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Fiscal 2004 Pilot Demonstration Project for
Construction of an Advanced Trade and Investment
Environment
Report on the Demonstrative Project Relative to the
Development of Land Transportation Network in the
Greater Mekong Sub-region (GMS)
(Summary Version)
March 2005
Ministry of Economy, Trade and Industry
Administrator: Japan External Trade Organization (JETRO)
Summary
Chapter 1 Background and Purpose of the Project
1. Purpose of the project
This project will verify the practicality of transporting parts and products by truck, for production
by Japanese firms that have established local facilities, over a land transport route that extends
across Laos to connect Bangkok, Thailand with Hanoi in Vietnam, and clarify aspects for
improvement. When a land transport route between Hanoi and Bangkok is established in the future,
transit time will be shortened to two-thirds of the time required using existing ocean transport, and
stable transport also will become possible. The production and sales operations of Japanese firms
will accelerate as a result. The project also is expected to contribute to improving the investment
environment in the project countries and boost the economic development of Laos.
2. Items to be demonstrated
The project will implement a demonstration test by introducing an advanced Japanese logistics
system that meets the following needs of Japanese firms for land route distribution by truck
transport.
－ Assured safety
Prevention of damage to cargo (roads, bridges and transshipment facilities), vehicular
accidents, cargo pilferage and other problems
－ Assured punctuality
Use of truck movement control systems (particularly vehicle tracking using satellite
phones), and achievement of prompt, simple border customs clearance procedures
－ Improved economy
Reduction of parts and products in stock through reduced number of transit days (to
two-thirds of time required in the past)
1
Chapter 2. Status of Road and Bridge Construction
1. Current status of road and bridge construction on the project route
The research team conducted an on-site inspection in August 2004. The mileage, transport time
and average driving speed are shown in Figure 1 (mileage was measured using the odometer in the
automobile used for the survey).
Construction area
Bangkok
Thailand National Highway 2
L=419km, H=5:00
(83.8km/h)
Laos National Road No. 13
L=450km, H=6:00
(75.0km/h)
Vietnam National Highway 9
L=82km, H=2:00h
(41km/h)
Vietnam National Highway 1
L=290km, H=5.35
(52.0km/h)
Main cityRoute
implementation
Capital
Sit
inspection
e Legend
Hanoi
Laos/Vietnam National Highway 8
L=208km
Mekong River
Thailand National
Highway 2
L=180km, H=3:00
(60.0km/h)
Vinh
Thailand National Highway 209，213，
2042
L=260km, H=3.75h
(69.3km/h)
Khon Kaen
Vientiane
Savannakhet
Dong Ha Lao Bao
Laos National Road No. 9
L=214km, H=3:00h
(71.3km/h) Under construction L=30km
(36km/h)
Under construction L=20km
(35km/ｈ)
Vietnam National Highway 1
L=290km, H=3:50
(75.7km/h)
Figure 1 Mileage (L), transit time (H) and average driving speed per hour (km/h) based on on-site
inspection
2
The team traveled the entire route, all of which is paved in asphalt. Because improvement works
are being carried out on all of the routes, the network will not be closed to traffic because of
weather in either the rainy season or dry season.
All of the routes are made of asphalt paving, but Laos National Road No. 13 is low-cost road
pavement constructed using double bituminous surface treatment (DBST). Although this highway is
capable of handling current traffic volume, there is a possibility road surface damage will be severe
because of the increase in traffic volume and growth in truck traffic in the future.
Thailand National Highway 2 is well paved, infrastructure such as roadway facilities and rest
areas have been constructed, and the quality of the road infrastructure is excellent. In Laos, on the
other hand, the route has been constructed using low-cost road pavement and only the minimum
necessary road facilities required for vehicle traffic, such as delineators along curves. In Vietnam,
construction along National Highway 1 has been completed, but the improvement works on
National Highway 9 will not be completed until 2006 (the road can be driven in its current
condition, however, and the ADB budget also is approved and construction is expected to be
completed nearly on schedule).
As a result of this on-site inspection, we confirmed the road facilities improvements have reached
a state that will enable the pilot demonstration project (trial transport) to be implemented.
As an alternative route to this transport route, Laos/Vietnam National Highway 8 is a mountain
highway and has not been improved with a sufficient road environment; there are no plans to
improve this highway quickly in the near future. In addition, Thailand National Highway 209, 213
and 2042 have been improved, but the Second Mekong International Bridge that will connect to
these routes still has not been completed. Although the river can be crossed by ferry, there also is no
transshipment facility. Plans call for completing road improvements by the end of 2006 when the
Second Mekong International Bridge is to be completed (as planned according to the completion
period), however, and this route is likely to become an alternative land route between Hanoi and
Bangkok. Issues such as construction of transshipment facilities and other logistics-related
structures remain to be addressed, however.
2. Future issues for road infrastructure improvement
On this inspection trip we surveyed the implementation route and were unable to discover
locations that require immediate road improvement. Because budgets have been allocated and
construction is currently underway even for locations where improvements are thought to be
necessary, we believe the improvement works for this route will be completed in the near future
(end of 2006). Considering that traffic will increase in the future, however, we believe construction
3
of even higher quality road facilities will be necessary along the route between Bangkok and Hanoi
to meet increasing traffic volume, as indicated below.
－ Upgrade surface from low-cost road pavement to asphalt concrete, to reduce road
damage from increased traffic of trucks etc. (Laos National Road No. 13)
－ Install guardrails and other traffic safety facilities and lanes for motorcycles (bicycles)
like those introduced in Vietnam, to reduce conflict between various types of traffic
(general daily traffic, long distance traffic, etc.).
－ Establish procedures to ensure maintenance costs (particularly in Laos).
－ Proceed with improvement works on Laos National Road No. 8 (from a long-term
viewpoint).
－ Construct related facilities, including rest area facilities, so drivers can recover from the
exhaustion of long-distance driving.
4
Chapter 3 Ocean Transport Conditions
1. Current state of transportation by ocean transport
Nearly all distribution between Thailand and Vietnam is handled by ocean transport. The main
ports used for ocean transport are shown in the figure below.
Danang Port
Haiphong Port Cai Lan Port
Port of Laem Chabang
Bangkok Port
Ho Chi Minh City Port
Figure 2 Main ports for ocean transport between survey countries Bangkok and Hanoi
(1) Transport route and transit days required
In Thailand, ocean freight in the vicinity of Bangkok is handled through Bangkok Port and the
Port of Laem Chabang. In Vietnam, ocean freight in the vicinity of Hanoi is handled at Haiphong
Port. Although some cargo also is handled at Cai Lan Port near Haiphong, which is currently being
developed, the Bangkok cargo of Japanese firms still is not handled at Cai Lan. Ocean cargo
between Bangkok and Hanoi is transshipped enroute at Ho Chi Minh City Port. Domestic
Vietnamese companies provide transport between Ho Chi Minh City Port and Haiphong Port, and
depending on the circumstances, cargo is routed through Danang Port or through Hong Kong and
Singapore. Accordingly, the number of transit days in this region exhibits a broad range. Recently
six-day service has become available, but frequently traffic northbound from Bangkok to Hanoi
requires between ten and 13 days. Traffic in the other direction southbound from Hanoi requires
between ten and 15 days, with some southbound service through Hong Kong or Singapore requiring
5
fewer days than service via Ho Chi Minh City.
(2) Sailing frequency
For shipping service from the Bangkok region (Bangkok Port and the Port of Laem Chabang) to
the Hanoi region (Haiphong Port) there are about seven sailings per week by major shipping firms
from the Bangkok side and about five sailings per week from the Hanoi side.
Japanese firms in Bangkok generally think in terms of two sailings per week, however, because
shipping companies have two sailings per week at most, and firms that use these services
extensively have a tendency to sign an agreement with one shipping company.
(3) Transport volume
Although the survey team was unable to obtain ocean transport statistical data (from specific
ports to specific ports), looking at the trends for transport volume and export amount for Japanese
shipping companies between Thailand and Vietnam (nearly all transport between the two countries
is ocean transport, and it is believed the export data also can be considered to be nearly all marine
transport), both show an increasing trend. Moreover, this trade tends to be heavily one-way trade,
and compared to the transport volume and export amount from Thailand to Vietnam, the transport
volume and export amount from Vietnam to Thailand is smaller.
Table 1 Change in container freight volume handled by one Japanese ocean transport company
(Unit: TEU)
1999 2000 2001 2002 2003
Thailand to Vietnam 16,704 20,326 14,606 35,499 47,264
Vietnam to Thailand 2,152 2,493 4,425 6,038 9,671
(Source: Prepared by the research team from data provided from a Japanese ocean transport
company)
Table 2 Change in export amount between Thailand and Vietnam
(Unit: Million baht)
1999 2000 2001 2002 2003
Thailand to Vietnam 21,695.2 33,911.9 35,439.2 40,629.6 52,304.2
Vietnam to Thailand 8,686.5 13,330.5 14,520.6 10,311.3 13,874.3
(Source: Thailand Impact Focus 2003-2004, 3rd Edition (Alpha Research Co., Ltd.);
values for 2003 taken from the Thailand Customs Office website)
6
(4) Ocean transport-related facilities situation
There are two international cargo ports near Bangkok, Thailand that handle containers: Bangkok
Port (Bangkok), which is also called Klong Toey Port, and the Port of Laem Chabang. Both ports
are already fully operational in all aspects.
The Port of Laem Chabang already handles more than twice the cargo volume of Bangkok Port,
and Berth D is currently under construction. This port is managed by a private-sector company, and
the excellent efficiency of its operations have been evaluated very positively in shipping company
surveys. Access roads have been constructed to both ports, and both are also connected to Bangkok
by railway, but Bangkok Port suffers from traffic congestion because of its location in Bangkok.
There are two international cargo ports in northern Vietnam to handle containers, at Haiphong
Port and Cai Lan Port. Haiphong Port is already the most important port in northern Vietnam,
including container shipments. Because Haiphong Port is a river port its depth is shallow, and large
vessels cannot enter the port. The government therefore constructed a deepwater facility at Cai Lan
Port. Currently only part of the port is in use, however. The access road to Haiphong Port is linked
to National Highway 5, a two-lane vehicular road (three lanes at some points) of asphalt concrete
pavement from Hanoi, which is in good condition. In addition there is also a railway link, and
because the port is in Haiphong, the provincial capital, its inland areas also are adequate. There are
plans for an access railway to Cai Lan Port, which is expected in the future because the Bai Chay
bridge is currently under construction on the nearby national highway to connect Hanoi with the
region to the east. At the present point in time, however, the condition of the access road cannot be
called adequate, and the port’s hinterlands are also small, so this port must still be deemed an
“international port for the future.”
As the following table illustrates, the Port of Laem Chabang handles the overwhelmingly
majority of the containers handled at all three ports.
Table 3 Container volume handled at each port
(Unit: TEU)
1998 1999 2000 2001 2002
Bangkok Port 1,079,794 1,063,756 1,073,517 1,096,179 1,136,293
Port of Laem Chabang 1,559,112 1,828,460 2,105,262 2,312,438 2,656,651
Haiphong Port 183,805 198,799 214,000 227,000 335,000
Note: The research team was unable to obtain data for Cai Lan Port.
(Source: Containerisation International Yearbook, CSX World Terminals, 2000-2004)
(5) Ocean transport for Laos
Because Laos is a landlocked country and does not face the ocean, to secure a route to the sea
7
Laos determines its use of ports and harbors in consultation with Vietnam’s government.
2. Problems related to ocean cargo transport and future trends
Direct round-trip operations are not possible because of heavily unbalanced, one-way trade
issues and the problems large vessels face in entering ports, and transport between the two countries
is being carried out by way of Ho Chi Minh City or via third countries. It’s believed this one-way
trade trend will diminish with the development of Vietnam’s economy, but for the time being this
trend is expected to continue in the future.
Currently in Thailand, the construction of a new berth at Laem Chabang is underway, there are
also plans for improvements at Bangkok Port; creation of a system for infrastructure upgrades to
meet the growing demand for ocean transport in recent years is proceeding. On the other hand,
because Bangkok Port is located in the city, truck freight transport has a major impact on road
traffic. Thailand therefore must create a new road network or improve roadway capacity (eliminate
on-street vehicle parking, etc.).
In the northern region of Vietnam, where water depth is a problem and port entry by large-scale
vessels is restricted, Haiphong Port, which has the capacity to handle additional cargo, is likely to
remain at the center of shipping operations for some time to come in the future.
Because both the Bangkok area and the northern region of Vietnam boost two large international
ports, we believe clarifying the roles of these international ports and studying ways to use them
effectively, then implementing improvements to the required related facilities and introducing the
necessary systems will contribute substantially to the development of the ocean transport industry in
the future in both countries.
In Laos, given that the country is landlocked, we believe the government should study ocean
freight transport measures, such as bonded transport through Thailand, and strengthen its economic
cooperation and relationship with Thailand in the future, while ensuring a route to the sea through
Vietnam, as it does currently.
8
Chapter 4 Trial Transport (Truck) Pilot Demonstration Project
1. Verification details of the pilot demonstration project
As shown in the table below, the pilot demonstration project confirmed it is possible to reduce
the number of transit days required for ocean transport (about 10-15 days at sea), ensure safety and
ensure set schedules for ocean transport in tests involving both Thailand shipments bound for Hanoi
and Hanoi shipments bound for Thailand.
Table 4 Pilot demonstration project results
Number of transit
days
Safety Set schedule Transportation
method
Thailand shipment
bound for Hanoi
4 days
(delivery base 5
days)
By making consistent
transport possible, there
was no damage,
pilferage, etc.
Can control operations
with satellite phone,
simple border customs
clearance procedure
possible.
Consistent transport
with 20-foot
containers
Hanoi shipment
bound for
Thailand
4 days
(delivery base 5
days
Implemented
transshipment at the
Tanaleng terminal; no
damage, pilferage, etc.
Can control operations
with satellite phone,
simple border customs
clearance procedure
possible.
Consistent transport,
including
transshipment of
cargo from 20-foot
containers to 5t trucks
2. Status of creation of border customs clearance system
(1) Container agreement and TIR Carnet
The desired objective is promotion of international land route transport using containers, which
offer excellent advantages for ensuring safety.
The smooth international transport of containers has been made possible by two international
agreements enacted through international cooperation: a container customs clearance agreement
that stipulates containers as vessels, and the TIR Carnet, which provides for cargo loaded into
containers.
On the other hand, at this point in time, Thailand, Laos and Vietnam still have not signed either
agreement, and the time required to sign these treaties is seen as an issue. Nevertheless, the GMS
(Greater Mekong Sub-region) Cross Border Agreement to which the three countries are signatories
seeks to accelerate and standardize customs clearance procedures across all three countries, and
establishment of the detailed provisions of this agreement in a form similar to the provisions of the
9
container customs clearance agreement and TIR Carnet, and implementation at an early stage, are
expected in order to promote land route transport of containerized cargo.
(2) Creation of a transit customs clearance system
For this pilot demonstration project, given the current situation in which there are no rules for
transit customs clearance, special agreements in writing will be exchanged between Lao P.D.R
Customs and businesses and implemented according to special rules. We hope to see the early
introduction of a standardized border customs clearance system when this arrangement is put to
practical use in the future.
3. Construction of transshipment facilities
Because Thailand, Laos and Vietnam have not concluded transport agreements, neither Vietnam
nor Thailand recognizes mutual carriage by commercial vehicles from the other country, and
therefore transshipment of freight is always required. One future issue is whether a system can be
constructed for safely and efficiently handling freight such as these freight transshipments in Laos.
4. Stimulation of international transport centered on Laos
For Laos, the major issue is how to attract investment to the Savannakhet region, which includes
the Savan-Seno Special Economic Zone project (a JICA survey will be implemented; positioned as
one of ADB’s GMS development plans) where the Second Mekong International Bridge is under
construction. The development of logistics after the international transport hard infrastructure
construction is completed, which is scheduled to be finished in fiscal 2006, will be important and
we believe the assistance of Japan’s Government, including implementation of the special
economic zone concept, also will be requested.
5. Issues for establishment of an efficient land transport route
(1) Comparison between ocean transport and truck transport
As the comparison in the following table between truck transport and other forms of conveyance
shows, proving through this pilot demonstration project that the advantages of truck transport will
(a) enable goods to be shipped at any desired time and (b) make it possible to shorten required
transit time (compared with ocean transport, the normal transport method) can be hailed as a major
success.
10
Table 5 Comparison of conveyance modes Physical volume: 20m3
Scope: Door-to-Door (Bangkok door – Hanoi door) MODE VOLUME TRANSIT TIME COST
Ocean transport (FCL) １TEU 10-15 days US$ 1,000.-
Air transport 3,334 kg ２-３ days US$ 4,000.-
Truck transport (FCL) １TEU ４ days US$ 2,500.-
* Does not include import and export customs clearance costs in the shipping region and
receiving region.
(2) Improvement in transport cost competitiveness
With regard to the high transport cost compared with ocean transport we believe it is possible,
through means such as this pilot demonstration project, to visualize the uncertain aspects such as
border procedures, lay the groundwork from a legal perspective including the customs clearance
system, improve the transport utilization environment and make specific improvements that will
generate freight demand. Moreover, the construction of a new land transport route for handling
parts and products for production by Japanese firms can be expected after expansion of transport
facilities is achieved with completion of the Second Mekong International Bridge linking Laos and
Thailand by the end of 2006.
Table 6 Comparison between the pilot demonstration project route and new land transport route
Transshipment point Transport distance Transit days
Pilot demonstration project route Tanaleng 2,000km 4 days
New land route transportation route Savannakhet or Seno 1,500km 3 days
11
Pilot demonstration project route New land route transportation route
Second Mekong
International Bridge
Figure 3 Land route between Bangkok and Hanoi
(3) Orientation of preferred future transport in Laos
Adopting a hub-and-spoke system, providing cranes and forklifts and creating indoor warehouse
facilities based on expected future growth in transit goods demand and transshipments, and
expanding customs area bonded warehouses and other border transshipment facilities, will be
required in Laos, the country of transit for freight being transported from the country of
embarkation to country of destination. Expanding high value-added logistics functions such as cross
docking and logistics processing, and clarifying the presence of Laos in the Greater Mekong
Sub-region (GMS), can also be anticipated.
12
Chapter 5 Social and Economic Trends in the Subject Countries
1. Economic trends
(1) Economic trends in Vietnam
After achieving growth in excess of 10% annually in the mid-1990s during the so-called Vietnam
boom, Vietnam was plunged into a temporary recession caused by the effects of the Asian monetary
crisis and other factors. Since then, however, Vietnam has achieved steady economic growth. Over
the past ten years, the country’s secondary industries have enjoyed 11% annual growth and have
been the driver for Vietnam’s economic growth.
The proportion of total industrial output accounted for by production by foreign firms has been
increasing every year, and the procurement logistics and product logistics by foreign firms, which
are believed to have a higher import rate and higher re-export rate than domestic firms, has led to an
increase in international transport volume.
The contribution of Hanoi’s GRDP (Gross Regional Domestic Product) to Vietnam’s GDP
increased from 23.2% in 1990 to 26.8% in 1999. Since the 1990s, Hanoi’s GRDP has continued to
grow by 10% or more annually, well in excess of Vietnam’s 2-3% average annual growth.
Secondary industries are expanding rapidly in Hanoi as well, and according to Hanoi’s estimated
calculations are projected to grow at an annual rate of 14-15% in the future, centered on
manufacturing.
As a result of privatization and the introduction of foreign capital after the transition to a market
economy, approximately 18,000 private companies are estimated to exist already in Hanoi.
Japanese manufacturing firms in recent years are seen to be developing through an approach that
regards the northern area of Vietnam as a new territory for business while expanding existing
offices in Ho Chi Minh City.
(2) Economic trends in Laos
The economy of Laos, which achieved official membership in ASEAN in 1997, suffered from a
currency devaluation and high rate of inflation during the Asian economic crisis. Since 2000,
however, economic growth has been driven by manufacturing industries such as the clothing
industry, motorcycle assembly and construction, and the economy continues to grow at an annual
rate of around 5%.
Statistically, the area with the most firms is the capital Vientiane, followed by Savannakhet
Province. When viewed by industrial composition, for both Laos as a whole and Savannakhet
Province, the largest industries are agriculture and forestry, followed by services and then
manufacturing and construction, but both manufacturing and the construction industry are growing
rapidly.
13
(3) Economic trends in Thailand
Industrialization continues to advance in Thailand, which has fulfilled the role of driving the
economies of the Indochina peninsula and ASEAN. In 2002, the manufacturing and construction
industry sectors accounted for 45% of the economy.
The gap in economic scale on the Indo-China peninsula between the so-called CLMV nations
and Thailand continues to expand, and Thailand’s per capita GDP is now more than five times
larger than the per capita GDP in Laos or Vietnam.
Promotion of the GMS expansion and cooperation program proposed under the ADB’s initiative
has attracted attention from the standpoint of both eliminating this disparity with neighboring
countries and its significance for shared development. The land route linking Thailand, Laos and
Vietnam has been positioned as a policy tied to economic development and the eradication of
poverty in the region, based on the “creation of an economic corridor” through investment aimed at
promoting transportation and trade and through industrial growth and the development of tourism.
(4) Comparison among Vietnam, Laos and Thailand
Looking at the GDP for each country as a whole, Thailand has the overwhelmingly largest
amount. In terms of growth rate, however, Vietnam shows the fastest growth rate because it has the
highest per capita GDP, and since 1980 its economy has expanded by roughly 8.9 times, the largest
growth among the three countries.
In recent years other differences can also be noted, such as the varying approaches to business
development by country. For example, efforts by foreign manufacturers including Japanese firms to
shift manufacturing bases from other countries in the ASEAN region to Vietnam have been noted,
and many firms that are expanding their production facilities and offices have located their sales
offices in Hong Kong and Singapore, set up high value-added manufacturing bases in Thailand and
built production bases in Vietnam to expand their sales of goods.
2. Transport and trade trends among Vietnam, Laos and Thailand
(1) Structure of trade between Thailand and Vietnam
Looking at the movement of goods from Vietnam to Thailand, machinery and mineral production
goods account for the largest share, and total trade volume has increased since 1999.
When the movement of goods to Vietnam from Thailand is examined, minerals, machinery,
chemical products and metals and metal products account for a comparatively large share of trade.
(2) Structure of land trade among the three countries passing through Laos
There are a number of land routes connecting Thailand and Vietnam via Laos, with all of the
14
major routes pass through Savannakhet Province, which has become a relay point in Laos. The
transit freight from distribution in this region moving over the land route connecting these three
countries is almost identical in both directions, and totals more than US$6.0 million annually each
direction, respectively. When import and export freight having a shipment and destination point in
Laos are added to these shipments, freight with a total value of roughly US$40.0 million annually
from the Vietnam border side, and freight with a value ranging between US$40-US$60 million
from the Thailand border side, passes through Savannakhet.
15
The figure below has been prepared as a concept diagram showing the pilot demonstration
project land transport route connecting Bangkok and Hanoi and the location of firms in Hanoi
(Vietnam).
Bangkok
(Hanoi location characteristics) ☞Excellent, low-cost manpower - Many higher education institutions,
strong language abilities - Personnel costs 20% lower than in
Ho Chi Minh City ☞Geographic center of ASEAN - About 1,500km to Bangkok, Ho
Chi Minh City and Hong Kong ☞Nearest to southern China as a
production base for exports to China- Firms that procure parts from
Thailand can shift to procurement from southern China in the future
☞Has grown as a second base for firms moving into Ho Chi Minh City
☞Safe location, expatriates and their families can live comfortably
(Vietnam’s advantages) ☞Abundant labor force - Personnel costs 30% less than in
southern China - Labor relations are stable,
workforce stability is high ☞Domestic market of 78 million also
attractive ☞Politically and socially stable
New investment by Japanese firms has increased since 2000
Hanoi
Contributes to eliminating these issues as industrial infrastructure
Mekong transport Establish land route
(Issues) ☞Supporting industries are weak - Skilled worker shortage - No electrical products or
machinery industries
☞Extensive procurement of semi-finished goods from abroad, which runs up the cost
(Characteristics of Ho Chi Minh City ☞Twice the number of firms, triple
the production volume of Hanoi ☞Access to Saigon Port, the largest
in Vietnam
☞Access to ASEAN countries
Ho Chi Minh City
Japanese firms that moved into Vietnam since the 1990s are expanding investment
Figure 4 Conception of how the Mekong land transport route will contribute to firms located in
Vietnam (Hanoi)
16
Chapter 6 Development Plans and Trends at Japanese Firms in the Subject Region
1. Development plans in the subject region
(1) Greater Mekong Sub-Region (GMS) Program
The Greater Mekong Sub-Region Program is a program to promote economic integration in the
Indochina region and create a single economic region composed of Laos, Cambodia, Myanmar,
Thailand, Vietnam and Yunnan Province in China. The program encompasses the following three
efforts.
① Form transportation and traffic, telecommunications and energy networks, and construct
closer linkage among the six countries and region
② Integrate GMS markets, to promote trade and investment
③ Increase opportunities for policy dialogue among the GMS member countries, and
promote cooperation on international infrastructure construction and management, labor
force mobility, and trade and investment rules and regulations.
(a) Indochina east-west corridor construction plan
The Indo-China east-west corridor, including National Highway 9, is part of the pilot
demonstration project route and was positioned as the main transportation corridor by the GMS
nations in 1998. National Road No. 9, the main trunk line in Laos, was completed in 2004 with
financial assistance from Japan and the ADB, and the Second Mekong International Bridge is
scheduled to open to traffic at the end of 2006.
Accessibility by land route among Thailand, Laos and Vietnam will be improved with the
construction of the corridor, and some amount of the trade goods currently moved by ocean
transport is expected to shift to land conveyance because of its comparative advantages, such as a
reduced number of transit days.
(b) Mukdahan development plan (Thailand)
Mukdahan is located at the “entrance” to Laos and Vietnam through the Indochina east-west
corridor. Development as a “special economic zone” forming a logistics and industrial base to take
advantage of the development potential offered by the Second Mekong International Bridge was
proposed in JICA’s Comprehensive Development Plan Survey for Thailand’s Northeastern Border
Region, completed in 2001.There is little specific activity at this time, however.
(c) Savannakhet Economic Development Zone (Laos)
With the opening created when Laos became a member of ASEAN in 1997, a concept for the
creation of a special economic zone that could grow into a production base at the river crossing at
17
Savannakhet and Mukdahan was drafted in conjunction with construction of the Second Mekong
International Bridge. During 2001 JICA’s Development Plan Survey for the Laotian Border Region
was implemented, and a study of the development potential at four special economic zone locations
in Savannakhet Province that had been studied by the Laotian government was conducted and a
development plan for two zones with strong potential was prepared. Purchases of the sites to be
used are now being made. In particular, site purchases in Seno where the distribution facilities will
be established is expected to be completed in fiscal 2004.
(d) Lao Bao Economic Development Zone (Vietnam)
After being authorized by Vietnam’s government, this development zone was established on
November 12, 1998 as the Lao Bao Commercial and Economic Development Encouragement Area.
This development zone is composed of two cities (Lao Bao, Khe Sanh) and the five towns of Tan
Thanh, Tan Long, Tan Lap, Tan Lien, Tan Hop and Huong Hoa, all of which are located along
National Highway 9 about 60km west of Dong Ha, the provincial capital in Quang Tri Province,
along the border with Laos. There is partial use of a bus terminal, and construction of the facilities
is moving ahead.
2. Trend in foreign direct investment in the subject region
(1) Investment trend in ASEAN
The top investing countries in terms of foreign direct investment amount received by ASEAN
countries from 1995 to 2002, on a balance of international payments basis, were the United States
(18.2% of the total), Japan (15.0% share) and Great Britain (10.3% share). The latest information
indicates that investment within the ASEAN region over the past few years has been increasing
rapidly; direct inward investment for the first six months of fiscal 2004 (April-September) totaled
US$20,317 million, 2.4 times the amount in the same period of the previous year, while foreign
direct investment was US$18,470 million dollars, 14.1% lower than in the same period of the
previous year.
(2) Investment trend in Vietnam
A sharp increase in foreign direct investment (FDI) in Vietnam begin in 1992 and expanded
steadily until 1995, but then fell substantially between 1997 and 1999 because of the Asian
financial crisis. Although the amount of investment has slumped since 2000 because of the global
economic slowdown, the number of cases of investment has been increasing, and small and
medium- scale direct investment is growing.
By country, investment from Japan is the third largest on a total authorization basis amount, but
on an investment execution basis Japan remains in the number one position. The investment from
18
Japan is concentrated in the leading industrial sectors, and is characterized by its support of
investment in basic industries for country building.
According to JETRO’s estimate (article on trade relations dated June 17, 2004), new investment
in the northern part of Vietnam (Hanoi, Haiphong, etc.) has grown to over four times the amount of
investment in southern Vietnam (Ho Chi Minh City, Binh Duong Province, Dong Nai, etc.). This
has occurred because of the trend in Japanese firms with a base in southern Vietnam establishing a
second foothold in the north.
(3) Investment trend in Thailand
Japan’s cumulative direct investment in Thailand (from 1985 to 2002, registered basis) makes
Japan the largest investor nation in that country, accounting for 44.3% of total investment, followed
by the U.S. (9.6%), Taiwan (7.3%), the Netherlands (4.3%) and Singapore (4.2%).
Japan was the largest investor nation in 2003 as well, accounting for 46% of all investment. The
main industries in which Japanese firms invest have been metal products, machinery, electrical and
electronic goods, chemical products and paper.
(4) Investment trend to Laos
Based on the cumulative amount of authorized direct investment in Laos (from 1988 to 2000,
balance of international payments basis), Thailand is the largest investor nation in Laos, accounting
for 50.7% of total investment (US$2.93 billion). The next largest investors in order of amount are
the United States (US$1.49 billion), South Korea (US$630 million), Malaysia (US$290 million),
China (US$87 million) and Great Britain (US$70 million). By the way, in ODA Japan is the largest
donor country, but ranks 13th in total direct investment with US$19 million. A total of 33 Japanese
firms have established operations in Laos, of which 11 firms have made investments in the service
sector, eight are in industries and handicrafts, six are in agriculture and four are in lumber (as of
September 2002).
3. Future investment trends at Japanese firms
According to the results of a questionnaire survey conducted by JETRO (Business Conditions for
Japanese Manufacturers in Asian Countries, implemented in January 2004) and covering Japanese
manufacturers with operations in Asian countries, ASEAN is very much in the spotlight currently.
Few of the firms with operations in Thailand and Vietnam that responded to the survey plan to
reduce or close their operations, and many intend to expand their business.
As in the prior year’s survey, when examined by country China remained the Number One
country in fiscal 2003 where firms hope to establish a presence, followed by Thailand and the
United States. Vietnam improved its rank, moving up to fourth place. By industry as well, the top
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targets for every industry in order were China, Thailand and the U.S. Vietnam won support for
fourth place in chemicals, general machinery, and electrical and home appliances, and ranked sixth
in the automobile industry.
The evaluation of Vietnam has risen every year, and the number of firms that hope to move into
Vietnam is increasing rapidly as well, increasing from 35 companies out of 372 companies in 2000
to 62 of 418 companies in 2002, and 88 companies out of 490 in 2003. The main reasons for firms
moving into Thailand and Vietnam are as follows.
Reasons for advancing into Thailand
“Low-cost manpower,” “potential as a future market (Greater Mekong Sub-region),” “supply
base for final processing,” “political and social stability” and “as an export base to third countries.”
Reasons for advancing into Vietnam
“Potential as a future market (80 million people),” “low-cost manpower,” “high-quality
workforce” and “reduce risk through diversification.”
Concerning the concentration of supporting industries, procurement of raw materials and parts
and procurement logistics, 28% of all firms cited these as an issue in Vietnam, the highest
percentage among the ten countries considered by the survey. Moreover, looking just at Vietnam,
the matters enumerated most frequently as issues are inadequate infrastructure and the lack of
transport functions as industrial infrastructure.
We believe this pilot demonstration project offers the possibility of a logistics function as
industrial infrastructure that will precisely address the issues of immature supporting industries and
the procurement logistics problems originating in this condition, which were indicated particularly
for Hanoi, by linking Hanoi and Bangkok with a land route.
4. Results of the questionnaire survey concerning transportation
JETRO conducted a questionnaire survey of Japanese firms that have set up operations in
Thailand and northern Vietnam, in order to understand the transportation situation for raw materials
and products between Thailand and northern Vietnam and prepare a proposal for improvements
concerning the land route distribution over this new route.
Although the number of responses was small, many of the responding firms indicated regularity
and transit time are critical issues. There also are firms planning to establish a presence in Hanoi or
procure parts from Thailand, and we believe there is a possibility these firms can move into this
market if land route distribution and transport between Hanoi and Bangkok produces positive
results, including safety.
20
Chapter 7 Proposal to the Laos Government Concerning Promotion of Land Route
Transport
1. Current conditions and problems in Laos
(1) Summary of the economic and social characteristics of Laos
When considered as a target for investment, along with its small total population and small size
as a market Laos also has a small labor force. Because manufacturing is underdeveloped, Laos has a
small industrial base as well. Under present conditions there is little demand for transportation, and
a phased industrial promotion program will be necessary in the future. Investment in electric power
and roads is returning, and investment continues to grow in commerce, agriculture and forestry,
mining and manufacturing, and tourism.
(2) Transportation in Laos
According to the LFFA (Lao Freight Forwarder Association), a transportation industry
organization that covers all 17 provinces in Laos, overall the volume of freight shows a marginal
rising trend, even though volume has repeatedly risen and fallen since the Asian financial crisis in
1997. The bulk of goods handled as imports is machinery and parts for construction projects, while
textile goods being shipped to Europe via Thailand account for a large percentage of exports. In
volume handled, Thailand’s share of total volume handled is about 90%, with Vietnam accounting
for the remaining 10%.
(3) Issues pertaining to investment in Laos
The following factors can be given as reasons investment is weak.
① Unattractive because the total market population is only 5.35 million people; ② small work
force; ③ wage levels are high considering the fact labor quality is not always very good; ④
transportation infrastructure (roads, transshipment facilities and equipment, freezer and refrigeration
facilities) is incomplete; ⑤ because the country is landlocked (enclosed by five neighboring
countries), customs duties are assessed on imports and exports and transport costs to port are
expensive; ⑥ the Laotian government is ardent about attracting investment, but follow-up with
firms establishing a presence is insufficient; ⑦The Laotian government’s investment policies are
in flux, and policies are inconsistent or contradictory.
2. Laos’ vision for future development of Mekong land route transportation
(1) Direction of future development in Laos
A full 80% of Laos’ population works in agriculture. Consequently, agriculture and forestry are
key industries. Based on these industries, the Laotian government is promoting modernization and
21
industrialization by 2010, with the goal of shrinking or eliminating the poorest segment of the
population, and is seeking to convert the economy from an agricultural-led economy to an
industrial-led economy by 2020.
The following items can be considered as factors giving Laos a high, short-term potential for
development of local industries.
① Laos has abundant primary commodities (rice, lumber, mineral resources) that can be
used to foster agricultural product processing industries using these commodities as raw
materials
② Promotion of agricultural product processing industries that use Laos’ ample tourism
resources, beginning with Luang Prabang, which is registered as a UNESCO World
Heritage site (“one village one product,” souvenirs)
As goods and people are stimulated through the integration of markets in the Greater Mekong
Sub-region (GMS), and as the construction of transport infrastructure utilizing the east-west
corridor development plan moves ahead and a structure of mutual parts procurement in the Mekong
and ASEAN region is developed centered on Thailand, where foreign investment by Japanese firms
and others is concentrated, and on Vietnam, where investment will grow in the future, there will be
possibilities for strengthening industrial cooperation between Thailand and Vietnam and the
Japanese firms establishing operations in these countries.
When the above is taken into consideration, construction of a production base that unifies the
Greater Mekong Sub-region (GMS) and creation of a product transport network will become
possible. Given such an environment, Laos possesses the following industrial development potential
over the medium to long-term.
① Pursue participation in the processing industries (lumber, mineral and agricultural
products) of Thai and Vietnamese firms, and promote quality improvements
② Achieve quality improvements, and foster the agricultural products processing industries
in the form already developed as export products using Laos’ domestic capital, through
promotion of the agricultural products processing industries indicated above.
③ Value-added processing (gold work etc.) of Laos’ abundant mineral resources (gold, tin,
etc.), followed by expansion to domestic capital beginning with foreign capital as
described above
④ Begin parts manufacturing for Thai and Vietnamese firms
⑤ Promote manufacturing as a secondary supply base through cooperation with Japanese
firms establishing operations in Thailand, Vietnam and other countries
22
(2) Promotion of manufacturing from medium to long-term perspective
As described above, Laos must seek to promote the phased introduction of manufacturing as a
secondary production base in the future according to the degree of industrialization. Furthermore,
development as a secondary production base using foreign capital, including Japanese firms setting
up operations in the subject region, will also become important.
To promote and support these efforts it will be necessary to promote development and expansion
of the Savan-Seno Special Economic Zone (SSEZ), disseminate investment-related information
through the DDFI (Domestic and Direct Foreign Investment Promotion and Administration Bureau)
and undertake efforts such as simplification of investment laws and expansion of the preferential
treatment system. Vientiane, situated at the intermediate position along the south-north corridor
(Thailand-Vientiane-Yunnan Province), also has potential for development of an industrial zone,
and it will be necessary to push an industrial promotion plan for Laos as a whole, including these
efforts.
3. Proposal for a transport-related customs clearance system and facilities improvement plan
(1) Improvements to the customs clearance system
Thailand, Laos and Vietnam still have not concluded customs clearance agreements concerning
containers or agreements concerning international transport related to international highways (TIR
Carnet). The GMS cross-border agreement to which the three countries are parties, however,
promotes consultations among all concerned parties to develop the detailed provisions of this
agreement along the lines of both of the former agreements with the aim of acceleration and
standardization of the customs clearance procedures extending across national borders. Accordingly,
establishment of the detailed provisions of this agreement and their early implementation is
expected, in order to promote land route transport to handle containerized cargo.
The Laos Custom Bureau also is matching the pace of the discussions over the detailed
provisions for this agreement, and is giving top priority to promotion of road use and studying the
introduction of tariffs or tolls to assess tariffs at some percent of the freight product price, as a
measure to prevent leaks from import duty assessments, which are a source of national income, and
as a source of income to cover the national highway management and maintenance costs that attend
over-the-road transport.
The 13th Ministerial Conference on Subregional Economic Cooperation in the Greater Mekong
Sub-region was held in Vientiane on January 4, 2005. Laos and Vietnam signed a traffic agreement
at the conference, which will enable the countries to implement customs procedures based on
one-stop service for cargo from Vietnam at Dan Savan on the Laotian side of the border and for
cargo from Laos at Lao Bao on the Vietnam side of the border, respectively. Moreover, the goal is
to conclude a traffic agreement with Thailand at the end of 2006, but this will require promoting the
23
conclusion of a traffic agreement with both neighboring countries in the future. At some point, it
will be necessary to realize smoother distribution by standardization and simplification achieved
through the introduction of a computerized customs clearance system.
(2) Transport-related Facilities Improvement Plan (Border Transshipment Terminal Construction
Plan)
JETRO will propose construction of a border transshipment terminal at Savannakhet Economic
Development Zone District B (a priority project in conjunction with opening the Second Mekong
International Bridge to traffic), which will become a logistics base in the future, to achieve border
customs clearance in line with construction and enhancement of distribution infrastructure.
(3) Promote and strengthen the transport industry
For freight arriving in and departing from Laos it will be necessary to plan for the promotion and
enhancement of international logistics companies, beginning with promotion of the domestic
transport industry. This will mean strengthening competitiveness in response to growing transport
demand based on the diversification of local industry as industrialization progresses. Strategically,
we propose working to promote transport businesses that can support manufacturing-related
logistics, together with promotion of the local industries and construction of logistics and
processing zones at the special economic zones by foreign investors.
(4) Other infrastructure construction plans to support transport
(a) Enhancement of port facilities in Vietnam
To open Laos, a landlocked country, to ocean traffic, concluding a ports use agreement to
maintain access to ports in Vietnam and development of ports as a gateway to the sea in Vietnam
will be critically important.
(b) Expansion of the Savannakhet International Airport
We propose a study for upgrades to Savannakhet Airport, because expansion of the airport can be
expected to enhance its function as the main entry into Laos and attract investment in inland
industrial development and tourism through direct flights to Bangkok Airport, which is located in
the heart of the Greater Mekong Sub-region.
24
Chapter 8 Proposal For Improvements to the Subject Route
The improvements to the land transport pilot demonstration project route connecting Bangkok
and Hanoi that have been highlighted in each chapter are summarized below.
(1) Road facilities upgrades
－ Road pavement improvements:
The road burden will increase as traffic volume including trucks grows. The highways
in Thailand and Vietnam are paved with asphalt concrete, but because the road
pavement in Laos is paved with low-cost DBST, it will be necessary to monitor how
traffic volume increases and upgrade the pavement to asphalt concrete in the future.
－ Road infrastructure improvements:
We believe installation of guardrails, creation of dedicated motorcycle and bicycle lanes
and construction of by-pass roads will be necessary as measures to prevent conflicts
between local daily traffic and long-distance traffic as traffic volume increases.
－ Establishment of procedure to ensure maintenance costs:
It is important not only to build the highways but also to maintain the quality of the road
infrastructure. Laos in particular is weak from the perspective of maintenance and
management capital, and relies on sources such as ADB capital.
－ Driver rest areas etc.:
Establishing highway rest facilities, including the addition of “roadside station”
functions in the future, will be studied from the standpoint of driver health and traffic
safety.
－ Enhancement of land route network:
Once the number of alternative routes in Greater Mekong Sub-region increases and a
larger network is developed, new transport potential can be anticipated along with the
mitigation of traffic interruption risk. Over the long term, we hope to see progress in
improvement work on National Road 8 in Laos as an alternative to this route.
(2) Customs clearance-related issues
－ Improvements to the border customs clearance system at the Laos border:
When the route is put to practical use in the future, the introduction of a standardized
border customs clearance system in the Greater Mekong Sub-region as early as possible
will be a positive step. At some point in the future it will be necessary to make transport
even smoother by introducing a computerized customs clearance system.
－ One-stop inspections:
25
Reducing customs clearance time is a critical issue for transportation; currently each
country is studying how and when to implement one-stop inspections and simplification
of inspections is desired.
(3) Distribution facilities-related issues
The construction of a border transshipment terminal will be proposed in order to upgrade and
consolidate the logistics infrastructure at the Savannakhet Economic Development Zone District B
(a priority project in conjunction with the opening of the Second Mekong International Bridge to
traffic), which will become the logistics base for promoting this project.
製品等、様々な輸出入貨物のニ－ズに対応製品等、様々な輸出入貨物のニ－ズに対応bonded warehouse storage of freight
ングング
内陸コンテナデポ運営内陸コンテナデポ運営
スムスム--ズなコンテナポジショニズなコンテナポジショニ実現による輸送費用軽減実現による輸送費用軽減
Inland container terminal
Reduce transport costs by
貨物積替タ－ミナル併設貨物積替タ－ミナル併設
最新式各種荷役機器を活用した最新式各種荷役機器を活用した
効率的且つ安全な貨物積替実現効率的且つ安全な貨物積替実現
achieving smooth positioning
Transshipment terminal
Achieve efficient, safe freight transshipment utilizing the
most advanced loading equipment
Customs office, standardization and simplification of border
customs clearance procedures
トラックタ－ミナル運営トラックタ－ミナル運営
柔軟・確実なトラック運行計画の策定、運行管理柔軟・確実なトラック運行計画の策定、運行管理
Trailer terminal yard
Plan, implement and manage flexible, reliable
truck operation plans
Figure 5 Artist’s conception of t
(4) Promotion of transport businesses
－ Training to acquire technology and m
businesses
－ Dispatch of specialists to assist pro
Japanese firms)
－ Training for computerization of infor
customs clearance (training system)
－ Active use of customs officer training p
26
Ｆreeree Trade Zonerade Zone内保税倉庫運営内保税倉庫運営Ｆ T
貨物の保税保管実現により、生産用部品、貨物の保税保管実現により、生産用部品、
Bonded warehouse operation in Free Trade Zone
Respond to various import/export cargo needs, including
parts and products for production, through creation of
国境通関事務所併設及び国境通関手続の統一化と簡素化国境通関事務所併設及び国境通関手続の統一化と簡素化
スム－ズな国境通関手続によるリ－ドタイム削減スム－ズな国境通関手続によるリ－ドタイム削減
Reduce lead time through smooth border customs
clearance procedures
he border transshipment terminal
anagement technology through foreign logistics
vision of advanced logistics services (private
mation in conjunction with computerization of
rograms (Japan)
(5) Plan for infrastructure construction to support transportation
－ Upgrade of port facilities in Vietnam:
Promote port harbor improvements to implement cargo shipments and arrivals from
international ports in Vietnam.
If possible, conclude a practical agreement to coordinate Laos’ future transport, industry,
trade, and other policies concerning operation of a ports use agreement between the two
countries.
－ Upgrade of Savannakhet International Airport:
Upgrades to use the Savannakhet Airport as an international airport will be studied, to
achieve further progress on development of tourism and inland manufacturing through
shared use with Mukdahan on the Thailand side.
(6) Other
－ Traffic safety education:
The risk of traffic accidents caused by large-size vehicles will increase along
neighboring routes. Preparing and implementing measures to achieve road safety by
drivers as well as residents living in areas along the highway will be necessary.
－ Health-related education:
The areas along the route have a high rate of AIDS and malaria infection. There is a
possibility the increase in traffic will result in spreading these diseases, and healthcare
education will be necessary to combat this danger. Operation of common medical care
systems and public health measures programs in each country will be studied.
27
Laos National Road No. 13
・ Roadway improvements
・ Route facility improvements
(Traffic safety facilities
improvements, etc.)
・ Ensure maintenance costs
・ Driver rest areas, etc.
Vietnam National Highway 9
・ Road facility improvements
(Upgrade traffic safety
facilities, etc.)
Laos/Vietnam National Highway 8
・Upgrade as an alternate route
(Long-term plan)
Khon Kaen
Future issues Capital
o
Laos National Road No. 9
・ Road facility improvements
(upgrade traffic safety facilities, etc.)
・ Ensure maintenance costs
・ Drive rest areas, etc.
Savannakhet
Savannakhet
・ Border transshipment terminal
・ Upgrade to international airport
Mekong River
Currently under construction: L=30km
Scheduled for completion in 2006 (including Second
Mekong International
Currently under construction: L=20km, scheduled for completion in 2006
Vietnam National Highway 1
・ Road facility improvements
(Bypass, etc.)
・ Driver rest areas, etc.
Is
・
・
・
・
L
・
・
Bangkok
sues common to all t
Improvements to b
One-stop inspecti
Traffic safety educ
Health-related edu
aos-related issues in
Cultivation of trans
Upgrade to Vietna
Vientiane
Bold line
demonstrat
hree countries
order customs system
ons
ation
cation
addition to the above
port businesses
m’s port facilities as gateway to the sea
Figure 6 Construction issues along the su
28
Dong Ha
ion
bje
Vinh
P
route
ct rou
Hanoi
ilot
te
Main cityLegend
Lao Ba
Construction area
