Freeing Trade in the Greater Mekong Subregion

The Mekong region has become a hotbed of regional initiatives involving mainland Southeast Asian countries and a growing number of extra-regional powers. The Greater Mekong Subregion (GMS) Program that brings together Cambodia, Laos, Myanmar, Thailand, Vietnam and China (specifically Yunnan Province and Guangxi Zhuang Autonomous Region) is the most established of these. It has the best chance to boost the economies of ASEAN’s poorer and newer mainland Southeast Asian member states and reduce the development divide among ASEAN member states.   

The GMS Program, established in 1992, promotes regional economic integration through the improvement of physical connectivity and facilitation of trade and investment. Transport and trade facilitation is one of the Program’s nine focus areas. The GMS presents an opportunity for traders and investors to access a massive market. In 2019, the combined gross domestic product (GDP) of the six GMS Program member countries was US$15.2 trillion (with China accounting for over 94 per cent of this), almost five times larger than the US$3.2 trillion GDP of the ten ASEAN member-states combined. 

Realising the GMS’ trade potential and the GMS Program’s economic integration aspirations remains a challenge as trade facilitation reforms lag behind improved physical connectivity. The development of the GMS Program’s three main transport corridors, the East–West, the North–South, and the Southern, has reduced travel times. The completion of road projects in the East–West Corridor linking Laos and Vietnam and the Phnom Penh–Ho Chi Minh City Highway linking Cambodia and Vietnam could more than halve travel times. 

Promoting cross-border trade along these corridors requires common logistics and customs standards and practices, and efficient trade and transport facilitation. A key GMS Program initiative for this is the implementation of the Cross-Border Transport Facilitation Agreement (CBTA). One of the agreement’s objectives is to simplify or harmonise trade and transport procedures for vehicles carrying people and goods across member countries’ borders. However, the implementation of the CBTA’s trade facilitation measures faces three key challenges; weak border clearance procedures, insufficient investment in border infrastructure for goods’ processing, and poor institutional mechanisms for supporting trade facilitation.

The limited progress on trade facilitation reform in the GMS means that traders, freight forwarders and truck operators still have to comply with very different documentary and procedural requirements imposed by member countries. An analysis of the 2019 data on cross border trading from the World Bank’s doing business database reveals that the number of documents required for imports ranges from 8 in China and Vietnam to 9 in Cambodia and Thailand, 10 in Laos and 13 in Myanmar. Costs of documentary compliance for imports range from US$43 in Thailand to US$120 in Cambodia, US$183 in Vietnam and US$210 in Myanmar. The diversity of documentary requirements and associated costs of documentary compliance fetter trade and impede the development of regional value chains through which goods cross borders multiple times. 

Part of the solution to this problem is to provide additional trade facilitation measures to trusted traders and providers of logistics services under Article 7.7 of the World Trade Organization’s (WTO) Trade Facilitation Agreement. This article requires WTO members, including all GMS member countries, to provide additional trade facilitation measures related to import, export or transit formalities and procedures to operators who qualify as “authorized economic operators” (AEOs) according to specified criteria. Potential AEOs include traders and providers of logistics services such as customs agents, truck operators and freight forwarders. Specified AEO selection criteria include a track record of compliance with customs and other related laws and regulations; a system of managing records for necessary internal controls; financial solvency; and provision of supply chain security. 

The average export and import clearance times for AEO companies in Brazil are 65 and 81 per cent faster respectively than for non-AEO companies.

If Article 7.7 is fully implemented, it should result in fewer physical inspections, faster release times, and reduced documentation and data requirements for AEO companies. The average export and import clearance times for AEO companies in Brazil are 65 and 81 per cent faster respectively than for non-AEO companies. The enhanced supply chain security indicated by the AEO classification should enable customs and other border authorities to better allocate their resources to riskier shipment inspections and more complex procedures. Finally, the recognition of AEOs as secure and safe business partners should improve the relationship between them and border authorities. 

The GMS member countries are in different stages of implementing Article 7.7. The implementation commitments notified to the WTO reveal that China and Thailand (the two most advanced GMS member countries) have been implementing the AEO scheme’s obligations since February 2017. Vietnam is ready to do so in January 2024. Cambodia, Laos, and Myanmar plan to implement Article 7.7 after a transition period, but have yet to determine their respective dates of implementation. 

Using the AEO criteria should ensure a harmonised approach to and a seamless mutual recognition arrangement of the WTO’s AEO scheme at bilateral and sub-regional levels in the GMS. Such arrangements should complement the on-going efforts of expanding the network of transport corridors and enhancing trade facilitation through the CBTA. It should further boost intra-GMS trade and facilitate goods in transit to non-GMS countries by making it simpler, faster and more cost-effective for AEO companies to move goods along the GMS Program’s transport corridors. Better roads need better border trade arrangements to free trade. 

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