Trade Facilitation in South Asia: A Study on Needs Assessment

1. Trade Facilitation in South Asia: A Study on Needs Assessment By Pranav Kumar Chandan Mukherjee CUTS International Jaipur E-mail: pk@cuts.org

2. Trade Facilitation: A Background • Trade facilitation: Identified as one of issues for multilateral agreement in 1996 • The Council for Goods in WTO was entrusted with the task of studying the issue • Serious differences persisted among WTO members over its inclusion in the negotiating agenda • Finally, in July 2004, it became part of WTO negotiating agenda with a limited mandate

3. Trade Facilitation: A Complex Agenda • No multilaterally agreed definition of trade facilitation • Narrow or broad definition • To deal with only border issues or behind the border issues including standards etc. • Cost implications are not too clear • Benefit aspects have been more highlighted • Greater realisation on the part of developing countries of needs of trade facilitation

4. Trade Facilitation: Why It is Necessary? • Growing competition putting pressure to cut down transaction cost of trade • The need is felt more by developing countries • South Asian countries have opened their economies only in the last decade • Article 8 of SAFTA agreement makes provisions for addressing issues related to trade facilitation measures • Landlocked countries like Nepal and Bhutan always have to face problem of transit etc.

5. About the Study • TF needs assessment in Eastern region of Indian sub-continent • Aimed at identifying major impediments to free movement of goods within the region • Involves field study in major transport corridors in Bangladesh, Nepal, and West Bengal & N-E states of India • Following that a diagnostic survey was also conducted

6. Trade Facilitation: Prevailing Situation • Port efficiency and Infrastructure • Transportation including roads and railways • Customs procedures • Standards and technical regulations

7. Trade Facilitation: Prevailing Situation Port Efficiency and Infrastructure • South Asia has three types of maritime ports – transshipment hubs, regional hubs ports and regional seaports • The port of Sri Lanka is the only transshipment hub in South Asia • Nhava Sheva port, India’s largest port is considered as regional hub port • Ports of Kolkata and Haldia in West Bengal and Chittagong are regional ports – provides feeder services to major ports • Congestion at regional hub ports and regional ports causes delay in delivery

8. Trade Facilitation: Prevailing Situation • An important example is the Nhava Sheva port in 2004, where continued problem of congestion lead to estimated loss of around Rs. 800 crore a month because of delayed shipments • Delays in regional seaport are longer. In contrast to transshipment hubs and regional ports, regional seaports do not operate on the fixed day of the week schedule • Excessive delays in moving cargoes through the ports of Calcutta and Chittagong have impacted negatively on trade.

9. Trade Facilitation: Prevailing Situation Transportation • Lack of proper cross border transit points and road connections across the region are major hindrances to intra regional trade • Lack of integrated transport networks in the region clearly raises cargo-shipping cost • Problem is more critical for the landlocked countries like Nepal and Bhutan • In addition labour problems cause delays in transit and congestion in land transport network.

10. Trade Facilitation: Prevailing Situation • A number of road corridors in the region is not maintained and are of limited capacity • In India the percentage of paved roads at 56 percent is lower that than in countries of East Asia, which averages 88 percent • The cost of road transport is also high. The average transport costs on the Kolkata–Petrapole route between Bangladesh and India is Rs 2543, 40% higher than other highways • It takes almost 15 days for a container from New Delhi to reach Dhaka, because it comes by sea via Singapore, and the cost is as high as US $ 2,500. • This would otherwise cost only $500 and take just 5 to 6 days. There is no direct system of transportation between the two capitals. The distance between Dhaka and Delhi by water is 7,162 kilometers while it is only 2300 kilometers by road, which could be covered within 2-3 days by road.

11. Trade Facilitation: Prevailing Situation • There is also a train track between Raxaul in India, Rohanpur in Nepal and Rajshahi in Bangladesh. However, the operation of the route requires bilateral agreement among the three countries • There are train tracks from Bangladesh to Northeastern states of India, but the system is not operative, as Bangladesh does not provide the transit facility to India • There have been a number of projects to upgrade railway networks over the past decade. However, problem is still persisting • The types of rail gauge also vary among countries and regions.

12. Trade Facilitation: Prevailing Situation Border Crossing and Customs • Border crossings mostly includes inter related infrastructure and facilities such as customs clearance, check posts, truck waiting areas, storage depots, rail yards and loading and unloading areas at ports • The border at Benapole is repeatedly one of the most developed in the region with facilities for warehousing, and other facilities • Problem arises when customs clearance centers are located far away from the border. Facilities such as sanitary and phytosanitary testing laboratory in Kolkata is located 1000 kms from the customs facility at Birgunj, Nepal • Exporters pay additional fees for vehicle detention charges for weeks while waiting for test results. This along with affecting the cost affects the quality of the product

13. Trade Facilitation: Prevailing Situation • There are also delays in transaction in border crossings. Some of these delays are associated with preparation of the customs documents and inspections due to the lack of standard documents. • At the Indo-Bangladesh border a consignment needs at least 22 documents, more than 55 signatures, and a minimum 116 copies for the final approval (RIS, 2004). • Each country requires different documents such as transit export and import declarations. Exporters must prepare separate document at each side of the border • Further more the region uses different classification systems for commodities. This leads to general lack of transparency and problems in product classifications in trade

14. Trade Facilitation: Prevailing Situation • Countries in South Asia too some extent have moved over the past decades to improve customs. Example includes India has launched a modernization project in customs, which include leveraging Electronic Data Interchange (EDI) technology, which allows exchanging documents and forma electronically to streamline clearance • In Bangladesh the steps required for export /import clearance of fibers, fabric and garments have been reduced by 75 percent • Nepal is currently undertaking reforms under a 3-year Customs Reforms and Modernization Action Plan. Reforms include upgrading physical facilities, administrative structures and automation of customs, and simplification and harmonization of procedures. • The reforms resulted in a revenue increase by Rs. 900 million in the first six months of 2004 from the same period in the previous year. EDI systems are yet to be implemented in Bhutan and Nepal

15. Major Transport Corridors: Chittagong-Dhaka • Chittagong-Dhaka provides potential sub-regional linkages to North-Eastern states of India and via Jamuna bridge to West Bengal as well as Bhutan and Nepal through India • Bangladesh because of its strategic location can play a significant role in the sub-regional transportation system by providing alternatives in terms of direct and shorter transport links by rail, water and road. Chittagong port can be the gateway to promote trade in the region. • Chittagong Port has the potential to become a high revenue generating port provided it is properly upgraded

16. Major Transport Corridors: Chittagong-Dhaka Major Infrastructural Bottlenecks • The rail line between Dhaka and Chittagong is primarily single lane, meter gauge track. The container traffic on this route has grown substantially to more than 400,000 tonnes over the last decade • Congestion is growing especially around Narayanganj and Dhaka with transit times of 6-7 hours implying an average travel speed of 35-40 km/h. • Despite the congestion and because the railways capacity is limited, the road handles about 83% of the containerized cargo moving between Dhaka and Chittagong • This corridor has an air route with frequent daily flights between Dhaka and Chittagong and an inland water route from Narayanganj down the Meghna and across the bay to Chittagong.

17. Major Transport Corridors: Chittagong-Dhaka Chittagong Port Facility • Shortage of manpower (almost 2500 posts are vacant); lack of training facilities to the workers; frequent strikes delay the work process at the port. • Lack of the requisite container services from the port. Railway service is very poor and container is not available every time. The train handles only 10-11 percent of the total throughput of containers handled at the Chittagong port. • Lack of modernization has made railway traffic movement even slower. It takes 8 hours from Chittagong for a container to travel to Dhaka, while roadways transport vehicle travel within 4.30 – 5.00 hours time. • Lack of proper inland distribution system of the cargoes from the ports. There is one stop information facility at the port but it is not functioning well to provide all the information to the exporters and importers.

18. Major Transport Corridors: Chittagong-Dhaka • The main mother shipping vessels do not come to the Chittagong port. Goods are carried from the port in feeder vessels to either Singapore (mostly) or Colombo to load into the mother vessels. • The turn around time of container is also high and that’s why different shipping agents do not agree to send containers to Bangladesh. • Sometimes the feeder vessels do not reach the Chittagong port directly due to congestion at the port. The feeder vessels wait at the outer anchorage maximum times for one or two days before reaching the port (maximum waiting time is 72 hours).

19. Major Transport Corridors: Chittagong-Dhaka • Lack of computerization & automation in the port, so manual process makes the work slow and cumbers some. • Lack of computerization & automation makes the process slow and cumbersome. • In Singapore, a vessel is cleared of the goods in six hours, and the same takes about 72 hours in Chittagong due to lack of modern scientific instruments. • Shipments from Kolkata to Chittagong come through the Singapore port and it takes about 15 days and costs about US$ 1800 for a container. The same shipment through Panipath would take seven days and cost US$ 500 for the containers. • So using the shortest route to import would bring down the cost, however there is requirement of building proper infrastructure to support the same.

20. Major Transport Corridors: Chittagong-Dhaka Problems with Customs Procedure • The customs procedure is complex. One stop service is not yet available to that extent. The export and import documents need to be submitted at different points. Total signatures required to process the document is almost 30. • Only the customs valuation, HS code verification and invoice checking is carried out through the ASYCUDA++ module. All other customs process and procedure are performed manually. • An import customs clearance process takes almost 13-16 steps. If it includes the process work of the Chittagong port authority, then it takes about 21-22 steps. Almost 48 stamps are put on the documents and average clearance time of the import is three to five days.

21. Major Transport Corridors: West Bengal-Dhaka • The West Bengal-Dhaka corridor includes a road route via Petrapole/Benapole and rail routes via Darsana, Rohanpur, Benapole, and to a lesser extent Biral. • The Benapole land port in Bangladesh is the most developed port among all the other land ports in the country. • Almost 80 percent of the goods from India are exported to Bangladesh through this land port. • This had been a major route for importing Indian fabric yarn for the Bangladesh garment industry.

22. Major Transport Corridors: West Bengal-Dhaka Customs Procedure • The customs house at Benapole is equipped with the ASYCUDA++, making the customs procedure fast and efficient. This is the only port in the country where ASYCUDA ++system is fully implemented. • With the introduction of the computerized system the number of signatures required to process the documents has come down to 17/18. • But there is no sample-testing centre near the port and the sample needs to be carried to the Bangladesh Standards and Testing Institution (BSTI) in Dhaka. • The customs final inspection procedure for the outgoing trucks from Benapole to the other cities in Dhaka is complicated. The trucks are forced to stand near the check post for verification of documents from the truck drivers (there is no representative of the importing party, sometimes the C & F agents remain with the truck drivers), one after the other making the process delayed and unscientific, which results in creating unnecessary congestion in the place.

23. Major Transport Corridors: West Bengal-Dhaka Road Infrastructure • Benapole, the border of Bangladesh is almost seven hours drive from Dhaka. The other side of the border is Petrapole in India. • The river bridges on the way are narrow, allowing only one vehicle in a particular direction to move at a time. • The traffic enroute is very busy and hinders the steady movement of the goods. Even though there is railway line from Benapole to Jessore but the railway facility is almost non-existence due to lack of investment. • All vehicles in Dhaka-Benapole route have to cross the conglomeration of the Padma and Jamuna rivers. There is no bridge on the river yet so the vehicles cross the river through steamers. • Number of steamers is limited and only a small channel of the river is fit for navigation, the remaining major portion is covered with silt. There is limited initiative from the government to clear the silt due to shortage of resource.

24. Major Transport Corridors: West Bengal-Dhaka Land Port Facility – Benapole • This land port is the only developed one among the various land ports in Bangladesh, and is the only port operated by government. • There are government warehouse facilities near the port where the goods from the Indian trucks get unloaded before they get reloaded into Bangladeshi trucks. • However, the number of warehouses required in commensurate with the increase in the volume of the import by the country is much more. • The Benapole truck terminal for the Indian trucks has a capacity of 600 trucks, which is in excess of capacity. • It takes on an average of two days to unload from Indian truck and reload in a Bangladeshi truck in the warehouse.

25. Bangladesh-N-E India Corridor • Huge prospects and potentials for promoting trade and investment between Bangladesh and seven Northeast States of India.   • Despite rich in natural resources, this landlocked region is distantly connected with the rest of India only through a narrow Siliguri corridor of 22 km stretch. • The seven state capitals are at a distance varying from 1080 km to 1680 km from their nearest mainland port city of Kolkata. • On the contrary the distance of those cities from Dhaka and Chittagong is much shorter than that of Kolkata • Moreover due to undulating topography and innate difficulties, this region is underdeveloped with poor infrastructure, transportation system and other logistic facilities. • As a result, transportation cost of goods to and from this region to rest of India and within the region is exorbitantly higher than that of any strategic parts of Bangladesh.

26. Distance from Cities in Km. Capital Cities of NEI Kolkata (India) Dhaka (Bangladesh) Chittagong (Seaport, B’desh) Sylhet (An imp. divisional city of B’desh ) Agartala (Tripura) 1680 186 248 238 Aizwal (Mizoram) 1550 555 655 255 Guwahati (Assam) 1080 580 675 236 Imphal (Manipur) 1565 635 735 335 Shillong (Meghalaya) 1180 480 575 136 Kohima (Nagaland) 1420 780 880 480 Table: Distance of NEI State Capitals from Kolkata and Important Cities of Bangladesh Source: The Chittagong Chamber of Commerce and Industry

27. Bangladesh-Nepal Corridor • The phulbari Banglabandha transit route could not be properly operationalised, as the 45 km road that passes through India does not have the adequate infrastructure for easy movement of cargoes. • There is no proper customs facilities or testing laboratories in this region. The transit facility is virtually non-existence. The transit agreement is signed by India with Nepal only and not with Bangladesh. • Though Bangladesh government has already set up an immigration office in Banglabandha but India is yet to do so. • The borders are opened for 2 hours and the Indian border security force escorts the trucks from Kakarvita to Banglabandha. The border officials are reluctant to do unless minimum 20 numbers of trucks are in queue. • The Indian government has also not developed the 2-kilometer mud road between Nepal and Indian border. It becomes difficult to run the unloaded vehicles on the two-kilometer mud road.

28. Indo-Nepal Corridor • Customs Problems at Raxaul in India • Port/Customs facility at Kolkata, India • Transport through rail/road to the port of Kolkata • Inland Container Depot facility in Nepal • Standards related problems