infrastructure, trade, production and employment, and growth, facilitating further trade expansion.

While regional integration can help less developed countries and regions to access new markets, suppliers, technologies, and opportunities, and can help to internalize negative spillover effects and capitalize on economies of scale, progress has not been even across subregions. East and Southeast Asia are generally ahead of other Asian subregions in terms of trade and regional integration. It is no coincidence that trade-related infrastructure services are generally more available and of higher quality in East and Southeast Asia. In South Asia infrastructure performance and logistics services are lower, and so is intraregional and interregional trade. Pacific island countries face particular trade challenges for integration, since shipping distances are large and shipments are generally small and of relatively low value added, raising the ad valorem shipping margins. In Central Asia, the transition to independence was accompanied by a need to reorient trade flows to new destinations and originating from new sources, while fiscal difficulties have severely limited expenditures for infrastructure maintenance, operation, and expansion.

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