Trade Facilitation, Soft Infrastructure, and Logistics

The importance of high-quality logistics varies by commodity depending on three factors (Arnold 2009). First is the value of the commodity per shipment unit, for example, per metric ton or TEU. Second is. the shelf life of the commodity, reflecting physical deterioration or volatility of demand. The third factor is importers' scheduling requirements; timeliness is particularly important to just-in-time manufacturers—in sectors such as fashion clothing or auto parts—and retailers with coordinated national sales programs. Given its diversity, Asian trade is affected by each of these factors, particularly the supply chain implications. Although increasingly, logistics concerns related to higher value-added products are raised.

In addition to the commodity-based aspects of trade facilitation, other forms of soft infrastructure influence international trade. These include availability of adequate credit and foreign exchange at reasonable rates, a reliable system of legal recourse, effective competition policy, and the capacity of existing human capital to process exchanges. Indeed, soft infrastructure may often be more important than physical infrastructure for increasing trade and its profitability.

Inefficient or burdensome institutional structures, bureaucracy and policy may lead to reduced or foregone gains from international trade. During 2006–2007, most developing Asian countries were actively reforming their trade policies, with India being a top reformer. On average, producers in the region require about one month to export whereas exporting takes only 10 days for their Organisation for Economic Co-operation and Development (OECD) counterparts. By subregion, Central and West Asia is still costlier than the rest of Asia (Table 3 [ PDF 17KB | 1 page ]) although some countries such as Armenia are continuously reforming to make trading across borders easier. The pattern is similar for importing, with time and cost to import being slightly higher than exporting in the region.

Exploiting complementarity of hard and soft infrastructure raises overall trade and economic performance. This is especially noticeable in the case of networks. Many communication and infrastructure services that are important for economic development and trade expansion exhibit network externalities. Infrastructure networks exhibiting service externalities include telephones, railways, and water supply systems. In the presence of such externalities, the maximum amount that consumers are willing to pay for a good or service depends in part on the number of other consumers who also purchase the item in question. This interrelationship calls for consideration of these network systems' governance in competition policy.

Logistics services are a vital component of Asia's global competitiveness. Supply chains that span the region rely on them, and the location of FDI within the region is shaped by them. Improvements in trade facilitation from raising infrastructure service efficiency can lead to cost savings equivalent to moving production to locations thousands of kilometers closer to trading partners. Economies such as the PRC; Hong Kong, China; Korea; Malaysia; Singapore; Taipei,China; and Thailand have so far built well-developed logistics systems to facilitate international trade.

An international comparison of logistics performance finds that East Asia performs relatively well compared with other developing regions, notably South Asia, but still lags well behind high-income countries (Figure 2 [ PDF 17KB | 1 page ]).

The challenges of providing efficient logistical support rise as countries move into progressively more complex and higher value manufacturing, and as production processes become increasingly fragmented. Already, there is a premium on timeliness and reliability of delivery, care and security in handling and transporting, and certification and standardization of product quality. Delays have particularly adverse impacts on time-sensitive goods. Goods that are perishable, such as cut flowers and some food products, deteriorate rapidly and tend to face relatively high costs from delays. Fashion and high-technology items may also be vulnerable, with delays also tending to be particularly costly for these products (Minor and Tsigas 2008). Furthermore, delays in transit times abroad may have particularly adverse impacts on landlocked countries (Djankov, Freund, and Pham 2008), such as Lao PDR. Both the quantity and quality of logistics services in cross-border trade create competitiveness and value added. Fortunately, competition among private sector providers of logistics services is continually stimulating efficiency improvements.

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