ASIA REGIONAL REPORT ON IMPROVING TRANSIT …unohrlls.org/custom-content/uploads/2017/05/ASIA... · costs in exporting and importing their merchandise goods compared to their transit

ASIA REGIONAL REPORT ON IMPROVING TRANSIT COOPERATION, TRADE AND TRADE FACILITATION FOR THE BENEFIT

OF THE LANDLOCKED DEVELOPING COUNTRIES

CURRENT STATUS AND POLICY IMPLICATIONS

i

EXECUTIVE SUMMARY

The Asian LLDCs have continued to remain at the periphery of international trade and investment

flows due to their lack of access to the sea, remoteness from global markets and high trade and

transit costs. The Vienna Programme of Action which remains the most important global platform

for articulating and advancing the development aspirations of the LLDCs, strives to mobilize

national and international support to reduce or eliminate the disadvantages faced by the LLDCs and

secure their greater participation in international trade and growth processes.

Although the LLDCs have made some progress in sustaining economic growth and expanding their

trade in absolute terms during the good part of the last decade, their continued dependence on a few

export items and limited number of destinations has created an added set of vulnerabilities to

changing external conditions. In order to improve their prospects in expanding their transit trade and

participating in international trade, many of them have made good progress in acceding to

international conventions and agreements and harmonizing their customs and cross-border policies

and procedures. They have also entered into a large number of multilateral, regional and bilateral

trade agreements to promote intraregional trade and regional integration. However, they continue to

face many challenges in fully benefiting from these conventions, agreements and frameworks as

many of these instruments are quite complex, overlapping and very time consuming to implement.

Trade facilitation measures, many of which are increasingly based on advances in ICT, have been

helpful in harmonizing customs and border crossing procedures, as they have been assisted by Asian

Development Bank (ADB), ESCAP, UNECE, OHRLLS, World Trade organization WTO (WTO),

World Customs Organization (WCO), regional or sub-regional organizations and other development

partners to implement those in reducing their trade costs and facilitating their transit trade.

LLDCs and their transit partners have made good progress in infrastructure development and

regional connectivity, bringing their trade closer to international markets. With support from their

development partners, they have stepped up investments in new roads, railways and dry ports and

transport logistics systems and participated more actively in transport/economic/development

corridors. ESCAP’s Asian Highway Network, Trans-Asian Railway Network and the

Intergovernmental Agreement on Dry Ports, and ADB’s Central Asian Regional Cooperation

(CAREC) Programme and Greater Mekong Subregion (GMS) have made significant contribution in

facilitating transit cooperation and transit trade and connecting the LLDCs with major Asian and

European markets. But much remains to be done. The quality of LLDCs’ trade and transport-related

infrastructure is significantly lower than international standards. The LLDCs continue to face high

ii

costs in exporting and importing their merchandise goods compared to their transit neighbors and

other developing countries.

LLDCs as mainly commodity exporters have been hard hit with sharp declines in commodity prices.

LLDCs and their development partners have been working on a wide range of facilitation measures

aimed at simplifying trade regulations, procedures, and documents, to improve the trade performance

of LLDCs. Several measures have been undertaken for the promotion of cross-border paperless

trade; promotion of trade facilitation in the context of WTO agreements and frameworks including

the WTO Trade Facilitation Agreement (WTO TFA) and WCO instruments and tools; and

establishing public-private cooperation mechanisms for effective implementation of trade facilitation

measures. Transit and transport facilitation tools have also been developed and used for improving

LLDCs’ transit trade. LLDCs have been working to deepen trade by reducing trade costs and

participate more fully in international trade. With LLDCs facing trade costs that are 4 to 7 times

higher than that faced by non-LLDCs, more support needs to be extended to the LLDCs in reducing

such costs.

LLDCs face significant challenges in financing their transit/transport investment requirements. They

need considerable amount of resources for meeting their investments gaps. As the gestation periods

of these investments are long, they need increased international support in both mobilizing and

deploying such resources. They also need investment resources to expand and maintain existing

transport and transit infrastructures. Investments in transit infrastructure have the added challenge of

devising cost and benefit sharing arrangements that are acceptable to both the LLDCs and their

transit neighbors. Investment needs of the LLDCs go beyond the physical infrastructure

requirements. Investments in non-physical infrastructure is also vitally needed in reducing their trade

and transaction costs, exploiting opportunities for transit trade and improving their international trade

competiveness. These areas of non-physical investment include facilitating their accession to

different international legal agreements and conventions and bringing about the required institutional

and policy reforms to comply with these conventions and agreements; improving customs and border

procedures and harmonizing policies and border crossing procedures. Due to their limited domestic

resource mobilization capacity and potential, LLDCs will need significantly increased international

support in the form of official development assistance, foreign direct investment, remittances, public-

private partnerships and south-south cooperation for their infrastructure development. They will also

have to work in concert with their development partners in improving aid effectiveness.

The Vienna Programme of Action constitutes the single most important global platform for

articulating and advancing the development aspirations of the LLDCs. They should take the lead in

continuing to mainstream the Vienna Programme of Action in their national development strategies,

plans and programmes. One of the key areas of increased attention must be the adoption of concrete

measures to improve their productive capacities and diversify their production and trade structures.

LLDCs need to step up their efforts in acceding to and ratifying international conventions and

agreements as rapidly as possible as these are vitally important in improving their connectivity and

access to global markets. They also need to play a more active part in the bilateral and sub-regional

trading arrangements as part of their regional integration process. As international conventions and

agreements are periodically refined and readjusted, LLDCs should be encouraged to be active

partners in that process. LLDCs need to be supported by their development partners to improve the

quality and efficiency of international transit transport systems and address customs and other transit

barriers in a more coordinated manner.

iii

LLDCs should adopt national measures to identify and evaluate the adverse impact of various transit

trade barriers on their economies and take concrete actions to overcome /remove those barriers. In

particular, they should harmonize and streamline customs and border crossing procedures and

formalities on an urgent basis. Further assistance should be extended to them in implementing the

wide range of facilitation initiatives contained in the WTO TFA, and trade and facilitation

components of ASEAN, CAREC and Greater Mekong Subregional programme (GMS) towards

reforming their customs administration and harmonizing policies and border crossing procedures.

LLDCs need significantly increased assistance in improving the quality of their trade and transport

infrastructure, investing in infrastructure and maintenance. LLDCs need to be supported in

participating more fully in the region’s transport/trade/economic corridors to maximize their transit

trade and improve their links with international markets. LLDCs and their development partners

should encourage increased participation of the private sector in enhancing the prospects of creating

more efficient transit transport infrastructure. LLDCs should be encouraged to continue their efforts

in establishing effective international integrated intermodal transport and logistics systems.

In reducing the dependence of LLDCs on a narrow range of exports and improving their

international trade performance, they should be supported in progressively moving to higher value

added products and manufactured goods. Increased concessional development assistance should be

provided to the LLDCs, focusing on infrastructure development and improving their supply side

capacity in fully benefiting from new and emerging market access opportunities. LLDCs need to step

up their investments in the “software” of doing business: effective implementation of the provisions

in the international conventions and agreements as well as trade facilitation measures aimed at

reducing trade costs.

Increased assistance should be provided to the LLDCs in the forms of FDI, ODA, remittances,

innovative finance, public-private partnerships and south-south cooperation. In all these areas, UN-

OHRLLS and other development partners such as ESCAP, UNCTAD, UNDP, WCO and WTO

should coordinate and if possible increase their assistance, within their respective mandates, to the

LLDCs in achieving their development objectives.

iv

ACKNOWLEDGEMENTS

This study was commissioned by the United Nations Office of the High Representative for the Least

Developed, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS).

UN-OHRLLS gratefully acknowledges Dr. Syed Nuruzzaman for preparing the report. The report

was prepared under the overall guidance of Mr. Gyan Chandra Acharya, Under-Secretary-General

and High Representative for Least Developed Countries, Landlocked Developing Countries and

Small Islands Developing States. Mr. Sandagdorj Erdenebileg, Chief, Policy Development,

Coordination and Reporting Service of the OHRLLS, and Ms. Gladys Mutangadura, Senior

Economic Affairs Officer, supervised and guided the preparation and finalization of the report. Mr.

Andre Nikwigize and Mr. Kennedy Chesoli provided valuable inputs through reviewing and

commenting on earlier drafts of the report and Ms. Songyi Paik assisted in the laying out of the

report.

The report benefited extensively from detailed comments from Mr. Toshihiko Osawa of WCO, and

Ms. Nora Neufeld of WTO, Dr. Posh Raj Pandey and Mr. Artur Bouten of UNECE. The report also

benefited extensively from detailed comments from experts who participated in the Experts Group

Meeting on Improving Transit Cooperation, Trade and Trade Facilitation for the Benefit of the

LLDCs organized by the UN-OHRLLS that was held on 10 and 11 December 2015 at the UN

Headquarters in New York.

The views expressed in this report do not necessarily reflect those of the United Nations.

v

Table of Contents

EXECUTIVE SUMMARY ...................................................................................................... I

ACKNOWLEDGEMENTS .................................................................................................. IV

FIGURES ....................................................................................................................... VI

TABLES ........................................................................................................................ VII

ACRONYMS AND ABBREVIATIONS ................................................................................. VIII

1. INTRODUCTION .......................................................................................................... 1

2. SOCIO-ECONOMIC PERFORMANCE OF ASIAN LLDCS .................................................... 4

3. STATUS OF INTERNATIONAL, REGIONAL AND BI-LATERAL LEGAL FRAMEWORKS ........ 12

4. STATUS OF CUSTOMS AND BORDER PROCEDURES, HARMONIZATION OF POLICIES

AND BORDER CROSSING PROCEDURES AND INSTITUTIONS ........................................ 24

5. STATUS OF TRANSIT INFRASTRUCTURE DEVELOPMENT .............................................. 32

6. STATUS OF TRADE AND WHAT ELSE CAN BE DONE TO ADDRESS TRANSIT ISSUES

SO AS TO IMPROVE TRADE ........................................................................................ 45

7. STATUS OF FINANCING INFRASTRUCTURE INVESTMENT ............................................. 54

8. KEY RECOMMENDATIONS AND POLICY OPTIONS........................................................ 71

REFERENCES ................................................................................................................ 75

ANNEX TABLE 1: LIST OF ACTIVITIES IN SECTORAL DISTRIBUTION OF FDI, SELECTED

LLDCS ................................................................................................ 77

vi

FIGURES

Figure 1: GNI per capita in Asian LLDCs, PPP in current international $, 2014 ............................................... 6

Figure 2: GDP per capita PPP (constant international 2011 $) ........................................................................... 6

Figure 3: Real GDP growth rate (%) in Asian LLDCs, Average 2008-14 .......................................................... 8

Figure 4: Human Development Index of Asian LLDCs, 2013 .......................................................................... 10

Figure 5: Average share of FTA partners in merchandise exports and imports for Asian LLDCs,

2011-2014 .......................................................................................................................................... 22

Figure 6: Quality of trade and transport related infrastructure based on the LPI of the Asian

LLDCs: 2007 to 2014 ....................................................................................................................... 34

Figure 7: Trade- GDP Ratio 2013, % ................................................................................................................ 46

Figure 8: Structure of Exports of Major Oil and Gas LLDC Producers* 2014, in % ....................................... 49

Figure 9: Export Trends of Major Oil and Gas LLDC Producers, 2004-2014 (Billion US$) ........................... 49

Figure 10: Structure of Exports of Non-Oil and Gas LLDC Producers 2014, in % ......................................... 50

Figure 11: Export Trends of Non-Major Oil and Gas LLDC Producers, 2004-2014 (Billion US$) ................. 50

Figure 12: Additional trade costs paid by Asian LLDCs in trading with Germany and the United

States, as percentages of trade costs paid by non-landlocked developing countries, 2013 ............. 51

Figure 13: Cost to Export from LLDCs per container (US$) ............................................................................ 52

Figure 14: Cost to import by LLDCs per container (US$) ................................................................................ 52

Figure 15: General Government Final Consumption Expenditure in % of GDP .............................................. 59

Figure 16: FDI Stocks in LLDCs, Current mln US$, 2014 ............................................................................... 61

Figure 17: Net FDI Inflows, mln US$ 2013 ...................................................................................................... 62

Figure 18: Dynamics of FDI Inflows in mln USD, Oil Exporting LLDCs 2000-2014 ..................................... 63

Figure 19: Dynamics of FDI inflows in mln USD 2000-2014, Non-Oil Producing LLDCs ............................ 64

Figure 20: Personal Remittances, received, current mln US$ ........................................................................... 68

vii

TABLES

Table 1: Indicators of socio-economic performance of Asian LLDCs 2013-2014 ............................................. 5

Table 2: Real GDP Growth Rate (%) in Asian LLDCs ....................................................................................... 7

Table 3: Selected financial indicators, latest years .............................................................................................. 9

Table 4: Grouping of human development index of Asian LLDCs, 2013 ........................................................ 10

Table 5: Status of accession of Asian LLDCs to international conventions and agreements ........................... 13

Table 6: Bilateral Free Trade Agreements between LLDCs (signed and in effect in Oct 2015) ...................... 21

Table 7: Multilateral Free Trade Agreements between LLDCs ........................................................................ 21

Table 8: Quality of trade and transport related infrastructure in the LLDCs as measured by World

Banks’ Logistic Performance Index (LPI) ........................................................................................... 32

Table 9: Ease of doing business ranking, new methodology............................................................................. 35

Table 10: Existing Highway Routes and Rail Lines in Asian LLDCs .............................................................. 37

Table 11: Status of Asian Highway routes in Asian LLDCs ............................................................................. 38

Table 12: Estimated distances from capital cities of selected LLDCs to main maritime ports (km) ............... 39

Table 13: Number of dry ports .......................................................................................................................... 41

Table 14: Merchandise export growth rate (%) in Asian LLDCs ..................................................................... 47

Table 15: Intra-Asian LLDCs Trade Flow Matrix, % of total trade with the world ......................................... 47

Table 16: Exports of primary commodities and manufactured goods (US$ million) ....................................... 48

Table 17: National Transport Infrastructure (TI) Investment Needs in LLDCs, 2010-20 ................................ 56

Table 18: Tax Revenue, % of GDP ................................................................................................................... 57

Table 19: General Government Final Consumption Expenditure (GGFCE) in % of GDP ............................... 58

Table 20: FDI stocks in LLDCs 2000-2014, current mln US$.......................................................................... 61

Table 21: FDI inflows by sector in selected LLDCs, in mln US$ ..................................................................... 65

Table 22: ODA and GGFCE in Asian LLDCs .................................................................................................. 66

Table 23: Personal remittances, received, current mln US$ .............................................................................. 68

viii

ACRONYMS AND ABBREVIATIONS

ADB Asian Development Bank

AfT Aid for Trade

AH Asian Highway

APEC Asia-Pacific Economic Cooperation

APoA Almaty Programme of Action

ASEAN Association of Southeast Asian Nations

ASYCUDA Automated System for Customs Data

BBIN Bangladesh, Bhutan, Nepal and India

CAREC Central Asia Regional Economic Cooperation

CBTA Cross-border Transport Agreement

CEC Committee on Economic Cooperation

CIS Commonwealth of Independent States

DAC Development Assistance Committee

EATL Euro-Asian Transport Links

EBRD European Bank for Reconstruction and Development

ECO Economic Cooperation Organization

ECOTA Economic Cooperation Organization Trade Agreement

EEU Eurasian Economic Union

ESCAP United Nations, Economic and Social Commission for Asia

and the Pacific

EU European Union

EurAsEC Eurasian Economic Community

ix

FDI foreign direct investment

GDP gross domestic product

GGFCE General Government Final Consumption Expenditure

GMS Greater Mekong Subregional

GNI gross national income

ICD Inland Container Depot

ICP Integrated Check Post

ICT information and communications technology

IMF International Monetary Fund

IRU International Roads Union

IsDB Islamic Development Bank

LDCs least developed countries

LLDCs landlocked developing countries

LPI Logistic Performance Index

MDGs Millennium Development Goals

NSWs National Single Windows

NTPC Nam Theun 2 Power Company

ODA official development assistance

OHRLLS Office of the High Representative for the Least Developed Countries,

Landlocked Developing Countries and Small Island Developing States

OIC Trade Preferential System of the Organization of the Islamic

Conference

PPP public-private partnership

SPECA United Nations Special Programme for the Economies of Central Asia

TFA Trade Facilitation Agreement

TRACECA Transport Corridor Europe-Caucasus-Asia

SAARC South Asian Association for Regional Cooperation

SAFTA SAARC Free Trade Area

SAPTA SAARC Preferential Trading Arrangement

SDGs Sustainable Development Goals

SKRL Singapore-Kunming Rail Link

TCD Time/Cost-Distance methodology

TTFMM Trade and Transport Facilitation Monitoring Mechanism

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

x

UNECE United Nations Economic Commission for Europe

VPoA Vienna Programme of Action

WB World Bank

WCO World Customs Organization

WHO World Health Organization

WTO World Trade Organization

1

1. INTRODUCTION

The Asian LLDCs1 have made significant progress in achieving sustained economic development but

their potential for further progress remains constrained by a variety of factors. In addition to an almost

exclusive dependence on a limited number of commodities for export earnings, the LLDCs are

constrained by a lack of territorial access to sea, remoteness, and isolation from the world markets and

high transit costs. In recent times, LLDCs have experienced significant fluctuations in economic growth

and export performance as they have become more vulnerable to commodity-related downside risks than

a decade back. While their export baskets are narrowly based with limited number of destination

markets, their imports are predominantly composed of manufactures and capital goods, indicating the

urgent need for diversification of both exports and imports with progressive graduation to the production

of more value-added and sophisticated outputs. A key prerequisite for expanding trade and reaching

advanced markets is the creation of efficient transit transport infrastructure and promotion of

connectivity. Recognizing these imperatives, the Vienna Programme of Action for the LLDCs for the

decade 2014-2024 (VPoA) specifically calls for the promotion of unfettered, efficient and cost-effective

access to and from the sea by all means of transport and freedom of transit in accordance with applicable

rules of international law. It also calls for reducing trade transaction costs and transport costs and

improving international trade services through simplification and standardization of transit rules and

regulations and developing transit transport infrastructure. VPoA attaches significant importance to the

rapid and timely implementation of all bilateral, regional and international legal instruments and

conventions.

Addressing these issues particularly transit issues between LLDCs and their transit neighbors is key to

improving the competitiveness of LLDCs’ exports and improving their growth prospects. World Bank

has identified three elements of a transit system: the hard physical infrastructure that connects the

LLDCs internally as well as with their transit neighbors; the soft infrastructure encompassing the legal

and regulatory frameworks and institutions that are tasked with enforcing those; and the procedures that

serve the trade corridors.

Asian experience during the implementation of the Almaty Programme of Action (APoA) showed the

great potential in transforming the landlocked developing countries into land-linked developing

countries, thereby bringing about a transformational change in their quest for inclusive and sustainable

development. The Vienna Programme of Action (VPoA) for the LLDCs – the successor to the APoA - is

by far the most important platform for assisting the LLDCs to overcome their development challenges

arising out of their landlockedness and lack of territorial access to seas. The VPoA is specifically

designed to support national, regional and international action on six inter-related priority areas: 1.

Fundamental transit policy issues; 2. Infrastructure development and maintenance; 3. International trade

and trade facilitation; 4. Regional integration and cooperation; 5. Structural economic transformation;

and 6. Means of implementation (VPoA 2015). This report is intended to contribute to the discussion on

the implementation of the VPoA focusing specifically on transit cooperation, trade and trade facilitation

issues.

1 For the purposes of this report, the Asian LLDCs are: Afghanistan, Armenia, Azerbaijan, Bhutan, Kazakhstan,

Kyrgyzstan, the Lao Peoples Democratic Republic, Mongolia, Nepal, Tajikistan, Turkmenistan and Uzbekistan.

2

Efficient transit transport and enhanced connectivity between LLDCs, their transit neighbors and coastal

countries and their people are central to boosting the development prospects of the LLDCs. In addition

to development of an integrated land-based infrastructure system, connecting the LLDCs to their transit

neighbors and maritime ports and then to global markets and international value chains, increased use of

new technologies and innovations including ICT and access to energy could significantly contribute to

the improvement of operational efficiencies in transit transport and trade facilitation. Resources would

have to be mobilized to fund large scale investments, and national efforts would be necessary for policy

prioritization as well as accession to international legal frameworks and harmonization of cross border

procedures and formalities to reduce trade costs. Increased support from multilateral as well as bilateral

development partners in the forms of official development assistance (ODA), foreign direct investment

(FDI), public-private partnerships, remittances and south-south and triangular cooperation would be

required in raising resources for transit infrastructure development and reaping the benefits of

globalization.

The Addis Abba Action Agenda specifically drew attention to the infrastructure investment needs of the

LLDCs and emphasized the role of international financial institutions as key to this process. At the same

time, LLDCs with the active participation of their private sector would have to exploit the emerging and

innovative sources of funding as these would form critical elements in mobilizing and channeling

resources to meet their investment needs.

The Asian LLDCs are committed to pursue sustainable and inclusive development, as enshrined in the

recently adopted 2030 Agenda for Sustainable Development that contains 17 Sustainable Development

Goals (SDGs). Timely and effective implementation of the Vienna Programme of Action can greatly

contribute to the realization of the SDGs in the Asian LLDCs. It was adopted at a time when the

countries were completing their work under the MDGs and synthesizing their perspectives on the post-

2015 development agenda, encompassing a significantly enlarged and much more ambitious sets of

goals, targets and indicators. The SDGs provide a window of opportunity to close the development gaps

faced by the LLDCs, and the VPoA is uniquely designed to take that agenda forward and bring about a

transformational change in the lives of the people of LLDCs.

The analytical framework used in this report follows the conceptual foundations of the VPoA. Inspired

by the VPoA, the report is intended to be a regional technical input in the preparation of the global

report on the current status of improving transit cooperation, trade and trade facilitation for the benefit of

the LLDCs. The report first looks at the two key elements of the “software” of an effective transit

cooperation system: (a) the legal frameworks encompassing the international conventions and the

institutional arrangements to anchor those conventions; and (b) customs and border procedures and

harmonization of policies and border crossing procedures and institutions, both of which form an

integral part of Priority 1 of the VPoA. It then examines the second pillar of a transit system, i.e., the

“hardware”: the status of infrastructure development, Priority 2 of the VPoA. It then considers the

“outcome”: the state of LLDCs’ participation in international trade and the role of improved transit and

trade facilitation in expanding trade between the LLDCs and their trading partners. It also looks at the

constraints and challenges faced by the LLDCs in increasing their participation in international trade.

The report then analyses one of the key implementation issues, namely financing infrastructure

development including transit infrastructure. The key policy recommendations are deduced from the

analyses presented in the report.

3

The report is divided into eight broad sections. After the introductory part, Section II briefly looks at the

recent socio-economic performance of the Asian LLDCs to lay out the context for the discussions that

follow and highlight the critical role of sustained economic growth for generating resources for transit

infrastructure development. Section III examines the status of legal frameworks, encompassing

international agreements, regional agreements and bilateral agreements. This Section will probe into

some of the implications of many overlapping agreements for the LLDCs and how these could be

streamlined to improve efficiency and increase their impact in promoting transit trade and infrastructure

investment. Section IV examines the status of customs and border procedures, harmonization of policies

and border crossing procedures and institutions aimed at promoting and facilitating transit infrastructure

development. Options will be explored to further harmonize the customs rules and procedures to create

better conditions for trade and investment and maximize the impact that these opportunities offer.

Section V looks into the status of transit infrastructure development in the LLDCs, and analyzes some of

the key constraints that have held back infrastructure development in Asian LLDCs. This section offers

some recent examples of country investments in domestic as well as transit infrastructure. Section VI

examines the status of LLDCs’ international trade, the extent to which improved transit has contributed

to expanded trade between LLDCs and their trading partners and what needs to be done to address

transit issues to improve trade both among LLDCs and with other trading partners. Section VII discusses

the status of financing investment in transport and transit infrastructure in the LLDCs and explores

options for raising additional resources including FDI and private-public partnerships for infrastructure

development and maintenance. The report is brought to a conclusion by offering some key

recommendations in Section VIII.

4

2. SOCIO-ECONOMIC PERFORMANCE OF ASIAN LLDCS

The Vienna Programme of Action accords high priority to the promotion of growth and enhanced

participation of the LLDCs in global trade, driven by structural transformation focused on increased

productive capacity development, value addition, economic diversification and progressive reduction of

dependency on extraction and simple processing of commodities. VPoA also emphasizes the need for

significantly increased policy support in reducing poverty, ensuring food security, reducing child and

maternal mortality and promoting environmental sustainability. Strengthening transit cooperation and

trade and trade facilitation can make a significant contribution in promoting sustainable growth and

structural transformation in the Asian LLDCs.

A. Recent challenges

The Asian LLDCs are yet to achieve effective structural transformation, and constitute one of the most

vulnerable groups of countries in Asia. Spread over Central Asia, South Asia, East Asia and South-East

Asia, the 12 LLDCs as a group find it very difficult to overcome the challenges imposed by their

geographical location and remoteness from nearest sea ports. Although many of them achieved high

economic growth, significant improvements in per capita incomes and steady social progress during the

past few years, the recent slowdown in global and regional growth, and trade and investments flows

have affected them adversely. The steep falls in commodity prices, rapid depreciation of their

currencies, and lay-offs caused by the slowdown in the construction sector have compounded the

difficulties faced by the resource-dependent LLDCs. The devastating earth quake in Nepal severely

disrupted its growth prospects.

B. Key features of the state of development of LLDCs

Tables 1 and figures 1 and 2 capture some of the key features of their development status as well as the

variations in their performance. Kazakhstan with a GDP of US$ 212.25 billion (current prices, 2013) is

by far the largest Asian LLDC. It is also the biggest country in this group by geographical size.

Azerbaijan has a GDP of US$75.2 billion followed by Uzbekistan US$62.64 billion. At the other

extreme lies Bhutan with a GDP of about US$ 2 billion. In terms of population, Afghanistan tops the list

with 31.63 million, closely followed by Uzbekistan and Nepal with 30.74 million and 28.17 million

respectively. Bhutan has a population of less than a million followed by Mongolia with 2.91 million and

Armenia with 3.01 million. GNI per capita (PPP) is also high in many of these LLDCs, reaching some

US$21,580 in Kazakhstan, followed by US$16,910 in Azerbaijan (Figure 1). GDP per capita has

reached US$5000 or above for 60 percent of the LLDCs by 2014 (Figure 2). These statistics are a clear

indication that vast potential exists in most of the LLDCs in absorbing and making economically viable

significant amounts of investments in transit transport and transit infrastructure particularly along

international intermodal transport and development corridors serving these LLDCs.

Available data on trade to GDP ratio for all the LLDCs indicates a high degree of dependence on

international trade despite their inherent disadvantages of being landlocked and remoteness from key

markets. The trade/GDP ratio varies from 50 percent in Afghanistan to as high as 125 percent in

Kyrgyzstan. This underlines the importance of transit trade and properly functioning infrastructure for

this group of countries for their economic and social progress.

5

The sectoral composition of GDP shows that the services sector is the most dominant in most of these

LLDCs except in Azerbaijan and Bhutan. In some of them services sector account for more than 50 per

cent of the total value added. This should be a cause for concern for these LLDCs as it indicates that the

services sector has become dominant before the structural transformation has taken place in their

economies. On the positive side, it does indicate that government can use appropriate policies in shifting

resources out of the services sector and deploy those in improving their productive capacity and their

trade potential by investing in resource-based manufacturing and construction activities2.

Table 1: Indicators of socio-economic performance of Asian LLDCs 2013-2014

Notes: AFG—Afghanistan, ARM—Armenia, AZE—Azerbaijan, BHU—Bhutan, KAZ—Kazakhstan,

KYR—Kyrgyzstan, LAO —Lao PDR, MON—Mongolia, NEP—Nepal, TAJ—Tajikistan,

TUR— Turkmenistan, UZB— Uzbekistan.

… data not available. Figures in bold are from 2014, rest are from 2013.

Source: World Bank, World Development Indicators

2 See ESCAP, 2014, for a comprehensive discussion on this issue.

6

Figure 1: GNI per capita in Asian LLDCs, PPP in current international $, 2014


Figure 2: GDP per capita PPP (constant international 2011 $)


7

C. Recent growth performance

The LLDCs have also grown quite robustly during 2008-2014 except Armenia and Kyrgyzstan (Table 2,

Figure 3). Prospects for 2016 do not look that bright except perhaps for Bhutan and Lao PDR, two

economies which are largely driven by steady external demand for their hydropower. The rest of the

LLDCs which depend on resource rents and commodity exports are likely to face difficulties in

maintaining their growth momentum as the global and regional economies slow down with adverse

impacts on trade and investment flows. This will reduce their ability to generate domestic resources for

investing in infrastructure and supporting connectivity. Slow growth can also reduce the inflow of FDI.

Table 2: Real GDP Growth Rate (%) in Asian LLDCs

2005-

2007a

2008 2009 2010 2011 2012 2013 2014b 2015

c 2016

c

2008-

2014a

Afghanistan 14.00 3.40 22.50 8.40 5.70 14.00 3.60 4.20 4.50 5.00 8.99

Armenia 13.60 6.90 -14.20 2.60 4.30 7.20 3.50 3.40 0.90 2.30 1.10

Azerbaijan 28.60 10.80 9.30 5.00 0.10 2.20 5.80 2.80 2.30 2.50 3.93

Bhutan 11.20 4.70 6.70 11.80 5.40 4.60 4.20 6.00 6.80 7.00 6.50

Kazakhstan 9.80 3.30 1.20 7.00 7.50 5.00 6.00 4.30 1.50 2.90 4.64

Kyrgyz

Republic 3.80 8.40 2.30 -1.40 5.70 -0.90 10.50 3.60 2.00 2.50 3.11

Lao PDR 7.80 7.20 7.60 7.90 8.30 8.30 8.50 7.50 7.20 7.20 7.90

Mongolia 8.70 8.90 -1.30 6.40 17.30 12.40 11.70 7.80 3.50 5.00 8.26

Nepal 3.20 5.80 3.80 4.00 3.50 4.50 3.90 5.50 5.00 4.70 4.31

Tajikistan 7.20 7.90 3.40 6.50 7.40 7.50 7.40 6.70 4.00 4.80 6.13

Turkmenistan 12.00 10.50 6.10 9.20 9.90 11.10 10.20 10.30 9.50 9.20 9.47

Uzbekistan 7.90 9.00 8.10 8.50 8.30 8.20 8.00 8.10 7.10 7.20 8.04

a average;

b estimates;

c forecasts (as of 31 March 2015)

Source: ESCAP, Economic and Social Survey of Asia and the Pacific 2012, 2013, 2015

8

Figure 3: Real GDP growth rate (%) in Asian LLDCs, Average 2008-14

Source: ESCAP, Economic and Social Survey of Asia and the Pacific 2012, 2013, 2015

D. Selected financial indicators

Table 3 offers some financial indicators which can help in addressing some of the transit issues and

transit trade. Domestic credit to the private sector as a percentage of GDP is a rough indicator of the size

of the private sector and its contribution to economic activities. In all 12 LLDCs considered here, it does

not exceed 50 percent except in Armenia, Mongolia and Nepal. This has important implications in terms

of domestic private sector’s ability to take part in infrastructure development of their respective

countries. LLDCs like Azerbaijan, Kazakhstan, Lao PDR, Mongolia and Uzbekistan have gross savings

as a percentage of GDP in excess of 25 percent, indicating significant potential for domestic resource

mobilization to support their development and regional integration. But tax revenue as a percentage of

GDP is below 20 percent in most cases, highlighting the need for greater efforts on the part of their

governments to raise resources. External debt is quite high in several LLDCs, pointing towards the need

for better management of external resources and using those more efficiently for raising the productive

capacity of these LLDCs and enhancing their export capability so that in future debt servicing issues do

not appear as a constraint on their development efforts. Remittances as a percentage of GDP, is also

quite high in four LLDCs. While these flows can be an advantage if properly utilized; these can also

become a source of vulnerability if external conditions change rapidly.

9

Table 3: Selected financial indicators, latest years

Domestic credit

to private sector

(% of GDP)

Gross domestic

savings

(% of GDP)

Personal

remittances,

received

(% of GDP)

Present value of

external debt

(% of GNI)

Tax revenue

(% of GDP)

Afghanistan 3.67 -21.53 2.65 3.46 6.50

Armenia 52.28 -0.13 19.10 59.35 23.50

Azerbaijan 30.72 42.83 2.46 8.71 14.20

Bhutan 45.15 18.39 0.76 70.06 14.80

Kazakhstan 34.97 35.48 0.09 59.75 13.20

Kyrgyz

Republic 21.16 -16.41 30.29 62.77 20.80

Lao PDR .. 26.09 0.53 51.77 15.50

Mongolia 60.72 29.55 2.04 167.86 23.70

Nepal 63.05 8.92 29.04 7.30 16.10

Tajikistan 21.48 -30.05 41.70 27.88 22.80

Turkmenistan .. .. .. 0.77 ..

Uzbekistan .. 26.96 .. 10.40 19.70


E. Human development and poverty reduction

Available data indicate that income poverty has fallen in all the LLDCs and most of them have met the

2015 poverty target set in the UN MDGs3, largely due to high economic growth supported by expanding

transit trade and investment. But significant challenges remain. Azerbaijan, Bhutan, Lao PDR, Nepal

and Tajikistan have been slow in reducing the incidence of underweight children, and Armenia,

Kazakhstan and Kyrgyzstan have regressed on this indicator. Most of the Central Asian LLDCs have

encountered difficulty in accelerating the progress of reducing under-5 mortality and maternal mortality

and several have regressed in reducing HIV prevalence4.

At a more aggregate level, only 3 LLDCs out of 12 have been considered to have reached “high human

development” group, namely Armenia (87), Azerbaijan (76) and Kazakhstan (70), as revealed by

UNDP’s annual Human Development Report 2014 (Figure 4, Table 4,). All other LLDCs score “above”

100 with Nepal and Afghanistan taking their place in low development index group. One of the main

reasons for this lackluster performance in human development by most of the LLDCs is the continued

scarcity of investment in social sector, largely due to non-availability of internal as well as external

resources.

3 ESCAP/ADB/UNDP, 2015

4 Ibid

10

Figure 4: Human Development Index of Asian LLDCs, 2013

Source: Human Development Indicators, 2014

Table 4: Grouping of human development index of Asian LLDCs, 2013

Countries HDI HDI Rank

High development

index group

Kazakhstan 0.76 70.00

Azerbaijan 0.75 76.00

Armenia 0.73 87.00

Medium development

index group

Mongolia 0.70 103.00

Turkmenistan 0.70 103.00

Uzbekistan 0.66 116.00

Kyrgyz Republic 0.63 125.00

Tajikistan 0.61 133.00

Bhutan 0.58 136.00

Lao PDR 0.57 139.00

Low development

index group

Nepal 0.54 145.00

Afghanistan 0.47 169.00

Average 0.640641061

11

Source: Human Development Indicators, 2014

Neglect of social sector in investment priorities can lead to serious deficits in the supply of skilled and

motivated human resources, compounding the difficulties in reducing trade and transit barriers between

LLDCs and their transit neighbors. It can also reduce returns on existing investment in trade and transit

infrastructure and discourage in undertaking new investments.

F. Way Forward

As can be seen, the LLDCs have in general grew quite robustly during most part of the last decade but

recent trends and events have brought new challenges for them. In this evolving and challenging global

environment, the LLDCs have to work in concert in promoting regional cooperation to cope with

downside risks and invest significantly more resources in improving their human resources and

productive capacity including diversifying their export products and export destinations. Strengthened

transit cooperation and trade facilitation will be vitally important in sustaining their growth momentum

and coping with adverse impacts of an uncertain global environment. In doing so, they will need

international support in creating national capacities for better utilizing their accession to many

international, regional and bilateral conventions, agreements and frameworks which form important

platforms for forging regional cooperation and integration and boosting trade and investment.

12

3. STATUS OF INTERNATIONAL, REGIONAL AND BI-LATERAL

LEGAL FRAMEWORKS

As noted before, the LLDCs’ development efforts are seriously hampered by their lack of territorial

access to sea, long distance and remoteness from global markets and high transport costs. Their level of

engagement in international trade and use of transport systems depend on cross-border and transit

transport over land. VPoA notes that numerous physical and non-physical barriers have become a

significant challenge for the LLDCs in transporting their goods across borders and over land to their

destination markets and calls for concerted action, including support from the development partners in

overcoming those barriers.

There is increasing recognition that non-physical barriers are proving to be the most difficult ones by the

LLDCs in conducting their cross-border transit trade and transport. International, regional and bilateral

legal frameworks and agreements have been put in place and they form the fundamental platforms for

conducting inter-country trade and promoting regional integration. These legal instruments/frameworks

in support of the core areas of trade and transport facilitation have significant implications and impacts

on the development efforts of the Asian LLDCs. International conventions relating to transit and

transport are aimed at simplifying and regulating transport and transit operations as these are critical in

enhancing international land transport systems which can significantly improve the competiveness of the

LLDCs. The VPoA calls for reducing trade and transit costs and improving international trade services

through simplification and effective implementation and standardization of trade and transport –related

rules and regulations.

A. Status of legal framework: international conventions and

agreements

There have been significant efforts in implementing the various transport and transit facilitation

conventions including those identified in ESCAP resolution 48/11 and those that have come on board

since 1992 but important gaps remain. Table 5 gives the latest available status of accession/ratification

of the Asian LLDCs to some of the most relevant international conventions and agreements, several of

which have been listed in ESCAP resolution 48/115. These conventions and agreements are aimed at

facilitating movements of goods, vehicles and people across borders. In line with the VPoA, there is a

need for speeding up the accession as well as effective implementation of these international

conventions to promote trade and regional integration. UN and other regional and sub regional

organizations have provided technical assistance in the form of studies, reviews and advisory services to

assist the LLDCs in their accession process to these conventions.

5 The seven Conventions recommended under resolution 48/11 are: Convention on Road Traffic (Vienna 1968), Convention

on Road Signs and Signals (Vienna 1968), Customs Convention on the International Transport of Goods under Cover of TIR

Carnets (TIR Convention) (Geneva 1975), Customs Convention on the Temporary Importation of Commercial Road

Vehicles (Geneva 1956), Customs Convention on Containers (Geneva 1972), International Convention on the Harmonization

of Frontier Controls of Goods (Geneva 1982), and Convention on the Contract for the International Carriage of Goods by

Road (CMR) (Geneva 1956).

13

Table 5: Status of accession of Asian LLDCs to international conventions and agreements

O Observer; * Acceded; ** Category A Notification

Source: UN and WTO

14

International conventions and agreements provide the main platforms through which LLDCs can work

with their development partners and transit neighbors to harmonize, simplify and standardize rules and

procedures governing transit trade and transit infrastructure. ESCAP and ECE have been working with

the LLDCs in the effective implementation of international conventions and other internationally

recognized legal instruments within the ambit of the International Convention on the Harmonization of

Frontier Control of Goods (1982) to promote transport and transit facilitation. A key component of such

assistance has been creation of local capacity and awareness raising about various conventions and how

these are expected to be utilized for the benefit of the LLDCs. In that context, the establishment of

ESCAP’s Regional Network of Legal and Technical Experts for Transport Facilitation should go a long

way in assisting the participating LLDCs.

Since the adoption of resolution 48/11, several other Conventions have been recommended by ESCAP

for accession, including the Protocol to the Convention on the Contract for the International Carriage of

Goods by Road, 1978; the International Convention on the Simplification and Harmonization of

Customs Procedures, as Amended (Revised Kyoto Convention), 1973; and The Convention on

Temporary Admission (Istanbul Convention), 1990. The Central Asian LLDCs through SPECA have

identified several other international Conventions for accession, namely European Agreement

supplementing the Convention on Road Traffic opened for signature at Vienna on 8 November 1968

(1971); European Agreement supplementing the Convention on Road Signs and Signals (1971);

European Agreement concerning the Work of Crews of Vehicles Engaged in International Road

Transport (AETR) (1970); Customs Convention on the Temporary Importation of Private Road Vehicles

(1954); European Agreement concerning the International Carriage of Dangerous Goods by Road

(ADR) (1957); European Agreement on Main International traffic arteries (AGR) (1975); European

Agreement on Main International Railway Lines (AGC) (1985); and European Agreement on Important

International Combined Transport Lines and Related Installations (AGTC) (1991).

The Basic Multilateral Agreement on International Transport for the Development of the Europe-

Caucasus-Asia Corridor which was signed in 1998 under TRACECA programme by Armenia,

Azerbaijan, Bulgaria, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Romania, Tajikistan, Turkey, Ukraine

and Uzbekistan is one of the most comprehensive agreements for fostering economic integration, trade

and transport and facilitating access to international markets.

To date, it would appear that all the 12 Asian LLDCs have acceded and/or sent Category A notifications

to one or more of the Conventions and Agreements listed in Table 5 but none has acceded to or sent

notifications to all the 23 international Conventions and Agreements that appear in this table. There are

many other conventions and agreements which have remained outside the accession/ratification of these

12 LLDCs6.

6 The following treaties/conventions have not been listed because no Asian LLDCs partook in these: Declaration on the

Construction of Main International Traffic Arteries, of 16 September- 1950, Convention on the Taxation of Road Vehicles

for Private use in International Traffic – 1956, Convention on the Taxation of Road Vehicles engaged in International

Passenger Transport 1956, European Convention on Customs Treatment of Pallets Used in International Transport – 1960,

Agreement on Minimum Requirements for the Issue and Validity of Driving Permits (APC) – 1975, International Convention

to Facilitate the Crossing of Frontiers for Goods Carried by Rail – 1952, Customs Convention concerning Spare Parts Used

for Repairing European Wagons – 1958, European Agreement on Main International Railway Lines (AGC), of 31 May 1985,

Protocol on Combined Transport on Inland Waterways to the European Agreement on Important International Combined

Transport Lines and Related Installations (AGTC) of 1991, of 1997, European Agreement on Main Inland Waterways of

15

Afghanistan has acceded to four Conventions/Agreements and has an observer status with WTO.

Armenia has acceded to 9 Conventions/Agreements including WTO; Azerbaijan has acceded to 14 and

has an observer status with WTO; Bhutan has acceded to only 1 namely Revised Kyoto Convention and

has an observer status with WTO; Kazakhstan has acceded to 18 including its recent accession to WTO;

Kyrgyzstan has acceded to 9 including the World Trade Organization; Lao PDR has acceded to 2

including the WTO; Mongolia has acceded to 8 including WTO; Nepal has acceded to only WTO;

Tajikistan has acceded to 10 including WTO; Turkmenistan has acceded to 5; and Uzbekistan has

acceded to 11 and has an observer status with WTO. LLDCs should step up their efforts in acceding to

the international conventions and agreements governing international and transit trade.

An important development as far as trade facilitation is concerned has been the conclusion of

negotiation on a Trade Facilitation Agreement at the Bali Ministerial Conference, held in December

2013. After legal consultations, the WTO members adopted on 27 November 2014 a Protocol of

Agreement to insert the new Trade Facilitation Agreement into Annex 1A of the WTO Agreement. As of

23 May 2016, 1 Asian LLDC and 8 transit countries had ratified the Trade Facilitation Agreement. The

World Trade Organization Trade Facilitation Agreement will come into force once two thirds members

complete their domestic ratification process. It has great potential in reducing trade costs and times taken

to import and export products for the LLDCs and accelerate their integration into the global trading

system.

Among the 12 Asian LLDCs, 9 LLDCs have acceded to the Customs Convention on the International

Transport of Goods under Cover of TIR Carnets – 1975, the highest number of LLDCs to accede to one

single Convention. This is followed by 8 LLDCs each acceding to the Convention on the Contract for

the International of Carriage of Goods by Road (CMR) 1956, Convention on Road Traffic 1956, and the

International Convention on the Harmonization of Frontier Controls of Goods 1982. Revised Kyoto

Convention 1999 has found increasing popularity in harmonizing customs procedures in many countries

of the Asia-Pacific region. 7 LLDCs have become full members of WTO with 4 observer status. Of the

transit countries, Georgia has acceded to six conventions/agreements. China has undertaken feasibility

studies to explore options for accession to some of the international conventions that are of particular

significance to its LLDC neighbors.

LLDCs which are yet to become members of WTO should do so expeditiously. They are also

encouraged to ratify the WTO TFA as soon as possible and move forward in fully utilizing trade

facilitation tools developed by international organizations such as WCO, WTO, ESCAP and UNECE on

business process analysis, document alignment, data harmonization and modeling, and single window

implementation to build capacity of relevant stakeholders.

International Importance (AGN), of 19 January 1996, Convention on the Contract for the International Carriage of

Passengers and Luggage by Road (CVR) 1973, Convention on the Registration of Inland Navigation Vessels, of 25 January

1965, Convention on the Measurement of Inland Navigation Vessels, of 15 February 1966, Convention on the Contract for

the International Carriage of Passengers and Luggage by Inland Waterway (CVN), of 6 February 1976, Protocol to the

Convention relating to the Limitation of the Liability of Owners of Inland Navigation Vessels (CLN), of 5 July 1978,

Protocol to the Convention on the Contract for the International Carriage of Passengers and Luggage by Inland Waterways

(CVN), of 5 July 1978, Convention on International Customs Transit Procedures for the Carriage of Goods by Rail under

Cover of SMGS Consignment Notes Geneva 2006.

16

TIR is an international treaty to simplify and harmonize the administrative formalities of international

road transport. A UN Convention, EU and 68 states are parties to the convention. The TIR Convention

has established a comprehensive international customs transit system that facilitates movements of

goods in sealed vehicles (containers) from one customs point in the departing country to a customs point

in the destination country without any customs checks in between these two customs points. At the same

time, it provides customs officials with guarantees for security and safety of goods carried under TIR.

The system is capable of connecting with other modes of transport such as rail and inland water ways

including maritime transport. It is the premier global transit custom system, and with 40,000 authorized

operators, it is expected to grow rapidly with the introduction of eTIR as global trade continues to

expand.

CMR is a UN Convention (UNECE) which deals with various legal issues related to transportation of

cargo by road. Majority of European States have ratified it. As of 2013, 55 states have ratified it. The

International Roads Union (IRU) developed the waybill based on the CMR. This waybill is accepted by

all European countries for transit of goods through their territories.

The International Convention on the Simplification and Harmonization of Customs Procedures (Kyoto

Convention) entered into force in 1974 and was revised and updated, and adopted by the WCO Council

in June 1999. Popularly known as the Revised Kyoto Convention, it entered into force on 3 February

2006. It remains one of the most significant trade facilitation customs conventions developed by the

World Customs Organization. Recognized as an international standard, it is widely used by the global

customs community in international trade and transport. The revised Kyoto Convention has allowed for

simplification and harmonization of customs procedures by incorporating modern and contemporary

customs formalities and procedures. It has also modernized the customs procedures by incorporating risk

management techniques and use of information and communication technology. Audit based controls

and authorized trading are also important features of the revised Convention. It is increasingly becoming

the template for trade facilitation as it has greatly facilitated the application of simple and efficient

customs procedures and specified maximum and minimum levels of facilitation and control for import,

export and transit of goods.

Some key challenges in accession to and implementation of international conventions and

agreements

Some of the key challenges which have held back effective implementation of international conventions

and agreements include lack of territorial contiguity of some of the countries where Conventions are in

force; accession to different versions of the same Convention (e.g. Convention on Road Traffic, 1949 or

Convention of Road Traffic, 1968); and non-accession to Protocols (e.g. Protocol to the Convention on

the Contract for the International Carriage of Goods by Road). Other issues that have been highlighted

in UN meetings and conferences include the need for significant and deeper reforms to bring their laws

and regulations in conformity with those of the Conventions; lack of national capacity in border and

customs control, high costs of adjustment to the requirements of the Conventions, difficulties in

implementing the complex provisions of the Conventions, lack of involvement in the elaboration and

amendments of conventions, and high cost of participating in meetings particularly by LLDCs and

LDCs. In several instances, countries have relied on sovereign guarantees in the transport of goods

across borders such as those between Nepal and India, Bhutan and India, and Thailand and Lao PDR.

17

LLDCs, transit countries and their development partners should strengthen efforts in overcoming some

of the challenges mentioned above and accelerate the accession as well as effective implementation of

the relevant international conventions and agreements. In depth studies and analyses encompassing the

costs and benefits of joining the conventions are needed to obtain greater insights into the challenges

faced the Asian LLDCs and their transit partners in this regard. Based on these studies, clear strategic

options and recommendations should be formulated which can then feed into developing robust and

effective advocacy tools. Increased assistance should be provided to the LLDCs to secure their transit

rights and devise implementation strategies. Guidelines could be developed for the implementation of

the conventions and agreements. More resources could be mobilized for the LLDCs to take part in

international meetings and conferences which take important decisions on the international conventions

and agreements to generate their ownership and accountability.

B. Status of legal framework: regional agreements

Some of the regional transport facilitation agreements relating to transit and landlocked countries have

made good contribution in supporting and catalyzing sub-regional economic development, trade and

integration but here too important lacunas exist. These regional agreements include the ASEAN7

Agreements on Transport Facilitation, Agreements of the Commonwealth of Independent States (CIS)8

and the Eurasian Economic Community (EurAsEC)9

related to Transport Facilitation, and some

agreements on customs and visas, in particular EurAsEC agreements that have been signed to support

integration of their member countries. Some of the more recent initiatives such as the Customs Union of

Belarus, Kazakhstan and Russian Federation within EurAsEC framework in 2007 have also been

instrumental in advancing transit trade. The Eurasian Economic Union (EAEU or EEU) was established

by a treaty signed on 29 May 2014 by the leaders of Belarus, Kazakhstan and Russian Federation, and

came into force on 1 January 2015. The agreements for the accession of Armenia and Kazakhstan to

EEU were signed on 9 October and 23 December 2014 respectively. The EEU introduces free movement

of goods, capital, services and people and provides for common transport, agriculture and energy

policies with provisions for a single currency and greater integration in the future.

Significant progress has also been noted in the formulation and accession to sub-regional transport and

transit facilitation agreements under the auspices of sub-regional intergovernmental organizations, funds

and programmes. Most notable are ASEAN Agreements on Transport Facilitation, Agreements of the

Commonwealth of Independent States (CIS), the Eurasian Economic Community (EurAsEC), related to

Transport Facilitation, ECO10

Transit Transport Framework Agreement, 199811

, and Greater Mekong

Subregional programme (GMS)12

Agreement for Facilitation of Cross-border Transport of Goods and

People, 1999. The main ones are briefly described below.

7 Association of Southeast Asian Nations (ASEAN) with member countries of Brunei Darussalam, Cambodia, Indonesia,

Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Viet Nam. 8 CIS member-states are: Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Tajikistan,

Turkmenistan, Ukraine and Uzbekistan. 9 EurAsEC member-states are: Belarus, Kazakhstan, Kyrgyzstan, Russian Federation, Tajikistan and Uzbekistan.

10 ECO - Economic Cooperation Organization comprises of Afghanistan, Azerbaijan, Islamic Republic of Iran, Kazakhstan,

Kyrgyzstan, Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan. 11

The Agreement has been signed by Afghanistan, Azerbaijan, Islamic Republic of Iran, Kazakhstan, Kyrgyzstan, Pakistan,

Tajikistan, Turkey and Turkmenistan, and ratified by Afghanistan, Azerbaijan, Islamic Republic of Iran, Kazakhstan,

Kyrgyzstan, Pakistan, Tajikistan and Turkey. 12

GMS - Greater Mekong Subregion includes Cambodia, China, Lao PDR, Myanmar, Thailand and Viet Nam.

18

ASEAN Agreements on Transport Facilitation

Some of the key agreements in the ASEAN include the following:

Agreement on the Recognition of Domestic Driving Licenses issued by ASEAN Countries,

1985;

Customs Code of Conduct, 1995;

Agreement on Customs, 1997;

Agreement on the Recognition of Commercial Vehicle Inspection Certificates for Goods

Vehicles and Public Service Vehicles issued by ASEAN Member Countries, 1998;

Framework Agreement on the Facilitation of Goods in Transit, 1998;

Agreement to Establish and Implement the ASEAN Single Window, 2005;

Framework Agreement on Multimodal Transport, 2005; and

Framework Agreement on Facilitation of Inter-State Transport, 2009.

These agreements follow similar structure and obligations, and the modes of transport covered by them

are indicated by their titles. The 1998 agreement on transit is used to frame the regimes and definitions

in transport agreements. This particular agreement also covers both road and rail transport with the

objectives of facilitating transport of goods in transit, harmonizing and simplifying regulations and

requirements, and establishing an integrated efficient transit transport system.

Agreements of the Commonwealth of Independent States (CIS) and the Eurasian Economic

Community (EurAsEC) related to Transport Facilitation

Since 1992 when the CIS came into existence, a large number of agreements have been formulated,

signed, and most of them have been ratified and are in force now. CIS and EurAsEC agreements are

stand-alone agreements covering different aspects in transit transport. With the establishment of the

Customs Union of Belarus, Kazakhstan and Russian Federation within EurAsEC framework in 2007,

several other agreements have been concluded, spelling out the custom union’s policies concerning

international road transport. Some of the key agreements in this sub-region include:

CIS Agreement on Transit Procedures, 1992;

CIS Agreement on Inter-State Transport of Dangerous and Discharge Goods, 1993;

CIS Convention on International Road Transport of Passengers and Luggage within the CIS,

1997;

CIS Agreement on Implementation of the Coordinated Policy in the Field of Evaluation of

Transport Tariff, 1997;

CIS Convention on the Reciprocal Recognition and Enforcement of Judgments in the cases

of offences of traffic rules, 1997;

CIS Agreement on Principles of Formation of Common Transport Area and Cooperation of

the CIS Member States in the Field of Transport Policy, 1997;

EurAsEC Agreement on Establishment of Transport Union, 1998;

EurAsEC Agreement on International Road Transport between the Member States of the

Transport Union, 1998;

CIS Agreement on Transit through the Territories of the CIS Countries, 1999;

EurAsEC Agreement on mutual visa-free travels, 2000;

19

EurAsEC Protocol on Common Approach in Application of Information Technology under

Customs Control over Transit Goods and Transport Means across the Frontiers of the

Member States of the Eurasian Economic Community, 2001;

EurAsEC Protocol on Organization of Information Exchange on Movement of Goods and

Transport Means among Customs Authorities of the Member States of the Eurasian

Economic Community, 2001;

CIS Agreement on the cooperation of CIS Member States in the sphere of international road

transport of goods, 2003;

EurAsEC Agreement on Concerted Implementation Policy of Formation and Development of

the Eurasian Economic Community Transport Corridors, 2005;

CIS Agreement on the introduction of an international certificate of weighing commercial

vehicles on the territories of CIS Member States, 2004;

CIS Agreement on harmonization of requirements for additional training and professional

competence of international automobile carriers of CIS Member States, 2006;

Treaty on the Customs Code of the Customs Union, 2010;

Agreement on the Specifics of Use of International Carriage Transport Vehicles, transporting

Passengers as well as Trucks, Semitrailers, Containers and Railway Rolling Stocks

transferring Cargo and/or Luggage for Internal Carriage within the Customs Territory of the

Customs Union, 2010;

Agreement on Provision and Exchange of Preliminary Information on Goods and Transport

Vehicles crossing the Customs Border of the Customs Union, 2010; and

Eurasian Economic Union, 2015

ECO Transit Transport Framework Agreement, 1998

Signed in 1998, this agreement covers transit transport by road, rail, inland waterway, and access by

port. The agreement aims to facilitate transit transport by providing necessary facilities, ensuring safety,

avoiding unnecessary delay, fraud/tax evasion, and harmonizing administrative rules and procedures. All

ECO members namely Afghanistan, Azerbaijan, Islamic Republic of Iran, Kazakhstan, Kyrgyzstan,

Pakistan, Tajikistan, Turkey and Turkmenistan are signatories to this agreement. It came into force in

May 2007.

GMS Agreement for Facilitation of Cross-border Transport of Goods and People, 1999

GMS was launched by ADB in 1992 to enhance economic relations between and among Lao PDR,

Thailand and Vietnam. China and Cambodia later joined the grouping. Supported by ADB and other

donors, GMS implements sub-regional projects in transport, energy, telecommunications, environment,

human resources development, tourism, trade, private sector investment, and agriculture. An important

initiative under GMS was the launch of Cross-border Transport Agreement (CBTA) in 1999 which

began with Lao PDR, Thailand and Viet Nam as its founding members. Cambodia and China joined in

2001 and 2003 respectively. Now known as the “The Agreement for the Facilitation of Cross-Border

Transport of Goods and People” and coming into force in 2003, it aims to facilitate cross-border

transport of goods and people, simplify and harmonize legislation, regulations, procedures and

requirements, and promote multimodal transport. The agreements cover road transport as well as road-

related multimodal transport.

20

Regional economic integration in South Asia

In 1985, eight South Asian countries (3 of them LLDCs) came together to establish the South Asian

Association for Regional Cooperation (SAARC). It was in 1991 that the grouping adopted a programme

of economic cooperation when the Committee on Economic Cooperation (CEC) was formed. In 1995,

the SAARC Preferential Trading Arrangement (SAPTA) was created, followed by the creation of

SAARC Free Trade Area (SAFTA) in 2004. It was agreed that SAFTA would be implemented over 10

years beginning 2006. The SAARC leaders meeting in Bhutan in 2010 adopted the SAARC Agreement

on Trade in Services and launched the SAARC Development Fund. This period also saw the formation

of several bilateral trading arrangements between India and Nepal (transit and trade), India and Sri

Lanka, Pakistan and Afghanistan (transit and trade) and Pakistan and Sri Lanka. More recently,

Bangladesh, Bhutan, Nepal and India (BBIN) signed a Motor Vehicles Agreement (15 June 2015) which

is expected to facilitate movement of cargo across their borders. This Agreement has the potential to

reduce trade costs and contribute significantly to realizing trade opportunities that exist amongst these

four countries. In January 2016, discussions started on the possibility of framing a BBIN Railway

Agreement, based on the SAARC Regional Rail Agreement. Land ports and customs stations would

receive special attention in further expanding trade and transit.

C. Status of the legal framework: bilateral agreements

In addition to the international and regional legal frameworks, there has been progress in formulating

and implementing bilateral agreements relating to transit transport, contributing to LLDCs’ access to

seaports through the transit countries. Bilateral agreements in transit transport are designed to provide an

LLDC access to seaports through its transit neighbour. A large number of such bilateral agreements

covering international land transport operations have been negotiated but a good number of them could

not be implemented due to difficulties in some specific arrangements or issues going beyond transport

and transit issues. While many agreements are well structured, therefore easy to implement, others are

not so, often covering too many issues or arrangements that go beyond transport and transit facilitation.

Most common problematic areas have included designation of transport routes, traffic rights, border

crossings points and destination ports, duties and taxes, insurance and conditions for transport, technical

requirements of vehicles, compulsory insurance of vehicles, driving permits, temporary admission,

duties, taxes and charges, safety and security, and many more. Political and social tensions sometimes

lead to closure of border or customs points, disrupting transit of goods by land transport.

Table 6 attempts to capture the latest situation regarding bilateral free trade agreements between and

amongst LLDCs. Five LLDCs – Afghanistan, Bhutan, Lao PDR, Nepal and Mongolia seem to be

completely out of this process. 7 other LLDCs all located in Central Asia have entered into several

bilateral trade agreements with their neighbors.

21

Table 6: Bilateral Free Trade Agreements between LLDCs (signed and in effect in Oct 2015)

AFG ARM AZE BHU KAZ KYR LAO MON NEP TAJ TUR

AFG

ARM

X X

X X

AZE

X

X

BHU

KAZ

X X

X

KYR

X

X

X

LAO

MON

NEP

TAJ

X

X

TUR

X X

UZB

X

X X

X

Source: Asian Development Bank. Available from https://aric.adb.org/fta-country, accessed 2 November 2015

D. Free Trade agreements

In the sphere of sub-regional multilateral free trade agreements, only Lao PDR seems to be out of the

four FTAs listed in table 7, perhaps reflecting its geographical location. Other LLDCs have entered into

multilateral free trade agreements with and among each other within their respective sub-regional

arrangements.

Table 7: Multilateral Free Trade Agreements between LLDCs

OIC: Trade Preferential

System of the

Organization of the

Islamic Conference

SAFTA: South Asian Free Trade

Area

CIS: Commonwealth of

Independent States Free

Trade Area

ECOTA: Economic Cooperation

Organization Trade

Agreement.

X: signed and in effect; *: signed but not yet in effect.

Source: Asian Development Bank, Available from https://aric.adb.org/fta-country, accessed 2 November 2015

OIC SAFTA CIS ECOTA

Afghanistan * X

*

Armenia

X

Azerbaijan *

X

Bhutan

X

Kazakhstan *

X

Kyrgyz Republic *

X

Lao PDR

Mongolia

Nepal

X

Tajikistan *

X *

Turkmenistan *

Uzbekistan *

X

https://aric.adb.org/fta-country

22

Asian LLDCs also have FTAs with other countries outside the sub-regional groupings. In fact for most

of them, FTAs with other countries and other sub-regional arrangements outweigh intra-LLDCs FTAs.

For instance, Armenia has a total of 9 FTAs, Azerbaijan 10, Kazakhstan 14, Kyrgyzstan 9, Lao PDR 10,

Mongolia 1 (with Japan), Nepal 3, Tajikistan 9, Turkmenistan 5 and Uzbekistan 1013. These FTAs do not

have the same degree of impact on exports and imports and therefore on transit trade covered under

them. Figure 5 captures the export-import patterns.

Figure 5: Average share of FTA partners* in merchandise exports and imports for Asian LLDCs,

2011-2014

*FTA partners include signatories of Free Trade Agreements and Conventions signed and in effect and treaties

signed but not yet in effect as of 27 November 2015.

Source: UNCTAD, Statistics. Accessed on 26 November 2015.

At one end, there are Bhutan, Lao PDR and Nepal (and to some extent Afghanistan) who trade mostly

with their FTA partners who are also their immediate neighbors. In case of Bhutan and Lao PDR, their

predominant dependence on the export of energy resources to single countries also reflect this extreme

position. On the other hand, Azerbaijan, Kazakhstan and Turkmenistan export 20 percent or less of their

merchandize goods to FTA partners. This would imply that it is often cheaper and easier for some of the

major LLDCs to trade outside their own sub-regional groupings or with each other.

13

Asian Development Bank, Asian Regional Integration Centre. Available from http://aric.adb.org/fta-country.

Accessed on 21 November 2015

http://aric.adb.org/fta-country

23

E. Way Forward

International conventions and agreements and regional and bilateral facilitation agreements form

valuable building blocks in realizing the potential of the LLDCs in achieving international

competiveness through transit trade. Recognizing that, LLDCs have acceded to most of the relevant

international conventions and agreements and have begun to play a more active role in the regional and

bilateral agreements including the free trade agreements. They have undertaken reforms of their

domestic trade and investment policies to make these compatible with international conventions and

agreements or at least be complementary to those.

As highlighted in this section, there is need to streamline the international conventions and regional and

bilateral agreements as there have been a proliferation of such agreements over the last few decades.

They have varying coverage, and as these take years to negotiate and implement, the initial conditions

on which such agreements have been predicated might have changed, making them less useful and

attractive to the LLDCs. Promotion of simplified formalities and procedures has also been identified as a

priority area in the VPoA as LLDCs face numerous formalities and cumbersome procedures that are

required to be completed at origin and during transit, thereby increasing the cost of imports and exports

from the landlocked countries and reducing their competiveness. LLDCs would need increased financial

and technical support from their development partners in improving their national capacities in better

utilizing these international conventions and agreements. Technical assistance could also be offered to

undertake country-specific studies to formulate concrete policy measures in further enhancing the

participation of the LLDCs in regional and bilateral agreements and benefiting from those arrangements

in deepening their trade and transport links with their transit countries. Non-physical barriers to transit

trade such as cumbersome customs regulations and border crossing procedures would also need to be

addressed so that LLDCs can realize their full trade potential.

24

4. STATUS OF CUSTOMS AND BORDER PROCEDURES,

HARMONIZATION OF POLICIES AND BORDER CROSSING

PROCEDURES AND INSTITUTIONS

Significant efforts have gone into effective implementation of United Nations and other relevant

international conventions, agreements and international legal instruments related to transport and transit

facilitation. It is well recognized that accession to the international conventions, agreements and

frameworks is the first step in harmonizing and simplifying transit formalities and procedures for

international movement of goods, vehicles and people.

The LLDCs and their development partners have undertaken some major initiatives during the decade to

simplify formalities and procedures, including through customs cooperation components of such trade

facilitation programmes as CAREC. These efforts reflect LLDC’s desire to implement the key

provisions of the International Convention on the Harmonization of Frontier Control of Goods (1982)

and other relevant instruments dealing with harmonization of customs and border policies and border

crossing procedures and institutions. Once it comes to force, the implementation of the WTO Trade

Facilitation Agreement will further assist in simplifying border procedures and harmonizing policies.

Most of the Asian LLDCs have also acceded to the Customs Convention on the International Transport

of Goods (TIR Convention 1975) which is perhaps the most comprehensive convention and constitutes

the most universal customs transit system. There are 68 Contracting parties, including 9 Asian LLDCs.14

The TIR Convention has over the years contributed significantly in facilitating cross-border carriage of

goods from one or more customs offices of one country to the customs offices in the destination country.

A. Simplification and harmonization of customs and border

crossing procedures

Accession to international conventions, multilateral agreements and sub-regional frameworks do not

guarantee smooth transit trade and transport. A plethora of formalities and complicated multi-layered

rules and regulations significantly increase costs of transit trade and therefore discourage transit

transport and transit trade. Despite the efforts of LLDCs, transit neighbors and their development

partners, transit transport and cross border movement of goods and services continue to face a complex

set of legal, institutional and cross-border challenges. These include inconsistent, cumbersome and

complicated, sometimes overlapping and multi-layered border-crossing formalities and procedures and

non-transparent rules and regulations. LLDCs and their development partners have recognized that non-

physical barriers are increasingly becoming one of the most critical bottlenecks in promoting transit

trade and benefiting from the region’s trade and investment flows. They have recognized the importance

of eliminating or reducing these barriers including the inordinate waiting times at border crossing points

and the multiple check points by streamlining and simplifying customs formalities and procedures.

Although many initiatives have been taken by the UN and other stakeholders to streamline and simplify

these formalities and procedures in line with the recommendations contained in the VPoA, challenges

continue to persist for the Asian LLDCs and their development partners.

14

Afghanistan, Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan and Uzbekistan.

25

Key transit barriers

Following the World Bank15

categorization, these transit barriers/gaps can be summarized as follows:

Hard physical infrastructure

Complete lack of physical infrastructure connectivity/transit corridors

Gaps/missing rail/road links

Poor or lack of maintenance of existing road/rail links

Incompatibility between national road/rail systems, i.e. broad vs. narrow gauge

Obsolete technologies, including information and communication technology

Soft infrastructure

Different legal frameworks or major incompatibility

Weak coordination among regulatory authorities tasked with implementing rules and

regulations

Underdeveloped coordinated border management and/or single window arrangements

Lack of trained human resources and skilled professionals in cross-border road transport

operations

Non-compliance with conventions to which the countries are parties

Lack or slow implementation of regional and sub-regional agreements

Procedures serving corridors

Cumbersome and large numbers of documents

Lack of appropriate guarantee system and risk management

Lack of data harmonization among border services

Frequent inspections by different authorities

Different technical standards including vehicle weights and dimensions

Complex insurance arrangements for vehicles

Exorbitant charges for entry or transit, sometimes at multiple points

Different traffic regulations including variation in signals

Restricted use of domestic routes and operations by foreign carriers including short validity

of transport permits

Inflexible and restricted visa requirements for driver and crew

Different working hours at border crossing points

Different locations of various control stations

Excessively high cash (bond) deposit for transit of goods

Stringent requirements for movements of transport vehicles

15

World Bank, 2014

26

Regional and sub-regional initiatives in addressing the transit barriers

LLDCs and their transit neighbors and development partners have addressed many of these challenges

through several regional and sub-regional initiatives such as the Asian Highway Network, the Regional

Action Programme (RAP), the Trans-Asian Railway Network, the Singapore-Kunming Rail Link

(SKRL), and the Central Asia Regional Economic Cooperation (CAREC) programme of the ADB that

has supported the construction of six efficient land transport corridors linking Central, East and South

Asia with the Middle East and Europe, and the most recent Bangladesh-Bhutan-India-Nepal

transport/transit initiative. Various regional initiatives in developing dry ports, strengthen ICT

infrastructure and the creation of a seamless broadband connectivity across the Asia-Pacific region

including the LLDCs, and support provided to the regional LLDCs to develop their information and

communications technology (ICT) connectivity have gone a long way in ameliorating some of the

critical transit constraints faced by the Asian LLDCs.

UNECE and ESCAP are promoting in the establishment of an Electronic TIR Customs Transit System

(eTIR) which is expected to greatly simplify transit formalities and procedures. The initiative recognizes

that over forty years TIR has become an effective platform for facilitating international trade and transit.

With the revolutionary advances in information and communication technologies, the potential of TIR as

a facilitation tool have multiplied. UNECE and ESCAP have continued to support the countries of the

region including the LLDCs in applying IT solutions in implementing the five pillars of TIR Customs

Transit System: secure vehicles or containers, international guarantee, TIR Carnet, mutual recognition of

customs control, and controlled access.

UNECE and ESCAP are also implementing a Single Window system to facilitate trade, simplify

procedures and introduce electronic business platforms. Several Asian LLDCs are participating in this

initiative which is expected to lead to automation of information that manages the flow of goods across

national borders. Application of platforms such as this can significantly contribute to streamlining and

harmonizing the customs procedures and formalities and minimizing costs of trade and improving

efficiency and competitiveness of LLDCs’ exports. ASEAN is also very active in promoting Single

Window as a means for coordinating border management and facilitating trade amongst its members

including Lao PDR, the sole LLDC in this group.

Another initiative is the CAREC Joint Customs controls programme that is aimed at promoting customs

cooperation among the participating countries, mostly the Asian LLDCs. Cooperation among and

between customs authorities has been seen as the first step towards the formation of a Single Window

for customs clearance and trade facilitation. In the CAREC programme, the participating countries are

implementing a border crossing point improvement and single window development project in the sub-

region with the aim of supporting National Single Windows (NSWs) and developing a regional platform

for networking of NSWs through the participation of the private sector. A CAREC study found that the

introduction and increased use of joint customs manifests have reduced customs clearance time by 35

percent16

.

16

CAREC, 2010. Page 4, para 25

27

The Regional Single Window for ASEAN Connectivity is another initiative designed to expedite cargo

clearance as part of the ASEAN Economic Integration initiative among its member States. Members of

ASEAN have followed a strategy of establishing sub regional cross border transport agreements to

manage their transit trade, for instance, the Association of Southeast Asian nations (ASEAN)

Framework Agreement on Facilitation of Goods in Transit. This agreement calls for, among others, the

establishment of border crossing posts adjacent to each other (one stop border posts) to facilitate joint

loading and unloading of goods and joint inspection of such goods in transit. Lao PDR, the only LLDC

in this group, has entered into a separate bilateral agreement with its transit country Thailand which has

proven to be highly effective in managing its transit trade.

The GMS Agreement for Facilitation of Cross-border Transport of Goods and People also promotes

simplifying and expediting border formalities by having a single-stop border inspection for goods and

people. It calls for the adoption of measures to conduct simultaneous and joint inspections of goods and

people by concerned authorities such as the customs, immigration, health, agriculture and trade. The

agreement allows for national authorities of adjacent countries to conduct joint and simultaneous

inspections with the provision that, in cases where countries do not have adjacent border crossing posts,

officials of one country be allowed to travel to another adjacent country.

In South Asia, India is implementing the Integrated Check Post (ICP) initiative. Under this project,

infrastructure will be upgraded to speed up border crossing procedures and processes with the setting up

of ICPs at four locations along India-Nepal border. Each ICP will house all the regulatory agencies such

as immigration, customs, health and border security, and offer an integrated package of facilities such as

banking, hotels, parking and warehousing. Similar facilities will be developed on Nepal’s side of the

border.

Several LLDCs have come together in a regional dialogue to promote joint customs controls and many

of them have succeeded in establishing joint customs controls. Kazakhstan has joint customs controls

with China, Kyrgyzstan and Russian Federation. One initiative that countries in the region have taken

for implementing joint customs controls is to promote the use of unified cargo manifest, involving China

(Dulata)/ Kazakhstan (Kalzhat), Kazakhstan/Kyrgyzstan and Mongolia/China borders.

B. World Trade Organization Trade Facilitation Agreement (WTO

TFA): a platform for removing/reducing non-physical barriers

WTO’s Trade Facilitation Agreement is a powerful platform for streamlining customs administrations,

harmonizing policies and border-crossing procedures and bring about transparency and accountability in

transit trade. WTO TFA implementation will become the new vehicle for reducing trade costs. The WTO

TFA provides for the expeditious movement, release and clearance of goods including those in transit. It

embodies specific measures for ensuring effective cooperation between customs and other relevant

authorities on trade facilitation and customs procedures. Once in force, TFA can be accessed for securing

technical assistance and capacity building support in trade facilitation. The Trade Facilitation Agreement

facility was launched by WTO in July 2014 to assist LDCs and other developing countries in

implementing the WTO TFA. LLDCs stand to gain significantly once the Agreement comes into force

and therefore those LLDCs which have not yet sent their Category A notifications should do so and

move rapidly to ratify the Agreement.

28

C. Need for coordinated border management

Excessive delays at border crossings have been identified as one of the most intractable challenges faced

by the LLDCs of the region. A general lack of coordination and cooperation between border agencies is

at the heart of these delays. Different mandates and lack of information on each other’s duties and

responsibilities contribute to this lack of coordination and cooperation. When multiple agencies

intervene, delays become inevitable with attendant increases in costs. Border waiting times can account

for as much as 40 percent of time lost during transport. If corrupt practices are added to that, transport

costs can add up by as much as 30 percent. It has been suggested that an effective coordinated border

management system should address two dimensions17. First, an integrated risk management system

should be developed and implemented which addresses all the concerns of all the agencies. Such a

system can expedite border crossings by bringing all interventions under one framework. Second,

greater cooperation with neighboring countries in sharing information and institution of joint controls at

border crossings which can eliminate or reduce duplication of processes and procedures. An effective

coordinated border management system would also require high degree of cooperation and coordination

among relevant national entities.

D. Methodologies for overcoming physical/technical barriers in

transit trade and transit infrastructure

Overcoming physical/technical/operational barriers have proven to be a challenging task for the LLDCs

and their development partners. Several attempts have been made by ESCAP and other UN bodies and

funding agencies to develop methodologies and specific models for control authorities to address and

overcome these barriers. These models include Secure Cross-Border Transport Model, designed for the

development of vehicle tracking system using new forms of technologies. The Efficient Cross-border

Transport Model, a model for identifying non-physical barriers, evaluating alternative options and

providing optimal solutions in a given context on integrated control at border crossings. Another model

is the Time/Cost-Distance methodology (TCD) designed to find bottlenecks along the transport

corridors. The Model on Integrated Control at Border Crossings provides a methodology for identifying

ways in which the flow of information equipment at border crossings can be streamlined. These models

are expected to provide a complete package of tools for the control authorities to promote seamless

international road transport. In partnership with ADB, ESCAP is conducting a feasibility study for the

pilot implementation of its secure cross border transport model on the Bhutan-India transit corridor.

Successful implementation of this pilot project is expected to reduce transit time and associated transport

costs. The model is also expected to improve predictability of cargo vehicle movements, reduce

congestions at crossing points, and rationalize international movements of goods.

While these models are useful tools for facilitating transit trade, there is need for carrying out regular

and systematic export-import process analysis at product level or along specific border crossing points to

obtain better understanding about the precise nature of non-physical barriers and suggest measures that

17

See Jain, 2012, for a more detailed discussion

29

can be adopted to remove those barriers. LLDCs should in cooperation with their development partners

conduct such studies periodically to better inform their decisions on removing the transit barriers and

reducing trade costs. LLDCs should also develop or strengthen trade and transport facilitation

mechanisms in an integrated manner as part of their effort to secure larger shares of global and regional

trade.

E. Country examples in the implementation of facilitation

measures

Available information from the World Bank18

suggests that the Asian LLDCs have made good progress

in implementing trade and transit facilitation measures. As set by the VPoA, many of them namely

Armenia, Azerbaijan, Bhutan, Kazakhstan, Lao PDR, Nepal, Mongolia and Tajikistan have reduced the

time required to complete international trade transactions. Azerbaijan has reduced the time required for

processing exports from 69 days in 2006 to 38 days in 2012 and Lao PDR has reduced the time required

to process export formalities from 66 days in 2006 to 26 days in 2012. Azerbaijan and Kyrgyzstan cut

down the number of documents required to process exports from 18 to 8 during the same period.

Many LLDCs have applied information and technology solutions to improve their trade portals, stream

line their customs procedures, reduce paper work and improve their international trade. Azerbaijan in

2008 designated its State Customs Committee to serve as the focal point for implementing a single

window facility for border operation. By 2009, single window facilities became operational at the

country’s customs border check points. Bhutan instituted the Bhutan Automated Customs System,

leading to speedy clearance of goods at its border points. Kazakhstan Customs Authority has introduced

several measures to speed up customs processing procedures including a system for electronic

declaration and modernization of its customs information and management system. Kyrgyzstan has set

up the Single Window Center for Foreign Trade in its Ministry of Economy. Lao PDR is implementing

its Trade Facilitation Strategic Plan (2011-2015). The country has begun the operation of an E-Customs

Automated System for Customs Data (ASYCUDA) at its main border post. Nepal is already using

ASYCUDA at its 13 customs offices. Mongolia has drawn up and the Government has endorsed a

master plan on a national single window system.

Several LLDCs are now active participants in ESCAP’s paperless trade facilitation initiative. ESCAP,

ADB and World Bank either jointly or collaboratively are providing assistance to the LLDCs in utilizing

trade facilitation services that are being provided by them, including ESCAP-World Bank Trade Cost

data base and the ESCAP/ADB Trade and Transport Facilitation Monitoring Mechanism (TTFMM). A

recent survey conducted by ESCAP and reported in its annual trade and investment report 201519

indicates that although significant progress has been made by several LLDCs in improving and

harmonizing their customs administrations and border crossing procedures and applying IT solutions

including introduction of paperless trade and implementation of single window environment, the LLDCs

as a group have fared less favorably than the Asian region as a whole. Looking at the overall

implementation of trade facilitation measures20

in 44 Asia-Pacific countries, North and Central Asia21

18

World Bank Group, Doing Business, database 19

ESCAP, 2015d 20

31 trade facilitation and paperless trade measures grouped under transparency, formalities, institutional

arrangement and cooperation, paperless trade, and cross-border paperless trade

30

scored an implementation rate of 41.5 percent, the regional average being 44.5 percent, indicating

significant scope for improving LLDCs’ trade performance.

F. Way Forward

Trade and transport barriers have significantly increased trade and transactions cost of LLDCs and

reduced their ability to access neighboring and other promising markets. These barriers have also

discouraged investment in integrated transit infrastructure development projects and programs. LLDCs

need to be supported by the international community including the international, regional and sub-

regional organizations and financial institutions, to improve the quality and efficiency of international

transit transport systems and address these constraints and barriers in a more coordinated manner.

Although progress has been made in overcoming some of the above mentioned constraints through a

range of facilitation initiatives such as the WTO TFA, AfT, trade and facilitation components of CAREC

and ASEAN, a more coherent and synchronized approach is needed. OHRLLS also need to strengthen

its advocacy work based on country-specific studies and best practice examples.

Most of the regional agreements aim to be implemented within five to ten years but, as mentioned

above, given the dynamic nature of Asia and the Pacific region, the time frames are just too long. At the

country level, even with best of intentions, it is sometimes very challenging to achieve the desired

degree of coordination between concerned Ministries/Departments and synchronize their activities with

the priorities of the legislative authorities who must at the end ratify the agreements. There is urgent

need for building capacities of trade and transport-related institutions in the LLDCs so that these

institutions can effectively coordinate and synchronize their efforts at the country level.

Overlapping geographical scope create legal complications in implementing international and sub-

regional conventions and agreements, particularly for those LLDCs which participate in multiple

agreements and frameworks, making the task of harmonizing the rules and procedures quite challenging.

Some of the efforts of the international and sub-regional organizations have therefore been devoted

towards exchanging information and creating awareness, and achieving better coordination between line

Ministries/Departments, and offering options for resolving legal conflicts. These efforts need to be

strengthened particularly in ensuring the effective participation of the LLDCs in international processes

to harmonize and amend these agreements, conventions and frameworks.

As can be seen, there has been a proliferation of international conventions, and multilateral, regional,

sub-regional and bilateral agreements and frameworks to promote transit cooperation, enhance

infrastructure development and boost trade. The success so far achieved has been uneven with some

agreements and frameworks working effectively in promoting transit cooperation, trade facilitation and

spurring infrastructure development whereas many others have been less effective in achieving their

stated goals. One of the key gaps holding back the full utilization of these agreements and frameworks

has been the inadequate supply of the required “hardware”: both domestic infrastructure as well as

transit infrastructure.

21

Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Russian Federation, Tajikistan and Uzbekistan

31

32

5. STATUS OF TRANSIT INFRASTRUCTURE DEVELOPMENT

Parallel to acceding to the international legal frameworks and instituting and implementing effective

measures to remove institutional and legal barriers and harmonization of policies and customs and

border crossing procedures, the Asian LLDCs and their development partners have adopted a wide range

of policies to promote investments in infrastructure including transit infrastructure. Infrastructure

development and maintenance constitutes one of the six priorities of the VPoA. In keeping with that

priority, LLDCs have initiated a large number of projects and programs in promoting transit

infrastructure development and overcoming the constraints to transit transport and cross-border

movement of goods and services. They have also adopted a wide range of facilitation initiatives.

Development of roads and railways, and more recently, dry ports and air links, have received most of the

priority attention for facilitating cross-border trade and transit transport. However, as the analysis

presented in this Section shows, more needs to be done to significantly boost investment and reduce the

various inefficiencies associated with “doing business”, reducing trade costs and improving trade and

transit transport related infrastructure including transport logistics and support systems. Greater regional

cooperation in a number of areas including regional and sub-regional efforts in significantly increased

investment in infrastructure development is therefore vitally and urgently needed.

A. Quality of trade and transport related infrastructure

World Bank’s Logistics Performance, as illustrated in Table 8 and Figure 6, is an important measure of

trade and transport related infrastructure which is a weighted average of the country’s scores on six key

dimensions, namely (1) Efficiency of the clearance process (i.e., speed, simplicity and predictability of

formalities) by border control agencies, including customs; (2) Quality of trade and transport related

infrastructure (e.g., ports, railroads, roads, information technology); (3) Ease of arranging competitively

priced shipments; (4) Competence and quality of logistics services (e.g., transport operators, customs

brokers); (5) Ability to track and trace consignments; and (6) Timeliness of shipments in reaching

destination within the scheduled or expected delivery time.

The scorecards demonstrate comparative performance—the dimensions show on a scale (lowest score to

highest score) from 1 to 5 relevant to the possible comparison groups—of all countries (world), region

and income groups. There is not a single LLDC which has a single digit performance indicator. In fact

except Armenia and Kazakhstan, almost all are at the very bottom of the overall ranking.

The World Bank 2014 survey22

of logistic professionals shows some improvement of the logistics

performance indicators as judged by transport and logistics professionals. But the Asian LLDCs as a

whole still continue to lag behind international standards. In comparison to other sub-regions, the

infrastructure ratings of the Asian LLDCs on average are below the world’s average value with some

individual LLDCs reporting better results. In this survey, rail infrastructure fares less favorably with that

of port and road infrastructure. The great distances that rail transport needs to cover to connect to the

maritime ports would have implied that there was significant scope for economies of scale thereby

bringing costs down and keeping the quality to a minimum standard. Clearly, this is not happening. This

finding points to an opportunity as well: room for significantly increased investment in the railway

22

World Bank, 2014

33

systems of the LLDCs and their transit neighbors to improve their efficiency and standard of service. A

somewhat similar kind of information is revealed by the Global Economic Forum’s competiveness

report23

which confirms the extreme difficulties faced by the Asian LLDCs in developing and

maintaining the quality of their road, rail, port and air infrastructure.

Table 8: Quality of trade and transport related infrastructure in the LLDCs as measured by

World Banks’ Logistic Performance Index (LPI)

2007 2010 2012 2014 Δ* in % Overall LPI

Ranking (2014)

Azerbaijan 2.00 2.23 2.42 2.71 35.71 125.00

Kazakhstan 1.86 2.66 2.60 2.38 28.12 88.00

Armenia 1.78 2.32 2.38 2.38 33.43 92.00

Tajikistan 2.00 2.00 2.03 2.36 18.20 114.00

Mongolia 1.92 1.94 2.22 2.29 19.12 135.00

Nepal 1.77 1.80 1.87 2.26 27.76 105.00

Lao PDR 2.00 1.95 2.40 2.21 10.31 131.00

Bhutan 1.95 1.83 2.29 2.18 11.93 143.00

Turkmenistan .. 2.24 .. 2.06 -7.84 140.00

Kyrgyz Republic 2.06 2.09 2.49 2.05 -0.68 149.00

Uzbekistan 2.00 2.54 2.25 2.01 0.56 129.00

Afghanistan 1.10 1.87 2.00 1.82 65.36 158.00

* Variation compared to the oldest data available.

LPI24

2014 ranks 160 countries on six dimensions of trade -- including customs performance, infrastructure

quality, and timeliness of shipments -- that have increasingly been recognized as important to development. The

data used in the ranking comes from a survey of logistics professionals who are asked questions about the foreign

countries in which they operate.

Sources: World Bank, World Development Indicators

23

World Economic Forum, 2013

24 The components analyzed in the International LPI were chosen based on recent theoretical and empirical research and on

the practical experience of logistics professionals involved in international freight forwarding. These are:

• the efficiency of customs and border management clearance (“Customs”).

• The quality of trade and transport infrastructure (“Infrastructure”).

• The ease of arranging competitively priced shipments (“Ease of arranging shipments”).

• The competence and quality of logistics services—trucking, forwarding, and customs brokerage (“Quality of logistics

services”).

• The ability to track and trace consignments (“Tracking and tracing”).

• The frequency with which shipments reach consignees within scheduled or expected delivery times (“Timeliness”).

The LPI uses standard statistical techniques to aggregate the data into a single indicator that can be used for cross-country

comparisons.

34

The World Bank 2014 survey25 of logistic professionals shows some improvement of the logistics

performance indicators as judged by transport and logistics professionals. But the Asian LLDCs as a

whole still continue to lag behind international standards. In comparison to other sub-regions, the

infrastructure ratings of the Asian LLDCs on average are below the world’s average value with some

individual LLDCs reporting better results. In this survey, rail infrastructure fares less favorably with that

of port and road infrastructure. The great distances that rail transport needs to cover to connect to the

maritime ports would have implied that there was significant scope for economies of scale thereby

bringing costs down and keeping the quality to a minimum standard. Clearly, this is not happening. This

finding points to an opportunity as well: room for significantly increased investment in the railway

systems of the LLDCs and their transit neighbors to improve their efficiency and standard of service. A

somewhat similar kind of information is revealed by the Global Economic Forum’s competiveness

report 26 which confirms the extreme difficulties faced by the Asian LLDCs in developing and

maintaining the quality of their road, rail, port and air infrastructure.

Figure 6: Quality of trade and transport related infrastructure based on the LPI of the Asian

LLDCs: 2007 to 2014

Sources: World Bank, Logistics Performance Index, International LPI> Global Ranking; World Bank, World

Development Indicators; Accessed on 2 November 2015

World Bank in its latest Doing Business 2016 report points out an important element which inhibits

transit trade in some of the Asian LLDCs: trading across borders. Trading across borders is particularly

difficult for most of the Asian LLDCs, with rankings ranging from 21 for Bhutan to 132 for Tajikistan,

25

World Bank, 2014 26

World Economic Forum, 2013

35

159 for Uzbekistan and 172 for Afghanistan (Table 9). For most of the LLDCs, the situation calls for

urgent policy attention in removing the constraints in trading across borders.

Table 9: Ease of doing business ranking, new methodology27

Source: World Bank Group, 2016

B. Transport/economic corridors approach in transit

infrastructure development

In recent years, establishment of transport/economic corridors have found favour with Governments, and

international organizations and multilateral funds and programmes. Establishment of such corridors lead

to economic and social development in the surrounding areas as people and businesses are drawn to

them, stimulating growth, job creation, and linear formation of agglomeration. As envisaged in the

VPoA, LLDCs and their development partners have by and large recognized the potential benefits of

transforming transport corridors into development corridors. However, much more needs to be done, and

LLDCs would continue to require international support including from the multilateral financial

institutions in realizing that potential.

27

Note: In the new methodology, the following variables continue to be covered: Procedures, time, cost and paid-in

minimum capital to start a business ; Procedures, time and cost to complete all formalities to build a warehouse ; Procedures,

time and cost to get connected to the electrical grid ; Procedures, time and cost to transfer a property ; Movable collateral

laws and credit information systems ; Minority shareholders’ rights in related-party transactions and in corporate

Governance ; Payments, time and total tax rate for a firm to comply with all tax regulations ; Time and cost to resolve a

commercial dispute ; Time, cost, outcome and recovery rate for a commercial insolvency and strength of the legal framework

for insolvency. Additionally, the following variables have been added: Quality of building regulation and its implementation;

Reliability of electricity supply, transparency of tariffs and price of electricity; Quality of the land administration system;

Quality of judicial processes changes; Time and cost to export the product of comparative advantage and import auto parts.

36

Two of the most important transport corridors for the Asian LLDCs are the Central Asian Regional

Economic Cooperation (CAREC) corridors and the Euro-Asian Transport Links (EATL).

Under the CAREC initiative, 19,200 km corridor roads have been brought to good condition by 201328.

The length of the expressways and highways totaling 1312 kms have been upgraded by 2013. The

Refined Transport and Trade Facilitation Strategy 2020 envisions extending 6 original CAREC corridors

to 29,350 km by 2020 from the target of 24,000 km set for 2017. The number of CAREC projects has

grown significantly from 6 projects in 2001 to 166 in 2015. The 6 CAREC road corridors connect the

region’s economic hubs with each other and with Eurasian and global markets. There has been a

significant increase in transit trade between CAREC countries and other regions. Each corridor increases

access to two of the biggest markets for the LLDCs: Europe and East Asia. Establishment of corridors is

necessary but not sufficient in prompting transit trade. Harmonization of trade and transport policies and

processes and simplification of customs and border crossing procedures are also needed to facilitate

movement of goods and people and fully leverage the benefits of road corridors.

The 6 corridors connect the participating LLDCs with important markets as follows:

Corridor 1: Links Europe and East Asia through Russian Federation, Kazakhstan and Kyrgyzstan.

Corridor 2: Connects the Caucuses and the Mediterranean to East Asia, covering Azerbaijan,

Kazakhstan, Turkmenistan, Uzbekistan, Tajikistan, Kyrgyzstan and China.

Corridor 3: Connects Russian Federation with the Middle East and South Asia, going through

Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan.

Corridor 4: Links Russian Federation with Asia through Mongolia and China.

Corridor 5: Links East Asia with the Middle East and South Asia through China, Kyrgyzstan, Tajikistan

and Afghanistan.

Corridor 6: Links Europe and Russian Federation, going through Afghanistan, Kazakhstan, Tajikistan

and Uzbekistan.

Under the EATL initiative29, support has been provided in 3 Phases. The initiative was launched jointly

by UNECE and UNESCAP with Phase I (2002-2007) which focused on identifying main Euro-Asian

road and rail projects for priority development and cooperation. The results of this exercise were

compiled and vetted by an Expert Group and contained in the EATL Study. Phase II (2008-2013) was

coordinated by UNECE. The expert Group identified 9 rail and road corridors that would link Europe

and Asia. The participating countries prepared 311 projects with a total outlay of US$215 billion. Phase

III (2013-2015), coordinated by UNECE, aims at making the EATL overland links operational. This

Phase focuses on coordination and financing of the infrastructure projects as well as removing

administrative and physical barriers to overland transit transport between Asia and Europe.

C. Network approach to road and rail infrastructure

28

Information provided here is based on http://carecprogram.org/. Accessed on 24 November 2015. 29

Information provided here is based on Economic Commission for Europe, “Euro-Asian Link”. Accessed on 24

November 2015

37

There have been continuing efforts by the LLDCs and their multilateral, regional and sub-regional

partners to address the infrastructure and transit issues by greater participation in the region’s integrated

transit transport infrastructure. One of the earliest attempts to create a seam-less system of road

infrastructure and improve the quality of road infrastructure in the region was the ESCAP initiative on

the Asian Highway Network. Starting with a modest beginning, this network has now emerged as a

major regional cooperation initiative that has helped to transform the region’s economies, many of them

being LLDCs. Similar initiatives and responses to the infrastructure gaps have emerged during the last

few decades under the frameworks of multi-lateral agreements between governments such as the recent

Bangladesh-Bhutan-India-Nepal (BBIN) road transport transit framework or within the frameworks of

regional or sub-regional funds and inter-governmental organizations such as the Asian Development

Bank (ADB), the Association of South-East Asian Nations (ASEAN), the Economic Cooperation

Organization (ECO) and the South Asian Association for Regional Cooperation (SAARC).

Asian Highway Network

Among these key players, ESCAP has offered its assistance to the LLDCs through the work done by the

Working Groups on the Asian Highway Network and Trans-Asian Railway Network. It has also used its

intergovernmental process in promoting dry ports development and information and communication and

energy development in the Asian LLDCs. So far, 29 countries have become signatory to the

Intergovernmental Agreement on the Asian Highway Network. Of them, 11 are LLDCs. It now covers

142,000 kms of roads, connecting 32 countries in the region. Table 9 shows the distribution of highway

routes and rail lines in the 12 Asian LLDCs. Kazakhstan with 12, 828 kms of highway routes occupies

the top position, partly reflecting its vast physical size. Bhutan, the smallest LLDC in size have 170 kms

of highway routes, also reflecting its difficult terrain and it has no railway link yet.

Table 10: Existing Highway Routes and Rail Lines in Asian LLDCs

Highway routes km* Rail lines km**

Afghanistan 4,020.00 ..

Armenia 966.00 826.00

Azerbaijan 1,464.50 2,068.00

Bhutan 170.00 ..

Kazakhstan 12,828.00 14,319.00

Kyrgyz Republic 1,763.00 417.00

Lao PDR 2,857.00 ..

Mongolia 4,318.10 1,818.00

Nepal 1,313.00 ..

Tajikistan 1,912.00 621.00

Turkmenistan 2,204.00 3,115.00

Uzbekistan 2,966.00 4,192.00

* For the date of the data, see table 11 below. ** All data are from 2012.

Sources: ESCAP, 2015 and World Bank, World Development Indicators

38

But the quality of their road transport remains a matter of significant concern. Table 11 shows the

situation, updated over the years. Only 9 percent of the highway routes can be considered to be of Class

1 category. Some 58 percent fall below Class III category, indicating the enormous scope to invest and

improve this vital component of transport and transit infrastructure in these countries.

Table 11: Status of Asian Highway routes in Asian LLDCs

Primary Class I Class II Class III

Below

Class III Total

Status

(Year)*

Afghanistan 0 10 2,549 0 1,461 4,020 2015

Armenia 0 147 721 58 40 966 2013

Azerbaijan 0 291 1,174 0 0 1,465 2013

Bhutan 0 7 116 0 47 170 2015

Kazakhstan 0 557 5,407 6,389 475 12,828 2010

Kyrgyz Republic 0 0 303 1,324 136 1,763 2013

Lao PDR 0 0 244 2,307 306 2,857 2010

Mongolia 0 8 1,702 158 2,450 4,318 2013

Nepal 0 0 218 1,082 13 1,313 2013

Tajikistan 0 20 978 0 914 1,912 2015

Turkmenistan 0 60 0 2,120 24 2,204 2008

Uzbekistan 0 1,195 1,101 670 0 2,966 2008

Total 0 2,295 14,513 14,108 5,866 36,782

Total in ESCAP member

states** 15,657 25,392 52,435 24,396 10,148 128,027

% in ESCAP LLDCs

member states 0% 9% 28% 58% 58% 29%

* The year the data was received by ESCAP

** This data does not include approximately 15,400 km of potential Asian Highway routes.

Source: ESCAP, Status of the Asian Highway in Member Countries. Accessed on 30 October, 2015.

39

The economic consequences of having below internationally recognized standards have been mounting.

The LLDCs have missed the successive waves of global expansion of trade and investment and have

failed to capitalize on growth and economic integration that have been successfully captured by other

developing countries of the region due to the poor road infrastructure. Consequently, distant

international markets have remained out of the reach of most of the LLDCs. The human costs of low

quality of roads have also been on the rise with increased road fatalities in many of the LLDCs. WHO

estimates indicate that, of the total number of global road fatalities, most occur in the low to middle

income countries including in the LLDCs.

Trans-Asian Railway Network

Railways play a vital role in connecting markets and people. Railways also tend to be less

environmentally damaging, a key feature supportive of promoting the objectives of the SDGs. Railways

have great potential particularly for those LLDCs which are located far from sea ports and maritime

trading routes to boost their trade and investment prospects. It has significant comparative advantages

over other modes particularly in covering long distances as marginal costs keep declining with increases

in distances travelled. For some cities in several LLDCs, the nearest ports are far away (Table 12),

making a strong case for investing in new and improved railway systems and completing and upgrading

the existing ones. As most of the Central Asian LLDCs are also primarily commodity exporters such as

oil and minerals which tend be bulky items, railways are ideally suited to carry those long distances with

significantly reduced transport costs and minimal impact on the environment.

Table 12: Estimated distances from capital cities of selected LLDCs to main maritime ports (km)

Lianyungang (China)

Saint Petersburg

(Russian Federation)

Vostochny

(Russian Federation)

Ashgabat 7,300 4,800 10,100

Astana 5,550 3,350 8,300

Bishkek 5,600 4,650 8,350

Dushanbe 7,300 4,450 10,100

Tashkent 6,000 5,550 8,700

Ulaanbaatar 1 700* 6,750 4,500

* Port of Tianjin

Source: ESCAP, Trans-Asian Railway Route Map

On June 11, 2009, the Intergovernmental Agreement on the Trans-Asian Railway Network came into

existence. Some 18 countries have become parties to the Agreement, including Lao People’s Democratic

Republic, Mongolia, Nepal, Tajikistan and Uzbekistan. Armenia, Azerbaijan and Kazakhstan have

signed the Agreement but are yet to become parties to the Agreement. Asian LLDCs and their

development partners are engaged in implementing several projects to improve and modernize their rail

way systems and improve their connectivity with their neighbors and transit countries.

40

D. ICT infrastructure

The VPoA calls on the LLDCs to develop and implement national broadband policies. Available

evidence suggests that most of the Asian LLDCs have adopted such polices. They have experienced

rapid expansion in mobile technology and use of social platforms and a growing number of people have

access to internet and other forms of digital communication technologies. But prices of basic broadband

packages are still very high in many LLDCs particularly in Afghanistan, Lao PDR and Nepal.

Rapid changes in information and communication technologies (ICT) have also opened a new vista of

opportunities for the LLDCs to sharpen their competiveness and increase their participation in global

trade. The key challenge for them is to apply ICT solutions to facilitate and support their transit trade. A

well-functioning ICT infrastructure can significantly improve the international competitiveness of the

LLDCs. ICT solutions can reduce the number of documents needed, improve customs clearance

procedures and formalities, and make border crossings by transport vehicles more efficient and speedy,

tracking transit shipments, all leading to significant reduction in trade costs. Use of e-banking can do

away with the need for paying customs duties and taxes in cash. The growing use of Single Window

facilitation tools and Automated System of Customs Data (ASYCUDA) in the LLDCs have greatly

improved customs clearance and procedures. ICT solutions in the LLDCs have therefore come in the

form of trade facilitation measures which have helped in strengthening customs administration and

harmonizing policies and border crossing procedures. ICT has also become a powerful tool in sharing

data and information among customs authorities on trade and transport-related activities.

E. Access to energy

Recognizing that access to energy is critical for economic growth, industrial development,

manufacturing diversification, running export oriented enterprises and meeting export timelines,

business development and conducting daily communication and trade transactions, LLDCs have adopted

a wide range of policies and projects to ensure energy security to their people and businesses. Results so

far achieved in ensuring access to energy have been mixed with oil and other forms of energy producing

LLDCs doing better than others.

Availability of energy does not ensure its proper utilization by businesses and households. Many LLDCs

suffer from weak and inefficient grid and transmission systems with long delays in securing access to

energy sources such as natural gas and electricity by businesses and households with an adverse impact

on their productivity. Procedures, time and cost to get connected to the electrical grid is an important

variable in doing business in the LLDCs. As seen from previous discussion (Table 9), even the best

performing LLDC _ Bhutan _ has a ranking of 50, followed by Kazakhstan with 77, another energy rich

LLDC. Rest of the LLDCs have rankings upwards of 100. Significant investments would be needed in

energy sectors to upgrade and modernize energy infrastructure in these LLDCs.

F. New developments in transit infrastructure: dry ports

In 2006, the Transport Ministers through the adoption of the Ministerial Declaration on Transport

Development in Asia and the Pacific recognized the growing importance of dry ports in connecting

neighboring countries, improving transit trade and spurring transport infrastructure development. The

41

Declaration was aimed at facilitating the expansion of the Asian Highway and Trans-Asian Railway

networks, and constituted an important step in creating multimodal transport systems in the region and

supporting the LLDCs in creating multiple centers of economic development and hubs with backward

linkages between their domestic markets and neighboring and transit countries. Subsequent

intergovernmental meetings organized by ESCAP and other UN organizations and agencies lent

increasing support to dry ports development as important building blocks in promoting transit trade,

integrating different modes of transport, reducing transit delays and increasing efficiency of cross border

movements of goods and people.

In 2012, the Governments of the region formalized the role of dry ports in the economic development of

the region particularly in transforming landlocked countries into land linked ones by adopting the

Intergovernmental Agreement on Dry Ports, thereby completing the triangular approach to creating an

efficient, integrated, seamless transport system in the region. The Agreement opened for signature in

Bangkok on 7 November 2013 and 14 member countries signed the Agreement, including two LLDCs,

namely: Lao People’s Democratic Republic and Nepal. So far, LLDCs have added 72 existing and

potential dry ports of international importance for development to Annex 1 of the Agreement with

Azerbaijan at the top of the list (Table 13).

Table 13: Number of dry ports

Number of dry ports

Afghanistan 8

Armenia 4

Azerbaijan 21

Bhutan 6

Kazakhstan 5

Kyrgy Republic 2

Lao PDR 9

Mongolia 5

Nepal 5

Tajikistan 7

Turkmenistan ..

Uzbekistan ..

Source: ESCAP, 2013b

In addition to properly functioning physical infrastructure, another key challenge in developing

economically viable dry ports is to have efficient logistics facilities and support systems in place.

Recognizing that, LLDCs have accorded high priority in developing modern facilities or upgrade

existing ones. The “Khorgos-East Gate” free economic area located in the south-east of Kazakhstan and

a kilometer away from Kazakhstan’s border with China is one such example. Expected to be completed

by 2020 at an estimated cost of US$3.5 billion, the project will go a long way in prompting cross border

trade and contribute significantly to regional integration. Similar initiatives have been taken by

Uzbekistan and Nepal. Dry ports in Angren will serve Andijan and Ferghana regions and Navoi which is

located 350 kms away from Taskent. With support from World Bank, Nepal has developed the Birgunj

42

ICD with a 12 kilometre rail link to the Raxaul railhead at the Nepal-India border which will be further

connected to the India’s Kolkata/Haldia port.

LLDCs continue to face challenges in developing their dry ports. In addition to lack of financial

resources, shortage of skilled manpower and limited capacity of existing infrastructure have hampered

their progress. Lack of coordination between different stakeholders has compounded their difficulties.

G. Recent trends in regional and country investments in rail and

road infrastructure: some selected examples

All the 12 LLDCs have, in partnership with their development partners have demonstrated determined

efforts in investing, upgrading, improving and modernizing the quality of their road transport

infrastructure and deepen their connectivity with their transit neighbors30.

Central Asia

ESCAP has provided technical assistance to Azerbaijan, Kyrgyzstan, Lao People’s Democratic Republic,

Mongolia, Nepal, Tajikistan and Uzbekistan to improve their road safety as part of the Decade of Action

for Road Safety (2011-2020). In cooperation with the Korea Expressway Corporation, another project

has supported Afghanistan, Bhutan, Lao People’s Democratic Republic and Nepal in improving and

upgrading their road safety standards.

The 75 km single rail link is underway connecting Afghanistan, Kazakhstan, Kyrgyzstan, Tajikistan,

Turkmenistan and Uzbekistan which became operational in 2010. Work is underway in constructing

another 205 km railway link from Sangan (Iran) to Herat (Afghanistan). Another 926 km rail project was

completed in December 2014 connecting Kazakhstan, Turkmenistan and the Islamic Republic of Iran,

significantly boosting links and access to the Persian Gulf for these LLDCs.

The Government of Armenia has approved a feasibility study for a 316-km single track line to link its

national system with that of Islamic Republic of Iran.

Azerbaijan has undertaken several road projects involving new construction, rehabilitation and

upgrading its AH-5 (East-West Baku Alat-Qazakh-Georgia border). Another project that Azerbaijan is

undertaking is modernizing and upgrading its AH-8, linking Hajigabul-Bahramtapa-Horadiz-Minjivan to

Armenian border.

The completion of 105-km line section between Kars (Turkey) and Akhalkalaki (Georgia), which is also

known as Baku-Tiblisi-Kars Railway Project, will improve Azerbaijan’s access to the Mediterranean sea

especially ports of Turkey therein.

Another project mooted by China and Kyrgyzstan with an estimated cost of some US$4 billion will open

up an additional route to sea for the Central Asian LLLDCs through China.

30

ESCAP, 2014a

43

Kazakhstan has undertaken a major initiative to improve its part of the CAREC corridor which links

Western Europe with the western part of China. It extends over 2787 kms from Khorgos at the border

with China to the border with Russian Federation at Aktobe. As part of several CAREC initiatives to

upgrade the corridor, the Almaty-Khorghos road section will be built at an estimated cost of US$1.26

billion, leading to increased transport efficiency along the Western Europe – Western China Road

Corridor within Almaty Oblast. Another project covering 1065 km will upgrade the road corridor

connecting South Kazakhstan and Kyzylords Oblasts.

Mongolia has undertaken a number of projects to improve domestic as well as cross-border connectivity

with neighboring countries. The country has started construction of roads along AH-4 and the

Millennium road which aligns with AH-32. Its mid-term construction programme will see 5,572 km of

roads being built connecting provincial centres with Ulaanbaatar.

In 2010, the Government of Mongolia began the expansion of its rail network with the construction of

approximately 2,500 km to the ports in China and the Russian Federation.

Tajikistan is implementing several road projects to improve domestic connectivity as well as improving

its infrastructure links with neighboring countries. It has constructed or improved some 1650 km of

highways, resulting in better and much more efficient connectivity between Dushanbe and border points

with China, Kyrgyzstan and Uzbekistan. Within the frameworks of Asian Highway, AREC, Eurasian

economic Community and the Transport Corridor Europe Caucasus Asia, Tajikistan will complete

several projects by 2025.

South Asia

In South Asia, Bhutan and Nepal, the two LLDCs are engaged in modernizing and creating new links

with their transit neighbors. Nepal has a plan to build a 917-km east-west line and is also exploring

options with India to link its cities with that of India. Bhutan is also exploring options in collaboration

with Indian railways to connect with neighboring towns and cities in India.

Bhutan has undertaken a major initiative to construct four missing road links. Extending over 345 km, it

will connect Lhamoizingkha to Sarpang (88 km), Gelephu to Panbang (97km), Dewathang to Nganglam

(75 km) and Samrang to Jomotsangkha (85 km).

South-east Asia

As Part of ASEAN’s SKRL project, a US$7 billion project is envisaged to create a 417-km north-south

rail link, going over Lao PDR all the way to China. This project is also aimed at developing a modern

rail way system that will connect Lao PDR with China, Thailand and Vietnam.

H. Way Forward

LLDCs have made significant efforts in improving their infrastructure both domestic as well as in

linking their economies with their transit neighbors and other countries including coastal countries.

Working with their development partners as part of the regional and sub-regional initiatives such as the

Asian Railway Network, Central Asia Regional Economic Cooperation (CAREC) programme, Trans-

44

Asian Railways Network, the intergovernmental agreement on Dry Ports, and the Greater Mekong

Subregional progamme, the LLDCs have undertaken major initiatives to construct missing links,

upgrade existing roads and railways and establish dry ports at border points to facilitate transit trade.

Despite these efforts, both the distances covered as well as the quality of their trade and transport related

infrastructure is yet to reach the minimum international standards. They need to invest more resources to

improve their logistics services sector and adopt policy measures to improve their business environment.

In that regard, LLDCs need significantly increased assistance in improving the quality of their trade and

transport infrastructure and increasing the efficiency of customs and border management systems and

procedures. In addition, in establishing efficient transit transport systems, there is need for a

comprehensive and integrated approach, encompassing fundamental transit policy formulation and

coherence across LLDCs and their transit neighbors. One of the critical components in this effort will be

improving the existing major transit transport infrastructure, establishing development corridors and

hubs, and investing and improving domestic infrastructure, all supported by advances in ICT.

Increased participation of the private sector would significantly enhance the prospects of creating more

efficient transit transport infrastructure. All these need to be addressed in a systematic way so that

LLDCs succeed in improving their international trade competiveness and secure increased shares of

global trade and investment flows. Existing barriers and challenges in transit transport and transit

infrastructure need to be studied and reviewed by all stakeholders and the findings updated periodically

so that well thought out transit transport policies can be adopted to transform LLDCs into land linked

developing countries.

45

6. STATUS OF TRADE AND WHAT ELSE CAN BE DONE TO

ADDRESS TRANSIT ISSUES SO AS TO IMPROVE TRADE

Although the Asian LLDCs have strived to improve their trade shares in the regional and global trade,

the recent external environment has not been very favorable in improving their trade status. When the

global economy was beginning to recover from the 2007-2009 global economic contraction, recent

slowdown in the economic performance of several countries particularly China and the lack luster

performance of EU have introduced fresh challenges to the Asian LLDCs. Most of the LLDCs as

commodity exporters have been hard hit with sharp declines in commodity prices. LLDCs and their

development partners have been working on a wide range of facilitation reforms aimed at simplifying

trade regulations, procedures, and documents, to improve their trade performance. In particular, several

arrangements have been undertaken for the facilitation of cross-border paperless trade; promoting trade

facilitation in the context of the WTO; and establishing public-private cooperation mechanisms for

effective implementation of trade facilitation measures. Transit and transport facilitation tools have also

been used that have benefited LLDCs in improving their trade with others. LLDCs have been working

to deepen trade by reducing trade costs faced by them. With LLDCs facing trade costs that are 4 to 7

times higher than that faced by non-LLDCs, trade facilitation can reduce their transaction costs and

improve their trade with other markets. WTO’s Trade Facilitation Agreement offers opportunities for the

LLDCs to improve their trade by reducing transaction costs. It is therefore imperative for those LLDCs

which have not done yet to ratify the WTO TFA as expeditiously as possible. Efforts must also continue

to complete the Doha round, safeguarding the interest of the developing countries including the LLDCs.

Some 80 percent of global merchandize trade is conducted through maritime routes. LLDCs by

definition are far remote and less favourably placed in taking part in that process. At the same time, all

international trade of LLDCs except that part which is conducted by air is by definition transit trade.

Therefore, any increase in the volume and values of LLDCs’ international trade is equivalent to their

increased participation in transit trade.

A. Recent global and regional trends in international trade

Global and regional trade environment has been deteriorating for the most part of 2015. WTO recently

noted that falling import demand and lower commodity prices have pushed down trade growth

prospects31. It revised downward its previous estimate of world merchandize trade volume growing from

3.3 percent to 2.8 percent in 2015. In case of Asia and the Pacific region, intraregional trade has slowed

down largely because China’s economy has slowed down. All these trends and developments have

impacted the Asian LLDCs adversely, as noted earlier. In particular, energy exporters such as

Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan have been badly hit by declining oil and gas

prices with falling export earnings. Energy importers such as Armenia, Kyrgyzstan and Tajikistan

benefited from the falling oil and gas prices but experienced difficulties as remittances fell. In fact, for

the LLDCs, most of their international trade is done through transit countries.

31

WTO, 2015

46

B. Status of trade for the Asian LLDCs: some recent trends

As stated before, transit trade has been the main vehicle through which Asian LLDCs have striven to

develop their economy and improving the living conditions of their people. One would hope that the

recent global and regional adverse trends and events will be short-lived, allowing the Asian LLDCs to

go back to their “normal” growth trajectory. Figure 7 illustrates the importance of trade for these

economies. For Kyrgyzstan, trade/GDP ratio is almost 130 percent. For Bhutan and Mongolia, the ratio

is 100 percent. For all of them, the ratio is near or above 50 percent.

Figure 7: Trade- GDP Ratio 2013, %

Source: World Bank, World Development Indicators. Accessed on 28 October 2015

Exports of merchandize goods began to grow after the debacle of 2009, showing a sharp uptake for most

of the LLDCs in 2010 and 2011 (Table 14). Export growth rates began to falter after 2012 for most of

them, and continued right through 2014 except for Lao PDR and Mongolia who made a strong come

back.

47

Table 14: Merchandise export growth rate (%) in Asian LLDCs

2007 2008 2009 2010 2011 2012 2013 2014

Afghanistan 9.1 19.0 -25.3 -3.7 -3.3 14.12 20.07 10.79

Armenia 17.0 -8.3 -32.8 42.4 31.9 3.44 7.14 2.75

Azerbaijan 63.4 43.8 -31.0 25.5 30.3 -5.39 -2.85 -10.86

Bhutan 62.8 -22.7 -4.9 29.3 5.2 -20.67 1.57 2.10

Kazakhstan 24.8 49.0 -39.3 38.8 40.6 2.51 -2.02 -7.63

Kyrgyz Republic

48.3 40.5 -9.8 5.0 12.7 -4.30 -5.45 -7.85

Lao PDR 4.6 18.3 -3.6 65.9 25.4 3.70 -0.30 17.05

Mongolia 22.4 34.4 -25.1 52.4 66.2 -8.98 -2.64 35.27

Nepal 3.6 8.1 -12.4 4.0 7.4 -0.89 -3.54 1.16

Tajikistan 4.9 -4.0 -28.3 18.3 5.1 8.19 -14.55 -7.18

Turkmenistan 24.8 33.7 -58.1 30.0 100.0 26.92 1.82 4.17

Uzbekistan 42.9 28.3 4.2 8.9 13.3 -15.42 12.78 5.20

Source: UNCTAD, Statistics. Accessed on 30 October 2015

But the trade amongst Asian LLDCs is very low, except in the case of Kyrgyzstan (Table 15), one of the

causes being poor quality or absence or missing links in transport infrastructure connecting them. This

indicates that sub-regional economic integration among the LLDCs is still at its infant stage and most of

the trade takes place with countries outside this sub-region, underlying the significance of transit trade

for the LLDCs.

Table 15: Intra-Asian LLDCs Trade Flow Matrix, % of total trade with the world

2000 2010 2014

Afghanistan 1.31 7.33 7.40

Armenia 4.93 1.55 1.68

Azerbaijan 4.76 1.77 1.48

Bhutan 1.10 0.82 2.22

Kazakhstan 4.29 4.56 4.18

Kyrgyz Republic 31.12 38.81 61.27

Lao PDR 0.00 0.00 0.01

Mongolia 0.24 0.04 0.06

Nepal 0.07 2.15 0.38

Tajikistan 17.53 6.82 19.72

Turkmenistan 5.54 10.24 3.22

Uzbekistan 13.87 18.76 21.71


48

However, trade with transit neighbors tends to be high particularly with large ones such as China and

Russia (in case of Mongolia), India (in case of Bhutan and Nepal), China and Thailand (in case of Lao

PDR) and EU (in case of several Central Asian LLDCs). This type of trade dependence on selected

large and neighbouring markets like China, EU, India and Russia is a reflection of Asian LLDCs’ very

low export diversification both on account of product mix and product destination.

Dominance of primary commodities over manufactured goods in the export basket of the Asian LLDCs

is also revealed in Table 16. It also shows that, in terms of US$ value, this dominance has not only

persisted since 1995 but significantly increased over time. The nominal values of manufactured goods

exports have also gone up during this period but continue to remain very low in the total exports. This

illustrates the continuing dependence of LLDCs on primary commodities in the export basket of these

LLDCs over time; it also demonstrates the urgent need for product diversification through productive

capacity development as well as export diversification.

Table 16: Exports of primary commodities and manufactured goods (US$ million)

Primary commodities Manufactured goods Total all products

1995 2010 2014 1995 2010 2014 1995 2010 2014

Afghanistan 132 232 378 30 83 42 166 388 571

Armenia 128 729 1,172 142 262 314 271 1,011 1,490

Azerbaijan 464 25,325 28,805 171 677 480 636 26,476 29,400

Bhutan 32 185 207 71 455 344 103 641 551

Kazakhstan 3,233 50,552 70,721 1,994 6,688 7,511 5,227 57,244 78,237

Kyrgyz Republic

263 1,008 762 146 699 714 412 1,756 1,486

Lao PDR 183 1,438 2,228 127 307 419 311 1,746 2,650

Mongolia 425 2,796 5,637 48 102 134 473 2,899 5,774

Nepal 33 246 263 301 629 711 359 874 975

Tajikistan 635 1,048 854 113 93 173 749 1,173 1,158

Turkmenistan 1,804 5,674 16,503 131 744 948 1,939 6,500 17,500

Uzbekistan 3,181 7,211 9,130 247 4,253 4,141 3,430 11,695 13,300


The export performance of the major oil and gas LLDC producers is dominated by a single product:

fuels (Figure 8), which introduces significant volatility in the export basket of these LLDCs (Figure 9).

Figure 9 also shows that exports of oil and gas from the major LLDCs has been going up, except for

years 2009 and have begun to taper off in 2012.

49

Figure 8: Structure of Exports of Major Oil and Gas LLDC Producers* 2014, in %:

*Major Oil and Gas LLDCs Producers are namely Azerbaijan, Kazakhstan and Turkmenistan.


Figure 9: Export Trends of Major Oil and Gas LLDC Producers*, 2004-2014 (Billion US$):

*Major Oil and Gas LLDCs Producers are Azerbaijan, Kazakhstan and Turkmenistan.


50

In contrast, the structure of exports of the non-oil and gas producing LLDCs is on average fairly

balanced except in the case of Mongolia whose exports are dominated by copper, and Lao PDR and

Bhutan who exclusively rely on the export of hydro-power (Figure 10). There is some volatility in the

exports of non-oil and gas producing LLDCs but the overall trend appears to be positive (Figure 11).

Figure 10: Structure of Exports of Non-Oil and Gas LLDC Producers* 2014, in %

*Non-Oil and Gas LLDC Producers namely are Afghanistan, Armenia, Bhutan, Kyrgyzstan, Lao PDR, Mongolia,

Nepal, Tajikistan and Uzbekistan.


Figure 11: Export Trends of Non-Major Oil and Gas LLDC Producers*, 2004-2014 (Billion US$)

51

Reducing trade barriers and trade costs in promoting transit trade

It can therefore be seen that LLDCs remain heavily dependent on few products for export earnings and

limited destination markets. Added to these structural impediments, the various transit and trade barriers

and very high time-costs in exporting and importing goods make the LLDCs less competitive in world

markets. Sometimes, the transit neighbors are themselves landlocked with poor infrastructure including

transport logistics and underdeveloped trade institutions, compounding the situation that these countries

face.

Figure 12 illustrates the challenge they face in exporting their goods. In trading with US, all the Asian

LLDCs face higher trade costs as compared to the trade costs faced by non-LLDCs, ranging from 3

percent for Kazakhstan to 174 percent by Bhutan, 67 percent being the average for the group. In trading

with Germany, the situation is slightly better, again reflecting the dominant role of geography and

physical distance. Apart from Kazakhstan, Armenia and Azerbaijan, all other LLDCs face higher relative

costs in trading with Germany, ranging from 13 percent for Lao PDR to 72 percent for Afghanistan with

26 per cent as the mean for the group. These relatively high trade costs make the exports from these

LLDCs less competitive.

Figure 12: Additional trade costs paid by Asian LLDCs in trading with Germany and the United

States, as percentages of trade costs paid by non-landlocked developing countries, 2013

Source: Adapted from ESCAP, 2015e

Original source: ESCAP and World Bank Trade Cost Database

One of the main reasons behind the high trade costs faced by the Asian LLDCs is the high cost to export

and import their goods per container, most often more than double the world average container cost

caused by long distances to the market and costs at the border crossing and in transit (Figures 13 and

14).

* Non-Oil and Gas LLDC Producers namely are Afghanistan, Armenia, Bhutan, Kyrgyzstan, Lao PDR,

Mongolia, Nepal, Tajikistan and Uzbekistan.


-0.38

-0.10 -0.01

0.03 0.13

0.26 0.30 0.33 0.41 0.46 0.51

0.71 0.72

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

With Germany

0.03

0.35 0.36 0.37 0.47 0.48

0.61 0.67 0.67 0.68

0.95

1.29

1.74

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

With United States

52

Figure 13: Cost* to Export from LLDCs per container (US$)

*Cost measures the fees levied on a 20-foot container in U.S. dollars. All the fees associated with completing the

procedures to export or import the goods are included. These include costs for documents, administrative fees for

customs clearance and technical control; customs broker fees, terminal handling charges and inland transport. The

cost measure does not include tariffs or trade taxes. Only official costs are recorded.


Figure 14: Cost to import by LLDCs per container (US$)


53

These costs are not only high but also have been increasing over time, severely impeding the growth of

trade and transit trade. LLDCs are particularly disadvantaged as they have to pay more and more at

every stage of border crossing and customs clearance. The costs shown in the figures do not include

tariffs and duties which also contribute to high trade costs.

C. Aid for Trade

WTO’s Aid for Trade (AfT) was launched in 2005 and it is now one of the most important initiatives to

improve the supply side capacities of developing countries including the LLDCs in better harnessing

market access opportunities and compensating for adjustment costs in liberalizing their trade regimes.

AfT specifically aims to bring down trade costs for the developing countries and improve their prospects

for participating in global trade. As LLDCs face significantly high levels of trade and transit costs, if a

greater share of AfT is allocated to them, it can go a long way in promoting their participation in global

trade and investment. All 5 focus areas of AfT are relevant to the needs of the LLDCs.

Since 2006, a total of US$264.5 billion has been disbursed as ODA and another US$190 billion in other

official flows for financing developing countries’ trade-related programmes, mainly for infrastructure

and private sector development. Of that, some US$1.96 billion has gone for trade facilitation measures.

Three quarters of the total disbursement have gone to four sectors: transport and storage (29%), energy

generation and supply (21%), agriculture (18%) and banking (10%). If flows to LLDCs followed global

pattern, then AfT has significantly added to their transit trade capacity by improving their transport

logistics system and other transit trade related infrastructure.

D. Way Forward

The international trade performance of the Asian LLDCs has entered into a new phase of uncertainty as

global trading conditions have deteriorated. Energy exporting LLDCs have been particularly badly hit as

commodity prices have continued to fall. Their predominant dependence on a limited range of export

products compounded their difficulties, highlighting the urgent need for diversification of their external

trade by both products and destination. Progressive movement to higher value added products,

manufactured goods and export of services such as tourism, ICT, finance and banking should be made a

priority to reduce their commodity dependence and vulnerability to external conditions. There is also an

urgent need to implement the trade facilitation measures, as contained in the WTO TFA, so that the high

trading costs faced by the LLDCs can be brought down progressively and their supply-side capacities

can be significantly increased. More needs to be done to improve the efficiencies of their trade-related

infrastructure including transport logistics. Efforts should be strengthened to further simplify and

harmonize customs and border crossing procedures to reduce time costs and number of documents

needed for conducting international trade.

54

7. STATUS OF FINANCING INFRASTRUCTURE INVESTMENT

LLDCs face significant challenges in financing their transit/transport investment needs as these involve

considerable amount of resources and the gestation periods are long. They also need investment

resources to expand and maintain existing transport and transit infrastructures. Investments in transit

infrastructure have the added challenge of devising cost and benefit sharing arrangements that are

acceptable to both the LLDCs and their transit neighbors. Some LLDCs which are not well endowed in

natural resources and have limited borrowing capacity will continue to depend on ODA and grant

resources for infrastructure development. In particular, regional investment projects are unlikely to be

undertaken without support from ODA and grant resources. An important initiative in this context is the

Central Asia Regional Economic Cooperation (CAREC) Program, funded and supported by six

multilateral institutions32. Eight of the twelve Asian LLDCs (Afghanistan, Azerbaijan, Kazakhstan,

Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan and Uzbekistan) are participants in this programme.

Some LLDCs have set up specialized institutions and established financial mechanisms to promote

investment and growth.

Investment needs of the LLDCs go beyond the physical infrastructure requirements. Investment in non-

physical infrastructure is also vitally needed in reducing their trade and transaction costs, exploiting

opportunities for transit trade and improving their international trade competiveness. These areas of non-

physical investment include: facilitating their accession to different international legal agreements and

conventions and bringing about the required institutional and policy reforms to comply with these

conventions and agreements; improving customs administration and harmonizing policies and border

crossing procedures through the adoption of different trade facilitation tools developed by ADB,

ASEAN, SAARC, UNESCAP, UNECE, WCO and WTO, applying ICT solutions as widely as possible;

transport services and logistics development; and institutional capacity development including

negotiating skills of trade and transport officials and expertise to efficiently manage modern cross-

border facilitation portals.

Given the huge infrastructure and transit transport investment requirements and the fast evolving

domestic and external environment, LLDCs need to explore and utilize all available forms of investment

resources. Mobilization and efficient use of domestic resources, attracting foreign direct investment

(FDI), better and targeted use of official development assistance (ODA), strategic deployment of

workers’ remittances, promotion of public-private partnerships, south-south cooperation, and increased

use of innovative financing including blended financing should form components of a coherent and

comprehensive strategy to mobilize resources for infrastructure and transit transport investment

including establishment of multimodal transport corridors.

Some recent developments have brightened the prospects for mobilizing and channeling increased

resources to infrastructure investment in the countries of the region and removing or reducing trade and

transport barriers. These initiatives include the establishment of the Asian Infrastructure Investment

Bank, the New Development Bank, the Global Infrastructure Facility of World Bank, ASEAN

Infrastructure Fund, APEC Multi Year Plan on Infrastructure Development and Investment, and the

32

The six multilateral institutional partners are: Asian Development Bank (ADB), European Bank for Reconstruction and

Development (EBRD), International Monetary Fund (IMF), Islamic Development Bank (IsDB), United Nations

Development Programme (UNDP) and World Bank

55

SAARC Development Fund. “Corridor” approaches adopted by ADB and World Bank are also expected

to raise additional funding for transit infrastructure development for the Asian LLDCs. As part of south-

south cooperation, more advanced countries of the region such as China, India, Malaysia and Thailand

are investing in neighboring and other countries of the region, including in some LLDCs. China also

undertook the Silk Road Economic Belt and 21st Century Maritime Silk Road initiatives with a fund of

US$40 billion to support these initiatives. Infrastructure development, trade and financial integration are

the key focus areas. India has announced plans to create a dedicated special purpose facility to finance

construction of roads, bridges and power plants in Africa and South Asia. Two other initiatives, namely

the Shanghai Cooperation Organization Development Bank and the SAARC Development Bank of the

South Asian Association for Regional Cooperation are said to be in the planning stage33.

A. Infrastructure Investment requirements in LLDCs

The Asian LLDCs are in a unique situation: they need good physical infrastructure in their own

countries to exploit their economic potential. They also need good infrastructure in their transit

neighbors to access sea ports and distant markets. This dual dependence has accentuated their

infrastructure challenge by many fold. The state of infrastructure is quite inadequate in the Asian LLDCs

with wide variations in the quality and coverage of existing infrastructure both within their national

boundaries as well as across transit countries. Discussions in the preceding sections demonstrate that

significantly increased investments are needed to improve road, rail, air and dry port infrastructure and

logistics services.

Although estimates vary, Asia-Pacific region’s total financing requirements is about US$8.3 trillion

which includes national and cross-border infrastructure investment requirement over a period of 10

years from 2010 to 202034

with an average yearly layout of US$750 billion. This estimate includes water

and sanitation, and excluding those two sectors the requirements for physical infrastructure come to

about US$718 billion per year. ESCAP estimates the regional infrastructure requirement to be around

US$800 to US$900 billion per year35

with a total of US$11 trillion over the next 15 years. An earlier

ESCAP estimate put the figure for the cost of investment projects in selected areas of transport at

US$350 billion per year36

. The region is estimated to have a savings of US$7 trillion which, if mobilized

and intermediated efficiently and speedily, can meet a significant part of the region’s infrastructure

investment needs. A good part of these savings should be channeled to the Asian LLDCs as part of the

international community’s commitment to transform the LLDCs into land-linked ones.

The ADB estimates the break down for LLDC’s national transport infrastructure investment needs for

the period from 2010 to 2020 (Table 17). This estimate indicates the requirement to be around US$1.3

trillion over ten years for 11 Asian LLDCs with Afghanistan’s requirement totaling the top spot with an

estimated requirement of US$14 billion, followed by Kazakhstan with US$11 billion, Mongolia with

US$9 billion and Lao PDR with US$9 billion. For Lao PDR and Mongolia, their investments needs

exceed 10 percent of their GDP during that period. Yearly requirements vary from more than US$2

billion for Mongolia to US$287 million for Azerbaijan. Although these estimates are at best indicative, it

33

United Nations, 2015 34

ESCAP/ADB/UNDP, 2015. Page 25 35

ESCAP, 2015c 36

ESCAP, 2013a

56

helps in understanding the huge infrastructure investment needs of these LLDCs and the tasks ahead for

them and their development partners in mobilizing international support for their efforts.

Table 17: National Transport Infrastructure (TI) Investment Needs in LLDCs, 2010-20

Est. GDP

mln US$

Estimated

Transports

Investment

needs, mln US$

Est. Transport

Investment

Needs as a % of

Est. GDP 2010-

20

Total

Investment

per Year in

Transport,

mln US$

Total

Investment

per Year in

Transport as

% of Est. GDP

Afghanistan 219,661 13,619 6.2 1,238 0.56

Armenia 120,750 1,449 1.2 824 0.68

Azerbaijan 569,833 3,419 0.6 287 0.06

Bhutan 22,071 618 2.8 1,659 7.52

Kazakhstan 178,300 10,698 0.6 366 0.21

Kyrgyz

Republic 66,821 2,606 3.9 705 1.06

Lao PDR 83,736 8,876 10.6 1,855 2.22

Mongolia 75,108 9,013 12 2,128 2.83

Nepal 164,000 2,788 1.7 463 0.28

Tajikistan 70,758 2,335 3.3 484 0.68

Turkmenistan .. .. .. .. ..

Uzbekistan 41,741 1,127 2.7 641 1.54

Total 1,612,779 125,781 0.08 12,319 0.76

Source: Bhattacharya, 2010

One of the key challenges faced by the LLDCs is identifying bankable projects and preparing feasibility

studies to attract donor and private sector participation. Poorly conceptualized and designed projects

may fail to attract donor and private sector attention which may otherwise be highly beneficial to the

country and profitable to the private sector. Preparation of infrastructure projects also demand a steady

supply of multidisciplinary professional experts who are not only adept in engineering and financial and

economic analyses but also in other fields such as rural sociology, environment, gender, governance,

participation and social and economic inclusion. An acute shortage of such skilled and trained experts in

a wide range of disciplines and sectoral areas has prevented many LLDCs in developing and packaging

bankable projects. There is therefore an urgent need for technical assistance in creating a pool of trained

experts as well as augment the local supply of skilled personnel who can fill up this gap and meet an

urgent need in meeting the infrastructure development requirements in the LLDCs.

B. Financing infrastructure investment requirements of the Asian

LLDCs

Mobilizing domestic resources

57

The first priority of all the Asian LLDCs should be to raise as much revenue as possible from domestic

sources as such resourced-based rents, general tax receipts, and household and corporate savings. These

are considered to be traditional sources of domestic resources which will have to be supplemented by

ODA, private sector capital, private-public partnerships, remittances and innovative sources of financing

to meet the infrastructure deficits in the Asian LLDCs.

Some of the Asian LLDCs have ample supply of natural resources including oil, gas, coal, minerals and

hydro-power which can be harnessed to meet part of the infrastructure investments needs by setting

aside a certain proportion of the resource-rents collected by their governments for investment in

infrastructure including transit infrastructure. In Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan,

rents earned from their natural resources account for 37 percent to 47 per cent of their GDP37

.

Tax revenue forms a key traditional resource for financing development in developing countries. A

general rule suggests that tax to GDP ratio in developing countries should exceed 20 per cent to meet

general development needs but would have to be supplemented by ODA and other forms of private

capital to meet the infrastructure investment needs which tend to be lumpy with long gestation periods.

In such investment projects, government revenue contribution plays a key role in encouraging other

stakeholders to come forward as that helps in minimizing or attenuating project risks. Table 18 shows

that none of the Asian LLDCs for which data are available have reached the 20 per cent bench mark.

Armenia, Kyrgyzstan, Lao PDR and Nepal have succeeded in raising their tax to GDP ratio over the

years but others have faltered. Overall, Table 18 indicates the urgent need for significantly increased

efforts in mobilizing domestic resources from other sources.

Table 18: Tax Revenue, % of GDP

2009 2010 2011 2012 2013 2014

Afghanistan 8.2 8.9 8.4 5.5 6.7 6.5

Armenia 19.9 20.2 20.6 22.0 23.4 23.5

Azerbaijan 14.4 12.4 12.3 12.7 13.3 14.2

Bhutan 10.6 13.3 13.6 15.1 14.8 ...

Kazakhstan 13.1 13.4 14.4 13.5 13.5 13.2

Kyrgyz Republic 17.9 17.9 18.5 20.6 20.5 20.8

Lao PDR 13.1 13.5 14.1 15.0 15.0 15.5

Mongolia 24.6 27.6 27.8 25.0 26.5 23.7

Nepal 11.8 13.4 13.0 13.9 15.3 16.1

Tajikistan 17.7 18.0 19.5 19.9 21.0 22.8

Turkmenistan ... ... ... ... ... ...

Uzbekistan 20.7 20.0 19.5 19.6 19.6 19.7

Source: Asian Development Bank. Statistical Database System. Accessed 21 November 2015.

Government’s general financial consumption expenditure as a proportion of GDP has remained below

25 percent in the Asian LLDCs but generally higher than their average tax/GDP ratios, leaving little or

37

Ibid

58

nothing for development expenditure (Table 19 and Figure 15). LLDCs would have to eliminate

wasteful government expenditure and improve its efficiency so that resources can be released for

economic and social development including physical infrastructure development.

Rationalization and prioritization of public expenditure could generate significant savings for investment

in infrastructure. Budgets should be more results-based and monitored more vigorously. Subsidies

should be carefully targeted so that these reach the intended beneficiaries. Significant resources can be

mobilized by eliminating subsidies which do not serve the objectives of efficiency and equity. Another

source of drain on public resources is widespread tax evasion and avoidance and illicit transfer of funds

abroad. Unfortunately, of the US$5.9 trillion that flowed out of Asia-Pacific region from 2001 to 2010,

several hundred billions in total originated from some LDCs and LLDCs of this region.

Several LLDCs have launched stimulus packages and introduced other measures in response to slow

down in real GDP growth, with a focus on housing, utilities and transport infrastructure. These are at

best short to medium term counter-cyclical responses but will not be enough to meet their overall

infrastructure investment needs.

Table 19: General Government Final Consumption Expenditure (GGFCE) in % of GDP

2009 2010 2011 2012 2013 2014

Afghanistan 11.67 14.34 12.83 12.36 12.27 12.80

Armenia 13.34 13.07 12.93 12.74 14.46 14.41

Azerbaijan 11.12 10.88 10.13 10.34 11.22 10.87

Bhutan 21.37 19.98 20.07 19.18 17.51 19.37

Kazakhstan 11.66 10.81 10.67 11.68 10.30 ..

Kyrgyz Republic 18.43 18.13 18.23 20.11 18.45 17.19

Lao PDR 10.74 9.48 9.80 11.72 14.46 13.84

Mongolia 14.75 12.69 12.26 13.53 13.50 11.62

Nepal 10.78 9.99 9.58 10.76 9.94 11.18

Tajikistan 12.46 11.33 13.65 8.65 11.74 ..

Turkmenistan 9.79 9.49 9.11 8.86 .. ..

Uzbekistan 22.30 23.50 22.70 15.80 15.80 15.70

* GGFCE: General Government Final Consumption Expenditure


59

Figure 15: General Government Final Consumption Expenditure in % of GDP


Significant scope exists in most of the LLDCs to raise domestic resources for investment in

infrastructure development and complementing the efforts of the donors in building

transport/transit/economic corridors. Several of these LLDCs have very high per capita incomes, lending

themselves to vast opportunities in raising revenue through taxation. As noted above, average tax/GDP

ratios by and large are increasing in the LLDCs and more could be done to raise additional tax revenues.

Another option could be to gradually shift away from taxation of trade to taxing goods and services

through value added taxes and general service taxes. A good part of the government revenue is wasted

by offering a wide range of exemptions and concessions to foreign investors to boost return on capital.

Similarly, corporate tax concessions should be better targeted to encourage investment in infrastructure

and employment generating activities. As domestic capital markets are either quite underdeveloped or

shallow, LLDCs should pay more attention to broadening and deepening those markets. Together with

equity markets, bond markets and pension funds should be encouraged. LLDCs could also actively

promote the establishment of sovereign wealth funds as many of them are endowed with vast quantities

of natural resources. Financial inclusion could be another effective means to raise domestic resources

and channel those to infrastructure development projects.

60

Apart from using public budgets to finance infrastructure projects, several innovative financing

mechanisms have recently been used to fund infrastructure projects. India, Lao PDR and Nepal have

successfully used fuel levies to generate required revenue to finance new road projects. India has put

such revenues in a Central Road Fund. Another means used is land value capture mechanism. This is

designed to capture part of the additional value or positive externalities that are generated after a

publicly or public/privately financed infrastructure project becomes operational. One such example is

the Hong Kong Mass Transit Railway which uses profits from new housing projects built along its urban

rail lines to pay for new lines. The Mumbai Metropolitan Regional Development Authority used a

similar approach. Several methods have been used in the region to recoup investment costs of

infrastructure projects such as shadow tolls, availability payments (no service, no fee basis), and state

guarantees.

Raising resources from regional capital markets

LLDCs can utilize regional capital markets to raise resources for infrastructure investments. For that

local currency bond markets need to be developed. Such markets can also help reduce currency and

maturity mismatches. Presently, such markets are quite underdeveloped in the LLDCs. They lack

liquidity and sufficient legal safeguards for external investors. Several LLDCs have resorted to regional

markets to raise foreign currency loans, one estimate suggesting it to be about US$200 billion in 201438.

Recent capital market volatility has put at risk such schemes.

Foreign direct investment

Foreign direct investment (FDI) constitutes another important source of development finance for the

LLDCs with Asia-Pacific region as a whole remaining an important destination for such private

investment flows. According to UNCTAD, Asia’s developing countries saw their FDI going up by 15

percent in 2014. Since 2005, the trend has been upward with 38 percent of global flows reaching

developing Asia in 2013. FDI to Asian LLDCs is by and large trade-oriented and trade-seeking.

FDI is a capital account transfer which can contribute to reducing current account deficits. Even if FDI

does on its own (in the absence of public private partnerships) does not go directly to building roads,

railways, bridges, ports in the LLDCs - which traditionally have been the domain of Governments and

their multilateral financial institutions partners – such flows obviate the need for foreign borrowing

should their current accounts go into deficits. FDI therefore plays a crucial role in the overall scheme of

a country’s resource management and deployment.

The resource rich Asian LLDCs have seen robust intakes of FDI since 2000 (Table 20, Figure 16). FDI

stocks have totaled US$129 billion for Kazakhstan in 2014, followed by US$26 billion for

Turkmenistan, US$18 billion for Azerbaijan, US$17 billion for Mongolia and US$9 billion for

Uzbekistan. Other LLDCs have been less successful in attracting FDI.

38

Ng, 2015

61

Table 20: FDI stocks in LLDCs 2000-2014, current mln US$

2000 2002 2004 2006 2008 2010 2012 2013 2014

Afghanistan 17 68 313 822 1,105 1,392 1,569 1,638 1,692

Armenia 513 684 1,039 1,880 3,643 4,405 5,134 5,448 5,831

Azerbaijan 3,735 5,354 11,482 11,347 6,612 7,648 11,118 13,750 18,180

Bhutan 4 7 12 16 26 67 142 119 112

Kazakhstan 10,078 15,464 22,376 32,879 59,035 82,648 119,944 125,079 129,244

Kyrgyz Republic 432 479 582 1,256 1,380 1,698 2,674 3,320 3,520

Lao PDR 588 617 653 868 1,419 1,888 2,483 2,910 3,630

Mongolia 182 322 547 980 2,197 4,949 13,458 15,729 16,693

Nepal 72 110 125 120 127 253 440 511 541

Tajikistan 136 182 251 645 862 1,164 1,556 1,625 1,885

Turkmenistan 949 1,395 1,975 3,124 5,257 13,442 19,963 23,039 26,203

Uzbekistan 698 846 1,106 1,471 2,888 5,366 7,564 8,250 9,002


Figure 16: FDI Stocks in LLDCs, Current mln US$, 2014

62


FDI inflows to the LLDCs have however been uneven and mixed over the years (Figure 17). In 2013,

Kazakhstan has retained its status as the top destination with a slight fall in 2014. Azerbaijan has seen

steady growth with US$4 billion coming in in 2014, almost double the level of 2013. In Armenia, it has

been falling since its peak in 2008 with inflow to Bhutan being all time low in 2014 since 2002. It also

went down significantly in Nepal in 2014.

Figure 17: Net FDI Inflows, mln US$ 2013

63


For oil exporters, FDI flows have been somewhat steady (Figure 18) but for the non-oil producing

LLDCs, FDI flows have proven to be highly volatile (Figure 19).

Figure 18: Dynamics of FDI Inflows in mln USD, Oil Exporting LLDCs 2000-2014

64


Figure 19: Dynamics of FDI inflows in mln USD 2000-2014, Non-Oil Producing LLDCs


65

Sectoral distribution of FDI in selected LLDCs is shown in Table 21. Although there are some

definitional issues, the figures have been grouped in 4 broad categories to make these comparable across

the selected LLDCs (see Annex Table 1 for the activities covered by each of the 4 broad sectors). More

in-depth research would be needed to gain deeper understanding about the activity-wise FDI flows into

these groups of LLDCs. In Armenia, FDI inflows were almost evenly distributed between secondary and

tertiary sectors in 2011 but there was a drastic fall in flows to the secondary sector by 2013. In case of

Azerbaijan, most of the FDI went to the primary and tertiary sectors where activities related to energy

and construction attracted most investments. In the case of Kazakhstan, tertiary sector dominated as high

per capita incomes led to significantly increased demand for services. Most of the FDI flows to

Kazakhstan’s primary sector went to oil and gas activities. In the case of Mongolia, there was a mining

boom which attracted most its FDI into the primary sector. Most of the FDI inflows into these LLDCs

were trade creating as exports of oil and gas dominated their export structure. FDI also spawned

significant capacity creation in logistics, financial services and related downstream activities.

Table 21: FDI inflows by sector in selected LLDCs, in mln US$

2011 2012 2013 2014

Primary 40 130 47 ..

Secondary 282 27 42 ..

Armenia Tertiary 381 399 215 ..

Other 1 43 0 ..

Total 703 598 304 ..

Primary 3,428 4,290 4,938 6,748

Secondary 0 0 0 0

Azerbaijan Tertiary 4,579 4,230 3,697 3,199

Other 668 1,794 1,907 1,751

Total 8,674 10,314 10,541 11,698

Primary 5,454 7,333 7,463 8,388

Secondary 6,926 5,043 3,915 4,634

Kazakhstan* Tertiary 14,087 16,509 12,720 10,689

Other 0 0 0 0

Total 26,467 28,885 24,098 23,711

Primary 45 79 48 116

Secondary 3,230 2,737 3,309 3,217

Kyrgyz Republic Tertiary 1,672 1,519 2,130 2,083

Other 0 0 0 0

Total 4,948 4,336 5,487 5,416

Primary 4,084 2,218 872 ..

Secondary 11 70 4 ..

Mongolia Tertiary 685 872 334 ..

Other 207 39 9 ..

Total 4,986 3,199 1,219 ..

Note: The sectoral allocation of FDI has been reduced to 4 simple variables in order to make a comparison

possible as the definitions of sub categories differed from country to country due to different accounting systems.

The Primary sector encompasses agriculture, hunting and mining activities. The Secondary sector encompasses

mainly manufacturing and construction activities. The tertiary sector mainly encompasses services activities.

Other is the unspecified category.

Source: CEIC. Available from https://www.ceicdata.com/en, accessed 23 November 2015

66

Official Development Assistance (ODA)

Official development assistance (ODA) in its various forms –multilateral, bilateral and blended - plays a

critical role in infrastructure development of the LLDCs. ODA will continue to be the major funding

source for investment in infrastructure in the coming years and decades as the various global, regional

and sub-regional funds and programmes make infrastructure development, connectivity, corridor

development and ICT the main focus of their lending activity.

ODA flows globally, ODA has risen (in constant 2013 prices) from US$80.7 billion in 2000 to

US$134.4 billion in 201439

. In line with international commitments, ODA flows to all the LLDCs

increased from US$11.4 billion in 2000 to US$26.1 billion in 201440

. Table 22 gives some information

on the net ODA received by the Asian LLDCs from 2010 to 2013 (in current prices). Total ODA during

this period decreased from about US$10 billion in 2010 to around US$8.7 billion in 2014. Afghanistan

was the highest recipient with an average of US$6 billion during these four years with most of it going

to its social sector. Afghanistan’s share of ODA in GDP exceeded 10 per cent during 2008-2012 whereas

that of Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan was less than 1 percent. Although ODA as

a percentage of GDP may be quite low, its significance in infrastructure development and overall

development of most of the LLDCs, especially non-oil exporting LLDCs, can hardly be

overemphasized.

Table 22: ODA and GGFCE in Asian LLDCs

Net Official Development Assistance

Received* (ODA), current mln US$

ODA/General Government Final

Consumption Expenditure (GGFCE)** (%)

2010 2011 2012 2013 2010 2011 2012 2013

Afghanistan 6,427 6,885 6,726 5,266 281 299 265 211

Armenia 343 400 273 293 28 31 22 19

Azerbaijan 159 286 285 -63 3 4 4 -1

Bhutan 131 142 161 135 41 39 46 43

Kazakhstan 224 216 130 91 1 1 1 0

Kyrgyz Republic 380 525 473 537 44 46 36 40

Lao PDR 414 392 409 421 61 48 37 26

Mongolia 303 351 449 428 33 27 27 25

Nepal 818 885 770 871 51 49 38 46

Tajikistan 437 348 394 382 68 39 60 38

Turkmenistan 45 39 38 37 2 1 1 ..

Uzbekistan 231 203 255 293 2 2 3 3

World 131,068 141,028 132,975 150,086 1 1 1 1

* Net official development assistance (ODA) consists of disbursements of loans made on concessional terms (net

of repayments of principal) and grants by official agencies of the members of the Development Assistance

Committee (DAC), by multilateral institutions, and by non-DAC countries to promote economic development and

welfare in countries and territories in the DAC list of ODA recipients. It includes loans with a grant element of at

least 25 percent (calculated at a rate of discount of 10 percent).

39

United Nations, 2015 40

Ibid

67

** General government final consumption expenditure includes all government current expenditures for

purchases of goods and services (including compensation of employees). It also includes most expenditure on

national defense and security, but excludes government military expenditures that are part of government capital

formation.


Further analysis of the ODA data received by the LLDCs shows that most of it has benefited social and

economic sectors. The latter has included transport and energy, trade and industry, and tourism

development.

ADB’s CAREC programme stands out as one of the most important sources of multilateral finance for

the Asian LLDCs in building their transit infrastructure. Serving 10 countries and partnering with five

other multilateral financial institutions, ADB’s CAREC programme has grown significantly over the

years. CAREC’s portfolio of investments has risen from 6 projects with $247 million in 2001 to $24.6

billion in 2014 41

. Of that amount, ADB has provided 37.3 per cent, 3 other partner institutions have

provided 354 percent, 22.2 percent by participating governments and 5.1 percent by co-financiers. IMF

and UNDP have provided technical assistance. Transport sector has accounted for $19,058 million (106

projects), energy sector $5,284 million (37 projects), and trade facilitation $286.8 million (13 projects),

thereby significantly contributing to infrastructure development in the participating countries.

Another example is provided by the Greater Mekong Subregional programme (GMS) which was

launched by ADB in 1992. Under this initiative, ADB and other participating donors have funded

priority infrastructure projects totaling around US$11 billion which has involved the upgrading of the

Phnom Penh – Ho Chi Minh City highway and the completion of the East-West Economic Corridor

which will eventually extend from Andaman Sea to Da Nag. GMS has mobilized US$16.6 billion in

investment projects by 2013.

Remittances

Remittances have appeared as one of the most important sources of development finance for the

developing countries of the region, far surpassing that of ODA and FDI. It is also an important

development resource for some of the Asian LLDCs, as shown by Table 23. For some LLDCs,

remittances have remained more or less at the same level from 2008 to 2014. However, for Nepal,

Armenia, Azerbaijan, Kyrgyzstan, Lao PDR and Tajikistan, it has grown significantly during this period

(Figure 20). Remittances as a proportion of GDP can be quite high for some of the Asian LLDCs:

Armenia 19 percent, Nepal 29 percent, Kyrgyzstan 30 percent and Tajikistan 42 percent.

41

Asian Development Bank, 2014

68

Table 23: Personal remittances, received, current mln US$

2008 2009 2010 2011 2012 2013 2014

Afghanistan 104.21 152.43 330.75 247.05 385.15 537.52 ..

Armenia 1,904.07 1,439.81 1,669.34 1,798.62 1,914.98 2,192.19 2,078.50

Azerbaijan 1,518.33 1,254.65 1,410.30 1,893.08 1,990.18 1,733.17 1,846.42

Bhutan 3.55 4.87 8.27 10.46 18.14 11.80 13.83

Kazakhstan 125.57 198.20 225.56 179.71 171.30 207.25 ..

Kyrgyz Republic

1,223.27 981.96 1,266.20 1,708.69 2,031.37 2,278.00 2,242.83

Lao PDR 17.77 37.58 41.77 110.30 58.52 59.63 ..

Mongolia 224.60 199.62 266.24 279.43 320.36 255.73 ..

Nepal 2,727.14 2,983.34 3,464.09 4,216.89 4,793.44 5,588.90 ..

Tajikistan 2,544.02 1,748.15 2,305.83 3,059.87 3,625.51 4,218.77 3,853.54


Remittances are private flows which play a very important role in reducing poverty by boosting

household consumption and expanding educational, housing and micro-scale investment opportunities

for recipients who are mostly based in rural areas and rural townships. That way, remittances take the

pressure off the government to provide some basic social services to the rural communities and devote

the resources such released to invest in the country’s physical infrastructure. Although the private nature

of these flows restricts the use of these resources for public goods such as roads, railways and ports,

LLDCs could explore the possibility of providing matching funds to remittances sent from abroad and

use the combined resources to finance public infrastructure projects in the local communities.

Figure 20: Personal Remittances, received, current mln US$

69

Public-private partnerships

Public-private partnerships are becoming increasingly popular in many countries of the region as

platforms for mobilizing resources for infrastructure development. From 1990 to the 1997 Asian

financial crisis, private investment in infrastructure in developing countries of the region increased

almost by 25 fold: from US$2 billion to US$48.9 billion 42 . Yet public-private partnerships in

infrastructure development constitute a small part of the total infrastructure investment in Asia. Almost

80 percent of public-private partnership investments went to juts 4 countries in the region: Australia,

China, India and the Republic of Korea43 . One of the most successful examples of public-private

partnership in infrastructure development comes from Lao PDR where the Nam Thuen 2 project –

largest hydroelectric project costing US$1.2 billion – has been constructed by the Nam Thuen 2 Power

Company (NTPC), jointly owned by several stakeholders namely, the Electricite de France (35%), the

Lao PDR Government (25%) and the Italian-Thai Development (15%)44.

These types of partnerships help in reducing the risks of private sector in investing in otherwise risky

public sector projects which tend to be lumpy with long gestation periods. Similarly, governments can

also shift some elements of risks to the private sector. As large infrastructure projects can typically be

broken down into production and supply segments, such arrangements allow for greater utilization of the

comparative advantages of the public and private sectors. Public-private partnerships in infrastructure

development also allow governments/public entities to leverage some fundamental strengths of the

private sector such as superior management efficiency, innovations and flexibility. Similarly,

governments have offered several kinds of incentives which only it can offer including “minimum

42

ESCAP, 2015b 43

ESCAP, E/ESCAP/FAMT(2)/4, United Nations 44

ESCAP, 2015a


70

revenue guarantees”, “default guarantees”, “exchange rate guarantees” to make private sector

participation attractive and feasible.

In fully exploiting the potential of public-private partnerships, LLDCs need to develop their institutional

capacity and have the appropriate regulatory framework in place. Public sector entities need to have the

capacity to harness the strengths of the private sector including their technical expertise and financial

resources. LLDC governments can also work with their development partners in devising public-private

partnerships whereby the later also provide risk capital and underwrites private participation.

C. Way Forward

Despite their efforts, the LLDCs continue to face huge infrastructure deficits which have held them back

from exploiting the full potential of transit trade. In addition to investment in physical infrastructure,

investments will be needed to improve the “software” of doing business: effective implementation of the

provisions in the international conventions and agreements as well as trade facilitation measures aimed

at reducing trade costs. The investment requirements to close these gaps can only be met through a

combination of domestic resource mobilization efforts and increased inflow of external resources such

as FDI, ODA, remittances, innovative finance, public-private partnerships and south-south cooperation.

Better targeting and improved utilization of these resources will be a key priority of the LLDCs and their

development partners. In particular, FDI and ODA need to be used for improving the productive

capacities of the LLDCs and their transit-transport infrastructure including transport/economic corridors

to facilitate the movement of goods and people. LLDCs need to devise strategies to use FDI and ODA

and other forms of external resources including remittances to create deeper linkages, both horizontal as

well as vertical, within their economies so that they can better leverage their trade potential.

71

8. KEY RECOMMENDATIONS AND POLICY OPTIONS

Vienna Programme of Action constitutes the single most important global platform for articulating and

advancing the development aspirations of the LLDCs. LLDCs should take the lead in continuing to

mainstream the Vienna Programme of Action in their national development strategies, plans and

programmes with a particular focus on improving transit cooperation, trade and trade facilitation and

infrastructure development for their speedy integration into regional and global growth processes. UN-

OHRLLS and other development partners such as ESCAP, UNCTAD, UNDP and WTO should

coordinate and if possible increase their assistance to the LLDCs in achieving that objective.

Sustaining growth, export diversification and productive capacity development

LLDCs in partnership with their development partners should step up national efforts and undertake

concrete measures to improve their productive capacities and diversify their production and trade

structures so that they can better withstand the adverse impacts of global economic slowdown and

falling commodity prices, exchange rate volatility and falling remittances. These would include regular

monitoring of global and regional trade and investment trends and identifying the reproduction activities

in which the LLDCs can build up their trade competiveness. OHRLLS and regional Commissions

should strengthen their support to the LLDCs in this regard.

Accession to international legal frameworks, conventions and agreements

LLDCs should be supported in acceding to and ratifying international conventions and agreements as

rapidly as possible. They have undertaken reforms of their domestic trade and investment policies to

72

make these compatible with international conventions and agreements or at least be complementary to

those. Development partners such as ESCAP, UNECE, OHRLLS, WCO, WTO and other subregional

organizations and institutions should increase their technical assistance to expedite this process.

LLDCs have acceded to most of the relevant international conventions and agreements and have begun

to play a more active role in the regional and bilateral agreements including the free trade agreements as

part of their regional integration process which is vitally important in improving their connectivity and

access to global markets. They should be supported by their development partners in accelerating their

integration into regional trade and investment flows.

LLDCs and their transit partners should strengthen their cooperation for effectively promoting regional

integration by fostering intraregional trade and enhancing participation in regional agreements and

frameworks, developing common approaches and harmonizing policies in regional and transit

infrastructure development.

In line with changing circumstances, international conventions and agreements are periodically refined

and readjusted. LLDCs should be encouraged to be active partners in that process so that their

ownership can be promoted. This will lead to better implementation of these important legal frameworks

and alignment with their development strategies.

Technical assistance should be offered to the LLDCs in undertaking country-specific studies to

formulate concrete policy measures in further enhancing their participation in regional and bilateral

agreements and suggest concrete measures in benefiting from those arrangements in deepening their

trade and transport links with their transit countries.

Customs, harmonization of policies and border crossing procedures

LLDCs should adopt national measures to identify and evaluate the adverse impact of various transit

trade barriers on their economies and take concrete actions to overcome /remove those barriers. In

particular, they should harmonize and streamline customs and border crossing procedures and

formalities on an urgent basis. They should also allocate sufficient resources in developing intuitional

capacities and skilled human resources to adopt new and emerging ICT solutions/platforms to promote

transit trade.

LLDCs need to be supported by their development partners including the international, regional and

sub-regional organizations and financial institutions, to improve the quality and efficiency of

international transit transport systems and address customs and other transit barriers in a more

coordinated manner. Further assistance should be extended to them in implementing the wide range of

facilitation initiatives contained in the WTO TFA and AfT, and trade and facilitation components of

ASEAN, CAREC and GMS towards reforming their customs administration and harmonizing policies

and border crossing procedures. OHRLLS need to strengthen its advocacy work based on country-

specific studies and best practice examples in that regard.

There is urgent need for building capacities of trade and transport-related institutions in the LLDCs so

that they can effectively coordinate and synchronize their efforts at the country level in simplifying and

harmonizing customs and cross-border formalities and procedures. OHRLLS, WCO, WTO, UNCTAD

73

and other regional organizations should continue, and if possible enhance, their respective

contributions/assistance to the LLDCs.

Infrastructure development

LLDCs need significantly increased assistance in improving the quality of their trade and transport

infrastructure, investing in infrastructure and maintenance, increasing the efficiency of customs and

border management systems and procedures through the adoption of trade facilitation measures and

participation in regional trade /transport/ economic corridors and achieve accelerated structural

transformation.

LLDCs need to be supported in participating more fully in the region’s transport/trade/economic

corridors to maximize their transit trade and improve their links with international markets. ADB,

UNECE, UNESCAP and World Bank should provide additional technical support to LLDCs in

facilitating the growth of ancillary industries and small businesses around the corridors, leading to

poverty reduction, agricultural and rural development, and employment generation. Wherever feasible,

ICT applications should be applied to increase the productivity of these corridors.

LLDCs and their development partners should encourage increased participation of the private sector in

enhancing the prospects of creating more efficient transit transport infrastructure. All support measures

in that regard need to be addressed in a systematic way so that LLDCs succeed in improving their

international trade competiveness and secure increased shares of global trade and investment flows.

LLDCs should be encouraged to continue their efforts in establishing effective international integrated

intermodal transport and logistics systems. In that regard, LLDCs should actively participate in Asian

Highway Network, the Trans-Asian railway Network and the Intergovernmental Agreement on Dry

Ports and work in concert with their transit neighbors and development partners to upgrade and

modernize their existing rail and road systems and complete the missing links as the basis for the

establishment of an international integrated intermodal transport and logistics system in the region.

International trade and trade facilitation

In reducing the dependence of LLDCs on a narrow range of exports and improving their international

trade performance, they should be supported in progressively moving to higher value added products

and manufactured goods, export of services such as tourism, ICT, finance and banking, and linking up

with regional and international value chains. In that regard, LLDCs should provide sufficient incentives

to their private sector to play its appropriate role.

LLDCs should move speedily to implement the trade facilitation measures, as contained in the

international, regional and bilateral agreements so that the high trading costs faced by them can be

brought down progressively and their supply-side capacities can be significantly increased. More

support should be provided to them in improving the efficiencies of their trade-related infrastructure

including transport logistics. Efforts should be strengthened to further simplify and harmonize customs

and border crossing procedures to reduce time costs and number of documents needed for conducting

international trade.

74

WTO Trade Facilitation Agreement provides a window of opportunity for the LLDCs to participate

more effectively in the global trading system. Effective and timely technical assistance should be

provided to the LLDCs to improve their capacity in implementing the provisions of the WTO TFA. All

WTO members including the LLDCs should ratify the agreement expeditiously.

Under the Aid for Trade initiative, increased concessional development assistance should be provided to

the LLDCs, focusing on infrastructure development and improving their supply side capacity in fully

benefiting from new and emerging market access opportunities.

Regional economic integration is critical for the Asian LLDCs to improve their competiveness and

benefit from regional and global growth processes. They should actively promote regional connectivity,

participate fully and effectively in regional trading and investment arrangements, and implement

regional agreements and frameworks in developing regional infrastructure and transport corridors and

harmonizing regional policies and programmes.

Financing infrastructure investment

LLDCs continue to face huge infrastructure deficits which have held them back from exploiting the full

potential of transit trade. In addition to investment in physical infrastructure, LLDCs need to step up

their investments in the “software” of doing business: effective implementation of the provisions in the

international conventions and agreements as well as trade facilitation measures aimed at reducing trade

costs.

Recognizing that the financing requirements to close the investment gaps can only be met through a

combination of domestic resource mobilization efforts and increased inflow of external resources, more

assistance should be provided to the LLDCs in the forms of FDI, ODA, remittances, innovative finance,

public-private partnerships and south-south cooperation.

LLDCs need to ensure better targeting and improved utilization of both domestic as well as external

resources. In particular, LLDCs and their development partners need to ensure that FDI and ODA are

used for improving their productive capacities and building up their transit-transport infrastructure

including transport/economic corridors to facilitate the movement of goods and people.

LLDCs need to devise strategies to use FDI and ODA and other forms of external resources including

remittances to create deeper linkages, both horizontal as well as vertical, within their economies so that

they can better leverage their trade potential.

75

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Release PRESS/752, 30 September 2015.

ANNEX TABLE 1: LIST OF ACTIVITIES IN SECTORAL DISTRIBUTION

OF FDI, SELECTED LLDCS

Armenia:

Primary Sector

Crop and Animal Production, Hunting and Others

Mining of Metal Ores

Other Mining and Quarrying

Mining Support Service

Secondary Sector

Mfg: Food Products

Mfg: Beverages

Mfg: Tobacco Products

Mfg: Textiles

Mfg: Leather and Related Products

Mfg: Wood and Wood Products & Cork, excluding Furniture

Mfg: Paper and Paper Products

Mfg: Printing and Reproduction of Recorded Media

Mfg: Chemicals and Chemical Products

Mfg: Basic Pharmaceutical Products and Pharmaceutical Preparations

Mfg: Rubber and Plastic Products

Mfg: Other Non -Metallic Mineral Products

Mfg: Basic Metals

Mfg: Fabricated Metal Products excluding Machinery and Equipment

Mfg: Computer, Electronic and Optical Products

Mfg: Electrical Equipment

Mfg: Other Machinery and Equipment

Mfg: Furniture

Mfg: Others

Electricity, Gas, Steam and Air Conditioning Supply

Water Collection, Treatment and Supply

Construction of Buildings

Specialized Construction

Tertiary Sector

Wholesale and Retail Trade & Repair of Motor Vehicles and Motorcycles

Wholesale Trade, excluding Motor Vehicles and Motorcycles

Retail Trade excluding Motor Vehicles and Motorcycles

Land Transport and Transport via Pipelines

Air Transport

Warehousing and Support for Transportation

Postal and Courier

Accommodation

Food and Beverage Service

Motion Picture, Video and TV Programme Production, Sound Recording & Music Publishing

78

Telecommunication

Computer Programming, Consultancy and Related

Information Service

Financial Service, excluding Insurance and Pension Funding

Insurance, Reinsurance and Pension

Auxiliary to Financial Services and Insurance

Real Estate

Legal and Accounting

of Head Offices and Management Consultancy

Architectural and Engineering, Technical Testing and Analysis

Scientific Research and Development

Advertising and Market Research

Other Professional, Scientific and Technical

Rental and Leasing

Travel Agency, Tour Operator and Other Reservation Service & Related

Education

Human Health

Gambling and Betting

Sports, Amusement and Recreation

of Membership Organizations

Other Personal Service

Azerbaijan:

Primary Sector

Secondary Sector

Oil Industry

Oil Bonus

Tertiary Sector

Financial Credits

Foreign Companies and Joint Ventures

Kazakhstan:

Primary Sector

Agriculture, Forestry & Fishing

Mining & Quarrying

Mining & Quarrying: Mining of Coal & Lignite

Mining & Quarrying: Extraction of Crude Petroleum & Natural Gas

Mining & Quarrying: Mining of Metal Ores

Mining & Quarrying: Other Mining & Quarrying

Mining & Quarrying: Mining Support Service Activities

Secondary Sector

Manufacturing (Mfg)

Mfg: Food Products, Beverage & Tobacco Products

Mfg: Textiles, Apparel, Leather and Related Products

Mfg: Wood, Paper, Publishing Printing

Mfg: Coke, Refined Petroleum Products

79

Mfg: Chemicals & Chemical Products

Mfg: Pharmaceutical Products

Mfg: Rubber & Plastics Products & Other Non-Metallic Mineral Products

Mfg: Basic Metals

Mfg: Computer, Electronic and Optical Products

Mfg: Electrical Equipment

Mfg: Machinery & Equipment

Mfg: Transport Equipment

Mfg: Others

Electricity, Gas, Steam & Air Conditioning

Water Supply, Sewerage, Waste Management & Remediation Activities

Construction

Tertiary Sector

Wholesale & Retail Trade, Repair of Vehicles & Motorcycles (WR)

Transport & Storage

Hotels & Restaurants

Information & Telecommunication

Financial & Insurance Intermediation (FI)

FI: Financial Intermediation, excluding Insurance and Pension Funding

FI: Insurance, Reinsurance & Pension Funding

FI: Activities Auxiliary to Financial Intermediation & Insurance

Real Estate

Professional, Scientific & Technical Activities (PS)

PS: Legal & Accounting Activities

PS: Head Offices Activities & Management Consultancy

PS: Architecture, Engineering Activities, Technical Testing & Analysis

PS: Research & Development

PS: Other Professional, Scientific & Technical Activities

Administrative & Support Service Activities

Education, Health & Social Work

Other Service

Kyrgyz Republic:

Primary Sector

Agriculture, Forestry and Fishing

Mining and Quarrying

Secondary Sector

Manufacturing

Electricity, Gas, Steam and Air Conditioning Supply

Water Supply, Sewerage, Waste Management and Remediation Activities

Construction

Tertiary Sector

Wholesale and Retail Trade, Repair of Motor Vehicles

Transportation and Storage

Accommodation and Food Service Activities

Information and Communication

Financial and Insurance Activities

80

Real Estate Activities

Professional, Scientific and Technical Activities

Administrative and Support Service Activities

Public Administration and Defense, Compulsory Social Security

Education

Human Health and Social Work

Arts, Entertainment and Recreation

Other Service Activities

Mongolia

Primary Sector

Geological Prospecting, Oil Exploration and Mining

Trade and Catering Service

Banking and Financial Services

Light Industry

Engineering Construction and Production of Building Materials

Processing of Animal Originated Raw Materials

Information and Telecommunication

Transportation

Tourism

Production of Foods and Beverages

Culture, Education, Science and Press

Agriculture and Animal Husbandry

Secondary Sector

Light Industry




Transportation

Tourism




Furniture

Tertiary Sector

Trade and Catering Service

Banking and Financial Services

Light Industry




Transportation

Tourism




Furniture

Health and Beauty Services

81

Community Service

Documents

ASIA REGIONAL REPORT ON IMPROVING TRANSIT …unohrlls.org/custom-content/uploads/2017/05/ASIA... · costs in exporting and importing their merchandise goods compared to their transit