Current global issues in trade & transport service

1. Current global issues in trade & transport service Dr. Vincent F. Valentine UNCTAD Trade Negotiations and Commercial Diplomacy Branch Division on International Trade and Commodities (DITC)

2. Part 1 Transport Services • Transport is a derived demand of trade – without transport there would be very little international trade in goods and movement of people and digital economy, e-commerce and artificial intelligence are changing. • Transport services involve helping goods to move and often have many layers which are often related to other transport services in complex and integrated ways. The transport service may be independent of other transport services or complexly intertwined. • Some services (e.g., bulk shipping) are relatively competitive, while others (e.g., liner shipping) are governed by rate-setting conferences, bilateral arrangements or monopolistic and oligopolistic firms. 1 • 3rd or 4th party logistics providers have evolved to manage the complex processes without necessarily owning anything other than staff equipped with a telephone/computer – trucks are hired, warehouses rented, airplanes chartered, vessels operated as a NVOCC (Non-Vessel Owning Common Carrier)… 1 Source: Lee J, Cho S-H. Free trade agreement and transport service trade. World Econ. 2017; 40:1494–1512. https://doi.org/10.1111/twec.12501

3. Transportation is growing because supply chains are becoming more complex Audiosystem: Panasonic (Japan); Speakers Bose (USA) Metal stamping for fenders, bonnet/hoods: Japan Seats: USA Mirrors, reflectors: SamvardhanaMotherson – Brazil, Hungary, China … Tyres: Malaysia Bumper: Germany, Czech Rep.

4. Defining trade (including Transport Services) • 1970s – Various international efforts to Classify Goods & Services – built on the back of organizational and managerial theories on measuring production (e.g. Peter Drucker, Daniel Katz and Robert Khan etc.) • 1980s - The WCO (formerly the Customs Co-operation Council)- six-digit system – led to the Harmonized Commodity Description and Coding System (HS, or Harmonized System) was adopted in 1983 and entered into force on 1 January 1988. • 1990s - the United Nations Central Product Classification (CPC) published and implemented in 1998 - WTO Services Sectoral Classification List (MTN.GNS/W/120) – and used in preparing for General Agreement on Trade in Services (GATS) • 2000s – various refinements e.g. CPC 1.1.- 2.1. – and topical papers issued by the WTO Council of Services (discussed herein). • ISCO/ILO International Standard Classification of Occupations.

5. WTO - GATS - Transport Services • Transport services are classified as follows: • Air – only partially covered in a separate annex with a difference between “Hard” and “Soft”. • Land – Covered by the GATS • Maritime – partial commitments on the use of port facilities, auxiliary services and international shipping • All modes – logistics services (mainly freight) • Postal services (domestic and courier)

6. Transportation and the economy Building infrastructure creates: Operating infrastructure: Drives the economy by creating access between communities to facilitate trade in goods and services, e.g. Health Education Financial services Access to government institutions (e.g. police, firefighting, law courts, social services etc.) • a primary demand for: • materials, labour and finance • Its supply creates a secondary demand for infrastructure services and other services: • electricity, telecommunication, sanitation • Professional, construction, distribution

7. Part 2 Transport challenges Maritime transport issues • Air pollution related to GHG, Nox, Emission Control Areas (ECA), Particularly Sensitive Sea Area (PSSA) • Global sulphur limit - 0.50%. • Oil pollution • Waste • Bilge pumps • Northern sea route (melting ice)

8. Transport challenges (…cont.) - vehicle emissions and congestion • Congestion increases emissions but changing the fuel type from diesel to electric may simply transfer the problem from the roadside to coal plant. • Renewable energy is the solution but this is still in its infancy and the path uncertain.

9. If current trends persist, transport-related CO2 emissions are estimated to increase by 57% worldwide (1.7% per year) for the period 2005-2030. World CO2 emissions from fuel combustion by sector, 2009(a)

10. CO2 Emissions from Transport • International shipping emissions estimated at 3.3% of global emissions for 2007 (IMO, 2015). • Freightemissionsestimated at 7%. • Personal car ownershipis one the biggest challenges now as the world’s middle-class grows.

11. Landlocked Developing Countries (LLDC) • The Way to the Ocean - Transit corridors servicing the trade of landlocked developing countries • EL CAMINO HACIA EL OCÉANO - Los corredores de tránsito facilitan el comercio de los países en desarrollo sin litoral http://unctad.org/es/paginas/PublicationWebflyer.aspx?publicationid=591

12. Angostura Agroindustrial Complex (CAIASA) soy crushing plant - Paraguay Transport challenges (…cont.) - congestion Photo Credit: Mario Osava/IPS http://www.ipsnews.net/2016/03/agroindustry-provides-jobs-better-living-standards-in-paraguay/ http://www.ipsnews.net/2016/03/soy-fuels-industrialisation-in-paraguay/

13. Transport challenges (…cont.) Land transport issues • Roads – • Vehicle emissions & congestion • Increased individual car ownership • Driverless cars/trucks • Solutions? • Electric bikes/scooters • Sharing economy • Uber • Rail – • Building multiple tracks • Connecting landlocked regions • Solutions? • Electrification (diesel elimination) • High speed trains (passengers only) • Freight block trains to compete with maritime transport (saving 2-3 weeks between Asia/Europe)

14. Transport challenges (…cont.) - passengers vs freight Two sides of the same coin - each one cannot be examined without the need of the other because both compete for the same infrastructure space. • Personal cars vs Freight trucks - compete for road space • High speed passenger trains vs Freight block trains – compete for track space • Pleasure craft vs Merchant fleet – compete for shipping lanes • Private drones vs Commercial jets – compete for airspace • The dilemma – Powerful freight interests lobby politicians to influence policy yet only passengers vote to elect/reject politicians. The challenge is how to cater for both needs

15. Transport challenges (…cont.) - Labour/skills challenge Increased efficiencies • As technology erodes low-skilled jobs the demand for high-skilled college educated people is set to increase. • Today ports employ fewer people than 20 years ago but the salaries of individual workers are much higher because the skills used to operate cranes are more complex than muscle power. This can also help promote gender equality (SDG 5). Source: McKinsey & Company (2012) The world at work: Jobs, pay, and skills for 3.5 billion people

16. Freight transport needs to be examined from the cargo perspective Holistic approach • Transport challenges need to be tackled in a holistic approach that includes the entire supply chain. • Efficiencies in one transport mode merely move the problem to the next weakest link.

17. Part 3 Global initiatives on transport solutions

18. WTO - Trade facilitation What? When? Trade facilitation is - the simplification, standardization and harmonization of procedures and associated with information flows required to move goods from seller to buyer and to make payment. Estimates show that the full implementation of the newly create WTO Trade Facilitation Agreement (TFA) could reduce trade costs by an average of 14.3% and boost global trade by up to $1 trillion per year, with the biggest gains in the poorest countries. • The Trade Facilitation Agreement (TFA) entered into force on 22 February 2017 after two-thirds of the WTO membership completed their domestic ratification process. UNCTAD is an Annex D organization (along with WB, WCO, OECD, IMF) Source: https://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm

19. Who? Source: https://www.wto.org/english/tratop_e/tradfa_e/tfamap_e.htm date accessed 14 May 2018

20. How? Each country must categorize each article of the TFA into 1 of 3 categories: Example notification: • A – acceptance now • B - acceptance by a specific date • C - acceptance subject to support • More effective way of implementing SDT. Paraguay As of May 2018 - 112 countries have notified all or part of their categories. Source: https://www.tfadatabase.org/notifications/list

21. IMO – maritime solutions IMO regulations Emission Control Areas • 2018 - 40% improvement in ship efficiency by 2030 (over 2008) and a 50-70% improvement by 2050. • 2017 - Ballast Water Management (BWM) – in force • 2011 - The Energy Efficiency Design Index (EEDI) was made mandatory for new ships and the Ship Energy Efficiency Management Plan (SEEMP) for all ships with the adoption of amendments to MARPOL Annex VI 

22. Centre for Transport Agreements – and transport studies Source: http://www.unece.org/trans/main/itc/itc.html

23. Land transport – building infrastructure to provide services Land transport initiatives Multimodal initiatives Dry Ports Agreement (UNESCAP – 2013) Transport Observatories (road and rail) e.g.: East Africa - Northern Corridor Transport Observatory (1985) Balkans - South East Europe Transport Observatory (2004) Chile – ObservatorioLogístico (2017) (As a result of IADB a region wide project) • Regional initiatives • Asian Highway Agreement (UNESCAP – 2005) • Trans-Asian Railway Agreement (UNESCAP – 2006) • Trans-African Highway Network (Agreement under negotiation)

24. OECD - Potential to relieve congestion • “Longer and heavier vehicle combinations should be regarded as a viable method of achieving productivity gains to help reduce congestion , can be constructed to be safe and deliver economic and environmental benefits and, if sufficient axles are present, will not result in extra damage to infrastructure”. K-P. Glaeser and A. Ritzinger (2012) Comparison of the Performance of Heavy Vehicles Results of the OECD Study: ‘Moving Freight with Better Trucks’ https://doi.org/10.1016/j.sbspro.2012.06.992

25. Measuring the problem to achieve a solution Time/Cost-Distance Methodology

26. Implementation, monitoring and evaluation Examining in depth cross-sectorial issuesServices Policy Reviews Methodology to assess services sectors, identify bottlenecks and policy options

27. Services Policy Reviews Lessons learned from SPRs on transport and logistic services (Includes lessons from the SPRs of Nicaragua, Peru and Uganda.) • Long term development plan changing a traditional modal orientation to a comprehensive view of intermodal connectivity; • Coordination of a usually fragmented institutional setting; • Adoption of ICT facilitates information sharing and link of activities between different agents; information also allows for better assessment of credit risk and facilitates access to finance; • In Central America, productivity of road transport SMEs was improved by harmonization of service standards, training and curricula of drivers, and access to information; • Energy policy is key as fuel prices are critical in transport operation costs. In Central America, countries are replacing traditional fuels (by ethanol and biodiesel) either nationally or through regional cooperation efforts (Central American Sustainable Energy Strategy); • Investment in infrastructure is critical, including maintenance. Strategies include PPPs and international cooperation initiatives (e.g. IIRSA, Mesoamerican Project).

28. Services Policy Reviews Lessons learned from SPRs on transport and logistic services (…cont.) • Institutional and regulatory frameworks are strongly related to the competitiveness of these sectors: • In Peru, the revision of the Customs Law led to the advance clearance of goods and to reduced time for import operations. The single window for all customs procedures, based on an on-line platform, reduced time and complexity; • In Nicaragua, possibilities under evaluation include: paying freight at sourcerather than at border; and promoting consolidated cargo among transport SMEs; • In the East African Community (EAC), the One Stop Border Posts Bill and the Vehicle Load Control Bill gave the region harmonization of standards. The EAC Customs Management Act could benefit from a dedicated institution with the statutory mandate to monitor customs activities; • In Uganda, an independent regulator should be considered, rather than keeping the responsibility under government institutions who regulated SOEs; • The authorised economic operator model, promoted by the World Customs Organization (WCO) is being implemented in Central America to facilitate risk management, automation and harmonization of customs processes; • Liberalization allows for more investment and increased competition which in turn. Supporting regulation is necessary to pursue increased transparency (e.g. perceived obscurity of fees by logistics providers) and consumer protection.

29. Conclusion • Transport services is one of the key services for economic development. • Building transport infrastructure is a necessity for development… but after this success invariably comes the negative externalities of congestion and pollution. • The challenge for policymakers is how to improve capacity without building more – in addition to negative externalities, more construction often equals more debt. • The main challenges in trade & transport services can be summarized as: • Negotiating GATS – defining transport services – liberalizing services • Prolific utilization of transport (emissions & congestion externalities) • Automation of Low-Skilled jobs (job erosion through technology disruption) • Poor productivity of existing infrastructure (not 24/7 nor fully laden) • Trade protectionism (in response to trade liberalization) • The international community’s role is to guide countries towards better collaboration for mutual benefit. • SPRs serve as a toolkit for policymakers and regulators at national and regional level to identify constrains and offer practical recommendations on a fit for purpose policy mix that strengthens the services economy and trade for inclusive and sustainable development.