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ESCAP is the regional development arm of the United Nations and serves as the main economic and social development centre for the United Nations in Asia and the Pacific. Its mandate is to foster cooperation between its 53 members and 9 associate members. ESCAP provides the strategic link between global and country-level programmes and issues. It supports Governments of the region in consolidating regional positions and advocates regional approaches to meeting the region’s unique socio-economic challenges in a globalizing world. The ESCAP office is located in Bangkok, Thailand. Please visit our website at www.unescap.org for further information.
The shaded areas of the map indicate ESCAP members and associate members.
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STUDIES IN TRADE AND INVESTMENT 58
Trade Facilitation
in Selected Landlocked Countries in Asia
ECONOMIC AND SOCIAL COMMISSION FOR ASIA AND THE PACIFIC
3
TRADE FACILITATION IN SELECTED LANDLOCKED COUNTRIES IN ASIA
Trade and Investment Division UNESCAP Bangkok, Thailand Copyright c UNESCAP 2006 All rights reserved
ST/ESCAP/2437
The opinions, figures and estimates set forth in this publication are the responsibility of the authors, and should not necessarily be considered as reflecting the views or carrying the endorsement of the United Nations. The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or its authorities, or concerning the delimitation of its frontiers or boundaries. Mention of firm names and commercial products does not imply the endorsement of the United Nations. All material in this publication may be freely quoted or reprinted, but acknowledgement is requested, together with a copy of the publication containing the quotation of reprint. The use of this publication for any commercial purpose, including resale, is prohibited unless permission is first obtained from the Trade and Investment Division, ESCAP, Bangkok. Requests for permission should state the purpose and the extent of reproduction.
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PREFACE Over the past two decades, many countries in the ESCAP region underwent extensive political and economic transformations as borders opened and states joined the world economy. The newly independent states in the Caucasus and Central Asia in particular, have experienced major structural changes with the transformation from a centrally-planned to a market-oriented economic system. With no direct access to the sea and to the world’s major markets, transformation and economic development have been particularly challenging for landlocked countries. In today’s globalized world, where international trade and transport play an increasingly vital role, this is a major disadvantage. These countries have put great effort into liberalizing their trade regimes and upgrading physical infrastructure. Despite these efforts, market access for landlocked countries is still hampered by bottlenecks to trade, such as cumbersome and non-transparent trade and customs procedures, excessive paperwork with redundant data, duplicated inspections, inadequate fees and charges, and poor inter-agency coordination as well as ICT infrastructure. Implementation of trade facilitation reform programmes and measures is therefore becoming an increasingly important tool for establishing a more transparent, consistent and predictable environment for international trade in landlocked countries. A primary goal of trade facilitation is to streamline and harmonize international trade procedures and information flows, and improve countries’ overall business environment through reducing administrative bottlenecks to cross border trade. Trade facilitation, therefore, greatly contributes to reducing trade transaction costs and enhancing countries’ competitiveness. In the view of the significance of trade facilitation to landlocked countries, the ESCAP has conducted this study with the aim of increasing understanding of the specific trade facilitation issues and conditions in the selected landlocked countries of the Caucasus and Central Asian subregion. These countries include Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan, in which ESCAP undertook advisory missions during the period of 2003 - 2006. The findings of these advisory missions are contained in this study entitled Trade Facilitation in Selected Landlocked Countries in Asia. It is our hope that this study will build upon the accomplishments of the advisory missions and serve Governments and traders alike as a background document supporting domestic trade facilitation reforms.
5 iii
ACKNOWLEDGEMENTS Trade Facilitation in Selected Landlocked Countries in Asia was prepared by Ms. Maria Misovicova and Ms. Ying Qiu, both Economic Affairs Officers of Trade Efficiency and Facilitation Section, Trade and Investment Division, under the guidance and overall responsibility of Mr. Xuan Zengpei, Director of the ESCAP Trade and Investment Division and Mr. Noordin Azhari, Chief, Trade Efficiency and Facilitation Section. Initial field research and other valuable contributions were made by Mr. Goh Woon Chung, Senior Manager, Mr. Tan Gek Huat and Mr. Lee Yow Jinn, both associate consultants; all from the International Trade Institute of Singapore Pte Ltd. The full text of this publication is available for download on the web site of the ESCAP Trade and Investment Division (http://www.unescap.org/tid/).
6 iv
CONTENTS Page Preface................................................................................................................................ iii Acknowledgements.......................................................................................................... iv
PART ONE TRADE FACILITATION IN SELECTED LANDLOCKED COUNTRIES IN ASIA
I.
Introduction................................................................................................................ 12 1. Background............................................................................................................. 12 2. Importance of trade facilitation for landlocked countries................................ 14 3. Rationales................................................................................................................ 17 4. Objectives and structure....................................................................................... 18
II. Trade facilitation in the Asia-Pacific Region....................................................... 19 1. Definition and scope............................................................................................. 19 2. Benefits and importance....................................................................................... 21 3. Components and key stakeholders..................................................................... 23 4. Factors influencing trade facilitation development in the region................... 25
III. Policy recommendations to enhance the institutional infrastructure for trade facilitation in the selected landlocked countries ..................................... 29 1. National trade facilitation strategy...................................................................... 34 2. Institutional mechanism for trade facilitation.................................................... 34 3. Trade regulatory environment............................................................................. 37
v7
Page 4. Trade and customs procedures and documentation............................................ 37 5. Trade and customs enforcement............................................................................. 39 6. Trade finance.............................................................................................................. 40 7. Application of ICT/ Electronic Trade Documentation System........................... 41 8. Strengthening regional and subregional cooperation: the role of ESCAP........ 42 9. Conclusion.................................................................................................................. 44 Annex 1.............................................................................................................................. 46
PART TWO COUNTRY STUDIES
I.
Armenia................................................................................................................... 56
II. Azerbaijan............................................................................................................... 78 III. Kazakhstan............................................................................................................. 93 IV. Kyrgyzstan............................................................................................................. 103 V.
Mongolia................................................................................................................. 122
VI. Tajikistan................................................................................................................. 133 VII. Uzbekistan............................................................................................................... 142
8 vi
LIST OF TABLES Page 1. Distance from the seven landlocked countries to their closest seaports............ 14 2. Ranking of the seven selected countries in the Asia-Pacific region: (GDP per capita in USD).............................................................................................. 15 3. Trade agreements of the seven selected countries................................................. 16 4. Processes, parties and procedures involved in international trade transaction........................................................................................................... 20 5. ESCAP Trade Facilitation Framework guidelines and country status.................. 32
LIST OF FIGURES
1. Exports of the seven landlocked countries in 2001-2005........................................ 15 2. Main components of trade facilitation....................................................................... 24 3. Key stakeholders in trade facilitation........................................................................ 25 4. Diagrammatic presentation of ESCAP Trade Facilitation Framework................... 29 5. Example of a trade and/or transport facilitation committee..................................... 36
9 vii
ABBREVIATIONS AC
Advisory Committees
ACCI
Azerbaijan Chamber of Commerce and Industry
ADA
Armenian Development Agency
ADB
Asian Development Bank
AIRCA
Association of International Road Carriers of Armenia
AmDG
Armenian Development Gateway
APEC
Asia-Pacific Economic Cooperation
ARMPRO
Armenia Trade and Transport Facilitation Committee
ARTNeT
Asia-Pacific Research and Training Network on Trade
ASEAN
Association of Southeast Asian Nations
ASYCUDA
automated systems of customs data administration
AZERPRO
National Trade and Transport Facilitation Committee of Azerbaijan
AZIPS
Azerbaijan Interbank Payment System
CAREC
Central Asia Regional Economic Cooperation
CCD
cargo customs declarations
CCIRA
Chambers of Commerce and Industry of the Republic of Armenia
CDF
customs declaration form
CER
Center of Economic Reforms
CIF
Cost, insurance, freight
CIQ
customs, immigration and quarantine
CIS
Commonwealth of Independent States
COM
Cabinet of Ministers
DDI
Digital Development Initiative
DITD
Department of Information Technology Development of Armenia
DMTA
Drug and Medical Technology Agency of Armenia
DTTN
Digital Trade and Transportation Network
EAN
European Article Number
ECO
Economic Cooperation Organization
EDI
electronic data interchange
ESC
ETDS Steering Committee
ESCAP
Economic and Social Commission for Asia and the Pacific 10 viii
ETDS
electronic trade documentation system
FEZ
free economic zones
FDI
foreign direct investment
FIFTA
Foreign Investment and Foreign Trade Agency of Mongolia
FINSAC
Financial Sector Adjustment Facility of Kyrgyzstan
FTA
free trade agreement
GATT
General Agreement on Tariff and Trade
GDP
gross domestic product
HS
harmonized system
ICT
information communication technology
IMF
International Monetary Fund
ISO
International Organization for Standards
IT
Information Technology
ITC
International Trade Centre
ITIS
International Trade Institute of Singapore
LA
lead agency
MASM
Mongolian Agency for Standardization and Metrology
MCGA
Mongolian Customs General Administration
MED
Ministry of Economic Development of the Government of Azerbaijan
MET
Ministry of Economy and Trade of the Government of Tajikistan
METI
Ministry of External Trade and Industry of the Government of Kyrgyzstan
MFER
Ministry of Foreign Economic Relations of the Government of Uzbekistan
MFN
most favored nation
MIT
Ministry of Industry and Trade of the Government of Kazakhstan
MNCCI
Mongolia National Chamber of Commerce and Industry
MOTC
Ministry of Transport and Communications of the Government of Kyrgyzstan
MTED
Ministry of Trade and Economic Development of the Government of Armania
NCSPTT
National Committee for Simplification of Procedures for Transport and Trade of the Government of Armenia
NGO
non-governmental organization 11 ix
NICTS
National Information Communication Technology Strategy of the Government of Azerbaijan
NTBs
non-tariff barriers
OECD
Organization for Economic Co-operation and Development
PROMA
Project Management Agency
SAD
single administrative document
SARM
Department of Standardization, Metrology and Certification of the Government of Armenia
SCC
State Customs Committee
SCO
Shanghai Cooperation Organization
SMEs
small and medium enterprises
SOPs
standard operating procedures
SPECA
Special Programme for the Economies of Central Asia
SSL
Secure Sockets Layer
STS
State Tax Service of the Government of Armenia
TF
trade facilitation
TFAC
Trade Facilitation Advisory Committee
TIN
tax identification number
TIP
Trade and Investment Programme
TIR
Transports Internationaux Routiers
TRACECA
Transport Corridor Europe Caucasus Asia
UCR
Unique Consignment Reference
UN/CEFACT
United Nations Centre for Trade Facilitation and Electronic Business
UNCTAD
United Nations Conference on Trade and Development
UN/EDIFACT
United Nations Electronic Data Interchange for Administration, Commerce and Transport
USAID
United States Agency for International Development
VAT
value added tax
WCO
World Customs Organization
WTO
World Trade Organization
12 x
Part One Trade Facilitation in Selected Landlocked Countries in Asia
PART ONE
TRADE FACILITATION IN SELECTED LANDLOCKED COUNTRIES IN ASIA
11
Trade Facilitation in Selected Landlocked Countries in Asia
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54
Trade Facilitation in Selected Landlocked Countries in Asia
I. INTRODUCTION 1. BACKGROUND Growth in trade, increasing numbers of bilateral and regional trade arrangements and changes in basic business practices have created an environment that presents Governments with increasing demands to create measures that facilitate the flow of goods and services across national borders. Although tariffs have been significantly reduced by multilateral trade liberalization under GATT/WTO, the cost of trading still remains substantial. Enormous amounts of time and money are wasted because of cumbersome and non-transparent trade procedures, which are hampering trade and stifling economic development. Studies show that the cost of trade procedures may range from 2 to 15 per cent of the value of traded goods.1 Landlocked countries are among the most affected. High trade transaction costs and inefficiencies in areas such as customs and transport can be a stumbling block to their integration into the global economy and may impair export competitiveness or the inflow of foreign investment. Excessive paperwork and procedures, high transport costs – both direct and indirect – unfavourable regulatory frameworks, insufficient coordination among institutions and lack of transparency in trade-related rules, regulations and procedures are still problems in many countries in the Asia-Pacific region. Aiming to reach solutions to those challenges, Governments, business and intergovernmental organizations have turned to the subject of trade facilitation. In order to better understand the trade facilitation conditions in landlocked countries in the Asia-Pacific region, ESCAP conducted advisory missions in several countries of the Caucasus and Central Asia during the period 2003-2006. In 20032004, the ESCAP advisory team undertook its first set of advisory missions to Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan. The team comprised experts from the secretariat and from the International Trade Institute of Singapore (ITIS). The team met with numerous public and private sector trade facilitation stakeholders in those countries. They jointly reviewed the existing situation with regard to the overall trade facilitation framework and the application of information and communication technologies (ICT) in trade payments and trade documentation. The team explained the concept of a holistic approach to trade facilitation and the ESCAP Trade Facilitation Framework, a step-by-step methodology for identifying trade facilitation conditions and bottlenecks to trade. During 2005-2006, ESCAP implemented a project entitled “Institutional Capacity Building for International Trade and Transport for the Landlocked and Transit Countries. The project covered Kazakhstan, Kyrgyzstan, the Lao’s People Democratic Republic, Mongolia, Tajikistan and Uzbekistan. Its purpose was to assist the
1 APEC, APEC Economies: Realizing the benefits of trade facilitation, a report prepared for the APEC Ministerial Meeting; (APEC, Mexico, 2002)
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
Governments in establishing national coordination mechanisms for trade and transport facilitation and applying the ESCAP tools to the development of the national action plans for trade and transport facilitation. Other outputs were also developed under this project, including: (a) a study on national coordination mechanisms for trade and transport facilitation; (b) a study on legal regimes for transport; (c) guidelines for application of ITC for trade and transport facilitation; and (d) an online database for trade and transport facilitation2. The ESCAP advisory team included the experts from the Trade and Investment Division, the Transport and Tourism Division, and the Information, Communication and Space Technology Division. Under this project, five national workshops including advisory services in Kazakhstan, Kyrgyzstan, the Lao People’s Democratic Republic, Mongolia and Tajikistan were held. During these workshops, the secretariat assisted in identifying the existing impediments for establishing national coordination mechanism and analysing the current trade and transport facilitation environment in the countries involved. The national action plans were developed using the ESCAP Trade Facilitation Framework, the time-cost/distance model and other ESCAP tools. Generally, the action plans deal with the following areas: (i) Coordination mechanisms for trade and transport facilitation; (ii) Legal frameworks for transport; (iii) Trade and customs laws and regulations; (iv) Simplification and harmonization of documentation and procedures; (v) Application of the ESCAP time/cost-distance model; (vi) Information dissemination; (vii) Application of ICT; and (viii) Capacity-building for trade and transport facilitation implementation. This study combines the findings from the above advisory missions with the results of the national workshops. It focuses on the seven landlocked countries in the Caucasus and Central Asia, which are facing similar challenges arising from their economic transformation. For this reason findings from the national workshop and advisory services organized in the Lao People’s Democratic Republic will be addressed separately.
2
These studies are available at http://www.unescap.org/tid/.
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Trade Facilitation in Selected Landlocked Countries in Asia
2. IMPORTANCE OF TRADE FACILITATION FOR LANDLOCKED COUNTRIES Countries without direct access to the sea that must transit most of their exports and imports across foreign territories are referred to as landlocked countries. For all landlocked countries in the world, the average distance to the closest seaport is 1,370 km. Most of the countries concerned belong to the most remote countries among all landlocked countries (see table 1). This geographical remoteness makes them dependent on neighbouring transit countries for their external trade. They depend on the neighbouring countries’ transit infrastructure, political stability, administrative procedures and practices in addition to good cross-border political relations. Table 1. Distance from the seven landlocked countries to their closest seaports Country
distance from the closest seaport
Armenia
700 km
Azerbaijan
800 km
Kazakhstan
3750 km
Kyrgyzstan
3600 km
Mongolia
995 km
Tajikistan
3100 km
Uzbekistan
2950 km
Source: ESCAP secretariat.
In addition to being landlocked, six out of the seven selected countries are also transforming their economies from a centrally planned to a market-based system3. Such transformation processes present tremendous political, economic and social challenges. Transitional economies therefore face particular macro and microeconomic difficulties, as they need to create new, fundamentally different government institutions and reform their legislative, monetary, financial and tax systems in order to provide conditions for privately owned enterprises, price liberalization and free market competition. As evidenced by the figures in table 2, most of the seven countries are among the poorest nations in the ESCAP region4. The majority are characterized by low per capita GDP, poor capacity to export, low income levels, limited domestic savings capacity and a generally low level of economic development.
3 Mongolia is the only landlocked developing country in the study which is not in transition. However, it possesses some economic features that could be attributed to countries in transition. 4 ESCAP has 53 members and 9 associate members.
14
Part One Trade Facilitation in Selected Landlocked Countries in Asia
Table 2. Ranking of the seven selected countries in the Asia-Pacific region: (GDP per capita in USD) 2001 GDP per capita
Ranking in AsiaPacific
2002 GDP per capita
Ranking in AsiaPacific
2003 GDP per capita
Ranking in AsiaPacific
2004 GDP per capita
Ranking in AsiaPacific
2005 GDP per capita
Ranking in AsiaPacific
Armenia 659 38 740 38 873 40 1195 31 1614 34 Azerbaijan 694 36 752 36 853 41 991 35 1493 37 Kazakhstan 1426 25 1593 27 1785 31 2746 19 3783 25 Kyrgyzstan 309 50 323 51 N/A N/A 416 48 464 53 Mongolia 402 47 437 47 462 48 486 44 706 46 Tajikistan 174 55 197 55 237 55 297 52 360 58 Uzbekistan 278 51 385 48 338 52 450 46 466 52 Source: ESCAP secretariat calculation based on data from the United Nations Statistics Division, 2005, http://unstats.un.org/unsd/cdb/cdb_help/cdb_quick_start.asp
Figure 1. Exports of the seven landlocked countries in 2001 - 2005
Source: ESCAP, based on IMF, Direction of Trade Statistics: (Washington D.C., IMF, 2006)
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Trade Facilitation in Selected Landlocked Countries in Asia
Most of the selected countries have concluded a number of free trade agreements (FTAs) among themselves (see table 3) and maintain divergent trade policies. While Armenia, Kyrgyzstan and Mongolia are Members of the WTO, the remaining are still in the process of accession. However, these countries cannot rely solely on preferential trade concessions to increase export competitiveness. In order to be competitive on the supply side, they have to raise the quality of their export products in order to compete worldwide. New high value added consumer products, which meet international quality standards, have to be developed and new markets need to be explored. Furthermore, both the physical bottlenecks as well as non-tariff and administrative barriers have to be removed and institutional infrastructures need to be upgraded to support their industrial and trade development. Table 3. Trade agreements of the seven selected countries CIS FTA
EEC FTA
ECOTA
Armenia
3
Azerbaijan Kazakhstan
3 3
3
3 3
Kyrgyzstan
3
3
3
Mongolia Tajikistan Uzbekistan
3 3
3 3
3 3
BAs Georgia Kazakhstan Kyrgyzstan Moldova Russian Federation Turkmenistan Ukraine Georgia Armenia Georgia Kyrgyzstan Armenia Kazakhstan Moldova Russian Federation Ukraine Uzbekistan
Uzbekistan
Source: ESCAP secretariat Notes: CIS (Commonwealth of Independent States), EEC (Eurasian Economic Community) and ECOTA (Economic Cooperation Organization Trade Agreement), Bilateral Agreements (BAs)
Much work also needs to be done in the area of standards and harmonization. Harmonized standards are essential for ensuring better market access. Differences in the standards applied in these countries and international standards for industrial products also act as impediments to export competitiveness. Where harmonization of standards and technical regulations is not immediately possible, experience shows that the respective authorities should try to create a simple and transparent framework for adopting and applying their national technical regulations and standards and increase awareness on how to meet these requirements. Confidence can be further increased by mutual recognition agreements between the national conformity assessment bodies.
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
In the countries concerned, major difficulties in the smooth flow of trade across borders come in the form of administrative and procedural deficiencies. According to the findings of the advisory missions, such deficiencies include: • Lack of transparency leading to discretionary practices by authorities; • Insufficient access to information on trade and customs laws, regulations and procedures; • Complicated and non-standardized procedures for customs clearance and inspections; • Absence of effective coordination among the stakeholders at the national level; • Lack of coordination with neighbouring countries with regard to harmonization of procedures and documentary requirements; • Underdeveloped logistics services and multimodal transport; • Insufficient application of ICT; and • Lack of trained and competent human resources as well as institutional capacities. Trade facilitation plays a vital role for landlocked countries, as the benefits from the removal of such deficiencies can be much greater to companies than the removal of tariff barriers. With the reduced time and cost of trade transactions, companies could enjoy better competitiveness in international markets. Trade facilitation is also a major factor in attracting foreign investment, especially supply-chain related investment, where the existence of an efficient import and export processes is essential. Transparency, simplification and harmonization of import, export and transit formalities and information flows are central in this regard. 3. RATIONALES Landlocked countries in the Asia-Pacific region are worthy of study for five reasons. First, apart from a few mission reports that suffer from lack of comprehensiveness and analysis, there is a dearth of information on the latest developments in trade facilitation particularly regarding the development of soft infrastructure for trade facilitation. Little is known, for example, about the true state of the development of trade facilitation systems in these countries, the problems confronted by these countries in their process of trade facilitation reform and implementation of action plans, and what policy recommendations could be proposed to help these countries to overcome these obstacles and barriers. Second, there is a need to raise awareness on trade facilitation reform. Despite progress in developing free trade agreements and transit transport systems, the importance of trade facilitation reform, to a certain degree, has been overlooked. A few reasons for this include a lack of strong political will and commitment, high direct and indirect costs involved in improving physical and institutional infrastructures as well as weak human capacity-building. Therefore, raising awareness can definitely help consensus-building. Consensus-building provides these countries with greater assistance in achieving meaningful subregional integration and in becoming effectively and beneficially integrated parts of the global economy.
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Trade Facilitation in Selected Landlocked Countries in Asia
Third, the findings of this study can serve as a useful reference for landlocked countries in other regions, with which they share many characteristics and problems. These problems include a) physical isolation, geographical dispersal and distance from the main markets; b) low level of participation in the multilateral trading system and a minimal share of total world trade; c) minimal or no export diversification: concentration of exports on very few products; d) inadequate infrastructure; e) low competitiveness; f) considerable difficulties in attracting foreign investment; and g) high transport costs. Thus, the policy recommendations provided by this study may not be limited to the seven selected countries; they may apply to other developing and least-developed countries where similar problems exist. Fourth, this study provides background information and analysis on how to harmonize and streamline different projects and regional programmes on trade facilitation initiated by different international, regional and subregional organizations and agencies. The United Nations and its regional commissions have an important role to play in providing regional and subregional forums for policy dialogue and consensus-building on trade facilitation and liberalization policies. They also have the knowledge on the regional and subregional trade facilitation conditions as well as implementation needs and capacity-building priorities to meet these needs. Cooperation between landlocked countries and their transit neighbours raises complex economic, trade and legal issues that require dialogues to find mutually acceptable solutions for trade facilitation. Improvement in understanding the status of trade facilitation reforms in these countries can support international, regional and subregional technical cooperation in the field. 4. OBJECTIVES AND STRUCTURE The overall aim of the study is to enhance the understanding on the trade facilitation conditions including problems and policy recommendations (with a particular emphasis on the institutional infrastructure of trade facilitation) in the landlocked countries of the Asia-Pacific region, particularly Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan. This study is divided into two parts. Part One consists of three chapters, providing the background and regional level analysis. Chapter I offers an introduction to this publication, which explains the importance of trade facilitation for the selected countries, rationales, aim, objectives and structure of the study. Chapter II reviews trade facilitation in the Asia-Pacific region. It explains the scope of trade facilitation, discusses key stakeholders involved as well as factors influencing trade facilitation conditions in the region. Chapter III not only provides policy recommendations to enhance the institutional infrastructure of trade facilitation in the selected landlocked countries as a whole, but also highlights the role that ESCAP can play to promote trade facilitation at the regional and subregional levels. Part Two consists of seven chapters, each devoted to the study of the institutional infrastructure and trade facilitation conditions in the countries concerned. 18
Part One Trade Facilitation in Selected Landlocked Countries in Asia
II. TRADE FACILITATION IN THE ASIA-PACIFIC REGION 1. DEFINITION AND SCOPE Trade facilitation is often referred to as the “plumbing of international trade” and focuses on the efficient implementation of trade rules and regulations. In a narrow sense, trade facilitation relates to streamlining the customs and other border agencies procedures and related documentary requirements. In a broader sense, it relates to streamlining the processes, procedures and information flows throughout the entire international supply chain. In relation to the United Nations Millennium Development Goals, trade facilitation might expand its scope by including development of trade infrastructure (such as transport networks, port facilities, logistics services and ICT infrastructure). Although there is no universal definition for trade facilitation, it is generally agreed that trade facilitation does not include tariff liberalization or the development of physical infrastructure for trade, such as construction of roads or railways. The WTO describes trade facilitation as “the simplification and harmonization of international trade procedures” covering the “activities, practices and formalities involved in collecting, presenting, communicating and processing data and other information required for the movement of goods in international trade”. In general, trade facilitation refers to simplification, standardization and harmonization of trade processes, procedures and related information flows.5 Traditionally, such information flows are in the form of paper documents, and trade procedures involving the handling of paper documents. Basic trade facilitation efforts therefore focus on measures to reduce border formalities, procedures and documents. Apart from these measures the improvement of physical movement of the goods through trade facilitation must also address: • Establishment of a favourable legal and regulatory environment • Supply of better (transparent, predictable, uniform) services, implying an adequate legal environment, appropriate transport and communications infrastructure, organized services provider companies • Use of modern information and communications technology applications 5
Trade facilitation definitions by other agencies include the following: • OECD: “Simplification and standardization of procedures and associated information flows required to move goods internationally from seller to buyer and to pass payments in the other direction.” • UNECE: UN/CEFACT defines trade facilitation as “the simplification, standardization and harmonization of procedures and associated information flows required to move goods from seller to buyer and to make payment. Within this definition, procedures are the activities, practices and formalities required for the movement of goods in international trade. Information flows include both data and documents. This view of trade facilitation encompasses both the cross border and other processes involved in international trade.” • APEC: “Trade facilitation generally refers to the simplification, harmonization, use of new technologies, and other measures to address procedural and administrative impediments to trade.”
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Trade Facilitation in Selected Landlocked Countries in Asia
• Increased awareness of all concerned actors regarding the potential benefits that they may achieve through trade facilitation • Simplification of payment systems • Transparency measures • Availability of trade and customs related information (dissemination of trade and customs laws, regulations, procedures, rulings). For the above reasons, a comprehensive approach to trade facilitation, covering all aspects of international trade transactions, has to be adopted. According to United Nations Centre for Trade Facilitation and Electronic Business6, international trade transaction consists of five stages: • • • • •
Placing of an order and preparation for export Export Transport Preparation for import Import.
These involve various processes, actors and procedures as described in table 4. The processes showed in the table are determined mainly by the individual countries’ laws and regulations, commercial terms of doing business and product characteristics, which may add to the complexity of the international trade transaction process. Trade facilitation aims to address this complexity and make the processes involved in international trade transactions easier. Table 4. Processes, parties and procedures involved in international trade transaction Processes Commercial
Actors Buyer Seller
Transport
Carriers
Regulatory
Customs broker, Customs and other border agencies, licensing authorities
Financial
Insurance agents Banks
x x x x x x x x x
x x x x x
Procedures Establish contract Order goods Advice on delivery Request Payment Establish transport contract Collect, transport and deliver goods Provide waybills/bills of lading, goods receipts, status report Obtain licenses (import/export) Submit customs declaration and other related documents (such as carrier note, invoice, waybill/bill of lading, packing list, customs valuation form, certificate of origin, import license/export permit) Apply trade security/risk management procedures Clear goods for export/import Provide credit rating/credit Arrange insurance Execute payment
Source: ESCAP secretariat. 6 UN/CEFACT, Reference Model of the International Supply Chain with a special reference to Trade Facilitation and Trade Security,(UN/CEFACT, Geneva, 2003)
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
2. BENEFITS AND IMPORTANCE Trade facilitation is a diverse and challenging subject with enormous potential benefits for both business and Governments, aimed at reducing administrative bottlenecks in international trade. It is an investment with real returns in terms of overall trade transaction cost reduction, increased competitiveness of exports, new options for better door-to-door logistics and increased revenue collections and controls. It is generally recognized that well-targeted trade facilitation measures, such as establishment of single window facilities at border-crossing points and ports, introduction of a single administrative document (replacing a number of trade documents) and application of risk management techniques, could be beneficial to both Governments and business. Governments could benefit from enhanced revenue collection, foreign trade statistics and administrative controls, while business benefits from faster customs clearance, lower trade transaction costs and reduced delays. From a country perspective, trade facilitation could lead to better trade and economic performance and bring about regional integration. In this connection, ICT is a necessary tool for enhancing the efficient implementation of trade facilitation measures as well as increasing transparency and predictability in bordercrossing operations, while at the same time restraining human factors and discretionary practices. Trade costs are not only reflected in direct monetary outlays associated with aspects of internation trade, such as tariffs, freight, insurance and transport, but also in indirect expenses such as time and uncertainty. A study by Hummels (2001) found that for United States of America imports, the time cost of one day in transit is equivalent to an ad valorem tariff rate of 0.8 per cent, yielding the equivalent of a 16 per cent tariff on an average ocean shipment of 20 days. An ESCAP time-cost/distance study using a modified gravity model estimated that, on average, each additional day that a product is delayed reduces trade by at least 1 per cent. To put it differently, each day of delay is equivalent to a country distancing itself from its trade partners by 85 km on average. Delays can have an even greater impact on developing country exports and exports of time-sensitive goods, such as perishable agricultural products. Several studies have tried to estimate the potential welfare gains which could be attained from the implementation of trade facilitation. According to the Asia-Pacific Economic Cooperation (APEC), a 5 per cent reduction in trade transaction costs for trade in goods by 2006 will raise its collective GDP by 0.9 per cent, which, in absolute terms, represents about US$ 154 billion.7 The Organization for Economic Co-operation and Development (OECD) calculates that a modest 1 per cent reduction in the of trade transaction costs of the value of traded goods would bring annual gains of about US$ 40 billion on a global basis. In relative terms, most of these gains would benefit developing countries.8 The World Bank report on global economic prospects for 2004 estimates that 7 APEC, APEC Economies: Realizing the benefits of trade facilitation, a report prepared for the APEC Ministerial Meeting; (APEC, Mexico, 2002) 8 OECD, Quantitative Assessment of the Benefits of Trade Facilitation, TD/TC/WP(2003)31/ FINAL; (OECD, Paris, 2003).
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Trade Facilitation in Selected Landlocked Countries in Asia
enhancing capacity in global trade facilitation would increase world trade of manufacturing goods by approximately US$ 377 billion, which means an increase of about 9.7 per cent.9 Because of the clear benefits of trade facilitation, a number of international organizations have focused their work on this issue. The World Customs Organization has been spearheading attempts to harmonize and standardize customs operations, through numerous international conventions and other tools, including Convention on the Simplification and Harmonization of Customs procedures (known as the Revised Kyoto Convention), Temporary Admission Convention, Harmonized Commodity Description and Coding System (HS Convention), Unique Consignment Reference (UCR), Customs Data Model, SAFE Framework of Standards to secure and facilitate global trade, Risk Management Guide, Immediate Release Guidelines, Time Release Study and others. Under WTO, there are several provisions providing multilateral rules related directly or indirectly to trade facilitation. These include the General Agreement on Tariffs and Trade (GATT) 1994, Articles V (freedom of transit), VII (valuation for customs purposes), VIII (fees and formalities connected with importation and exportation) and X (publication and administration of trade regulations). It also includes the Agreement on Implementation of Article VII of the GATT 1994 (known as the Customs Valuation Agreement), the Agreement on Rules of Origin, the Agreement on Application of Sanitary and Phytosanitary Measures (SPS), the Agreement on Technical Barriers to Trade (TBT), the Agreement on Import Licensing Procedures, the Agreement on Pre-shipment Inspection and the General Agreement on Trade in Services (GATS) (particularly in relation to transport and logistic services). The inclusion of trade facilitation in the Doha Round negotiations reinforced its importance, although the scope was narrowed to GATT Articles V, VIII and X. The World Bank has developed the Trade and Transport Facilitation Toolkit for Audit, Analysis and Remedial Actions and The Customs Modernization Handbook. It has numerous trade facilitation programmes for transitional, developing and leastdeveloped countries worldwide. The World Bank has also initiated the Global Facilitation Partnership for Transportation and Trade, which is a web-based information-sharing platform dedicated to trade and transport facilitation (www.gfptt.org). Several United Nations agencies develop and maintain trade and transport facilitation instruments, such as international conventions, standards, recommendations, guidelines and best practices, and provide technical assistance on capacity-building to implement them. Through its Centre for Trade Facilitation and Electronic Business (UN/ CEFACT), the United Nations Economic Commission for Europe (UNECE) has been developing such instruments for trade procedures and documents as well as for electronic business. Examples of this include United Nations Layout Key, the United Nations Electronic Data Interchange for Administration, Commerce and Transport (UN/EDIFACT) and United Nations Trade Data Elements Directory (UNTDED). 9
World Bank, Global Economic Prospects 2004; (World Bank, Washington D.C., 2004)
22
Part One Trade Facilitation in Selected Landlocked Countries in Asia
United Nations Conference on Trade and Development (UNCTAD) is mainly providing the countries with technical assistance and capacity-building support for the implementation of trade and transport facilitation as well as research and analysis in this area. Apart from this, UNCTAD developed two tools, ASYCUDA10 and ACIS,11 which are being implemented in a number of developing countries. ESCAP is actively assisting its member countries in: (a) promoting the simplification, harmonization and standardization of trade procedures and documents to reduce the trade transaction costs; (b) facilitating trade and investment flows, in particular regarding trade finance and e-commerce; and (c) promoting the application of its Trade Facilitation Framework12 and other tools. As discussed in the previous chapters, traders in landlocked countries have to face additional obstacles to international trade and transport. These arise from their remoteness from the sea and main world markets, and the fact that they have to use the territory of other countries to transit their exported and imported goods. These countries need tailored trade facilitation strategies and action plans to implement existing conventions and best practices. If the landlocked countries are to fully benefit from the region’s trade facilitation measures, the neighbouring transit countries also have get involved in trade facilitation efforts. They need to adopt an integrated approach to trade and transport facilitation, which is being advocated by ESCAP, to strengthen regional cooperation and specific transport corridor-based initiatives. These efforts have to be accompanied by adequate technical assistance and capacity-building support programmes. 3. COMPONENTS AND KEY STAKEHOLDERS Trade facilitation cuts across a wide range of areas such as government regulations and controls, business efficiency, transportation, ICT, logistics services, and the financial sector. Therefore, there are several factors that have direct impacts on the country’s trade facilitation reform programmes and measures. These factors could be further categorized into two areas. One of them is the “physical aspects” or physical infrastructure of trade facilitation, which covers transportation infrastructure and associated costs, logistics development and the physical supply chain. The other involves the so-called “soft aspects” or institutional infrastructure (see figure 2), which includes trade facilitation strategy and work programme, legislation and regulations, trade and customs documentation, customs clearance and inspection, and trade finance with supporting blocks comprised of automation and ICT application, electronic trade documentation system, institutional mechanisms and human resource development. 10
ASYCUDA stands for the Automated System for Customs Data. It is a computerized customs management system to handle trade documents, based on Electronic Data Interchange (EDI) and EDIFACT (see www.asycuda.org). 11 ACIS is an Advanced Cargo Information System designed to improve transport efficiency by tracking cargo (rail, road, river) on modes of transport and interfaces (ports, internal clearance depots) (see www.railtracker.org). 12 For further explanations see Chapter III.
23
Trade Facilitation in Selected Landlocked Countries in Asia
Figure 2. Main components of trade facilitation
The physical trade facilitation infrastructure depends, to some extent, on the level of funding, project management, and market and monopolistic pricing decisions. These are usually straightforward issues. However, the institutional infrastructure of trade facilitation is more complex as it involves a confluence of the different interests of the various parties. In addition, despite the amount of resources committed solely to the physical infrastructure of trade facilitation, without a properly functioning institutional infrastructure, this would not meet the main objective of trade facilitation: the efficient movement of goods internationally. International trade involves a number of actors, including manufacturers, suppliers, customers, exporters, importers, freight forwarders, carriers, banks, insurance companies, transport operators, customs, health authorities, port authorities, licensing authorities and inspection agencies. These actors can be divided into three main types: government agencies, service providers and traders. Government agencies such as ministries of trade, finance/customs, transport, health, agriculture, ICT, veterinary, plant and quarantine agencies are responsible for devising trade facilitation strategies, reform programmes, and laws and regulations to ensure the smooth flow of goods and information in a secure environment. Customs authorities have a specialized role here, which traditionally was to control the entry and exit of goods and collect revenues. Later, this role was extended to ensure border security and port administration. Recently, the focus has shifted from enforcement to trade facilitation with the use of pre-arrival clearances, the authorized operators concept, green lanes and post-clearance audits, increasingly employing ICT applications and advanced cargo information. Service providers such as customs brokers, freight forwarders, third party logistics operators, and carriers, provide trade and transport solutions in accordance with national and international regulations and practices. Traders not only depend on the services provided by these enterprises, but also must meet the regulatory requirements of government agencies for moving goods across borders. 24
Part One Trade Facilitation in Selected Landlocked Countries in Asia
Trade facilitation therefore affects a wide group of stakeholders from the public and private sectors (see figure 3). It is essential for all stakeholders with a direct interest in improving border operations that reform measures be planned and implemented in a coordinated manner. Experience has proved that partnerships between the public and private sectors are important to cater to the needs of all actors. Figure 3. Key stakeholders in trade facilitation
4. FACTORS INFLUENCING TRADE FACILITATION DEVELOPMENT IN THE REGION Although work on trade facilitation has been ongoing in the Asia-Pacific region for almost two decades, it has been brought into sharper focus by factors such as (a) the inclusion of the issue in the WTO Doha Round by the Doha Ministerial Declaration in 2001, (b) the increased international attention to trade security, (c) just-in-time operations, and (d) regional trade facilitation initiatives. 4.1. Trade facilitation as a part of the WTO Doha Round The inclusion of trade facilitation in the WTO Doha Round by the Doha Ministerial Declaration in 2001, and the initiation of trade facilitation negotiations by the so-called “July Package”13 in 2004 has further raised global awareness of the importance of trade facilitation and put this issue at the forefront of the development agenda of most developing countries. The WTO negotiations focus on the clarification and improvement of the existing provisions of three GATT Articles: V (freedom of transit,) VIII (fees and formalities connected with importation and exportation), and X (publication and administration of trade regulations). 13
The WTO Doha Work Programme, Decision Adopted by the General Council on 1 August 2004 (WT/L/579), is often referred to as the July Package.
25
Trade Facilitation in Selected Landlocked Countries in Asia
Article V of GATT sets out the basic principles allowing for freedom of transit through the territory of each member but provides no guidelines on how these principles should be applied. Some proposals were made to strengthen and operationalize this article by introducing new binding rules, among others, relating to non-discrimination between modes of transport, carriers, the routes chosen and types of consignment. Additional proposals included limitations on inspections and controls for goods in transit, or minimizing transit formalities as much as possible. Article VIII recognizes the need for simplifying fees, charges and import/export formalities and documentation. It does not, however, provide any mandatory requirements in this area. Questions were raised with regard to the inadequate fees and charges, which should be minimized and levied only for services rendered and simplification and harmonization of customs and other border agencies’ procedures and related documentary requirements. As traders prefer simple procedures, swift movement of goods across borders and the rapid flow of information in support of the movement of goods, measures catering for simplified procedures, such as a single window or “one-stop” solution, prearrival clearance and post-clearance audit, have been advocated. Article X focuses on ensuring transparency through the publication and availability of trade-related laws and regulations to all parties concerned. The main issues cover installation of inquiry points, publication of trade-related laws and regulations on the Internet, availability of advance rulings and more systematic feedback on new and amended trade-related rules and regulations by traders. The participants in these negotiations have widely recognized that trade facilitation is a “win-win” opportunity for all countries regardless of their level of development. However, it is important to find a balance between future trade facilitation obligations and the capacities of developing countries to implement them. Identification of the countries’ trade facilitation priorities and matching them with proper technical assistance and capacity-building support are essential. These issues have to be addressed adequately. 4.2. Trade security Trade security has become an important component of the modern trade and development thinking. Due to recent international developments pointing to increase security risks, many stakeholders have called for a new approach to border operations. As a consequence, some major actors in international trade are focusing on minimizing the security risks associated with the international flow of goods (especially container cargoes) and services. This raised many concerns that the new security measures would undermine the progress made in trade facilitation and impose an additional burden on developing economies which could adversely affect their access to foreign markets. The risk that some least developed countries, landlocked developing countries, small island developing countries and economies in transition could be further marginalized 26
Part One Trade Facilitation in Selected Landlocked Countries in Asia
on account of their inability to comply with new security measures cannot be underestimated. The need to ensure the security of the global supply chain14 need not be at the expense of trade facilitation and trade efficiency. In fact, trade security and trade facilitation can complement one another and be mutually reinforcing.15 Strengthening trade facilitation can contribute towards the security of the global supply chain security and vice versa. 4.3. Just-in-time operations and the need for a swift information flow The use of modern transport inventory techniques, the increasing use of multimodal transport, and the emergence of global chains and electronic commerce have all made transparency and speed at the borders vital for trade efficiency. Modern businesses involving just-in-time operations and IT-based processes, which have accelerated the pace of doing business, constantly increase demand for the fast and predictable release of goods and the swift flow of services. It is therefore important to ensure that trade efficiency and facilitation measures are properly integrated into national and regional trade policy programmes. In fact, the countries/subregions that have implemented modern trade methods based on the rapid flow of data and information, and have simplified procedures using IT solutions, throughout the international supply chain, have succeeded in substantially reducing time delays. Such solutions include paperless environments, ICT-enabled single window facilities and Internet-based systems, which enable a fast exchange of data and information electronically.16 Experience shows that such systems are being established mainly for the purpose of integrating logistical and transport services in countries with maritime transport. These could serve as good examples for landlocked countries in building their customs-based single window facilities. 4.4. Regional trade facilitation initiatives Another phenomenon underlining the vital role that trade facilitation plays in economic development is an incremental proliferation of free trade agreements containing trade facilitation provisions as well as trade facilitation initiatives pursued at the subregional level. Examples include the FTA between Singapore and Australia, the Agreement on the South Asian Free Trade Area or the Pacific Agreement on Closer Economic Relations, as well as trade facilitation initiatives. 14 In the International Trade Procedures Working Group (CEFACT/2003/IT016) supply chain is defined as the entirety of processes, process steps, organizations and suppliers to get a product moved across international borders from the manufacturer to the point of delivery, as defined by the purchaser. 15 This was one of the major themes of the meetings “Achieving Trade Security within a Standardized, Efficient and Transparent International Framework” UNECE, February, 2003, and “Facilitating Trade in a Secure Environment” joint meeting of WCO and UNECE, November 2003. 16 A few examples of electronic single window facilities in the Asia-Pacific region are TradeNet in Singapore, Dagang Net in Malaysia, GAMAS in Mongolia and TradeLink and the Digital Trade and Transportation Network (DTTN) in Hong Kong, China.
27
Trade Facilitation in Selected Landlocked Countries in Asia
Furthermore, APEC member countries developed the APEC Trade Facilitation Action Plan,17 including the menu of trade facilitation actions and measures, which outlines the scope and time frames for implementation of trade facilitation initiatives and measures. APEC has also been encouraging its members to include trade facilitation provisions and best practices in their bilateral trade agreements. Trade facilitation has been identified as the fundamental strategy for ASEAN customs integration since 2002. Under this strategy, efforts have been taken to implement the ASEAN Harmonized Tariff Nomenclature, standardize information parameters for customs release and clearance, and establish the ASEAN Customs Declaration Document and the ASEAN Cargo Processing Model. Moreover, ASEAN has undertaken various initiatives and measures directly or indirectly related to trade facilitation. The ASEAN Agreement on Customs (1997), the ASEAN Framework Agreement on the Facilitation of Goods in Transit (1998), ASEAN Framework Agreement on Multimodal Transport (2005) and the implementation of the ASEAN Framework Agreement on Mutual Recognition Agreements are examples of these efforts. The recent ASEAN Single Window agreement is the most significant and far-reaching ASEAN commitment relating to trade facilitation. Before the ASEAN Single Window can be implemented, many of the conditions that will expedite and accelerate cargo clearance must be acheived at the national level. In addition, there are several other regional and subregional agencies and groupings, which have put trade facilitation on their agendas, including the Asian Development Bank (ADB), Economic Cooperation Organization (ECO) and South Asian Association for Regional Cooperation (SAARC).
17
See http://www.apec.org/apec/apec_groups/committees/committee_on_trade.html
28
Part One Trade Facilitation in Selected Landlocked Countries in Asia
III. POLICY RECOMMENDATIONS TO ENHANCE THE INSTITUTIONAL INFRASTRUCTURE FOR TRADE FACILITATION IN THE SELECTED LANDLOCKED COUNTRIES During the advisory missions, the ESCAP Trade Facilitation Framework18 was used as a major tool for identifying trade facilitation conditions in the seven countries. The Framework is a guiding tool, which employs a step-by-step approach for governments to identify problematic areas and bottlenecks in international trade and suggests remedial actions to address them. The Framework consists of the following eight stages which countries can use to map their trade facilitation conditions: (Ai) (Aii) (Bi) (Bii) (Biii) (Biv) (Bv) (Bvi)
Collect feedback, analyse, asses and prioritize needs Establish the trade facilitation institutional structure Revise trade and customs laws and regulations Simplify, standardize and harmonize import/export documentation and customs procedures Implement effective trade and customs enforcement Implement effective information dissemination Apply ICT Review and assess the results.
Figure 4. Diagrammatic presentation of ESCAP Trade Facilitation Framework
Source: ESCAP Trade Facilitation Framework: A guiding tool, (United Nations, 2004), p. 6.
18
English and Russian versions are available at http://www.unescap.org/tid/trprom.asp
29
Trade Facilitation in Selected Landlocked Countries in Asia
By applying all stages of the Framework in the individual countries, the secretariat worked with the national stakeholders to develop country progress map with regard to their trade facilitation conditions and institutional infrastructure. Table 5 contains a summary of this mapping exercise and includes an index of trade facilitation conditions in each of the selected countries. It indicates that Mongolia (index ranking: 21), followed by Azerbaijan (index ranking: 19) are the most progressive countries in terms of reforms and adoption of trade facilitation measures. They are followed by Armenia (index ranking: 17), Kazakhstan (index ranking: 15), Uzbekistan (index ranking: 14), Kyrgyzstan (index ranking: 11) and Tajikistan (index ranking: 7). The results of the mapping provided the advisory teams with a basis for policy recommendations for the whole region as well as for each country. The policy recommendations were developed in seven areas related to the institutional infrastructure for trade facilitation, namely: • • • • • • •
National trade facilitation strategy Institutional mechanism for trade facilitation Trade regulatory environment Trade and customs procedures and documentation Trade and customs enforcement Trade finance Application of ICT/Electronic Trade Documentation System.
They will be elaborated in this chapter. The overall objective of the policy recommendations is to assist the countries concerned to reduce trade transaction costs, which will in turn contribute towards enhancing their competitiveness. Specifically these recommendations indicate that the countries should pursue trade facilitation in a more coordinated manner and as the part of a comprehensive trade development strategy. The recommendations therefore focus on areas where a measurable impact is achievable and will support regional activities that are concerned with the following measures: • Establishing new/or reinforcing existing trade/transport facilitation bodies • Adopting new or implementing existing legislation related to electronic commerce, electronic documentation exchange, risk management techniques • Harmonizing national policies, simplifying regulations and administrative procedures, documentation and practices relevant to trade facilitation • Developing sets of national trade documents (including both business to business (B2B) and business to government (B2G) documents) based on standardized common data elements;19
19 Such sets can contain sanitary/phytosanitary certificates, invoices, orders, quotations, consignment document dispatch Notices, international consignment notes, shipment instructions, forwarding instructions, packing lists and bill of lading.
30
Part One Trade Facilitation in Selected Landlocked Countries in Asia
• Introducing single window facilities to fulfill regulatory requirements for export/import/ transit operations • Developing electronic trade documentation systems using ICT applications • Establishing joint border-crossing points • Providing targeted capacity-building support to implement effective trade facilitation measures • Raising the private sector’s awareness of trade facilitation measures. In Kazakhstan, Kyrgyzstan, Mongolia and Tajikistan, these measures were further detailed in the national action plans for the implementation of trade and transport facilitation.20 Some of the measures, especially those relating to the introduction of single window facilities and electronic trade documentation systems, are costly and highly dependent on the existence of proper ICT infrastructure. On the other hand, such measures can help to minimize the human factor in border-crossing operations and make them more transparent and predictable.
20
The national action plans can be found at: http://www.unescap.org/tid/itt/mtg/nw.asp
31
32
Country Stages Ai – Collect feedback, analyse, assess and prioritize needs Ai –1: Conduct detailed survey Ai –2: Conduct focus group discussions Ai –3: Document the findings Number of “3” Aii – Establish the trade facilitation institutional structure Aii – 1: Designate a lead agency (LA) Aii – 2: Establish a trade facilitation advisory committee Number of “3” Bi – Revise trade and customs laws and regulations Bi – 1: Obtain a clear understanding of the overall trade legislative and regulatory framework Bi – 2: Review the import-export laws to determine relevance and conformity with international conventions and obligations Bi – 3: Review customs act to assess conformity with international conventions and recommendations Bi – 4: Review bilateral, regional and multilateral agreements on trade, transport and transit to determine whether existing legislation has incorporated elements of these agreements Bi – 5: Consolidate and streamline all trade related regulations Number of “3” Bii – Simplify, standardize and harmonize import-export documentation and customs procedures Bii –1: Classify all tradable products and identify agencies involved in implementing trade controls Bii –2: Review current trade and customs procedures Bii –3: Streamline, simplify and harmonize trade document processing Bii –4: Align and simplify documents used in trade Number of “3”
Armenia
Azerbaijan
Kazakhstan
Kyrgyzstan
Mongolia
Tajikistan
Uzbekistan
3 3 3 3
X X X 0
X X X 0
X X X 0
3 3 X 2
X X X 0
X X X 0
X 3 1
3 X 1
3 X 1
3 X 1
3 3 2
3 X 1
3 X 1
3
3
3
3
3
X
3
3
3
3
3
3
X
3
3
3
3
X
3
3
3
3
3
3
3
3
3
3
X 4
3 5
X 4
X 3
3 5
X 2
3 5
3
3
3
3
3
3
3
3 3
3 3
3 X
3 X
3 3
3 X
3 X
X 3
X 3
X 2
3 3
3 4
3 3
X 2
Trade Facilitation in Selected Landlocked Countries in Asia
Table 5. ESCAP Trade Facilitation Framework guidelines and country status
Armenia
Azerbaijan
Kazakhstan
Kyrgyzstan
Mongolia
Tajikistan
Uzbekistan
X 3 3 X
3 3 X 3
3 3 3 X
X X X X
3 X X X
X X X X
3 X X X
X X 3 3 4
X 3 3 3 6
X X 3 3 5
X X 3 3 2
3 3 3 3 5
X X X 3 1
X 3 3 3 4
X 3 3 X 2
X 3 3 3 3
X 3 3 X 2
X 3 3 X 2
X 3 3 3 3
X X X X 0
X 3 X 3 2
X
3
3
X
X
X
X
X X X
X X X
X X X
X X X
X X X
X X X
X X X
X X X X 17
X X X X 19
X X X X 15
X X X X 11
X X X X 21
X X X X 7
X X X X 14
Source: ESCAP secretariat, 2006 Note: Each “(“ is given a ranking index of “1”, while each “X” is given a ranking index of “0”.
Part One Trade Facilitation in Selected Landlocked Countries in Asia
33
Country Stages Biii – Implement effective trade and customs enforcement Biii – 1: Develop an efficient trade statistics collecting system Biii – 2: Establish channels of trade intelligence Biii – 3: Identify and assess areas of trade risk Biii – 4: Implement systematic pre-inspection and post-audit programme Biii – 5: Allow pre-submission of documents Biii – 6: Establish pre-payment of duties Biii – 7: Conduct physical inspections based on risk profiling Biii – 8: Set up juxtaposed customs offices Number of “3” Biv – Implement effective information dissemination Biv – 1: Conduct information and training needs assessment Biv – 2: Develop mechanisms to inform the business community Biv – 3: Collaborate with other agencies and industry associations Biv – 4: Establish help desks and contact points Number of “3” Bv – Apply information communication technology Bv –1: Develop blueprint for Electronic Trade Documentation System (ETDS) Bv –2: Provide legislative powers for ETDS Bv –3: Developing electronic online documents for ETDS Bv –4: Automating internal processes of agencies involved in ETDS Bv –5: Appointment of ETDS vendor and contractor Bv –6: Develop the ETDS system and software Bv –7: Establish technical and training support Bv –8: Develop e-payment system for customs duties Total number of “3”
Trade Facilitation in Selected Landlocked Countries in Asia
1. NATIONAL TRADE FACILITATION STRATEGY Currently, none of the seven countries has an integrated trade facilitation strategy or reform programme. Improvements have been made in individual areas, such as drafting new trade laws and regulations, streamlining trade procedures and customs modernization. This, in particular, is the case of Armenia, Kyrgyzstan and Mongolia, which are members of WTO. However, an overall guideline or reform programme needs to be developed to lay down clear objectives and priorities for various implementing government agencies and stakeholders to follow and measures to implement. The guideline shall also ensure greater transparency for the private sector. Being landlocked, these countries depend heavily on transit conditions in other countries in the region, that is the Russian Federation, the China, Pakistan, and the Islamic Republic of Iran. Their national trade facilitation reforms should be made in congruence with regional initiatives or groups that are implementing similar cross-border trade facilitation measures. Experience shows that trade facilitation measures are most effective when they are based on an integrated national and regional trade facilitation strategy and action plans. As such, it is recommended that the various Governments, in cooperation with the private sector, conduct a detailed stakeholder needs analysis to identify, assess and prioritize trade facilitation reform needs (see ESCAP Trade Facilitation Framework Stage item Ai). A trade facilitation survey could be carried out every two years to review the results and assess whether improvements have been achieved to address the problematic areas. All information gathered could help define national and regional trade facilitation strategies based on situation and gap analysis. Only then can the needs be prioritized and an implementation plan and action items be developed. The next step is be the consensus stage to obtain agreement from all stakeholders on targets and set concrete and realistic time limits in order to reach these targets. Public-private partnership plays a key role in this process. Strategic implementation can only work if it is backed by political will and if it is reflects the needs of the private sector. It is recommended that the focus of this exercise should be more on enforcing existing laws and regulations, and implementing commitments made under regional and international agreements as well as identifying priority technical assistance projects in these areas. 2. INSTITUTIONAL MECHANISM FOR TRADE FACILITATION Government agencies and the private sector should become involved in trade facilitation to assess the various organizational capabilities to determine a suitable institutional mechanism. Typically, key government organs and private sector bodies involved in trade facilitation include the following: • Ministry of Trade/Commerce • Customs authority under the Ministry of Finance 34
Part One Trade Facilitation in Selected Landlocked Countries in Asia
• • • • • • • • • •
Ministry of Industry Ministry of Agriculture Ministry of Transport Ministry of ICT Agency for Standardization, Metrology and Certification Plant, veterinary, quarantine agencies; Chambers of Commerce and Industry Exporters’ associations Freight forwarders associations Transporters associations.
2.1. Lead agency Because trade facilitation is cross-sectoral and involves interactions with other players, a suitable lead government agency needs to be appointed to spearhead, manage and coordinate trade facilitation initiatives (see ESCAP Trade Facilitation Framework Stage Aii-1). It is recommended that the Ministry of Trade/Commerce be appointed as the lead agency because it is well placed for this role. Other key agencies include the Customs Authority, the Ministry of Transport and the Ministry of ICT. These three agencies will play a vital role in customs modernization and automation, development of ICT applications and the subsequent electronic trade documentation system together with the Ministry of Trade/Commerce. At the same time, an integrated approach to trade and transport facilitation will be ensured. 2.2. Trade facilitation advisory committee In six of the seven countries, there is no specific government driver or institutional coordination mechanism responsible specifically for trade facilitation.21 A formal trade facilitation advisory committee (TFAC) (see ESCAP Trade Facilitation Framework Stage Aii-2) should be established and headed by a country lead agency to promote trade and transport facilitation. This TFAC must have the political power to pursue the national trade facilitation agenda and to enforce trade facilitation implementation. It is recommended that a reporting mechanism be introduced into the TFAC and a lead agency be identified. In this way, new proposals, methods, procedures and systems that are recommended by TFAC will have a formal link to the lead agency, which can then take the appropriate actions to implement relevant changes. Cooperation between the public and private sectors is a fundamental prerequisite for success of trade facilitation. A partnership between public and private sector representatives will help to better define the real needs, improve transparency and information flows and encourage viable and sustainable solutions that follow economic criteria without becoming sidetracked by political considerations.
21 Only Mongolia has established a functioning trade and transport facilitation coordination mechanism. For further details see Part Two.
35
Trade Facilitation in Selected Landlocked Countries in Asia
The structure of the Committee, which contains elements of trade and transport facilitation, and which is being recommended to landlocked and transit countries by ESCAP, is shown in figure 5. The Committee promotes public-private partnerships in trade and transport facilitation. Figure 5. Example of a trade and/or transport facilitation committee
Source: Study on National Coordination Mechanisms for Trade and Transport Facilitation in the ESCAP Region forth coming, ESCAP, December 2006, http://www.unescap.org/tid/itt/index.asp
Currently, the private sector participation in trade facilitation reforms in the economies in transition appears to be marginal. This is partly a legacy of the past when there was no open dialogue and no private sector. Other factors are the current predominance of State-owned enterprises and, at least partially, a lack of awareness and capacity.
36
Part One Trade Facilitation in Selected Landlocked Countries in Asia
3. TRADE REGULATORY ENVIRONMENT The trade regulatory environment is an inherent part of any trade regime, governing the conduct of trade operations and providing a ground for trade facilitation system. The regulatory environment establishes the level of compliance that traders have to abide by while conducting export, import or transit operations. The trade regime varies among the countries concerned. Those that are WTO members have liberalized their trade regimes and adjusted legislation to abide by the multilateral rules. Changes and amendments have been made to the regulations governing trade regimes in these countries. In addition, in preparation for WTO accession, some of the countries had to make changes to their legislation and policies to make them conform to international conventions and standards. However, most of these regulations still lack the desired degree of transparency. Bureaucratic procedures are burdensome and timeconsuming for investors and traders. Approvals and licences may require approval by several ministries. Continued reforms are needed to overhaul the remnants of the old Soviet trade regime in most of the selected countries and to fulfill WTO commitments in those countries where they apply. Adapting to the legislative and institutional framework necessitated by WTO accession continues to be one of the key challenges. It is necessary to adopt new laws and regulations with concomitant enforcement and revise existing ones in order to ensure harmonization with international conventions and standards. In terms of the guidelines advocated by the ESCAP Trade Facilitation Framework Stage Bi, the lead agency should carry out various recommended steps and methodologies, i.e. the outlined in from Steps Bi-1 to Bi-5 on a periodic basis to review and implement necessary changes to reflect development in the external trade and global investment environment. 4. TRADE AND CUSTOMS PROCEDURES AND DOCUMENTATION Traders have to deal with an extensive amount of trade documentation to meet the procedural requirements for exportation, importation or the transit of goods. An average international trade transaction involves the use of about 40 trade documents, which are usually not standardized and contain redundant and repetitive information.22 Completing such excessive documentation is time-consuming and results in additional avoidable costs to traders.
22
According to APEC, such redundant and repetitive information covers 200 data elements on average, 30 of which are repeated at least 30 times. For details, please see APEC. (1996). Facilitating Cross Border Flows. APEC Business Advisory Council. http://www.apec.org/apec/ publications/all_publications/apec_business_advisory.html
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Trade Facilitation in Selected Landlocked Countries in Asia
4.1. Simplification of trade documents The steps described in the ESCAP Trade Facilitation Framework Stage Bii are suggested in order for countries to simplify and harmonize their trade documents and procedures. Harmonization and streamlining of trade documents can be done by aligning them to the United Nations Layout Key for Trade Documents (UNLK; ISO 6422).23 UNLK is a widely used international standard for trade documents. Using the UNLK ensures that the same information and data are found in the same place on all documents, and the same format is used regardless of the size of the paper. Some data contained in the UNLK are based on international standards such as the Code for the Representation Names of Countries (ISO 3166), Numerical Representation of Dates, Time and Periods of Time (ISO 8601:2000); Alphabetic Code for the Representation of Currencies (ISO 4217), UN/LOCODE and others. The UNLK also provides a standard for the format and size of documents, ensuring compatibility between different paper formats and sizes, for example between A4 used in Europe and the legal size used in the United States. It also prescribes the size of boxes, margins, spacing and other requirements, which are vital for a physical document layout. On the basis of the UNLK, aligned series of trade documents and forms for B2B and B2G interactions can be designed which ensure that documents can be copied from one format to the other without losing information. Simplification and alignment of trade documents and their data contents to international standards is the first step towards automation, which is part of the longterm objective of achieving electronic documentation submission and processing. 4.2. Customs declaration and clearance procedures Taking steps to implement self-assessments and self-declarations, which are commonly performed as part of trade regulation in most developed countries, can shorten the processing of customs declarations. To help reduce non-tariff barriers and to speed up clearance times, countries are encouraged to introduce one-stop-shops for import, export and transit clearance procedures using the single window concept.24 The single window aims to expedite and simplify information flows between traders and policymakers and brings meaningful gains to all parties involved in cross-border trade. Mongolia has been quite successful in implementing this concept through its e-customs initiative. Currently, most of these countries use customs brokers to submit a preliminary customs declaration but this practice could give rise to a conflict of interests, as customs brokers are not in a strong position to initiate serious action against customs, which is in 23 For the implementation guidelines of the UNLK, see www.unece.org/cefact/recommendations/ rec_index.htm. 24 ECE defines it as “a facility that allows for the lodgment of standardized information and documents with a single entry point to fulfill all export, import and transit related regulatory requirements. If the information is electronic, then individual data elements should only be submitted once ”. See www.unece.org/cefact/recommendations/rec_index.htm.
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
charge of licensing them. An electronic trade documentation system could help to alleviate this problem, as it would make the system more transparent. 5. TRADE AND CUSTOMS ENFORCEMENT Customs and border-crossing enforcement are important to prevent abuses of the country’s trade system. However, overzealous trade enforcement and excessive controls can impede the flow of trade, resulting in inefficiency. Therefore, customs and other border agencies are shifting towards measures that establish a balance between enforcement and trade facilitation. Such measures include risk assessment, pre-arrival clearance and post-clearance audit, which employ modern ICT applications. Effective training of customs officials is vital for effective trade enforcement. 5.1 Trade security and risk management The use of risk management techniques, based on advance cargo information, is becoming an integral part of customs clearance as they can speed up the flow of secure trade. The techniques should be applied in line with relevant international standards and conventions, particularly those of WCO such as the Revised Kyoto, SAFE Framework of Standards to secure and facilitate global trade and Risk Management Guide. For example, sampling inspection has been introduced at customs houses but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared without the obligation of a physical inspection. Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with accurate trade data collection and intelligence gathering. Once a reliable trade database is developed, the processed data can be used to guide customs officials to carry out selective risk profiling and inspection. Non-compliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. Most of the countries have already created legislative preconditions for the application of risk assessment, profiling and the authorized operator’s concept, which are reflected in their new or amended customs codes. However, they still face major challenges in implementing the risk management related provisions. Customs modernization and capacity-building are crucial for assisting customs officials to manage risk through specific methods and interventions that facilitate trade on the one hand and to ensure compliance on the other. It is imperative that further training be carried out so that customs staff develops the technical skills needed for applying risk management techniques (see ESCAP Trade Facilitation Framework Step Biii). Traders also need to be educated so that they know how to comply with the legislation and procedures.
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Trade Facilitation in Selected Landlocked Countries in Asia
5.2 Pre-arrival clearance Pre-arrival clearance regimes allow importers to submit import declarations with the required documents prior to the arrival of cargoes so that the customs authorities can perform documentary examination in advance. At the same time, such regimes preserve the authority of customs officials to conduct further examinations where necessary, and do not a priori exclude physical inspection. 5.3 Post-clearance audit The adoption of post-clearance audits represents a major simplification by customs authorities, as the imported goods are immediately cleared after customs authorities check basic import declaration documents in conjunction with payment of duties and taxes. It is based on intelligence about an economic operator and therefore concentrates on high risk cargoes. Controls are more systematic, involving analysis of trade documents, accounting books and other records of the economic operator after a cargo is released, as opposed to the traditional controls, which are performed randomly. Post-clearance audits therefore allow customs authorities to shift from a purely transactionbased control to a comprehensive company-oriented control. 6. TRADE FINANCE The absence of accessible trade financing constitutes major deficiencies with regard to trade facilitation, especially exports. Trade finance instruments and schemes provide liquidity for traders through pre-financing arrangements. They serve as a guaranteed payment mechanism for both importers and exporters, helping them to limit their financial risk and exposure. To build trust and enhance the banking sector’s liquidity in the seven countries, it is critical for their banks to develop the ability to have an effective outreach programme to potential investors, traders, international bankers and to a host of growth catalysts. The central bank should further promote policy guidelines on security measures for epayment and internet banking. It should advocate the use of ICT applications for this purpose and implement appropriate standards, regulations, support mechanisms and security measures for the banking sector. The central bank could help strengthen the banking sector’s liquidity and management skills by consolidating banks and providing necessary training and development. More emphasis needs to be put on education and the promotion of e-banking and e-payment systems, which should be implemented hand-in-hand with e-safety. Pilot programmes can be implemented to determine the infrastructure, security, legal and education needs for the promotion of e-banking and e-payment liberalization. Increasing the private sector’s awareness of the benefits of using these tools is crucial.
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
7. APPLICATION OF ICT/ ELECTRONIC TRADE DOCUMENTATION SYSTEM Because trade volumes in the seven countries are increasing any paper-based trade documentation system, no matter how streamlined or developed, will ultimately not keep pace with the growth in trade. ICT applications not only help to facilitate trade through automation, but also fundamentally change the concept of customs and government services. The introduction of various IT-enabled solutions and techniques, such as risk management and electronic trade documentation systems enhances realtime information sharing between the relevant agencies within and across national borders. Streamlined trade procedures and documentary requirements will make the entire trading community more competitive internationally. Faster turnaround time will make it possible to better organize shipments and overall productivity. Freight forwarders will reap cost savings in handling trade documentation. In addition, ETDS will operate round the clock as opposed to using agencies that open only during normal office hours. Benefits will also accrue to government agencies using the system. Customs can move from a system of post-approval of applications to pre-approval. Customs duties can be prepaid through electronic means. Customs also receive payments faster. ETDS also enables faster compilation of more accurate and complete external trade statistics, as the data from the documents do not need to be re-keyed by government agencies. Such statistics will not only better serve the private sector by providing timely trade statistics for market analyses and marketing policy formulation but also help government agencies in trade policy, trade surveillance and trade monitoring. Therefore, there is a need to automate the trade documentation system. The key to the successful implementation of ETDS depends on these factors: (a) simplification and standardization of trade procedures and documents, (b) efforts of the lead implementing agency to convince the business community of the merits of the system; (c) use of appropriate ICT applications (hardware and software); and (d) training of the officials using the system. In addition to the key factors listed above, the following recommendations are also important for successful implementation of ETDS. First, using a single administrative e-document would be beneficial. This would reduce the time for processing typical trade documents to as little as minutes, resulting in productivity improvements. As a result, overall trade documentation processing costs would be reduced. Initially a reduction in the number of trade documents and standardization of their format and contents should be implemented, followed by the development of a single form. After this is achieved ETDS can be implemented and suitable applications should be made available online. The trading community and agencies involved in trade should play an active role in ensuring that their needs are considered. Special attention should be paid to legislation on digital signatures and e-commerce practices, contracts and arbitration, basic e-security features and responsibilities as well as to the legal obligations of service providers. A non-exhaustive road map, which can be further customized to suit individual countries’ ETDS needs, is suggested in Appendix 1. This road map is applied in order to develop a scalable ETDS system throughout the seven countries studied. 41
Trade Facilitation in Selected Landlocked Countries in Asia
In this regard, three main conclusions can be made: Firstly, as most of the seven countries have established free economic zones, pilot ETDS systems could be started in these zones and used as a stepping stone to promote the use of a full fledged, countrywide ETDS. These zones allow all parties to international trade, for example, importers, exporters, customs and other controlling agencies, to be gathered at one point. Secondly, in most of the seven countries studied, there is no lead agency to spearhead the development of a comprehensive ETDS. The various ministries implementing trade facilitation jointly with customs, therefore, could be tasked to work with the agency’s administers ICT to propel the country into an e-commerce trading environment. These agencies need to explore possible integration with other agencies involved in trade facilitation to develop a basic ETDS. In order to do so, various stakeholders need to consider integrating their systems to provide seamless ETDS (see ESCAP Trade Facilitation Framework Steps Bv for the detailed steps). Thirdly, the development of a vibrant ICT industry is critical to the success of any ICT initiative, including the ETDS. Currently, the level of IT education and training in the countries concerned does not meet international industry standards. There is little awareness about the advantages and opportunities of applying and adopting ICT for egovernment purposes (for example trade, customs, education). It is suggested that the ICT agencies can start by developing a national ICT capacity-building plan to equip potential users with the proper IT training and skills to upgrade the service. Governments could lead by being the first to train their staff and agencies to adopt e-practices and esystems in government services. More academic programmes in database projecting, management, administration and development for example MS SQL, ORACLE, can be developed with the help of expert trainers and curriculum advisors. 8. STRENGTHENING REGIONAL AND SUBREGIONAL COOPERATION: THE ROLE OF ESCAP The above policy recommendations are mainly relevant at the national level. As the international trade and investment environment constantly changes, it is important for the national lead agencies to continue the process of review and improvement to the institutional infrastructure of trade facilitation as highlighted earlier. Many problems arise due to the implementation of reforms and changes. These problems are caused by the lack of coordination and the prevalence of human intervention in trade processes and procedures. Thus, one priority area would be to coordinate national, subregional and regional trade facilitation initiatives with the international donor community. Furthermore, it is also necessary to seek assistance to ensure that the right technical experts are provided to train the labour force in landlocked countries. As a regional arm of the United Nations, ESCAP is among the most influential multilateral agencies in the Asia-Pacific region. The ESCAP’s vision for trade efficiency 42
Part One Trade Facilitation in Selected Landlocked Countries in Asia
and trade facilitation is to work towards simple, transparent and efficient international trade procedures in order to assist its member countries in enhancing their trade competitiveness, and thus contribute to poverty reduction in the region. ESCAP could contribute to promoting the development and implementation of trade facilitation reform in landlocked countries in the region in the three areas described below. 8.1. Regional and sub-regional cooperation Regional and subregional cooperation is needed for trade facilitation. In this regard, ESCAP has already been successful in providing regional and subregional platforms where members and associate members and experts on trade facilitation exchange ideas, experiences and best practices. Through its convening power, ESCAP could assist countries with promoting and implementing appropriate trade facilitation conventions, standards, recommendations and best practices. Establishment of a regional forum for trade facilitation could even strengthen these efforts. Such regional forum could provide a coordination and networking platform for public-private sector dialogue to strengthen and facilitate policy formulation among national trade and transport facilitation bodies, government agencies and the private sector for enhanced trade efficiency and competitiveness in the region. In this connection, ESCAP has been proactively engaged with other United Nations bodies and international and regional agencies through collaborative work programmes. Apart from already working closely with Asian Development Bank, International Trade Centre, UNCTAD, UNECE, WCO and WTO, it is also developing cooperation with ASEAN, APEC and Shanghai Cooperation Organization. 8.2. Capacity-building and technical assistance Landlocked countries have experienced numerous difficulties in formulating and implementing trade facilitation strategies and reform programmes. They have embarked on an intensive process of human resource capacity-building to overcome these difficulties. ESCAP provides technical assistance at national, subregional and regional levels to contribute to institutional and human capacity-building. ESCAP can offer services to assist policymakers in identifying trade facilitation priorities and in designing, monitoring and implementing plans of action and measures for trade efficiency and facilitation in the region and subregion. The training of skilled Government officials as well as traders helps to enhance the transparency and effectiveness of the trade facilitation measures. For example, enforcement officers, with their ingrained practices and norms as well as rent-seeking behaviours require time and training to change their mindset despite legislative changes. ESCAP has already established close partnerships with other United Nations agencies and international agencies working in the area of trade facilitation, including UNECE-UN/CEFACT, UNCTAD, WTO and WCO. ESCAP provides analytical and 43
Trade Facilitation in Selected Landlocked Countries in Asia
capacity-building support in implementing various trade facilitation measures jointly with these agencies. 8.3. Research into the needs and priorities of landlocked countries in terms of trade facilitation Policymakers in landlocked countries need accurate information and high quality research to assist them in developing policies, which are tailored to their needs and priorities. Existing trade facilitation measures and plans also have to be monitored and assessed through appropriate mechanisms, assessment methodologies, indicators and tools to ensure that they are made suitable for the concerned country and the region. In this regard, the Asia-Pacific Research and Training Network on Trade (ARTNeT), established by ESCAP in 2004, is a network of trade research institutions located across the ESCAP region. It has been conducting research and analytical work on trade facilitation issues. The ARTNeT research portfolio will be expanded and strengthened to give more attention to the needs and priorities of landlocked countries in terms of trade facilitation. In addition, ESCAP is preparing a set of measurement tools that will facilitate assessment of current trade facilitation conditions, progress and gap between actual and target performance. Next to the qualitative assessment of trade facilitation conditions (through using the ESCAP Trade Facilitation Framework), such measurement tools will help the countries to develop the national costs/benefits analysis and thus provide the national policy-makers with the convincing arguments for pursuing trade facilitation reforms. 9. CONCLUSION The significant role of trade facilitation in lowering the cost of complying with rules and procedures both for Governments and business of landlocked countries has been fully recognized. The recently completed ESCAP project on “Institutional CapacityBuilding for International Trade and Transport for the Landlocked Countries” reaffirmed the importance of having national trade facilitation strategies and institutional mechanisms for trade facilitation. It also stressed the need for reforms to the regulatory environment on trade, documentation and customs procedures and advocated the application of ICT/ ETDS. The events of ESCAP seminar on “Trade Facilitation for SPECA countries” on 12 and 13 December 2006 and the inaugural meeting of the SPECA Project Working Group on Trade jointly organized by ESCAP and UNECE on 14 December 2006 are also manifestations of support from the United Nations to promote regional and subregional cooperation in trade facilitation in landlocked countries. Therefore, the question is not whether trade facilitation shall be advocated and implemented but how it can be implemented and, more importantly, implemented in a feasible, effective and coordinated manner. In this regard, a coalition of strong political 44
Part One Trade Facilitation in Selected Landlocked Countries in Asia
will and commitments from national Governments, subregional and regional institutions and international organizations is needed. ESCAP, as a regional arm of the United Nations, can coordinate the coalition and facilitate the creation of greater awareness and sharing of best practices in trade facilitation. The problems identified and policy recommendations provided in this study are by no means exhaustive and may not be representative of landlocked countries in the region as a whole. However, while the findings and policy recommendations of this study have been examined from the perspective of national, subregional, regional and international interests, they could be placed into the wider global debate on how best to assist landlocked countries in their trade facilitation reforms. Thus, further work should not be confined to the seven countries. Further studies on other landlocked countries, such as Afghanistan, Bhutan, Lao People’s Democratic Republic and Nepal, would undoubtedly increase our understanding of the development of trade facilitation in the region as a whole.
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Trade Facilitation in Selected Landlocked Countries in Asia
Annex 1 ROAD MAP FOR DEVELOPING ELECTRONIC TRADE DOCUMENTATION SYSTEM Short Term 6 Months ACTIVITY/STEPS
AGENCY INVOLVED
1. Appoint a suitable government Lead Agency (LA) to spearhead ETDS
Ministry of Trade/ Commerce
The LA will be responsible for planning ETDS, setting the policy direction for change and setting up the mechanism to implement the new system. The final blueprint of ETDS, based on feedback and discussions with all members of the steering committee and subcommittees should be fine tuned by the LA and submitted to the Government for endorsement, funding and implementation. The lead agency will be responsible for ETDS until it is handed over either to a private operator or a newly established government agency that will operate ETDS. 2. Establish ETDS Institutional Mechanisms: Steering Committee Multi-Agency ETDS Steering Committee (ESC) ESC to be chaired by a senior government official with the power and authority to obtain the resources and commitment from the private and public stakeholders needed to proceed with the project. To emphasize the Government’s commitment to this project, ESC chairperson should make a public announcement on the ETDS project. This will have the effect of speeding up the work of various subcommittees and officials involved. It will also give the ETDS team full authority and resources to proceed.
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ESC to be comprised of senior representatives from (non-exhaustive): • LA • Investment Promotion Agency • Information and Communication Agency • ICT Council • Customs Authority • Trade Facilitation Advisory Committee • Chambers of Commerce and Industry • Transport Agency • Exporters’ Associations • Free Trade Zone/DutyFree Zone Authorities
Part One Trade Facilitation in Selected Landlocked Countries in Asia
ESC to set the schedule to develop the ETDS concept, blueprint, business model and policy direction in accordance with the national ICT master plan as well as the trade facilitation strategy. LA to provide secretariat support LA to act as secretariat and oversee the ETDS process and to allow coordination with government and private sector stakeholders. ESC to seek high level political consensus and endorsement for ETDS 3. Establish ETDS Institutional Mechanisms: Subcommittees Working Subcommittees (WSC) under ESC Each subcommittee will develop a profile of essential trade documentation activities and processes, which will be compiled into an “integrated documentation and procedures report”. This report will be the focal point for reform discussions. 1. WSC on Computerization of Trade Documentation and Procedures This subcommittee will review existing documentation, data elements and operational procedures that will result in more efficient documentation submission and clearances of cargo. It will also be responsible for harmonization and standardization of trading practices and procedures for the business community and establishing service standards, for example one day for processing of documents. WSC will coordinate with all agencies involved in a trade transaction to adopt the existing Single Administrative Document (SAD) into an online e-Doc based on UN/EDIFACT standards. As far as possible, the electronic format should be in line with the various conventions on automated customs processes and documentation, which involves: • Review of customs manual procedures before computerizing in accordance with the Kyoto Convention; 47
WSCs are platforms for engagement and consultation between public and private sector stakeholders (end users of system):
Trade Facilitation in Selected Landlocked Countries in Asia
• Adaptation of UN/CEFACT Recommendation 14 on acceptance of authentication of electronic documents without signatures; • Use of UN/EDIFACT including the use of the United Nations Trade Data Interchange Directory (TDID) (Syntax: ISO 9735) and WCO Customs Data Model is highly recommended; • Adaptation of national legislation to cater to computerized procedures in accordance with the Revised Kyoto Convention of WCO; and • Adherence to international standards for customs computer systems according to WCO Customs Cooperation Council recommendations. 2. WSC on Implementing EDI for Air Cargo Procedures and Administration Air transport is critical for landlocked countries and this subcommittee should examine the various procedures and documentation for air cargo. 3. WSC on Free Economic Zone (FEZ) As it is not possible to implement ETDS nationwide at the onset, this WSC will look into the feasibility of a pilot ETDS project in FEZs. 4. Once the ETDS concept and blueprint are endorsed, submit a plan for government funding.
LA
Medium Term 6 Months to 2 Years ACTIVITY/STEPS
AGENCY INVOLVED
1. Draft legislation for ETDS to prevent abuse of system
• LA • Information and Communication Agency • ICT Councils • State Customs Committee
To provide the legal basis for the new system, there must be regulations that will empower government agencies to set up the system for use by both the public and private sectors. The regulations should provide complete and accurate electronic submission of the data to the system by users for processing and approval. They should cover
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
penalties for those who abuse the system and use it to make false declarations and for those who hack into the system. Secrecy of Processing Criteria and Data Regulations should ensure the secrecy of the data collected in the system. Only the designated agency should be authorized to use such data for the purpose of combating non-compliance. The new system allows the private sector to prepare and submit trade and customs documents to government agencies for processing and approval. The processing criteria for these documents are built into the system. These criteria should be kept secret so that they cannot be overridden with the aim of having documents wrongfully approved. The system will also allow compilation of trade statistics from the documents submitted for processing. Again, the data in the system should be kept secret from disclosure. 2. Set up company to operate ETDS and outsource software requirements The private sector on its own may not be prepared to accept the risk of putting forward the large capital outlay needed to develop and implement a system that essentially performs a regulatory function for the government. To overcome this, the lead agency may consider setting up a company with shareholders from both the public and private sectors. The company will have the necessary capitalization to develop and operate the system. Joint participation, by the public and private sectors will allay fears of the company developing a monopoly and charging high fees for their services. The fees to be imposed for such services may be determined on a cost-plus basis. To promote competition, the ETDS company may select a number of service providers to develop the 49
• LA • ETDS Company
Trade Facilitation in Selected Landlocked Countries in Asia
software to run the system (the actual number will depend on the volume of daily transactions to be handled). The software developers will sell their software to the business community based on their marketing and merit. After the sale, they will provide the training and technical support to their customers to operate the system efficiently. The ETDS company will work closely with these technical service providers with regard to (a) technical problems to be resolved, (b) updates on the specifications for the development of new software and (c) feedback from users on the new system. It is important to encourage technical service providers to make the software user-friendly and functional. Software vendors should help companies integrate the ETDS system into their computer system so that they can use it for other purposes, such as invoicing, stock inventory and compilation of customer statistics) in addition to obtaining approval of permits, licences and certificates. 3. Develop the System
• ETDS Company • Software Vendors
• Procurement of requisite hardware and software, including their installation • Adjustment of software to suit agencies’ specific needs • Development of exchange system linking the LA and agencies involved in trade documentation processing • Development of interface mechanism between traders and LA • Development of criteria for automated processing of input data (ID) and output data (OD) • Development of automated trade statistics compilation system, based on processing of ID and OD • Creation of a specific software to be built into the system to develop risk profiling and selectivity. • Testing and implementation.
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Part One Trade Facilitation in Selected Landlocked Countries in Asia
4. Development the E-payment system (EPS) for customs duties • EPS to facilitate e-payment of custom duties simultaneously when traders use ETDS for goods declaration • Set up EPS module within ETDS to link payment instructions and notifications to banks • Develop security protocols • Develop rules and policies relating to epayments in accordance with UN/CEFACT Recommendation No. 17 on Abbreviations for PAYTERMS as well as the Revised Kyoto Convention guidelines on the use of other duty payment methods other than cash.
• • • • • •
State Customs Committee ETDS Company LA Central Bank Banks ICT Council
WSC for Streamlining of Payments for Certification This committee will look into the coordination amongst different agencies in charge of certification (safety, health and quality in order) to streamline payments by traders. 5. Provide Training and Technical Support It is necessary to develop comprehensive training programmes that train the staff of the public and private sectors on how to operate the new system efficiently is necessary. Such courses should be conducted regularly and well in advance of the system implementation. Technical support in the form of a help desk and technical support teams must also be set up to provide immediate assistance when a user has problems with understanding or operating the system.
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• LA • ETDS Company
Trade Facilitation in Selected Landlocked Countries in Asia
Long Term 2 - 6 Years ACTIVITY/STEPS
AGENCY INVOLVED
1. Ensure Phased Implementation
• • • •
To ensure success, the LA should consider implementing the new system in phases. Phased implementation based on strong cooperation between all institutions and parties involved in implementing an integrated system of limited scale or scope, followed by a full-scale or scope implementation. This may take two forms: * Selected documents and goods - During the initial period, the system only applies to similar types of documents, such as those for non-dutiable and noncontrolled goods. After the system has been tested and stabilized, the LA or ESC may consider expanding it to processing the documents for other goods, such as dutiable, controlled or quota items; * Pilot group - The system could initially be configured to accept a pilot group of users in the initial period. At launch, it is not certain that the new system will operate smoothly. It could be disasterous if the “big bang” method is adopted and fails. This would adversely affect the entire business community. For the first phase, a pilot group of users should be accepted to use the system. After the system has been proven to be reliable and well-functioning, the LA may open it gradually to other users. 2. Ensure Partial or Temporary Grants and Financial Assistance ESC could develop grants and other financial assistance with the Ministry of Finance for pilot implementation to the first group of companies participating in the new system. Once the system is in place and working smoothly, the government agencies may terminate this financial assistance. The cost of adopting the system may not pose a problem for large companies, which already have significant in-house computer capabilities. However, 52
LA ESC ETDS Company Exporters’ Associations
• ESC • LA • Ministry of Finance
Part One Trade Facilitation in Selected Landlocked Countries in Asia
SMEs might not be able to handle the initial operating costs. They may not have enough capacity for operating such systems. Several plans can be adopted to address these issues: • SMEs can go direct to the LA where data can would be captured by data entry officers; and • The LA to open public terminals where access and assistance could be obtained for a modest fee. 3. Establish Document Service Centres The establishment of document service centres is critical to the acceptance and success of the new system. There may be a large number of SMEs that do not have a high enough volume to justify buying a computer system. The LA should encourage these SMEs to the use of document service centres. These centres are registered users of the new system. However, instead of preparing and submitting the documents for their own trade, the document service centre do it on their behalf. A fee will be charged for these services. 4. Redeploy Staff Before ETDS is implemented, trade documents especially inward and outward declarations are manually processed by clerical and support staff. The introduction of ETDS will result in less demand for such staff. The excess staff can be further trained and then redeployed. For instance, with electronic processing of trade documents, more staff would be needed for “back end” checking, such as post-clearance verification, verifying certificates of origins and conducting factory inspections.
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• LA • State Customs Committee • Ministry of Manpower/ Labor • Training Institutes
Part Two Country Studies
PART TWO
COUNTRY STUDIES
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I. ARMENIA 1. BACKGROUND Armenia is a landlocked country, neighbouring with Azerbaijan, Georgia, the Islamic Republic of Iran and Turkey. It has a land area of 29,800 square km and a population of about 3.2 million. Armenia is a relatively small economy. Following severe economic depression during the early 1990s, its economy has gradually recovered and yielded high growth and low inflation. Its current account and external debt conditions have also improved. Armenia’s accession to WTO in 2003 made its foreign trade policy more open, stable and transparent. Trade and export in particular, has played an increasingly important role in Armenia’s economic growth over the past few years. For example, the country has capitalized on its long history of craftsmanship in diamonds and jewelry, causing diamond exports to increase by 450 per cent between 1990 and 2004. Processed food and metals are other important export goods. In addition, Armenia successfully developed niche markets in lightweight products. These products incur low transportation costs and require highly skilled labour. Examples include processed diamonds, precious stones and computer software. Armenia faces high transportation costs. The conflict between Armenia and Azerbaijan, which starting in 1994 led to trade limitations with neighbouring countries, has had a significant impact on Armenia’s external trade. Georgia and the Islamic Republic of Iran provide its only land routes to the outside world. However, the main road from the Islamic Republic of Iran is frequently blocked, and the main road to Georgia is poorly maintained. As a result, Armenia’s northern and southern borders are, in general, inhospitable to trade. The inadequate physical infrastructure imposes additional challenges on the reform of the country’s institutional infrastructure for trade facilitation. 2. NATIONAL TRADE FACILITATION STRATEGY The development and articulation of a national trade facilitation strategy and a corresponding policy statement is essential in order to ensure that all stakeholders are aware of the direction in which the country is moving in its pursuit of an efficient trade environment. Only with a clear vision, backed by political will at the highest level, can the various stakeholders work together towards a common and integrated goal. With the assistance of the World Bank, the Armenian Development Agency (ADA) has developed an export promotion strategy. The strategy can only be effective, however, if it is coordinated with other government entities and the private sector within a comprehensive trade facilitation strategy. Armenia does not have an integrated trade facilitation strategy or policy statement. Some improvements have been made in individual trade-related areas, such as the drafting of new trade laws and regulations, and the streamlining of trade procedures. 56
Part Two Country Studies
However, an overall guideline or policy needs to be developed with a view to laying down clear objectives and targets for the various implementing agencies and stakeholders. It would also ensure greater transparency for the private sector in Armenia. Furthermore, as Armenia is heavily dependent on the trade and transit conditions of neighbouring countries and other transit countries in the region, its national trade facilitation policy should be conducted in conjunction with other regional initiatives that are implementing similar cross-border trade facilitation measures. The sections below provide recommendations on how Armenia could improve its overall trade facilitation conditions. 2.1. Needs analysis Trade facilitation measures are most effective when based on an integrated, national and regional trade facilitation strategy agreed to by the private sector and strongly backed by political will at the highest level. It is recommended that the Government of Armenia take a step back and conduct a detailed stakeholder needs analysis in conjunction with private sector. The aim of this analysis would be to identify, assess and prioritize the trade facilitation reform needs for the country (see ESCAP Trade Facilitation Framework Stage Ai). The World Bank, together with the Armenian Trade and Transport Facilitation Committee (ARMPRO) conducted a trade facilitation survey the results of which were published in the 2002 annual report of ARMPRO. This is a good start, and the survey should be carried out every two years to determine the current conditions in the trade facilitation regime. All this information will help to clearly define Armenia’s national and regional trade facilitation strategies based on a concise needs analysis. Only then can needs be prioritized and an implementation plan and action items be developed at the national and regional levels. The next step is the consensus stage, in which agreement on targets is obtained and concrete and realistic time limits are set for the achievement of these targets. The focus should be on enforcing existing laws and regulation and implementing commitments made under regional and international agreements as well as identifying priority capacitybuilding needs. 2.2. Regional/international participation and integration The economic development of Armenia is constrained by having only two transport corridors for its exports and imports: one through Georgia and the other via the Islamic Republic of Iran. Its borders with Azerbaijan and Turkey are officially closed. Because of transportation difficulties and the associated high costs due to fees imposed by Georgia, it is difficult for Armenia to attract export-oriented Foreign Direct Investment. Armenian exporters find it difficult to compete in world markets due to high business costs related to documentation and transport. Airfreight is an alternative but is restricted to high- value and low-volume goods such as precious stones, jewelry and electronics. 57
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Thus, Armenia needs to be more proactive in participating in regional and multilateral forums and trade facilitation working groups. It needs to negotiate better conditions in areas of transit and transportation, especially with Georgia, and to harmonize existing regulations and rules with regard to documentation, customs procedures and the introduction of automation and information technologies. 2.3. Integration of export promotion strategy, ICT master plan and trade facilitation strategy In the development of an export promotion strategy developed by ADA, there is a greater emphasis on the country’s promising ICT sector. Therefore, it was suggested that a more formal and structured ICT working group be formed involving ADA, the Department of Information Technology Development (DITD), which is in charge of drafting the ICT master plan, the ICT Council and other relevant ministries in order to integrate the national export promotion strategy, ICT master plan and the future trade facilitation strategy. This working group can also be tasked with spearheading the development and use of ICT for export promotion and trade facilitation in Armenia. One of its first tasks could be to determine Armenia’s ICT development needs. 3. INSTITUTIONAL MECHANISM FOR TRADE FACILITATION ARMPRO was established in 2002 and has been working with similar committees in neighboring countries. It played an active role in: • Facilitating coordination between the Government, industry, private sector and civil society • Eliminating barriers to international and regional trade • Bringing Armenian trade and transport procedures in line with international standards • Promoting the harmonization of trade and transport procedures in the South Caucasus. Information on government and non-government stakeholders associated with the Committee is provided below. 3.1 Government stakeholders The key government stakeholders acting in the area of trade facilitation are the Ministry of Trade and Economic Development, ADA, Ministry of Transport and Communications Department of Information Technology Development, Department of standardization, Meteorology and Certification. Ministry of Trade and Economic Development The Ministry of Trade and Economic Development (http://www.minted.am) plays a vital role in the economic development of the Armenia and is mainly responsible for the following: 58
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• • • •
Formulating economic, trade financial, budgetary tax, credit, customs and tariff policies Implementing trade policies Promoting the use of information technology and the electronic trade policy Coordinating with WTO and other international organizations that deal with trade or economics • Promoting exports and the development of export assistance as well as improving export and import procedures • Promoting FDI and enhancing industrialization. Department of Information Technology Development The Department of Information Technology Development heads the drive to formulate policies aimed at moving the country towards a knowledge-based economy and increasing the use of ICT. The Department has in the works an ICT master plan for the development of ICT, in particular, the infrastructure supporting the growth of ICT. It is also tasked with developing legislation on electronic signatures, in an effort to make electronic transactions more similar to paper transactions. Department of Standardization, Metrology and Certification The Department is responsible for the preparation, adoption and application of standards, uniformity of measurements and conformity assessments. The Department works within the legislation adopted in 1997 on metrology, certification and standardization. Armenia is a member of the International Organization for Standardization (ISO), which has resulted in the development and harmonization of standards to conform with international ones. Because of its trade links within the Commonwealth of Independent States (CIS), Armenia also participates in the development of common CIS standards. The trade ties with the Russian Federation and the other CIS members also require that Armenia maintains the regional GOST standards.25 Armenia joined the European Article Number (EAN) International in 1996. This organization seeks to promote best practices in the adoption of bar coding, supply chain management standards and electronic data interchange (EDI). Mutual recognition agreements have been signed with the Russian Federation, Moldova, Kazakhstan, Belarus, Ukraine, Slovakia, the Czech Republic, Kyrgyzstan, Uzbekistan, Turkmenistan, Tajikistan, Georgia, China and the Islamic Republic of Iran. Except for mandatory standards required for products related to public health, safety and the environmental protection, voluntary application of standards is practiced. The Department indicates that there is a lack of specialists and expertise on standardization. 25
GOST refers to a set of technical standards maintained by the Euro-Asian Council for Standardization, Metrology and Certification (EASC), a regional standards organization operating under the auspices of the Commonwealth of Independent States (CIS).
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Armenian Development Agency The Armenian Development Agency (http://www.ada.am) was established in 1998 by the Government to facilitate FDI and promote exports. The agency acts as a “one-stop shop” for investors, providing assistance in establishing businesses, implementing projects, liaising with other government agencies and providing information on business opportunities and on investment-related laws and regulations. The export promotion activities of the Agency consist of finding export markets for products, market analysis of intended destinations and development of new products. It acts as a secretariat to the Business Support Council, which aims to improve the business and investment environment and eliminate costly administrative barriers to investment. Given the high priority of ICT development, the Agency has encouraged the development of e-commerce and e-business solutions and is taking steps towards a knowledge-based economy. It was instrumental in implementing a programme to create the Armenian Development Gateway (www.gateway.am), a “one-stop shop” business information centre. E-government development has seen some progress. Community gateways featuring databases of Armenian activities and contact information are available. This approach is intended to encourage on line updating of information. The Armenian Development Agency highlighted the need to concentrate on developing ICT within government agencies and raising awareness through a distance e-learning approach. The Agency encourages SMEs to develop e-business gateways to service the business community at large. However, the lack of e-payment schemes, or the lack of implementation of such schemes and the reluctance of local banks and financial institution to adopt such schemes, impedes the e-business environment. State Customs Committee The customs system was established in 1992 through a Presidential Decree. The Department then functioned under the Ministry of State Revenues. The current State Customs Committee (SCC) was established based on the Republic of Armenia Government Decision No. 603 on Establishment of the State Customs Committee under the Republic of Armenia Government, dated July 6th, 2001. The Committee’s mission is to implement of tariff and related tax collection policies, to apply measures for the protection of the national borders and to prevent smuggling. Government Decision No. 603 deals with the structure of the State Customs Committee Headquarters. The Committee is housed in Yerevan and supported by six regional customs houses and nine customs border checkpoints which are on the country’s borders with Turkey, Georgia, Azerbaijan and the Islamic Republic of Iran. The checkpoints on the borders of Turkey and Azerbaijan remain closed due to geopolitical reasons. One of the customs houses was specifically tailored for servicing and processing goods imported under the Transports Internationaux Routiers (TIR) carnet. 60
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The Customs Code of 2001 is the primary customs legislation of Armenia. It establishers the organization of the Committee, the mission of the customs offices and the types of customs regimes applicable for goods imported into and exported from Armenia. It also determines the customs valuation conditions, payment of customs taxes, fees and other changes and as well as makes provision for penalties. During 2002, the Committee collected US$ 146 million, or 46 per cent of the total revenue collected by the Government. The Committee indicated that dialogue sessions are conducted at regular intervals with the trading community to increase transparency. Customs also provides information through their website, www.customs.am, and the publication of information leaflets. Ministry of Transport and Communications Transport sector development is seen as a supportive part of trade facilitation. The Ministry of Transport and Communications has been active in reconstructing the national road and railway networks and developing civil aviation infrastructure with international aid. As most of the freight and passenger transport is by road. Road infrastructure development is beneficial for the growth of trade, particularly exports related to the mining industry, agriculture and food processing. Armenia has three international airports at Zvartnots (Yerevan), Erebuni, and Gyumri, and nine local civilian airports. In 2002, the Government of Armenia and an Argentine company, Aeropuertos Argentinos 2000, signed a contract for a 30-year concession on Zvartnots airport. The airport still required major upgrades in order to meet international standards. The Ministry has been implementing railway projects to increase freight traffic. The reduction of transport tariffs has helped to increase this mode of transport. However, massive improvements are required to replace outdated bridges and tracks. The Ministry is also planning to establish a container terminal to better meet the country’s trade need. The Ministry is actively involved in the European Union’s TRACECA project, which is aimed at creating a transport corridor connecting Europe to Central Asia via the Black Sea, the South Caucasus and the Caspian Sea.26 A few projects have been undertaken with the World Bank to reduce the main transport bottlenecks that restrain trade and impair investment prospects for the private sector.
26
TRACECA is the Transport Corridor Europe-Caucasus-Asia. Armenia is a TRACECA programme member since 1993, when the TRACECA programme was launched at a conference in Brussels. Armenia is one of the original eight TRACECA countries (5 Central Asian republics and 3 Caucasian republics), which agreed to implement a programme of the European Union funded technical assistance to develop the transport corridor of west-east axis from Europe, across the Black Sea from the Caucasus and the Caspian See to Central Asia.
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3.2. Non-government stakeholders The main private sector stakeholders are the Business Support Council, the Association of International Road Carriers of Armenia (AIRCA), the Association of Armenian Freight Forwarders, Chamber of Commerce, and Industry, the Union of Manufacturers and Businesses, and the Armenian Trade & Transport Facilitation Committee (ARMPRO). Business Support Council The Business Support Council was established in 2000 to provide support to entrepreneurship, promote investments and eliminate administrative barriers in Armenia. This is a high-level council headed by the Prime Minister, with senior representatives from other government agencies and the private sector. The objectives of the Council are: • Promoting investment • Developing measures aimed at eliminating administrative barriers existing in the business environment and hindering investments • Systemizing the interrelationship among businesses and State bodies by creating efficient mechanisms for collaboration; • Promoting the participation of business in developing the economic policies of the Armenia • Assisting in the formulation of a favourable legislative framework regulating the business environment. Armenian Trade and Transport Facilitation Committee ARMPRO was established in 2002 as part of a World Bank programme promoting private and public partnerships for trade facilitation.27 It consists of members from government authorities, members of Parliament, members of the trade and transport community, international organizations and other specialized NGOs. The mission set by ARMPRO included: • Playing an active role in facilitating and coordinating with government agencies, private associations and industry associations to eliminate barriers to international and regional trade and business development; • Promoting upgrades to Armenia trade and transport procedures in order to meet international standards; • Harmonizing Armenian trade and transport procedures with internationally accepted norms and with the norm of the Caucasus; • Providing professional advice, clarification and descriptions of specific trade and transport legislation, regulations and procedures to NGOs and industry associations.28 27 28
Similar bodies were established in Georgia and Azerbaijan. ARMPRO Annual Report 2002, (Yerevan, 2002, Armenia).
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ARMPRO seeks to raise issues for the attention of the government agency and to propose alternative solutions. The group meets once a week and discusses issues raised by members. The issues that are prioritized and accepted for resolution are directed to specialists and/or officials within the relevant government agency to prepare a study and to arrive at a viable solution. Association of International Road Carriers of Armenia Association of International Road Carriers of Armenia (AIRCA) was formed in 1998 and is responsible for the administration and issuance of TIR carnets in line with the Customs Convention on the International Transport of Goods under Cover of TIR Carnets (commonly known as the “TIR Convention”). It has the distinguishing characteristic of being composed of freight carriers rather than freight forwarders. The freight forwarders are grouped under another association - the Association of Armenian Freight Forwarders. Other tasks undertaken by AIRCA include the following: • Assisting in obtaining insurance policies for the transport of international goods • Providing information on international transport • Obtaining entry permits for vehicles crossing international borders or transiting through foreign territories • Issuing approval certificates for vehicles under the TIR system • Preparation of applications for drivers’ visas • Providing training on carriage rules of the TIR system and issuance of the international certificate of professional competence. The use of the TIR carnet through other countries was favoured as there is less traffic in containerization. AIRCA had negotiated insurance coverage under Lloyds with costs as low as US$ 10 and as high as US$ 150. Each TIR carnet was charged at US $30. However, a frequent complaint was the high transit costs incurred by members. This is a result of the cross-border restrictions, dues and taxes imposed, in particular, in Georgia. For example, on a journey from Yerevan to Moscow, which is about 2200 km, the transit journey through Georgia is about 700 km long. The trip through Georgia is only one third of the total journey but represents 80 per cent of the total costs of transportation from Yerevan to Moscow. The TIR carnet was, however, not a part of the Automated Systems of Customs Data (ASYCUDA) system, used by the CCS, and all submissions at present are made with a paper form of the TIR carnet. Chamber of Commerce and Industry The Chamber of Commerce and Industry of Armenia was formed in April 2002. CCI (www.armcci.am) has established 11 regional offices; each representing the different parts of the country. The CCI engages in a variety of activities, such as organizing fairs 63
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and exhibitions, and has been authorized by the Government to issue certificates of origin, including certification of force majeure circumstances. CCI has been active in developing ICT-related projects, in particular developing business and SME portals. Other services are provided to cater for foreign business interests such as certification of the reliability of financial statement and worthiness of commercial organizations and private entrepreneurs to foreign partners. In addition, CCI disseminates information of a commercial, economic and legal nature. 3.3. Recommendations Lead agency Because trade facilitation is multidisciplinary and involves a number of stakeholders, a suitable lead government agency is needed to be responsible for spearheading, managing and coordinating trade facilitation initiatives in Armenia (see ESCAP Trade Facilitation Framework Stage Aii-1). It is recommended that the Ministry of Trade and Economic Development be entrusted with this role, as it is directly responsible for the country’s trade policy. Furthermore, the Ministry could take the lead in raising the level of awareness among government agencies by conducting seminars and workshops. As a result all government agencies would have a better understanding of and capacity to reach the objectives with regard to the implementation of trade facilitation reform programmes and measures. Trade facilitation advisory committee ARMPRO is currently performing the role of the Trade Facilitation Advisory Committee (TFAC) (see ESCAP Trade Facilitation Framework Stage Aii-2) in accordance with UN/CEFACT Recommendation No.4 and as a result of the World Bank’s initiative to promote trade and transport facilitation in the South Caucasus. ARMPRO has been successful in implementing its mission and objectives and has functioning public-private partnerships which involve voluntary stakeholders. However, ARMRPO is only a quasi-governmental agency. Due to this it does not have the necessary political clout to push the national trade facilitation agenda, and it does not have the power to enforce the implementation of trade facilitation measures. It is would be therefore beneficial if the links between ARMPRO and the Ministry of Trade and Economic Development were formalized through a reporting mechanism, enabling the Ministry to take the appropriate action to implement the relevant changes based on the recommendations made by ARMPRO.
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Public-private partnerships Cooperation between the public and the private sector is necessary for trade facilitation reforms to succeed. A fruitful dialogue between private sector representatives and policymakers will help better define the real needs of the market. It also improves transparency and information flow and encourages the search for viable and sustainable solutions that follow economic criteria without getting sidetracked by political considerations. It would be useful for ARMPRO to establish advisory committees for different sectors such as ICT, transport and logistics with members from the public and private sectors 4. TRADE REGULATORY ENVIRONMENT The trade regulatory environment governs the conduct of trading activities. The most important basis of the each country’s trade facilitation system is the trade and customs legislation. The regulatory framework establishes the level of compliance for traders are conducting import and export activities. The current trade regime in Armenia is fairly liberal due to its commitments in WTO. 4.1. Import tariffs Only two tariff rates are applied to goods imported into Armenia: 0 per cent and 10 per cent. The 10 per cent tariff is levied mainly on consumer and luxury goods. The tariffs are ad valorem and are levied on cost, insurance, freight (CIF) values. The Customs authority indicated that the transaction value was used for the computation of customs duties in accordance with the WTO Agreement on Custom Valuation. However, it appears that arbitrary values are still being used, as the customs often rejects the values stated by traders and applies a minimal “acceptable” value system. Armenia applies a zero tariff rate to more than 60 per cent of the tariff lines. These include imported capital goods comprising part of an investment in a business venture, raw materials, transit goods transported across Armenia’s territory, the means of transport used for regular interstate transport of freight and for goods temporarily imported for processing or reprocessing. There are no quantitative restrictions such as import quotas. Import licensing is imposed on products that could have an impact on public health and safety such as pharmaceutical and medicinal products and on products that cold have an impact security such as weapons and nuclear materials. Armenia uses the Harmonized Code System for tariff classification.
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4.2. Export tariffs There are no export taxes; export restrictions are also not imposed except on commodities that affect public health, security and the environment. The affected products include pharmaceuticals, weapons and nuclear materials, endangered species and artifacts considered to be important to national heritage. 4.3. Value added tax A value added tax (VAT) is imposed on all imported goods and on all services. The basic rate of VAT is 20 per cent. Individuals importing goods into Armenia pay VAT if the quantity or cost of the goods exceeds US$300 or weights more than 50 kg. The collection of VAT on imported goods is conducted by the customs. 4.4. Excise tax Excise tax is imposed on products consisting of tobacco and tobacco products, alcoholic beverages, including wines, and crude oil and oil products. The excise tax on imported products must be paid to the customs department within 10 days of their importation. Excise tax does not apply to exports, goods in transit or goods imported for personal use that do not exceed limitations set by the Government. 4.5. Marking and labelling In 1997, Armenia passed national laws on metrology, certification and standardization. However, most of the old Soviet regulations still remain in force. Food product labels must at a minimum display the manufacturer’s name, contents, weight and expiry date. No local language requirement exists, but the Government plans to adopt such a requirement. 4.6. Temporary entry and transit No customs duties are levied on goods imported temporarily under customs control and under an appropriate customs regime. Foreigners who temporarily enter Armenia may import one vehicle duty free on the condition that they export it when leaving the country. The following items can transit across the Armenian territory only with special permission from the Government of Armenia: • All types of weapons, ammunition, army equipment, explosives and components for their production; • Nuclear materials, including those in the form of heat-producing materials, and sources of ionized radiation.
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4.7. Free economic zones The Parliament of Armenia passed a law which allowes the establishment of a free-economic export-processing zone in the vicinity of the Zvartnots Airport. The zone, however, is not fully functional. Integrated efforts are needed by various export and investment promotion agencies in Armenia to market the zone to prospective investors and tenants. 4.8. Recommendations In terms of the ESCAP Trade Facilitation Framework Stage Bi, the lead agency should undertake the recommended steps and apply the methodology starting from Stages Bi-1 to Bi-6 on a periodic basis. This needs to be done to review and implement the necessary steps. More specific observations on areas that require improvement is elaborated below. Armenia adopted new or updated existing trade and customs legislation associated with its accession to the WTO. For example, the new customs code came into effect in January 2001 and replaced the previous legislative acts. The tax regime also underwent changes and indirect taxes (excise and VAT) were introduced. Non-tariff regulations, such as those imposed for health, security and environmental reasons, were also introduced. Other legislation and policies regarding standardization, measurement and certification, privatization, pricing, civil service and foreign exchange and payments were implemented or overhauled as well. The Armenia’s regulatory system pertaining to business activities is considered one of the most developed from the ex-Soviet countries. However, it still lacks the desired degree of transparency. For example, certain sectors, though officially open (aviation and telecom are examples) maintain near monopolies that are difficult to control and manage. The main priority area should be to fight discretionary practices by government officials, defaults on tax obligations and unregistered business activities, which were estimated in June 1997 by the Armenian authorities to make up 40 to 53 per cent of GDP. The most affected area is trade, where fair competition is often undermined; this has a negative impact, especially on SMEs. Continued reforms are needed to overhaul the remnants of the old Soviet system and to implement WTO commitments. Adapting to the legislative and institutional framework, as necessitated by WTO accession continues to be one of the key challenges faced by th e country. Experts in the various technical disciplines related to WTO (especially those related to technical regulations, coordination and enforcement) can be sought through ESCAP or other donor agencies in order to assist the Government of Armenia to further draft, enforce and implement new laws and regulations and update existing ones. This will help to ensure harmonization with international conventions, agreements and standards. 67
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Bureaucratic procedures still appear burdensome and time-consuming for investors and traders, where different approvals and licences may involve several ministries and other agencies. Armenia experiences high transportation costs and transit fees. To solve this problem, there is an urgent need for regional transit agreements and transit corridors as well as for harmonization of the trade and customs procedures with neighbouring countries. 5. TRADE DOCUMENTATION AND CUSTOMS PROCEDURES 5.1. Trade documentation All economic entities, regardless of the form of ownership, when conducting export operations must provide an invoice in four copies, which is registered with the State Customs Committee of the Government of the Republic of Armenia. If advance payment or a letter of credit is used for payment, it must be approved by the bank servicing the payment. The exporter keeps one copy of the invoice. The second is retained by customs, and the two remaining copies are sent to the servicing bank and the State Tax Inspectorate. 5.2. Certificates Currently, certificates of quality/safety are issued or accepted by the Department for Standardization, Certification and Metrology of the Republic of Armenia for tobacco products, alcoholic drinks, and oil products. Imported vitamins and other pharmaceutical products are subject to certification by the Ministry of Health of the Republic of Armenia. Such certificates of quality/safety will also be required for most food products. The safety certification for products, except pharmaceuticals, normally takes two or three days and may involve a laboratory testing and payment of fee. The Department recognizes USDA safety certificates for meat and poultry products and takes into consideration manufacturer certificates for other products. The export of pharmaceuticals to Armenia requires registration by the Drug and Medical Technology Agency of the Republic of Armenia. Application for registration is filed by manufacturers. The process may take from a few days to three months because some drugs may require laboratory testing. The registration is valid for 10 years. Registration fees vary from US$ 2,000 for new drugs to US$ 1,200 for generic drugs. Registration renewals vary between are US$ 600 and US$ 100 respectively. The Agency maintains a list of all pharmaceuticals registered in Armenia, as well as the essential drugs list, which is available on request. While Agency officials believe that it should start certifying the export of medical equipment in the near future, no relevant laws and regulations exist. In addition, the import of arms and ammunition requires special approval by the Government of the Republic of Armenia prior to entry into the country. 68
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5.3. Rules of origin Certificates of origin may be requested by customs for imported or exported goods. The certificate of origin must be provided for imported goods when: • Goods are subject to quantitative limitation • Imports are covered under preferential trading arrangements • They are stipulated by international agreements to which Armenia is party, or by Armenian legislation related to the preservation of the environment and health, and protection of Armenian consumer interests, public order and national security • The authorities have inadequate information as to the product’s origin. 5.4. Customs procedures All imports and exports are subject to customs clearance and a customs declaration form must be presented along with a pro forma invoice or a contract indicating the specifications, quantity and value of the goods being imported. Customs requires completion of declaration forms and extensive verification by customs officials, which leads to unjustified delays in processing imports and exports. This also enables customs officials to make arbitrary decisions about accepting or denying a declaration as well as other opportunities to seek informal facilitation costs from the applicant. All customs declarations must be made by registered entities, usually by customs brokers. The entity is required to register with the customs house in the region where the entity is based on a tax identification number provided by the tax authority. Organizations that have not registered with customs cannot transact with customs for the clearance of goods into and out of the territory. The State Customs Committee has implemented an ASYCUDA (++) – the automated system for submitting and processing declarations and other forms. This system serves to create a database thus permitting the generation of trade statistics and relevant reports. Another procedure is the practice of export approvals. An Armenian exporter has to apply in formal written form to the chief customs the regional house in order to export products of Armenian origin and to the chief of the State Customs Committee in order to export of products with non-Armenian origin. This not only creates unnecessary delays, but also establishes an environment that allows the existence of informal costs and rent-seeking behavior. As a result of the customs procedures briefly described above, the overall customs clearance time in Armenia still leaves considerable room for improvement. The World Bank commissioned a survey on performance indicators and measurement of border and customs procedures for cargo carrier vehicles in Armenia and Georgia in 2002. Within the framework of the project, the World Bank organized monitoring of customs and border procedures in several customs houses, customs terminals, border-crossing points and ports in Georgia and Armenia. 69
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The average timing indicators per truck registered by monitors in Armenia were as follows: • • • • •
Transervice Inland Customs Terminal - 28.3 hours Dzyunik Inland Customs Terminal - 31.45 hours Araratyan Customs House - 3.93 hours Meghri Border Point - 2.73 hours Bagratashen Border Point - 0.4 hours.
5.5. Customs valuation Despite the fact that the relevant provisions of the Armenian Customs Code are based on the rules and obligations of WTO, including GATT Article VII and the Agreement on Customs Valuation, they are not fully implemented. Contrary to international practice, the process is not based on self-assessment, where the declarant is responsible for declaring the customs value based on the available invoices, but is conducted by customs officials. Moreover, the customs authority keeps a “check list” of indicative prices for similar products in the local market. As a result, instead of applying an invoice value for customs valuation, as defined by the law, they often apply “check list” prices whenever they are higher than the invoice price. 5.6. Customs and transport fees The State Customs Committee also imposes customs user fees, which are compulsory payments designed to help recover the cost of customs formalities. Various customs user fees imposed. For example, approximately US$ 6 is levied for fulfilling customs formalities. For customs inspections fees are set at US$ 1.5 for cargo weighting less than 1 ton and US$0.50 for each additional ton. The fees can double if the declarant selects an examination site differing from that imposed by customs. The customs escort fees of US$ 200 can also be imposed for each journey of 10 km. In addition, for Armenian trucks traveling to the Russian Federation through Georgia, are often subject to discretionary practices of Georgian police and illegal groups operating in the region unless they pay a fee. This also adds to already high transport costs and time. A drawback payment system is in place in Armenia, in particular for goods on which VAT has been paid and subsequently are reprocessed and exported. The drawback system imposes a strain on the payee who may face cash flow-related problems if the claims are not settled in an equitable and timely manner. 5.7. Recommendations Armenia is dependent on the trade preferences and transit conditions applied in Georgia, which is Armenia’s main transit country for exported goods. Trade facilitation improvements in Georgia are thus imperative to Armenia’s terms and costs of trade. The streamlining, harmonization and improvement in border procedures and related documentation requirements of both Armenia and Georgia would greatly enhance the Armenia’s trade competitiveness. 70
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Simplification of trade documents Steps can be taken to simplify and harmonize documents and procedures by following the steps and stages laid out in ESCAP Trade Facilitation Framework Stage-Bii. A region-wide harmonization and streamlining of transit and trade documents could be made by adopting the United Nations Layout Key. This step will be part of a long-term objective to introduce automation and ICT in order to expedite document processing and to introduce computerized transit or customs procedures or electronic trade documentation in Armenia. Customs declaration and clearance procedures Taking steps to implement a system for self-assessments and self-declarations, which are commonly used in developed countries, can shorten the time necessary for documentation clearance. Currently, customs brokers are used but they find it difficult to conduct a preliminary declaration, which is a required step in decreasing delays for customs procedures. Another issue is the licensing of customs brokers, which is conducted by customs officials. Such practice may lead to conflicts of interest, since a customs broker is not really free to initiate serious actions against customs, which has the authority for either granting or denying licence extensions to a broker. To help reduce non-tariff barriers and to speed up clearance times, one-stop shops for import and export clearance using the single window facility can be introduced. It is possible to coordinate and restructure the various documentary and inspection agencies and consolidate them in one location for a one-stop control procedure at the border. TRACECA project and assistance TRACECA has a project to harmonize border-crossing procedures, with an emphasis on customs procedures. The objective of this project is to harmonize procedures within the region and to align them with practices of the European Union. The emphasis of the project is on implementation of new customs procedures. Some of the areas targeted include the following: • • • • • • • • •
Customs procedures (this comprises the core theme of the project) Immigration Vehicle controls, for dimensions, weight and emissions Border guards, security agencies, police Controls for quotas, of goods and transit permits Traffic police Sanitary and phytosanitary controls Movement of transit goods Establishment of harmonized list of controls and documents that conform with international standards and meet national and regional objectives • Development of model documents in languages of choice of each beneficiary state, based on the key document package from Trade Facilitation Project 71
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• Setting performance targets for the proposed controls (minutes processing per document) • Training and assistance with modernization in order to introduce new methods. Improvements in information dissemination Perhaps one area which can be improved immediately is the dissemination of information about new laws, regulations and procedures to the private sector. This can be done using ESCAP Trade Facilitation Framework Step Biv as a guideline for the establishment of an inquiry point and regular updating of the websites of customs and other government agencies. 6. TRADE AND CUSTOMS ENFORCEMENT Customs and border crossing enforcement are important measures to prevent abuse of a country’s trade system. However, excessive trade enforcement and controls can impede the flow of trade, resulting in inefficiency. Therefore trade and customs agencies need to strike a balance between enforcement and facilitation. To assist them, tools such as risk management, trade monitoring and education can be employed to assist the agencies in conducting effective trade enforcement. 6.1. Customs enforcement in Armenia The State Customs Committee, among others, is responsible for verifying the contents of transit loads when transit of prohibited items is suspected. Customs officials therefore have the legal power to inspect and seize suspect transit shipments. Dual-use items require an import certificate from the country of destination to guarantee that the imported items will not be used for military purposes. Any unlicenced export of items listed on the export control list will be viewed as illegal and subject to prosecution under the Armenian criminal code. Penalties could range from three to eight years of imprisonment. Cooperative efforts in export control have been initiated with bilateral and international partners. Work is continuing on all aspects of export control, including draft legislation, monitoring, training and enforcement. Customs in Armenia uses the ASYCUDA database to conduct importer/exporter profiling and analysis as well as to establish selective supervision on declared goods and documents based on the assessment results. Customs uses the red, green and yellow channel system for selective examination. The consignments designated “red channel” require full physical examination of the cargoes and accompanying trade documents, while those given “green channel” status are exempted from further customs inspection. The”yellow channel” status provides for partial examination of the consignments. Despite the use of ASYCUDA, customs continues to require customs declarations and other supporting trade documents to be submitted in paper format to the customs point of clearance. Examination of all consignments is done manually. Not all border posts have technical equipment such as X-ray scanners. 72
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Although risk management methods have been established within the ASYCUDA system, customs does not apply a post-clearance audit system. The customs authority has indicated that a feasibility study was conducted to implement such a system to be implemented gradually. 6.2. Recommendations Improvement in quality of customs services and higher standards Adoption of standard operating procedures (or code of conduct) together with customs modernization and computerization by State Customs Committee could greatly improve transparency at all stages of customs procedures and inconsistent practices. Such standard operating procedures could be tailored for each individual operation. The bounded instructions should also be available at all customs posts and offices. Training of customs officials to familiarize themselves with the standard operating procedures as well as new ICT applications would require tailored capacity building plan. Trade security and risk management Delays in customs formalities are also due to inadequate equipment. Computerization of all processes and the installation of X-ray equipment with the capacity to process the entire consignment rather than perform a box-by-box review would remedy this situation. This, of course, depends on the availability of funds, as customs computerization and the necessary equipment are rather costly. Despite the introduction of green, red and yellow channels for customs processing of imports and exports in Armenia, around 50 per cent of all consignments still pass through the red channel and are subjected to full physical inspection. All consignments from the Islamic Republic of Iran, Georgia and the Russian Federation, which comprise significant part of overall trade, are subject to 100 per cent physical examination. This leads to lengthy time delays and rent-seeking behaviour among officials. Risk management techniques, as provided by international conventions and standards promoted by WCO, can be further introduced to improve security at the borders. For example, sampling inspection has been introduced at customs houses, but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared under the green channel. Training activities are also needed to assist agencies to manage risk through specific methods and interventions that facilitate trade on one hand and ensure compliance on the other. It is imperative that further training be carried out to equip customs staff with a sense of professionalism and with the knowledge and skills necessary to adopt risk management techniques (see ESCAP Trade Facilitation Framework Step Biii 9-1). Traders need to be educated to ensure that they know how to maintain an internal compliance system (see ESCAP Trade Facilitation Framework Step Biii 9-2). 73
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Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with the collection of accurate trade data and intelligence (see ESCAP Trade Facilitation Framework Stage Biii-1 to Biii-3). Once a reliable trade database is developed, the processed data can be used to guide customs officials in carrying out selective risk profiling and inspection. Non-compliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. Post-clearance audit The grey economy has been acknowledged by the authorities; the revenue loss in the region became of this economy and is estimated to be about 50 - 70 per cent. Its removal or at least substantial reduction may be achieved through post-clearance audit (see ESCAP Trade Facilitation Framework Step Biii-4). Post-clearance is based on intelligence about an economic operator and therefore concentrates on high risk cargoes. Controls are more systematic and comprehensive, as they involve not only analysis of trade documents, but also accounting books and other records of the economic operator, as opposed to the traditional controls, which are performed randomly. Post-clearance audits therefore allow customs authorities to shift from a purely transaction-based control to a thorough company-oriented control. 7. TRADE FINANCE The majority of Armenian companies are experiencing shortages of funds. The Government is also experiencing a shortage of resources, making state-sponsored loans difficult to obtain. Lending from private banks is limited as few banks can provide loans exceeding US$ 20,000. Currently, many private banks limit their lending operations to short-term loans in local or hard currency at very high interest rates. These banks often demand collateral of adequate or higher market value. Project financing is very limited. It is implemented through subsidized loan programmes funded by foreign governments and multilateral financial institutions. It is usually aimed at development of businesses in the specific sectors. Most Armenian banks offer their services for administering payment for foreign trade operations. Payment methods include advance payments, letters of credit, and other internationally accepted forms of payment except for credit cards and checks. Local Armenian banks provide limited short-term or long-term financing to Armenian importers in local currency or dollars secured by collateral. No insurance companies are known to provide reliable insurance services as yet. There are no specialized banks in Armenia. All banks provide a full range of general banking services with no specialization in any specific sector or industry. After the adoption of the law on credit organizations, five such organizations have been operating since 2002. 74
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The Government has not implemented any special promotional schemes in support of trade finance. Several laws promote international trade to a limited extent, for example export exemption from VAT. The projects within the scope of Agreements between International donor and other organizations and the Republic of Armenia (technical assistance, etc.) are exempted from VAT payments while importing equipment, other assets to the country. There is also significant simplification of procedures for the registration of non-resident companies, etc. An agreement has been reached between the Governments of Germany and Armenia on financing the programme of Credit Guarantee Fund. Grant in amount 4.3 million Euros was made available for this programme. Its goal is to provide guarantees to Armenian commercial banks so that they will be able to attract credit resources from international financial organizations for further crediting them to small and medium-sized businesses. The guarantee fund will enhance the capacity of banks and provide more opportunities for SMEs to finance their business development, including their international trade activities. The central bank of Armenia plays an active role in creating and developing a payment and settlement system within the country (See the Armenian law on the central bank, article 5). The payment and settlement system of Armenia includes the payment and settlement systems of the central bank and commercial banks. The payment and settlement systems of the commercial banks are used to carry out both inter-bank and intra-bank payments. Most inter-bank payments are carried out through the payment and settlement systems of the central bank, using the commercial banks’ correspondent accounts with the central bank. Inter-bank payments through the commercial banks’ systems are settled using mutually opened loro/nostro accounts. International payments by Armenian banks are carried out through correspondent accounts with foreign banks, via telex and SWIFT. The volume of the SWIFT transactions is increasing which is determined by the growing numbers of banks in Armenia affiliated with the SWIFT; over 20 Armenian banks have joined SWIFT. Banks operating in Armenia have broadened their services on international operations, particularly in the area of servicing international cards and checks. Commercial banks issue and service international automated teller machines (ATM) and credit cards, such as Visa, Master Card or Russian Union cards. International fund transfer systems, such as Western Union, Unistream an Money Gram and Anelik System also operate in Armenia. The central bank has been preparing a law on electronic payment and Internet banking. The law would require any payment operators to obtain a license from the central bank.
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Awareness and implementation of security measures have been high among the central bank officials. However, greater education on security awareness may be needed in the future as the banks expand their services to provide more e-payment systems. 8. APPLICATION OF ICT 8.1. Use of ICT The telecommunication sector is largely privatized. In 1998, the State-owned Armenia Telephone (Armentel) was sold to a private Armenian-Greek firm that was granted a licence for fixed lines as well as mobile telephones. In accordance with the agreement, Armantel was to spend about US$ 200 million to expand the network and coverage, and upgrade faxed lines from analog to digital. Costs for establishing and using a fixed line or mobile telephone remains high and the service is not yet well developed. A second mobile phone operator, Vivacel, was introduced in 2005. Starting in 2006, the Public Service Regulatory Commission expanded its role to include the telecommunications sector. The Government identified the ICT sector as a priority for the Armenian economy. In order to promote the development of this sector, the industry development concept paper was developed in 2001. The concept paper identified goals and objectives, as well as necessary measures to develop the ICT sector. These included the improvement of the legal framework and the infrastructure that would facilitate the development of the sector, expansion of the use of ICT by the public and the application of ICT in different sectors of the economy. The introduction of e-business and e-commerce practices in Armenia is another strategy for developing the ICT sector. This is viewed as a means to facilitate the entry of Armenian enterprises into the world of the networked economy. As a step in regulating this field, a draft law on electronic documents and digital signature was developed. The IT Development Support Council is headed by the prime minister and is the state coordinating body tasked with facilitating effective communication between the business community and Government and improving the public and private partnerships. The Council includes representatives of the relevant state bodies and business executives. Its working groups present action plans to the Council and then to the Government. In November 2001, the Enterprise Incubator Foundation was established with the support of the World Bank. The main objectives of the Foundation are to provide of newly established enterprises with working facilities and supporting them in gaining access to international markets. The Foundation plays a significant role in training specialists by providing them with up-to-date skills. Experience has shown that ICT specialists, who are not employed in the field are able to find work in the ICT sector after a short training period. 76
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The current ASYCUDA (++) system is basically a data-input system for customs declarations that links various units within customs. Traders still need to submit their application form in paper format at the customs office either themselves, or through a customs broker. While the system streamlines some work processes in customs, it lacks integration with other government agencies and does not use a single, harmonized electronic trade document. In addition, customs payments are still made in cash. 8.2. Recommendations Electronic trade documentation system There is no lead agency in Armenia to spearhead the development of a comprehensive electronic trade documentation system. To develop such a system, the Ministry of Trade and Economic Development could be tasked to work with the National ICT Council to propel the country into an e-commerce trading environment. The Ministry and the National ICT Council need to explore possible integration with other agencies involved in trade, particularly with the State Customs Committee. At the same time, various stakeholders need to consider integrating their systems into ASYCUDA and to provide for a seamless electronic trade documentation system (see ESCAP Trade Facilitation Framework Steps Bv 1-7 for the detailed steps).
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II. AZERBAIJAN 1. BACKGROUND Azerbaijan is a landlocked country, neighbouring Armenia, Georgia, the Islamic Republic of Iran, the Russian Federation and Turkey. It has a land area of 86,600 square km and a population of about 8.2 million. Azerbaijan became independent in 1991, following the collapse of the former Soviet Union. After gaining its independence, it faced a long period of political and economic turmoil. Azerbaijan has experienced remarkable economic growth in recent years, averaging 15 per cent annually since 2000. This has largely been due to the progress of economic reforms since the breakup of the Soviet Union and the current oil boom. Gross domestic product grew by 26 per cent in 2005 and was expected to accelerate in 2006.29 In terms of trade, high world oil prices in 2004 led to a trade surplus of US$ 161 million. Its merchandise exports reached US$ 2.8 billion in the first half of 2005, a 68 per cent jump from the same period in the previous year, of which oil and gas exports accounted for almost 90 per cent. Imports mainly of capital goods for the oil sector increased by 37 per cent. Azerbaijan has a fairly liberal trade regime. Tariff rates range from 0 to 15 per cent, with a simple average tariff of 7 per cent. It is seeking accession to WTO, implicitly a long-term commitment to free trade. While short-term adjustment costs will be felt as the country undertakes the necessary domestic reforms, in areas such as tariffs, customs procedures, taxation, and banking and finance; as it opens its markets to greater competition, the benefits of accession will be substantial. 2. NATIONAL TRADE FACILITATION STRATEGY Currently, Azerbaijan does not have an integrated trade facilitation strategy or policy statement. Improvements have been made in individual areas such as drafting new trade laws and regulations and streamlining trade procedures. However, an overall guideline or policy needs to be developed to lay down clear objectives and targets for the various implementing agencies and stakeholders to follow. It will also ensure greater transparency for the private sector in Azerbaijan. Furthermore, because Azerbaijan is landlocked and heavily dependent on the terms of trade and transit accorded by neighbouring and regional countries, its national trade facilitation policy should be in congruence with any regional initiative or grouping that is implementing similar crossborder trade facilitation measures. It is recommended that trade facilitation needs careful analysis to be carried out at the outset. Trade facilitation measures are most effective when based on an integrated,
29
ADB. Asian Development Outlook 2006: Azerbaijan, (Manila, ADB, 2006)
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national and regional trade facilitation strategy. They are also more effective when the private sector agrees with the measures and strongly backed by political will from the highest political level. As such, it is recommended that the Government of Azerbaijan take a step back and conduct a detailed stakeholder needs analysis with the private sector to identify, assess and prioritize the trade facilitation reforms needed for Azerbaijan (see ESCAP Trade Facilitation Framework Stage Ai). A trade facilitation survey could be carried out every two years to determine if improvements have been made in the problem areas and ascertain latest conditions. All information gathered through survey will help to clearly define Azerbaijan’s national and regional trade facilitation strategies based on a concise needs analysis. Only then can the needs be prioritized and an implementation plan and action items be developed at the national and regional levels. The next step is the consensus stage, in which agreement on targets is obtained and concrete and realistic time limits are set for the achievement of these targets. Strategic implementation can only work if backed by political will and the capacity of the Government to control its agencies. It is recommended that this exercise focus more on the enforcement of existing laws and regulations, and implementation of commitments made under international and regional conventions and agreements as well as on identification of priority technical assistance projects in these areas. 3. INSTITUTIONAL MECHANISM FOR TRADE FACILITATION There are various government institutions responsible for different aspects of trade facilitation in Azerbaijan. The National Trade and Transport Facilitation Committee of Azerbaijan (AZERPRO) was established in 2004. Its functions include the following: • Improving dialogue between different bodies involved in trade and international transport • Defining solutions to remove impediments to trade and transport at the operational level • Identifying issues affecting the cost and efficiency of the country’s international trade • Developing measures to reduce the cost and improve the efficiency of international trade and assisting in their implementation • Providing a national focal point for the collection and dissemination of information on best practices in international trade facilitation • Participating in international efforts to improve trade facilitation and efficiency. AZERPRO has no executive authority. However, because its membership includes senior personnel from the government agencies involved in the administration and regulation of trade, such persons are in a potentially strong position to bring influence to bear upon government decision makers to implement Committee resolutions. Information on Government and non-government stakeholders associated with AZERPRO is provided below. 79
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3.1. Government stakeholders Cabinet of Ministers The Cabinet of Ministers of Azerbaijan is the lead agency for trade facilitation and is the highest body, with the executive power of the president. It prepares drafts the State budget and submits it to the president. It authorizes the implementation of the state budget as well as implementation of financial, credit and monetary policies. It also authorizes the implementation of State economic and social programmes, carries out control over ministries and other central bodies with executive power, and annuls their acts and solves other issues delegated to it by the president. It establishes general procedures and issues decrees and orders. The Cabinet of Ministers reports to the president of Azerbaijan and includes the prime minister, his deputies, ministers and heads of other central bodies with executive power. As far as trade facilitation is concerned, the functions of the Cabinet of Ministers include providing implementation of State economic programmes, implementing State social programmes, controlling ministries and other central bodies, and setting customs tariffs and duties. Ministry of Economic Development The Ministry of Economic Development (www.economy.gov.az) is responsible for forming and carrying out State policy in the sphere of socio-economic development, international cooperation, macroeconomics, trade, investment, development of entrepreneurship, privatization and management of state property, restriction of monopoly and development of competition. Its major functions in the field of trade facilitation are participation in defining customs tariff rates, creating relations and achieving agreement with the relevant bodies of foreign countries, and working with various international organizations. The Ministry is also responsible for all the issues related to the WTO accession. It is the overall regulator on the licencing of certain business activities and local business support (especially SMEs). The Centre of Economic Reforms, which is under the Ministry, assists in economic policy formulation through research and economic forecasting. It also conducts post graduate and doctoral academic programmes for public policy makers in Azerbaijan. Currently, the Centre conducts training for the lead agency in trade facilitation matters. State Customs Committee The major functions of the State Customs Committee (www.az-customs.net) are to implement customs policy, issue customs regulations and set rules to protect the domestic market. It creates the necessary conditions for foreign entities to participate in export/import operations, enforces and controls export/import operations, and protects the country’s economic interests and security. 80
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The Government established a fund for the development and modernization of the customs system, which covers three areas, namely: (a) modernizing of the materialtechnical base; (b) increasing human resources; and (c) improving skills and capacities of staff. The Regional Training Center of the WCO was created in Baku to provide customs training for officials in the region in the following areas: • • • •
Organization of customs control Customs law Customs statistics Commodity research.
Besides these trainings, seminars for customs officers and paid trainings for customs brokers are also conducted. Raw trade information is captured and tested at customs checkpoints (if necessary, commodities can be inspected in detail at checkpoints). The cargo division and the financial revision division of customs collect relevant information. All customs checkpoints have statistical divisions where all information about incoming and outgoing commodities is collected and registered. The information is then submitted to the central office and the State Statistical Committee and disseminated to the public through media and relevant public bodies. The State Customs Committee often faces problems when coordinating activities with other relevant state bodies. It also lacks cooperation with business associations. Some consultation and feedback sessions between the Committee and these stakeholders do take place but such consultations are not institutionalized. 3.2. Non-governmental stakeholders Of the non-governmental stakeholders, the key ones are the Azerbaijan Chamber of Commerce and Industry (ACCI), Azerbaijan Union of Tradesmen and Producers, Union of Merchants, Azerbaijan Marketing Society, Young Entrepreneurs Association and Entrepreneurs Council. Azerbaijan Chamber of Commerce and Industry The main responsibilities of ACCI include the following: • Promoting production activities between the Chamber’s members, representing and ensuring legal protection domestically and abroad by attracting investment, foreign technology and know-how; establishing joint stock companies, joint ventures, and other organizations • Promoting the development and manufacturing of competitive products 81
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• Preparing proposals and recommendations for business activities; setting up mutual ties between the parties to business ventures and other organizations and persons concerned • Analyzing business activities, making proposals and recommendations for their improvement by using effective forms and methods characteristic of the Chamber’s activities; performing measures to limit monopoly power and price fixing • Organizing training activities of specialists in advanced methods of business activities and study trips abroad • Promoting the development and diversification of exported goods and services • Organizing international exhibitions, exhibitions and fairs of individual firms and organizations and facilitating participation in fairs and exhibitions of the Azerbaijani enterprises abroad • Issuing the certificates of origin for goods exported from Azerbaijan, and approving rules on trade and seaports accepted in Azerbaijan • Assisting exporters and importers with carrying out inspection of exported and imported goods; examination of their quality, completeness and quantity • Confirming force majeure circumstances according to the provisions of international commercial transactions and agreements • Establishing arbitration courts and developing cooperation in the field of international commercial arbitration. 3.3. Recommendations Lead agency Because trade facilitation is multidisciplinary and involves interfacing with and galvanizing entities such as trade, transport, finance, agriculture ministries, as well as standardization, veterinary and plant agencies to work as a team, a suitable lead government agency is needed to be responsible for spearheading, managing and coordinating trade facilitation reforms in Azerbaijan (see ESCAP Trade Facilitation Framework Stage Aii-1). While the Cabinet of Ministers is the highest executive authority and can play the role of lead agency, it is recommended that a more operational ministry is put in charge as a lead agency, as the Cabinet of Ministers is too high level to be involved in the day-to-day problems and issues regarding implementation of trade facilitation reforms. The lead agency could report to the Cabinet of Ministers. It is recommended that the Ministry of Economic Development be entrusted as the lead agency. This entity is well placed for this role. In addition to that Ministry, the Ministry of Information and Communications Technology will play a significant role in the development of ICT and the subsequent electronic trade documentation system in tandem with the Ministry and the State Customs Committee. Moreover, it is recommended that the Ministry takes the lead in raising the level of awareness among government agencies on the scope of and issues involved in trade facilitation by conducting seminars and workshops. This could also help all government 82
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agencies to become familiar with what other agencies are doing and of their role with regard to trade facilitation. Trade facilitation advisory committee A role of trade facilitation advisory committee in Azerbaijan is in some extent being fulfilled by AZERPRO. Thus, a formal trade facilitation advisory committee (see ESCAP Trade Facilitation Framework Stage Aii-2) or a national coordination mechanism could be established and headed by the Ministry of Economic Development. Such Committee needs to have the political power and will to push the national trade facilitation reform programme. It must also have the power to enforce the implementation of trade facilitation measures. It is recommended that a reporting mechanism be installed between the Committee and the lead agency. Proposals for new trade facilitation measures that are recommended by the Committee would have a formal link with the Ministry, which can then take the appropriate action to implement them. Public-private partnerships Cooperation between the public and the private sector is necessary for trade facilitation reforms to succeed. A fruitful dialogue between private sector representatives and policymakers will help better define the real needs of the market. It also improves transparency and information flow and encourages the search for viable and sustainable solutions that follow economic criteria without getting sidetracked by political considerations. There are several public-private sector dialogue forums. For example, the Entrepreneurs Foundation and Council reports on the assistance needed for business sector directly to the president. However, feedback received by the ESCAP secretariat suggests that these mechanisms, though in place, are weak. Thus, it is recommended that advisory committees be established in different key sectors such as transport and logistics and ICT under the trade facilitation advisory committee to encourage more private sector feedback on trade facilitation issues. Such committees can be headed by a secretariat from the Government. Private sector membership in the committees could be based strictly on an invitational basis, with one-year tenure for each member. This would ensure that no one private sector member with vested interests monopolizes the committee membership; it would also enable other companies to participate in the dialogue. 4. TRADE REGULATORY ENVIRONMENT The trade regulatory environment governs the conduct of trading activities. The most important basis of the each country’s trade facilitation system is the trade and customs legislation. The regulatory framework establishes the level of compliance for traders are conducting import and export activities.
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The trade regime in Azerbaijan is already relatively liberal. Drafts of trade legislation are prepared by the bodies of relevant government ministries. They are presented to the parliament for adoption, and finally sent to the president for confirmation. Instructions and regulations are adopted by the relevant ministries and sent to the Ministry of Justice for confirmation; that ministry then checks whether these normative acts contradict the national legislation. Azerbaijan is in the process of accession to WTO and is a member of the WCO. Its Customs Code was aligned with the revised Kyoto Convention. The International Convention on the Harmonized Commodity Description and Coding System was ratified in 2000 by the parliament. 4.1. Decrees regulating trade in Azerbaijan Presidential decrees • State Programme on the Development of Small and Medium-sized Enterprises for 20022005 • Entrepreneurs’ Council under the President of the Republic of Azerbaijan • Improvement of Regulations Granting Special Permissions (Licences) for Some Types of Activities • Additional Measures in the Area of State Support for Business Development in the Republic of Azerbaijan • Prevention of Interferences Impeding the Development of Entrepreneurship. Decrees of the Cabinet of Ministers • Rates of Customs Duties on Export-Import Operations (with its further changes and amendments) • Regulation of Full or Partial Release from Customs Duties and Taxes of Goods Temporary Imported • List of Commodities Exempted from VAT while Imported into the Territory of Azerbaijan • Rules for the Return to the Taxpayer of Overpaid Taxes, Interest and Financial Sanctions • Generic Pro-forma Partnership Agreement by and between Some State-controlling and Auditing Authorities, and Subjects of Entrepreneur Activities. Regulations by the Ministry of Economic Development • Rules on Maintenance of Unified Licence Registry in Azerbaijan • Numerous bilateral agreements have been signed between Azerbaijan and other countries in economic, social, agricultural, taxation, technology, sports and political fields. 4.2. Import regime Import tariff ranges from 0 to 15 per cent, with the weighted average being 7 per cent. Under free trade agreements with the Russian Federation, Ukraine, Georgia and Kazakhstan, Azerbaijan imposes no duties imports from these countries.
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Excise tax is applied to alcoholic drinks, ethyl alcohol and tobacco goods imported to Azerbaijan in accordance with the Decree No. 527 of the Azerbaijan President on storing, importing and selling alcoholic drinks, ethyl alcohol and tobacco goods, adopted in 1996. 4.3. Customs procedures and documentation The State Customs Committee processes all trade documents if there is no requirement for additional licences. The period for processing customs declarations depends on the quantity of imported/exported goods (ranging from 1 to 3 hours). A fee of 120,000 AZN30 is charged for declaration processing. The payment of import duties can be made in cash or through a bank transfer but cash is preferred. Traders are required to submit the following documents for a customs declaration: • Certificate of origin • Copy of airway bill, railway bill • Company’s documents (certificate of registration, statistical code, tax identification number) • Invoice • Purchase order • Letter regarding permission of the customs clearance. According to the State Customs Committee, there is a risk of discretionary practices in the customs control, enforcement and inspection process. This is related to a culture of poor law enforcement. Sometimes businessmen use unofficial ways to solve problems because they are easier and quicker. 4.4. Licencing There is no special licence or permission required to conduct trade activities, except for certain specific commodities. Trade companies must be registered as a legal entity. The stages for registering are as follows: (a) registration with the Ministry of Justice, (b) registration with the State Statistics Committee, and (c) registration with the tax service. For years licencing has been a major problem for businessmen in Azerbaijan. A few reasons for this include: too many licenses required of businesses, the process of issuance is too cumbersome and unclear, and too many and too wide a variety officials are tasked with enforcing licencing regulations. The current system is slow and costly, and licences are often demanded even when there is no regulation requiring their issuance. The wide range of licenses and the existing system of enforcement creates an environment conducive to discretionary practices by government officials. In order to improve the 30
The Azerbaijan Manat (AZN) is the country's local currency; at the end of March 2007, the exchange rate was US$ 1.00 = 0.867 Manats.
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actual business environment, in September 2002 the president issued a decree reducing the number of activities requiring licences from 240 to 30, and the new regulations on granting licences were passed. The enforcement of licencing regulations is supervised by authorities, as well as by companies is entrusted by the Ministry of Economic Development. 4.5. Other administrative procedures In Azerbaijan it is a common practice for laws enter into force on the date of their adoption. The absence of a gap between the adopting and enforcement of a law leaves no space for traders to prepare themselves for their new obligations. Through no fault of their own, companies suddenly find themselves in violation of new laws. This creates opportunities for corruption. The process of compliance is further confused by late issuance of the rules and regulations regarding new laws. Furthermore, these regulations sometimes are not published or disseminated. A solution to this problem could be to allow one year between adoption and enforcement as is the practice in most developed countries. During this period, instructions on compliance may be issued by decree and be available to businessmen. 4.6. Recommendations Trade and customs legislation review Continued reforms are needed to overhaul the remnants of the old Soviet system and to facilitate the process of accession of Azerbaijan to WTO. Adapting to the legislative and institutional framework as necessary by WTO accession continues to be one of the key priorities for the country. Experts in the various disciplines, especially those related to technical regulations, coordination and enforcement, can be sought through ESCAP or other agencies to assist the Government of Azerbaijan in further drafting, implementing and enforcing new laws and regulations and updating existing ones, to ensure harmonization and alignment with international standards. It is still recommended that the guidelines advocated in ESCAP Trade Facilitation Framework Stage Bi (Steps Bi-1 to Bi-6) be carried out. Simplification of trade documents Further steps can be taken to simplify and harmonize documents and procedures by following the steps and stages laid out in ESCAP Trade Facilitation Framework StageBii. Harmonization and streamlining of trade documentation can be made by adopting ULNK, and related codes and recommendations of UN/CEFACT. This step will be part of a long-term objective to introduce automation and ICT in an effort to expedite document processing and to introduce computerized transit or customs procedures or electronic trade documentation in the region.
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Customs declaration and clearance procedures Implementing a mechanism for self-assessment and self-declaration can shorten the processing of customs declarations. This is a common practice in most developed countries. To help reduce non-physical bottlenecks and to speed up clearance times, single window facilities for import and export clearance can be introduced. It is also possible to coordinate and restructure various documentary and inspection agencies and consolidate them in one location for a one-stop control procedure at the border. Customs infrastructure and quality of services and standards There is a lack of large terminals at customs checkpoints, which causes delays in clearance times. There is also a need for the private sector to be more familiar with the documentation requirements necessary for exports/ imports or transit. It is recommended that redistribution centers or”distriparks” could be built to help decentralize clearance points in order to reduce the clearance times and congestion. Trade information and customs regulations are disseminated to the public by leading agencies and other agencies involved in trade facilitation, especially the State Customs Committee, through: • • • •
Posting statistical information and legislation on official websites Publishing official papers, magazines and bulletins Presenting annual reports Opening a special hot line of the Ministry for Economic Development to enable business people to ask questions, obtain information and submit reports about their rights’ violations and other problems.
In addition, the State Customs Committee could establish information access centres, which can be used to disseminate pertinent information on customs procedures and practices. Making this information available could to reduce corruption, which may be due to lack of knowledge on the part of the public regarding correct customs procedures and practices. This can be done using ESCAP Trade Facilitation Framework Step Biv as a guideline by employing the use of awareness raising workshops, seminars, Internet notices and information booklets. Trade security and risk management Risk management techniques, as provided by international conventions and standards promoted by WCO, can be further introduced to improve security at the borders. For example, sampling inspection has been introduced at customs houses, but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared under the green channel.
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Training activities are also needed to assist agencies to manage risk through specific methods and interventions that facilitate trade on one hand and ensure compliance on the other. It is imperative that further training be carried out to equip customs staff with a sense of professionalism and with the knowledge and skills necessary to adopt risk management techniques (see ESCAP Trade Facilitation Framework Step Biii 9-1). Traders need to be educated to ensure that they know how to maintain an internal compliance system (see ESCAP Trade Facilitation Framework Step Biii 9-2). Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with the collection of accurate trade data and intelligence (see ESCAP Trade Facilitation Framework Stage Biii-1 to Biii-3). Once a reliable trade database is developed, the processed data can be used to guide customs officials in carrying out selective risk profiling and inspection. Non-compliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. Post-clearance audit Post-clearance is based on intelligence about an economic operator and therefore concentrates on high risk cargoes. Controls are more systematic and comprehensive, as they involve not only analysis of trade documents, but also accounting books and other records of the economic operator, as opposed to the traditional controls, which are performed randomly. It is recommended that the State Customs Committee introduces post-clearance audit system, as it allows customs authorities to shift from a purely transaction-based control to a thorough company-oriented control. 5. TRADE FINANCE The banking and financial sector is still at a rudimentary stage of development. This is due in part to the public’s generally low level of confidence in the banking system and its lack of understanding regarding the nature and benefit of non-cash transactions, such as bank transfers and credit cards. It is also the legacy of a banking sector dominated by two state-owned banks, by the International Bank of Azerbaijan and Kapital Bank, which together control abut 50 per cent of the assets in the sector. They are significantly undercapitalized and are not interested in playing a part in modernizing the banking system. While their market dominance is being whittled away through the rapid growth of private banks, which are supported by foreign institutional investors and multilateral development banks, the banking and financial sector is in urgent need of reform in order to promote confidence, efficiency in mobilizing savings for investment, and, ultimately, economic growth. The two State-owned banks are being considered for privatization, but neither a well-defined timeline nor a clear commitment to this exists. The banking sector currently does not have sufficient resources to fund the growing needs of SMEs. The use of credit lines from international financial institutions is therefore essential. Several banks already have such arrangements. For example, the 88
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International Finance Corporation with Azerigazbank and with the Rabita Bank, or the European Bank for Reconstruction and Development with the International Bank of Azerbaijan and with Azdemiryolbank. Loans from these credit lines tend to be used for working capital rather than for investment purposes, and many are granted for trade purposes rather than for valueadded services. One of the direct consequences of unfavorable business environment, as it has an impact on SMEs, is that a loan will generally not be granted to a start-up business. Many banks in Azerbaijan are member of international payment organizations such as MasterCard International and Visa International. This enables them to issue debit and credit cards to their customers. Banks have also introduced several innovative banking products that make electronic payments; these include the salary card and pension card offered by the International Bank of Azerbaijan. Azerbaijani banks are the members of the SWIFT system.31 The Azerbaijan Interbank Payment System was installed in 2001 for payments within Azerbaijan. The system for small payments and for utilities payments was installed in 2002. The system operates on online basis. 6. APPLICATION OF ICT 6.1. ICT strategy Since 2003, Azerbaijan has been pursuing a national information and communications technology (ICT), aimed at propelling the country into the digital era by harnessing the power of new technologies for development. The national strategy includes the development of a legal framework for ICT development, mobilizing ICT for more effective and transparent public administration, promoting electronic business, integrating ICT into education and health care and creating a national ICT infrastructure to close the digital divide and ensure access for all. The key legislation, for establishing the legality of electronic submission of trade and customs documents in Azerbaijan includes the following: • Law on digital signature • Law on national alphabet • Law on information, informatization and protection of information. Other draft laws on e-trade and e-documents were prepared and submitted to the Parliament. 31 SWIFT is the industry-owned co-operative supplying secure, standardized messaging services and interface software to nearly 8,000 financial institutions in 206 countries and territories.
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While there have been many initiatives and projects directed at ICT development, more development on specific action plans is needed to realize the strategic plan. Among other things, the following concerns are highlighted in the survey: • Internet services are very expensive • There is a low level of ICT infrastructure development. Most of the country’s regions are under-served by telecommunication networks, especially in remote and mountainous areas • There is no reliable information on current ICT development and Internet usage • There is no institution dedicated to conducting ICT monitoring, research and training. The electronic transmission of data from customs checkpoints to the State Customs Committee began in 1995, using a standard dial-up telephone lines. However, the system was inadequate as it did not provide a reliable connection and did not reach all border checkpoints. The line quality was poor or non-existent and the entire operation was singleserver dependent. During the first phase of the initiative a sustainable connection for all customs checkpoints was installed, resulting in an upgraded data transmission network and expanded network coverage. As a result, the online mode of the data transmission network operates between the Committee Headquarters in Baku and the customs checkpoints in Khachmaz, Tovuz, Astara, Ganja, Evlakh, Ali-Bayramly, Bilasuvar, Khudaferin, Samur, Yalama, Boyuk Kesik, Sinig Korpu, Massaly and Lenkoran. The system was thoroughly tested and the results were the subject of a technical conference attended by over 150 representatives from the public and private sectors as well as the scientific and telecommunications communities. The second phase of the project includes the establishment of a computerized database that will register violations of customs laws and regulations. The goal is to establish a database of violators, while identifying trends in criminal activities in order to better focus Customs’ inspection activities. Checkpoints will receive reports, based on analysis of the data. This will enable easier tracking of the movement of illegal goods and thus facilitate the enforcement of customs laws and regulations. One of the main activities of customs checkpoints is clearance of customs documentations and cargo inspections. An integral part of this process is monitoring and controlling the information contained in the cargo customs declarations. The second phase of the initiative envisages utilizing ICT to improve the overall effectiveness and efficiency of of information flows. In addition, a computerized submission of customs documentation and data control should make interaction between clients and customs officials faster, more reliable, and transparent. 6.2. Recommendations Electronic trade documentation system An electronic trade documents system (ETDS), using a single e-document, could greatly reduce turnaround time as compared with processing traditional trade 90
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documents in paper format; this could have a positive impact on the reduction of costs of doing business. Streamlined trade procedures and protocols will make the entire trading community more competitive internationally. Faster turnaround will also make it possible to better organize shipments and improve productivity. Freight forwarders will reap cost savings in handling trade documentation. The electronic trade documentation system could operate 24 hours a day as opposed to using agencies that open only during normal office hours. Benefits would also accrue to government agencies using the system. The system will enable customs to move from a system of post-approval to pre-approval based on advance information, and customs duties could be pre-paid through electronic means, and customs could receive payments faster. The system would also enable faster compilation of more accurate and complete external trade statistics, because data from the documents need not be re-keyed by the authorities. Accurate statistics will not only better serve the private sector by providing them with timely trade data for market analyses and marketing policy formulation, but also help the authorities to implement trade policy, trade surveillance and trade monitoring. The key to the successful implementing of the depends on these factors: (a) simplification and standardization of trade procedures and documents, (b) efforts of the lead implementing agency to convince the business community of the merits of the system; (c) use of appropriate ICT applications (hardware and software); and (d) training of the officials using the system. There is no lead agency in Azerbaijan to spearhead the development of a comprehensive electronic trade documentation system. To develop such a system, the Ministry of Trade and Economic Development could be tasked to work with other agencies involved in trade facilitation to explore possible integration of all in a seamless electronic trade documentation system (see ESCAP Trade Facilitation Framework Steps Bv 1-7 for the detailed steps). As a first step, the reduction and simplification of trade processes, procedures and associated trade documents should be conducted. Next, data and information contained in the documents must be aligned with international standards. Furthermore, a electronic trade documentation system has to be developed and the national ICT infrastructure has to be opened up for direct submission by traders via a secure open network such as the Internet. The trading community and agencies involved in trade should play an active role in ensuring that their needs are considered. Special attention should be paid to digital signatures, contract and arbitration issues, basic security features and the responsibilities and the legal obligations of service providers.
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ICT Education and Training Currently, the level of ICT education and training does not meet industry requirements. There is little awareness among the population regarding the advantages and opportunities of applying ICT for work and education. The State policy defining the directions for the usage of ICT and its priorities has not been fully determined and the legislative base regulating e-commerce is not yet comprehensive. The development of a vibrant ICT industry is critical to the success of any ICT initiative, including electronic trade documentation system. It is suggested that the authorities can start by developing a national ICT capacity-building plan to equip potential users with the proper IT training and skills to upgrade the service. More academic programmes in database projecting, management, administration and development for example MS SQL, ORACLE, can be developed with the help of expert trainers and curriculum advisors.
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III. KAZAKHSTAN 1. BACKGROUND Kazakhstan, with an area of 2,717,300 square km is the ninth largest country in the world and the largest in Central. With a population of 15.3 million in 2006, it is also one of the most sparsely populated countries in the world. Kazakhstan has considerable mineral wealth and vast areas of arable land. It inherited significant infrastructure from the former Soviet Union and has a relatively well-educated population. However, both physical and human capital has eroded steadily over the past decade. Kazakhstan’s economy is heavily dependent on a few commodities and faces the daunting challenge of diversification. Oil extraction and oil-related construction, transportation and processing accounted for 16.6 per cent of GDP in 2005. Fuel and oil products make up 69 per cent of exports. Ferrous and non-ferrous metals and grains are the only other significant export products. While the export of extractive commodities increased considerably in 2005, the share of manufacturing exports fell to half the total in 1999. Since applying for WTO membership in 1996, the country has been progressing in its efforts to integrate into the multilateral trading system since initiating its membership in the WTO in 1996. It already has a trade system free of non-tariff restrictions and has a relatively low average tariff of 6 per cent. While short-term adjustment costs will be felt as the country undertakes necessary domestic reforms, in areas such as tariffs, customs procedures, taxation, and banking and finance. They will also be felt as the country opens its markets to greater competition. Bilateral market access negotiations are under way on the basis of revised offers in goods and services circulated in 2004. 2. NATIONAL TRADE FACILITATION STRATEGY AND INSTITUTIONAL MECHANISM Currently, Kazakhstan does not have an integrated trade facilitation strategy. Improvements have been made in individual areas such as the drafting of new trade laws and regulations, and the streamlining of trade procedures. An overall trade facilitation strategy still needs to be developed in order to lay down clear objectives and targets for the various implementing agencies and stakeholders, including those in the private sector. During a national workshop in Astana in July 2006, the advisory team of the ESCAP secretariat made recommendations with regard to reinforcing the national coordination institutions for trade and transport facilitation and assisted with developing a national action plan for trade and transport facilitation. A draft national action plan based on the following was endorsed: • The Study and Recommendations on National Trade and Transport Facilitation Coordination Mechanism 93
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• • • •
The Study on ICT Application for Trade and Transport Facilitation and ESCAP Application of the ESCAP Trade Facilitation Framework Application of ESCAP time-cost/ distance model The Study on Legal Regimes for Transport Facilitation, including Cross-border Transport.
2.1. Ministry of Industry and Trade The Ministry of Industry and Trade has the overall responsibility for economic development and the regulation and streamlining of trade activities in Kazakhstan. There are several committees under the Ministry, of which the main ones are: • • • • • •
Committee for Investments Committee for Trade Committee for Industry Department on WTO Accession Committee for Small Business Support and Committee for Standardization, Metrology and Certification. The main functions of the ministry are to:
• Develop a strategy for the economic development of Kazakhstan • Regulate foreign economic activities of commercial entities, both State-owned and private • Develop an ICT applications for trade and industry • Promote and develop SMEs • Design trade strategies, draft trade regulations, carry out preparatory or coordination work for accession to WTO and other international organizations • Promote trade and investment in goods and services. Whilst ministry’s work focuses mainly on policy formulation, it also works with the private sector, such as chambers of commerce, to implement investment and trade promotional activities. The ministry is also formulating policies to support SMEs. The Information Market Center is being established to facilitate the exchange of information regarding business and exports opportunities for SMEs. ICT applications for government, trade and commerce are other important components of the Ministry’s strategy to enhance economic competitiveness, industrial innovation and diversification into non-oil/gas industries and services. 2.2. State Customs Committee The State Customs Committee (www.customs.kz), is responsible for enacting customs laws and regulations. Kazakhstan is a member of the WCO and participates in its major conventions and initiatives. The new customs code entered into force on 1 May 2003. Customs procedures are well established and customs facilities are located at all border points. 94
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The United States Agency for International Development (USAID) is working with the Committee to facilitate cross-border trade, particularly between Kazakhstan and Kyrgyzstan, in the areas of information dissemination, development of alternative methods of transit through intermediate countries and local efforts at cross-border facilitation. The often cumbersome and complex transit issues facing the transportation of goods through the Central Asian countries, is being directly addressed by the Council of the Heads of Customs Services of the Eurasian Economic Community. In July 2003, an agreement was reached by the heads of the Customs Agencies of Kyrgyzstan, Kazakhstan and the Russian Federation to accept one integrated document and a common procedure for security deposits for in-transit shipments. Technical assistance from the USAID Trade and Investment Programme/Trade Facilitation and Investment Activity has focused on strengthening the Committee through training programmes/workshop, technical support for the drafting of the customs code and implementing risk-based management tools to create incentives for more transparent and simplify procedures. The Trade Facilitation and Investment Activity is now developing a trade requirements matrix, which would be available to all businesses via a website, which containing all the necessary permits, documentation and inspection information needed for the customs clearance of specific products. The Government established special economic zones in Astana (July 2006) and Aktau (April 2002) which offer five years of tax and customs duty exemptions. A technoparks located near Almaty, dedicated to information technology and biotechnology, is in operation; there foreign investors can take advantage of incentives to develop trade-intensive high-tech industries. 2.3. Agency on Informatization and Communication The Agency on Informatization and Communication (www.aic.gov.kz) is a central body in Kazakhstan responsible for the e-government strategy of Kazakhstan. A strategic plan for e-government is being developed, based on lessons learned from national ICT systems and e-government systems in Canada and Singapore. 2.4. Committee for Standardization, Metrology and Certification Kazakhstan is part of a 12-country Commonwealth of Independent States (CIS) standards council of which it is the current chair. The purpose of this council is to seek harmonization of all countries’ standards to the international level. The International Standards Organization has been invited as an observer and advisor to this council. Kazakhstan, a member of the ISO, has drafted a new law allowing for the adoption of international standards, which help to reduce cumbersome translation problems. Kazakhstan is also a member of the International Laboratory Accreditation Cooperation and the Electro Organization. The Government has been promoting and implementing ISO standards for manufacturing. The number of product codes has been streamlined to 815, down from the previous 10,000 to 20,000 product codes under the old GOST system. Other Commonwealth 95
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of Independent States (CIS) countries have an average of about 3,000 product codes. The Committee has a department that helps to circulate information to other countries about changes to Kazakhstan’s standards and mandatory technical regulations. Kazakhstan has existing mutual recognition agreements with various countries concerning issues involving certificates in Kazakhstan. 2.5. Recommendation Needs analysis Trade facilitation measures are most effective when based on an integrated, national and regional trade facilitation strategy, agreed by the private sector and strongly backed by political will from the highest political level. As such, it is recommended that Kazakhstan takes a step back and conducts a detailed stakeholder needs analysis and identify, assess and prioritize the trade facilitation reform needs for the country (see ESCAP Trade Facilitation Framework Stage Ai). A trade facilitation survey could be carried out every two years to determine if improvements have been made in the problem areas and ascertain the latest conditions. These information gathered will help to clearly define Kazakhstan’s national and regional trade facilitation strategies based on a concise needs analysis. Only then can these be prioritized and an implementation plan and action items be developed at the national and regional levels. The next step is the consensus stage, in which agreement on targets is obtained and concrete and realistic time limits are set for the achievement of these targets. Strategic implementation can only work if backed by political will and the capacity of the Government to control its agencies. It is recommended that this exercise focus more on the enforcement of existing laws and regulations, and implementation of commitments made under international and regional conventions and agreements as well as on identification of priority technical assistance projects in these areas. Lead agency Because trade facilitation is multidisciplinary and involves various stakeholders from the public and private sectors, a suitable lead government agency is needed to be responsible for spearheading, managing and coordinating trade facilitation reform programme in Kazakhstan (see ESCAP Trade Facilitation Framework Stage Aii-1). It is recommended that the Ministry of Industry and Trade, in particular the Committee for Trade, be entrusted as the lead agency. This entity is well placed for this role. In addition, it is also recommended that ministry take the lead in raising the level of awareness regarding a holistic trade facilitation approach among government agencies by conducting seminars and workshops, so that all government agencies will be aware of their roles. A formal trade facilitation advisory committee (see ESCAP Trade Facilitation Framework Stage Aii-2) should be established and headed by the Ministry of Industry 96
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and Trade to promote trade and transport facilitation. This committee must have the political will to push the national agenda. It should also have the power to enforce the implementation of trade facilitation. It is recommended that a reporting mechanism be installed between the committee and the lead agency, in this case the Ministry of Industry and Trade. This will give new proposals, methods, procedures or systems that are recommended by the committee a formal link with the Government. The military can then take the appropriate action to implement the relevant changes. In 1998, a coordinating mechanism, entitled the Inter-Ministry Commission for Transport, was set up. It is led by the Ministry of Transport, with representation from other agencies dealing with regulations related to cross-border transport, railway organizations, logistics providers and road transport services. The Commission primarily focuses on policy issues associated with cross-border transport. The Commission is chaired by the Deputy Minister of Transport and Communications; it has held four sessions since its establishment. Public-private partnerships Cooperation between the public and the private sector is necessary for trade facilitation measures to succeed, for costs to decrease and effectiveness to rise. A fruitful dialogue between private sector representatives and policymakers will help to better define the real needs of traders, improve transparency and information flows and encourage the search for viable and sustainable solutions that follow economic criteria without becoming side tracked by political considerations. It is recommended that advisory committees be established in the related sectors, for example ICT, transport and logistics, under the trade facilitation advisory committee. Such committees can be headed by a secretariat from the Government. For implementation at local level, especially for local cross border trade facilitation, local advisory councils comprised of local businesses and government can be established. 3. TRADE REGULATORY ENVIRONMENT The trade regulatory environment governs the conduct of trading activities. The most fundamental aspect of a country’s trade facilitation system is its trade and customs legislation. These regulatory frameworks establish the level of compliance for traders who are conducting import-export activities, and hence have a direct bearing on how trade is conducted. 3.1 Customs and trade regime Kazakhstan developed a new customs code, which came into effect in 2003; updates to the VAT system had been introduced in 2002. Details concerning the various customs and trade regulatory regimes in Kazakhstan are available online at: www.bisnis.doc.gov/bisnis/country/kzguide.htm. This website also details the import/ export procedures and documentation requirements for the entry/exit of goods, cargo 97
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clearance, financial transactions, valuation and payments, duty drawback and transit schemes. Despite the improvements to and modernization of the customs regime and its associated procedures and documentation requirements, problems still exist as detailed below. Delays: At each of the review stages (documentation, harmonized code, currency control, calculation of duties, physical inspection), it can be extremely difficult to locate the individual customs official assigned to work with a specific shipment of goods. Quite often, goods stay in the customs warehouse for longer periods of time and incur high charges. Disputes and lack of training: There is a lack of well-trained customs officials, particularly working in remote posts, which often makes it difficult to conduct consultations regarding the application of the specific customs value, and the customs clearance regime. The vast majority of disputes involve the identification of the appropriate customs classification for goods and the calculation of the customs value. This is especially true for sophisticated or non-standard goods that are not shipped to Kazakhstan on a regular basis. Mistakes in the preparation of documents, translation, and incorrectly typed data: In order to save time and money, it is extremely important to prepare all documents carefully and to strictly adhere to the guidelines provided in the instructions and on the documents. Particular attention should be paid to the preparation of the cargo customs declaration and other related documents, such as invoices, certificates of origin and bills of lading/transport documents. Incorrect information or mistakes may result in the extensive examination of the documents or even a request to resubmit them. Statements in the certificates of origin and other documents provided by foreign operators have to match and adhere to established requirements.32 These problems are usually overcome by working with experienced customs brokers before directly dealing with customs officials later on as business relations grow and volumes pick up. There are several licensed customs brokers in Kazakhstan with extensive experience, trained staff, well-equipped facilities and support services. 3.3. Recommendations Trade and customs legislation review In terms of the guidelines advocated by the ESCAP Trade Facilitation Framework Stage Bi, the lead agency should carry out the various recommended steps and methodology from Steps Bi-1 to Bi-6 on a periodic basis in order to review and implement changes in keeping with developments in the external trade and global investment environment. 32 Names, weights and other dimensions of goods have to be stated precisely, using exactly the same parameters and wording on all documents.
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Continued reforms are needed to overhaul the remnants of the old Soviet system and to ensure Kazakhstan’s commitment to international conventions and standards. Adapting to the legislative and institutional framework as necessitated by WTO accession will be one of the key challenges facing the country. Experts in the various technical disciplines related to WTO, especially those related to technical regulations, coordination and enforcement, can be sought through ESCAP or donors to assist the Government of Kazakhstan to further draft, enforce and implement new laws and regulations and reform existing ones. This is to ensure harmonization with international conventions, agreements and standards. Simplification of trade documents Further steps can be taken to simplify and harmonize documents and procedures by following the steps and stages laid out in ESCAP Trade Facilitation Framework StageBii. Harmonization and streamlining of trade documentation can be made by adopting ULNK, and related codes and recommendations of UN/CEFACT. This step will be part of a long-term objective to introduce automation and ICT in an effort to expedite document processing and to introduce computerized transit or customs procedures or electronic trade documentation system in the region. Customs declaration and clearance procedures Taking steps to implement a system for self-assessment and self-declaration, which is commonly performed as part of trade regulation in most developed countries, can shorten the processing of customs declarations. To reduce non-tariff barriers and to speed up clearance times, one-stop shops for import and export clearance using the single window concept can be introduced. It is also possible to coordinate and restructure the various documentary and inspection agencies and consolidate them in one location for a one-stop control procedure at the border. Improvement in quality of customs services and higher standards The customs has improved its transparency by placing rules, regulations and decrees related to customs on its website. The translation of the latest rules into English, however, is still not available at the website. Dissemination of this information through the website could reduce corruption, which may be exacerbated by a lack of knowledge on the part of the public on correct customs procedures and practices. In addition, the customs authority could establish information access centres, which can be used to disseminate pertinent information on customs procedures and practices. This can be done using ESCAP Trade Facilitation Framework Step Biv as a guideline by employing the use of awareness raising workshops, seminars, Internet notices and information booklets.
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Trade security and risk management Risk management techniques, as provided by international conventions and standards promoted by WCO, can be further introduced to improve security at the borders. For example, sampling inspection has been introduced at customs houses, but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared under the green channel. Training activities are also needed to assist agencies to manage risk through specific methods and interventions that facilitate trade on one hand and ensure compliance on the other. It is imperative that further training be carried out to equip customs staff with a sense of professionalism and with the knowledge and skills necessary to adopt risk management techniques (see ESCAP Trade Facilitation Framework Step Biii 9-1). Traders need to be educated to ensure that they know how to maintain an internal compliance system (see ESCAP Trade Facilitation Framework Step Biii 9-2). Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with the collection of accurate trade data and intelligence (see ESCAP Trade Facilitation Framework Stage Biii-1 to Biii-3). Once a reliable trade database is developed, the processed data can be used to guide customs officials in carrying out selective risk profiling and inspection. Non-compliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. Post-clearance audit Post-clearance is based on intelligence about an economic operator and therefore concentrates on high risk cargoes. Controls are more systematic and comprehensive, as they involve not only analysis of trade documents, but also accounting books and other records of the economic operator, as opposed to the traditional controls, which are performed randomly. It is recommended that the State Customs Committee introduces post-clearance audit system, as it allows customs authorities to shift from a purely transaction-based control to a thorough company-oriented control. 4. TRADE FINANCE The National Bank of Kazakhstan plays the role of the Central Bank. There were 36 banks as of 31 December 2003, down from 230 in 1994. Out of that number, 16 banks have “foreign participation”. Citibank and HSBC have operational subsidiaries in Kazakhstan. Kazkommertsbank, Bank TuranAlem and Halyk Savings Bank are firmly positioned as the top three players in the market, controlling 62.4 per cent of banking system assets in 2003. The banking sector in Kazakhstan is quite well developed with many specialized banks. For example, the Development Bank of Kazakhstan, established in 2001, provides long-term financing of large-scale investment projects in priority sectors of the economy. 100
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In 2003, the State Insurance Corporation was established in order to provide insurance for export credits and investments. The intention was to insure against losses related to default by buyers and external political and regulatory risks. The Kazakhstan Small Business Programme, a joint initiative by the European Bank of Reconstruction and Development and the Fund for Small Business Support of the Republic of Kazakhstan, aims to provide small businesses with access to loans. European Bank of Reconstruction and Development’s initial investment of US$ 72.5 million has been fully disbursed. In 2003 the European Bank of Reconstruction and Development approved another US$ 100 million (including US$ 25 million from IFC) without a sovereign guarantee. The national payment system of Kazakhstan consists of a gross interbank settlement system, the Interbank System of Money Transfer and a net clearing system, the System of Retail Payments. Statistics show that the payment and banking systems in Kazakhstan are better developed than in other countries of the Commonwealth Independent States. These systems have provided a strong foundation for the economy to develop their economy further, especially in the area of e-trade. 5. APPLICATION OF ICT 5.1. Use of ICT In recent years, the importance of ICT has increased in Kazakhstan. This is reflected by the establishment of the Agency on Informatization and Communication in 2003, which is the central authority regarding the establishment of an information and communications policy. The agency is responsible for the development and implementation of the national ICT strategy with heavy emphasis in e-government. The primary goals of the agency are: • Development of a communication and information policy, which addresses questions regarding distribution and use the of the radio-frequency spectrum, metrology, standardization and certification • Development of information and communications regulations, creation of conditions for a functioning market for information and communication services • Development of the State’s ability to supervise and control communications and information. It is understood that an ICT master plan is being developed for Kazakhstan. It is important that the plan should look into the development of specific action plans to address the low level of ICT infrastructure development in rural areas. The majority of the country is insufficiently covered by telecommunication networks (especially in remote and mountainous areas). A single agency is tasked with ICT development; other agencies and government ministries do not seem to be very concerned about ICT development. 101
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There is no reliable information on current ICT development and Internet usage and there is a general lack of understanding among businesses and managers regarding the potential for ICT to improve workflows and improve the transparency of information. 5.2. Recommendations Electronic trade documentation system Currently in Kazakhstan, there is no lead agency to spearhead the development of a comprehensive electronic trade documentation system. In this regard, the Ministry of Industry and Trade could be tasked to work with the Agency on Informatization and Communication to propel the country into an e-commerce trading environment. The ministry and the agency need to explore the possibility of integrating other government agencies involved in trade facilitation. In order to do so, various stakeholders need to consider integrating their systems to provide a seamless electronic trade documents system. (see ESCAP Trade Facilitation Framework Steps Bv 1-7 for the detailed steps). As a first step, the reduction and simplification of trade processes, procedures and associated trade documents should be conducted. Next, data and information contained in the documents must be aligned with international standards. Furthermore, a electronic trade documentation system has to be developed and the national ICT infrastructure has to be opened up for direct submission by traders via a secure open network such as the Internet. The trading community and agencies involved in trade should play an active role in ensuring that their needs are considered. Special attention should be paid to digital signatures, contract and arbitration issues, basic security features and the responsibilities and the legal obligations of service providers.
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IV. KYRGYZSTAN 1. BACKGROUND Kyrgyzstan is a small landlocked Central Asian country covering some 198,500 square km. It borders Kazakhstan in the north, Uzbekistan in the west, Tajikistan in the south-west and China in the south and south-east. Kyrgyzstan has 5.2 million people, 65 per cent of whom are ethnic Kyrgyz, 14 per cent Uzbeks, about 13 per cent Russians and the remainder other ethnic groups. Kyrgyzstan gained its independence from the former Soviet Union in 1991. Since then, its income level has dropped due to the loss of direct transfers from the central union budget, which is equivalent to 13 per cent of GDP. The shortfall was met by external borrowing and the depletion of assets, as well as a reduction in private consumption and government expenditures. As a result, between 1991 and 1995, GDP declined to 50 per cent of its 1990 level. The country’s economy has gradually stabilized in recent years. Growth has occurred in the traditionally strong agriculture and mining sectors. In addition, healthy growth has occurred in the construction and power sectors. In 2004, real GDP growth reached an estimated rate of 6 per cent. Kyrgyzstan lacks the large oil and gas reserves of its neighbours. Although services are becoming an increasingly important component of GDP, its economy is still predominantly agricultural. The main agricultural exports are cotton, wool and meat. Industrial exports include gold, mercury, uranium and electricity. Kyrgyzstan’s most valuable asset is water and controlling its use is an immediate challenge for the Government. Although it exports hydroelectric power, Kyrgyzstan is still heavily reliant on oil and gas from Kazakhstan and Uzbekistan for its energy needs, especially in times of drought. Negotiations with neighbouring countries over water rights are a persistent source of tension. Kyrgyzstan has moved further and faster than other CIS countries to liberalize its economy. It was the first Central Asian country to join WTO in 1998. To comply with WTO rules, the Government has adopted open and liberal trade policies. It is eliminating tariffs and other barriers and promotes trade without discrimination. 2. NATIONAL TRADE FACILITATION STRATEGY Currently, Kyrgyzstan does not have an integrated trade facilitation strategy or policy statement. Improvements have been made in individual areas such as the drafting of new trade laws and regulations, and the streamlining of trade procedures, but an overall guideline or policy needs to be developed, to lay down clear objectives and targets for the various implementing agencies and stakeholders to follow. This will also ensure greater transparency for the private sector in Kyrgyzstan.
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Furthermore, because Kyrgyzstan is landlocked and heavily dependent on trade with and transit through by neighbouring countries, its national trade facilitation policy should be in congruence with any regional initiative or grouping that is implementing similar cross-border trade facilitation measures. Trade facilitation measures are most effective when based on integrated national and regional trade facilitation strategies, agreed by the private sector, and strongly backed by political will from the highest political level. As such, it is recommended that the Kyrgyz Government and the private sector conduct a detailed stakeholder needs analysis to identify, assess and prioritize the trade facilitation reform needs for Kyrgyzstan (see ESCAP Trade Facilitation Framework Stage Ai). A trade facilitation survey could be carried out every two years to determine the latest conditions and to determine if improvements have been made in problem areas. All these gathered information can be used to conduct a concise analysis of Kyrgyzstan’s trade needs upon which national and regional trade facilitation strategies can be based. Only then can needs be prioritized and an implementation plan and action items be developed at the national and regional level. The next step is the consensus stage, in which agreement on targets is obtained and concrete and realistic time limits are set for the achievement of these targets. Strategic implementation can only work if backed by political will and the capacity of the Government to control its agencies. It is recommended that this exercise focus more on the enforcement of existing laws and regulations, and implementation of commitments made under international and regional conventions and agreements as well as on identification of priority technical assistance projects in these areas. During the national workshop, which included advisory services, held in Bishkek in May 2006, the advisory team of the ESCAP secretariat made recommendations with regard to reinforcing national coordination institutions for trade and transport facilitation and assisted with developing a national action plan for trade and transport facilitation.33 The workshop finally formulated a road map towards a draft national action plan based on: • Study and recommendations on national trade and transport facilitation coordination mechanisms • Study on ICT application for trade and transport facilitation and ESCAP • Application of the ESCAP trade facilitation framework • Application of the ESCAP time-cost/distance model • Study on legal regimes for transport facilitation, including cross-border transport.
33 The Kyrgyzstan National Action Plan for Trade and Transport Facilitation can be downloaded in the Russian language from <www.unescap.org/tid/itt/mtg/kyrgyz06.asp>.
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It is envisaged that this road map will serve the related ministries and other governmental agencies and the private sector to progress towards a national action plan. 3. INSTITUTIONAL MECHANISMS FOR TRADE FACILITATION 3.1. Government stakeholders Kyrgyzstan has two separate government mechanisms for coordinating the facilitation of cross-border trade and transport. Each of these mechanisms is controlled by separate ministries. Trade facilitation efforts are coordinated directly by the Ministry of Economic Development and Trade, but there is no specific committee or institutionalized coordination mechanism operating for these purposes. Cross-border transport facilitation is coordinated by a multi-agency committee led by the Ministry of Transport and Communications. The key ministries and other government agencies involved in trade and transport facilitation are as follows: • • • • • • •
Ministry of Economic Development and Trade Ministry of Transport and Communications Ministry of Economy and Finance Ministry of Agriculture State Customs Inspectorate under the Government of the Kyrgyz Republic State Tax Inspectorate under the Government of the Kyrgyz Republic Kyrgyzstandard (the National Institute for Standards and Metrology).
The Ministry of Economic Development and Trade The main functions of the Ministry of Economic Development and Trade include the following: • External and internal economic development of the country, including the fulfillment of commitments under WTO • Implementation of a single economic policy in the area of technical regulations • Promotion and development of SMEs • Investment policies and measures. The Ministry of Transport and Communications The Ministry of Transport and Communications is responsible for policymaking, as well as regulating, planning and developing the transport and communications sectors. Transportation has been a key industry in Central Asia since antiquity. The major transport roads in Kyrgyzstan have their roots in the ancient Great Silk Road, which was the main transportation and communication link between China and Europe. Kyrgyzstan benefited from the development of major towns and cities along the route. 105
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State Customs Inspectorate Kyrgyzstan has 71 customs posts (including 4 airport posts) of which only 40 are currently operational. On average about 70,000 customs declarations are received per year. The Inspectorate licenses customs brokers and provides training to them. The Inspectorate does not appear to have any automation programmes in place so customs declarations/permits are completed manually. The Inspectorate utilizes microcomputers for the capture of import/export data. Regional offices capture data on flat-files, which are sent either manually or through e-mail to the headquarters. There are plans to capture data electronically; technical specifications for such a system are being drawn up. Currently the Inspectorate is developing and analysing trade data in order to build up databases on importers and exporters. The State Customs Inspectorate is undertaking several projects aimed at customs modernization and automation. These include: • Creation of a database containing customs regulations, procedures and forms for dissemination in two phases: (a) pilot project at the Customs Service Headquarters and at Manas Airport; (b) implementation of the project at the remaining two airports and selected border posts. • Under a joint project with NCS Pte. Ltd. Singapore34, the State Customs Inspectorate is developing its own software and information system to automate all services including all customs posts at a cost of US$ 7.5 million. • Under a joint project between Kyrgyzstan and the United States, a radio relay system will be introduced to connect border posts through satellites. • Under the European Union Border Management Programme in Central Asia, which is aimed at enhancing security at borders and facilitating legal trade and transit, an agreement on creating joint border-crossing posts for Kazakhstan, Uzbekistan, the Russian Federation and Kyrgyzstan is being negotiated.
34
NCS Pte. Ltd. Singapore was created in the early 1980's by the Government of Singapore as a principal IT solution provider to computerize the civil service and integrate IT into its public services. In the over the past 20 years, it has actively implemented some 1,500 large-scale, mission-critical, multi-platform projects for government ministries and agencies. Jointly with other IT solution providers, NCS Pte. Ltd. Singapore was involved in establishing of TradeNet Singapore, an electronic trade document system. For more information see <www.ncs.com.sg>
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Other ministries involved The Ministry of Economy and Finance is responsible for designing and implementing macroeconomic, finance, budgetary, tax and customs policies. The Ministry of Agriculture, among others, looks after implementation of the agricultural policies and reforms and attempts to increase the export of agricultural products. Investment Promotion Centre An investment promotion centre under the State Committee of the Kyrgyz Republic on State property and Direct Investment was established to improve the investment climate in the country. It serves as a one-stop-shop on all matters related to the country’s laws and legislation and it provides of all relevant data on businesses locally and abroad. Services provided by the centre include the following: • Consultations on investment opportunities, legal issues and the market situation in the country • Identification of potential business partners in country • Market research • Assistance for start-up businesses in such areas as recruitment,, arranging leases and obtaining office space • Representation of investor interests in courts and in dealings with government offices • Development/preparation of new investment projects by experts within the centre and/or analysis of existing ones with regard to their suitability and applicability to local conditions. Despite the existing structures, more efficient and effective coordination and cooperation among all relevant government agencies is clearly needed. This could be realized through the establishment of an effective joint committee for trade and transport facilitation, duly equipped with staff following a strong work programme. Such a committee would be vital for spearheading trade and transport facilitation reforms in Kyrgyzstan. 3.2. Non-governmental stakeholders The role of the private sector needs to be better developed in Kyrgyzstan. Of the non-government entities, the Exporters Association appears to be the main stakeholder. Exporters’ Association The association was created under the auspices of the European Union Cooperation Programme. It was tasked with supporting small businesses in export activities and in attracting investment. This role was expanded to include the creation of information and technical hubs aimed at supporting export activities through the exchange of data and services. TACIS projects are undertaken by the Project Management Agency. 107
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The association is also supported by USAID under its enterprise development project, the goal of which is to build pluralism and stability by enhancing the competitiveness and managerial capabilities of small and medium-sized enterprises. The association has undertaken several projects, which include a project to reduce administrative costs incurred by its members for the transit of goods through Kazakhstan and Uzbekistan. The high transport costs for transit through Kazakhstan could cost as much as US$ 1,500 in transit fees for each truck. It is hoped that, with the accession of these countries to WTO, the fees could be reduced to 10 per cent of their current level. Similarly passage through Uzbekistan requires visas for the truck drivers. Additional costs are incurred owing to the requirement that the trucks be escorted through the territory by Uzbek officials. Another impediment faced by the truck drivers is the regulation requiring transit cards for passage through Kazakhstan. At least 10,000 of these transit cards were needed to meet demand; however, the authorities in Kazakhstan would issue only 5,000. Although bilateral and regional agreements are in place, the practice does not always conform to the spirit of the arrangements. The association pointed out that the private sector does not openly express problems. To avoid resentment from their neighbours, other routes are used, such as transit through Afghanistan. A lack of information flow and different levels of development within the Central Asian countries appears to hinder trade between Kyrgyzstan and its neighbours. Corruption is another impediment to trade in the region. The association makes an effort to tackle the trade problems facing its members. It initially explores solutions through local or regional administrative bodies. However, if the problems cannot be resolved at the lower level, the central government is approached. The association expects that many of its trade issues will be resolved by the accession of the neighbouring countries to WTO. Chamber of Commerce and Industry The Chamber of Commerce and Industry of Kyrgyzstan is a non-governmental organization, which provides a variety of services to the business community, including the following: • Providing assistance to organizations and enterprises in establishing economic and trade relations, in searching for potential partners (national or foreign) and in establishing joint ventures • Issuing certificate of origin for exported goods • Providing legal services with regard to the settlement of economic disputes • Organizing business trips, visits, fairs and exhibitions • Providing interpretation and translation services.
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3.3. Recommendations Lead agency Trade facilitation is a multidimensional task that involves interfacing with and galvanizing other entities, such as the transport and finance ministries, to work as a team. For this reason it is necessary to designate a suitable government lead agency to be responsible for spearheading, managing and coordinating trade facilitation initiatives in Kyrgyzstan (see ESCAP Trade Facilitation Framework Stage Aii-1). It is recommended that the Ministry of Economic Development and Trade be entrusted with this role. The Ministry of Transport and Communications will play a significant role in the development of ICT and the development of the electronic trade documentation system in Kyrgyzstan, in partnership with the Ministry of Economic Development and Trade. In addition, it is also recommended that the ministry take the lead in raising the level of awareness among government agencies based on a holistic approach to trade facilitation by conducting seminars and workshops, so that all government agencies are more aware of what other agencies are doing and their role with regards to trade facilitation. A formal trade facilitation advisory committee (see ESCAP Trade Facilitation Framework Stage Aii-2) should be established and headed by ministry to promote trade and transport facilitation in Kyrgyzstan. Such a committee must have the political will to push the national agenda. It should also have the power to enforce trade facilitation implementation. It is recommended that the committee have a reporting mechanism between it and the lead agency. In this way, new proposals, methods, procedures or other systems that are recommended by the Committee have a formal link to the ministry, which can then take appropriate action to implement the relevant changes. Public-private partnerships Cooperation between the public and the private sector is necessary for trade facilitation reforms to succeed. A fruitful dialogue between private sector representatives and policymakers will help better define the real needs of the market. It also improves transparency and information flow and encourages the search for viable and sustainable solutions that follow economic criteria without getting sidetracked by political considerations. It is recommended that advisory committees be established, and act as partners to different sectors, for example, ICT, transport and logistics. These committees can be headed by a secretariat from the Government. Private sector membership in the committee could be based strictly on an invitational basis, with a one-year tenure for each member. This would ensure that no one private sector member with vested interests monopolizes committee membership. It would allow other companies to participate in the dialogue of the committee. The predominance of State enterprises is most likely the reason behind the lack of enthusiasm from the private sector. The granting of permanent status to private sector representatives to the Inter-Sector Commission is a first step for resolving this issue. 109
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4. TRADE REGULATORY ENVIRONMENT While the main package of legal and institutional reforms and strategies was adopted upon the accession of Kyrgyzstan to WTO, a national trade facilitation reform strategy has not yet been formulated. The ongoing legislative changes are helping to create a more stable and predictable trade facilitation regime in the country. During the past three years, Kyrgyzstan amended and adopted major trade and customs laws, including the customs code (the last amendment entered into force on 1 January 2005), licensing law, law on technical regulations, law on free economic zones, as well as a number of decrees and regulations related to customs valuation; clearance of trade documents and forms and customs control; customs brokers; the payment of customs duties and taxes and customs inspection. Kyrgyzstan joined WCO in 1997; it expressed its intension to accede to the revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures, the Customs Convention on the ATA Carnet for the Temporary Admission of Goods and the International Convention on Mutual Administrative Assistance in Customs Matters. Kyrgyzstan is a party to the Customs Convention on the International Transport of Goods under Cover of TIR Carnets. As a member of the Eurasian Economic Community (EurAsEC), Kyrgyzstan adopted various agreements and protocols under EurAsEC. The trade regulatory environment governs the conduct of trading activities. The most fundamental aspect of any trade facilitation system is the country’s trade and customs legislation. Such regulatory frameworks establish the level of compliance that traders must abide by while they are conducting export/import transactions, and hence have a direct bearing on how trade is carried out. The present trade regime in Kyrgyzstan is relatively liberal. Some of the key regulations in Kyrgyzstan are examined below. 4.1 Import tariffs In acceding to WTO, Kyrgyzstan bound all its tariffs. One third of its imports are bound at a 10 per cent ceiling rate, and other import charges and agricultural export subsidies are bound at zero. Kyrgyzstan eliminated discriminatory excise taxes and applied the customs valuation provisions. The simple average applied most favored nation trading rate was 4.9 per cent in 2005. Customs tariffs comprise 11,091 tariff lines of which 42.4 per cent were zero in 2004. For customs valuation purposes, the main method applied by Kyrgyzstan is a transaction method. Since 2003, Kyrgyzstan has applied the EurAsEC goods nomenclature, which appears to comply with the harmonized system of WCO. 4.2. Export tariffs There are no export taxes. Export restrictions also are not imposed except on commodities that affect public health, security and protection of the environment. 110
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The affected products include pharmaceuticals, weapons and nuclear materials, endangered species and artifacts considered to be part of the national heritage. 4.3. Value added tax and excise tax A value added tax is imposed on all imports and services. The basic rate of VAT is 20 per cent. Customs is responsible for the collection of VAT on imported goods. Excise tax is imposed on tobacco and tobacco products, alcoholic beverages (including wines) and crude oil and oil products. 4.4. Standards Almost 70 per cent of imports into Kyrgyzstan are subject to mandatory certification. Those goods that are not certified may undergo voluntary certification on the owner’s initiative. The legal and organizational base for the certification of goods and services are established by the law on the certification of goods and services. The main agency responsible for certification is Kyrgyzstandard. Certification is justified for the purposes of preventing the import of poorquality goods and raw materials from abroad and the protection of the health and life of citizens, environmental protection, and protection of consumer rights. All goods presented for certification shall have information and the rules of their utilization in English or Russian on the label. Documentation attesting to the certification of the products by the exporting country is also recognized. Certification also requires the presentation of other trade documents such as sales contracts and certificates of origin. Kyrgyzstan, as other members of the Commonwealth of Independent States, maintains GOST standards. It has concluded mutual recognition agreements, in addition to similar agreements with its neighbours in the Commonwealth of Independent States, with the Islamic Republic of Iran, China, Turkey and Malaysia. 4.5. Free economic zones Free economic zones were developed to attract investment to designated areas of the country. They have a distinct legal status. The management of the zones provides the following services: • Fast and easy business and foreign entity registration • Services related to the use of foreign labour, customs and other tax matters, foreign exchange, land use, etc. (The services ensuring compliance with any requirements regulated by the State and local bodies, such as financial inspections, statistics, standards, and health.) • Provision of facilities for warehousing, banking, manufacturing for export, and transportation.
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The taxation of foreign investors and entities is governed by the law on free economic zones of 15 March 1996. Customs fees, duties and payments, which apply to entities operating in the zones, are also governed by this law. Free economic zones function as autonomous entities not subject to customs laws and regulations of customs requirements. They are considered foreign territories with total freedom from customs control. Customs involvement is limited to customs officials escorting consignments destined to and from them. All goods except petroleum, alcohol and tobacco and tobacco products can be brought into the zones. The advantages derived from the use of free economic zones include the following: • Exemption from all types of taxes, duties and payments for the whole period of operation within the free economic zones (there is no limit on the length of stay within a free economic zone) • Limited payments for the use of facilities and services. Payments are made annual to the zones’ administrative authority/agency. The payment ranges from 0.1 to 2 per cent of the revenues from the sale of goods and services • The export of goods manufactured in free economic zones, the import of goods into such zones, and of goods destined for transshipment and re-export are not subject to customs duties • Export of goods produced in free economic zones is released from quota limits and licensing • Simplified and accelerated registration of business entities located in free economic zones make it attractive for investors by eliminating delays arising from bureaucratic red tapes • Simplified customs procedures • Direct access to essential infrastructure, including telecommunications, water, electricity, and transport. Legislation passed by Parliament related to free economic zones includes the following: • The law on free economic zones in the Kyrgyz Republic (March 1996) • The law on changes and amendments to the law on free economic zones in the Kyrgyz Republic (September 2000) • The law on foreign investments in the Kyrgyz Republic (September 1997, as amended in May 1998) • Concept paper on the establishment and development of special economic zones in the Kyrgyztan (June 2000). The free economic zones in Kyrgyzstan have attracted investors from over 30 countries; they have established 234 companies/joint ventures. These companies are active in trade, food processing, light industry, the production of construction materials and furniture and tourism. 112
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There are four free economic zones in Kyrgyzstan including the following: • Free economic zone Bishkek is located in the capital, the economic and political centre of the country. A subsection of this zone is located at Manas international airport • Free economic zone Karakol lies at the foot of the Tien-Shan mountain range, on the shores of Lake Issyk-Kul, the world’s second largest alpine lake. This free economic zone provides enormous opportunities for tourism development • Free economic zone Maimak is situated near the Kyrgyz-Kazakh border, at the crossroads of the area’s international routes • Free economic zone Naryn, located on the Chinese border, has substantial potential for the development of tourism and the mining sector. This free economic zone covers 47,000 square km, which is equivalent to one quarter of the entire territory of Kyrgyzstan. The operation of two of the free economic zones, namely free economic zone Karakol and free economic zone Naryn, were suspended owing to the infringement of regulations regarding trade in petroleum, intoxicating liquor, tobacco and, tobacco products. Both the free economic zones allowed the trade in wine and vodka and combustive lubricating materials. 4.6. Customs code The 2004 customs code was amended to reflect the needs of the Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures. It contains new provisions allowing for the following: • Electronic submission of documents • Simplified customs clearance procedures for traders with no history of infringement of customs regulations, who have maintained accurate records of trade documentation and who have engaged in foreign trade activities for at least three years, are subject to post-entry auditing using risk analysis • Preliminary declarations; these entail the lodging of trade documents before the arrival of goods at the customs terminal • Use of risk management techniques. Since the implementation of these measures is costly, the State Customs Inspectorate indicated that it will take a few years to implement them fully. In terms of the guidelines advocated by the ESCAP Trade Facilitation Framework Stage Bi, the lead agency should carry out the various recommended steps and methodologies from Steps Bi-1 to Bi-6 on a periodic basis to review and implement changes that are needed to keep up with shifts in the global investment environment. Various changes, recent or otherwise, have been made to the regulations governing customs and commerce.
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4.7. Customs clearance procedures and documents The customs cargo declaration adopted in Kyrgyzstan is based on the single administrative document used throughout the Commonwealth of Independent States. It has 54 data entry boxes and is aligned with the United Nations Layout Key and other international standards and codes recommended by UN/CEFACT. Examples of these standards include ISO 3166 on country names and code elements, international commercial terms (INCOTERMS), codes for modes of transport, and the United Nations codes for ports and other locations (known as UN/LOCODE). An importer may declare goods or use a customs broker licensed by the State Customs Inspectorate. The following documents35 are required to accompany the customs cargo declaration submitted to the customs offices: • Bill of lading • Cargo manifest • Certificate of origin (“CT-1” Form for Commonwealth of Independent States members countries and “A” form for non-Commonwealth of Independent States members) • Collection order • Commercial invoice • Customs cargo release form • Customs transit document • Equipment interchange receipt • Import licence • Packing list • Pre-shipment inspection clean report on findings • Ship arrival notice • Stowage plan • Technical/ health certificate • Terminal charges receipt. 4.8. Transport infrastructure and transit facilitation The roads are State-owned. The national, regional and municipal governments own and maintain all roads. Construction and maintenance of these roads is financed by the Government. The total length of the country’s roads is about 34,000 km. Rail and air transport also comes under the purview of the Ministry of Transport and Communications. The ministry exercises both control and regulatory functions over the rail network, which is about 430 km long. A joint-stock company National Aircompany Kyrgyzstan Aba Joldory, serves as the country’s national airline and operates as the civil aviation authority.
35
Source: Ministry Economic Development and Trade.
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The country is connected by road to Europe via Kazakhstan, Uzbekistan, and the Russian Federation. The country also has road access connecting to China and East and South Asian countries via China and Pakistan. Routes for the main roads in the country are as follows: • • • •
Bishkek – Osh – Irkeshtam – Kashgar (China) Bishkek – Naryn – Torugart – Kashgar (China) Bishkek – Balykchy – Karakol Bishkek – Talas
The country’s mountainous terrain necessitates in transportation of goods by truck, which carry more than 97 per cent of the cargo in the country. Roads with strategic importance to trade are being modernized through financing largely provided by international donors. Kyrgyzstan railway system has the following main lines: • Balykchy – Bishkek – Lugovoe (continuing on to Kazakhstan and the Russian Federation) • Osh – Jalal-Abad • Kok-Yangak – Kara-Suu • Kyzyl-Kiya – Tash-Kumyr, continuing on to Uzbekistan, Turkmenistan and the countries in Persian Gulf. The State-owned Kyrgyz Railroad Department, known as Kyrgyz Rail, provides cargo and passenger services. The company transports heavy raw materials and freight. Although passenger services are provided, this service is seen as unprofitable and is subsidized by freight services. A railroad line connecting Balykchy - Jalal-Abad – Torugart - China is in the works. The construction of this railroad line will reduce the rail distance between Europe and South-East Asia by 1,100 km in comparison with the Trans-Siberian Railway. There are two airports that have been upgraded to meet international standards, namely Manas International Airport in Bishkek and Osh International Airport. There are regular international flights between Manas International Airport and China, Germany, India, Pakistan, the Republic of Korea, the Russian Federation, Turkey, United Arab Emirates, and the United Kingdom of Great Britain and Northern Ireland. There are also eight local airports that handle internal flights. The Government opened an air transport corridor connecting the country with China in June 2002. The route crosses the KyrgyzChinese border near Sary-Djaz in the Issyk-Kul region. Previously, all aircraft flying between Kyrgyzstan and China had to transit Kazakhstan airspace. Kyrgyzstan is part of the European Commission’s TRACECA project to establish a route to complement the existing ones. Additional goals to be met by TRACECA are supporting the political and economic independence of the newly independent states by 115
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enhancing their access to European and global markets through alternative transport routes; encouraging regional cooperation among the partner states; using TRACECA as a catalyst to attract the support of international financial institutions and private investors; and linking the TRACECA route with trans-European transportation networks. The TRACECA project planned to spend 3.5 million euros on the provision of cargo and container handling equipment for container terminals in Karmir Belur in Kyrgyzstan, Chimkent/Aktau in Kazakhstan and Bishkek. In the information and communication sector, the Ministry of Transport and Communications is supported by its Department of Informatization, which is charge of implementing the State policy and coordination activities on ICT at the governmental level. There are also ICT units within each government agency, which consider the development and exploitation of ICT. The ICT Council, under the president of the country, was established in 1997. The council meets once a year, or whenever required, to develop policies and strategies for the exploitation of ICT. The council decided to develop e-government, e-commerce and e-education in the country. The main goals were to achieve an effective and transparent public service, an equitable society providing freedom and protection for rights of citizens and for sustainable economic growth and development. The national ICT strategy aims to establish a State computer network. A major obstacle to the success of the national strategy is the lack of basic supporting infrastructure. The lack of financial support compounds the problem. Financial support has been gained from some sources, for example, the Soros Foundation has given grants for the establishment of 20 information access centres. The Japan International Cooperation Agency is also assisting in setting up centres for training specialists in the ICT field. The United States of America, European Union and Japan intend to provide grants amounting to US$ 620 million for ICT projects up to 2010. 4.9. Recommendations Trade and customs legislation review In terms of the guidelines advocated by the ESCAP Trade Facilitation Framework Stage Bi, the lead agency should carry out the recommended Steps Bi-1 to Bi-6, on a periodic basis to review and implement necessary changes in keeping with developments in the external trade and global investment environment. Various changes have been made to the regulations governing customs and commerce. Continued reforms are needed to overhaul remnants of the old Soviet system and to fulfill Kyrgyzstan’s various WTO commitments. Adapting to the legislative and institutional framework in keeping with these commitments continues to be one of the key challenges facing the country. Experts in the various technical disciplines related to WTO, especially those related to technical regulations, coordination and enforcement, 116
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can be sought through ESCAP or donor agencies to assist the Government of Kyrgyzstan to draft, enforce and implement new laws and regulations and reform existing ones to ensure harmonization and alignment to international standards. Simplification of trade documents Steps can be taken to simplify and harmonize documents and procedures by following the steps and stages laid out in ESCAP Trade Facilitation Framework Stage Bii. Harmonization and streamlining of transit and trade documents and procedures can be expedited throughout Central Asia, by adopting UNLK for Trade Documents. This step will be part of a long-term objective to introduce automation and ICT in order to expedite document processing and to introduce computerized transit or customs procedures or electronic trade documentation in Central Asia. However, before this can be accomplished, steps must be taken to align documentation requirements into a single form that will satisfy all the requirements for processing, controls and trade purposes. Customs declaration and clearance procedures Taking steps to implement a system for self-assessment and self-declaration, which are commonly performed as part of trade regulation in most developed countries, can shorten the processing of customs declarations. To help reduce non-tariff barriers and to speed up clearance times, one-stop shops for import and export clearance using the single-window concept can be introduced. It is also possible to coordinate and restructure the various documentary requirements and inspection agencies and consolidate them in one location for a one-stop control procedure at the border. The State Customs Inspection has attempted to improve transparency and placing some of its instructions and procedures for the clearance of goods on its website. Standard operating procedures or departmental standing orders are available to the private sector. This could be encouraged and further strengthened with improve maintenance of the website. Information access centres are being developed and established. The dissemination of pertinent information regarding customs practices and procedures could help to reduce corruption, which may be exacerbated by a lack of knowledge on the part of the public correct customs procedures and practice. This can be done using ESCAP Trade Facilitation Framework Step Biv as a guideline by employing the use of workshops, seminars, Internet notices and information booklets. Trade security and risk management Risk management techniques, as provided by international conventions and standards promoted by WCO, can be further introduced to improve security at the borders. For example, sampling inspection has been introduced at customs houses, but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared under the green channel.
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Training activities are also needed to assist agencies to manage risk through specific methods and interventions that facilitate trade on one hand and ensure compliance on the other. It is imperative that further training be carried out to equip customs staff with a sense of professionalism and with the knowledge and skills necessary to adopt risk management techniques (ESCAP Trade Facilitation Framework Step Biii 9-1). Traders need to be educated to ensure that they know how to maintain an internal compliance system (ESCAP Trade Facilitation Framework Step Biii 9-2). Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with the collection of accurate trade data and intelligence (ESCAP Trade Facilitation Framework Stage Biii1 to Biii-3). Once a reliable trade database is developed, the processed data can be used to guide customs officials in carrying out selective risk profiling and inspection. Noncompliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. 5. TRADE FINANCE From 1991 to 1995, the national bank and commercial banks were established and formed a two-level banking system. This stage is characterized by high inflation and imbalances in the economy. During this period commercial banks were expanding their activities and allocating credit without sufficient security. As a result, the majority of them were non-recoverable. During the period 1996-1997, Financial Sector Adjustment Facility was established. A series of measures were taken to restructure banks. The period is characterized by the achievement of economic stability in the economy, in the form of a reduction in inflation, and some development of the financial market. This enabled banks to gradually increase their presence in the economy. As of the first half of 2003, there were 21 commercial banks (including the Central Asian Bank of Cooperation and Development, the Bishkek branch of the National Bank of Pakistan and the Saving and Settlement Company) with 155 branches. Among them, 12 banks have foreign participation in capital, with foreign participation of more than 50 per cent in 6 banks and in 100 per cent foreign capital 3 banks. Except for Kairat Bank and the Saving and Settlement Company, all banking institutions operating in Kyrgyzstan are private. There are no financial conglomerates in the country. According to the ESCAP national consultants, 19 of the 21 bank, and a number of non-banking financial institutions provide loans for SMEs and trade development. Many of the loans were arranged with international credit lines provided by international finance institutions. These credit lines (loans) were provided through commercial banks for SMEs and for trade development purposes.
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Some of the key issues identified by the national consultants are the following: • Development and improvement of public administration and business support institutions • Establishment of reliable systems for financial and credit institutions and efficient mobilization of the country’s financial resources • Focus on ensuring the availability of loans and the quality of financial services for entrepreneurs • Creation of a favourable climate for business development • Better utilization of the financial resources from the credit lines of international financial institutions. There are a few banks that provide some form of electronic payment services, such as debit cards, credit cards and ATM services. However, the use of electronic payments is not widespread. The payment system is currently operating on a gross settlements basis, which can have systemic risks. It is understood that a plan was under way to migrate the system to real time settlement with the setting up of a processing centre. 5. ELECTRONIC TRADE DOCUMENTATION SYSTEM 5.1. Use of ICT In 2002, the National ICT Strategy of Kyrgyzstan was developed as a master plan for guiding the development of ICT and e-commerce in the country. The strategies outline three main priorities: • Governance: effective, transparent and accountable public administration through the utilization of ICT • Education: human capacity-building and training of staff in ICT • Electronic economy: electronic business and, electronic commerce. While the strategic plan was set up later, specific action plans were needed to realize its objective. Among other things, the following concerns were highlighted: • Development of an e-commerce law and the use of digital signatures • Low level of ICT infrastructure development. A large portion of the country’s territories are undercovered by telecommunication networks, especially in remote and mountainous areas. • Lack of reliable information on current ICT development and Internet usage • Lack institution dedicated conducting ICT monitoring, research and training.
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5.2. Electronic Trade Documentation System An electronic trade documentation system, using a single e-document, will reduce turnaround time for processing typical trade documents to as little as minutes, resulting in productivity improvements. Trade documentation processing costs will also be reduced. Benefits accrue to government agencies using the system. Customs can move from a system of post-approval of applications to pre-approval so that customs duties can be pre-paid through electronic means and allowing customs to receive payments faster. The electronic trade documentation system also enables faster compilation of more accurate and complete external trade statistics. This is possible because the data from the documents need not be re-keyed by government agencies in order to compile trade statistics. Such statistics will not only better serve the private sector by providing timely trade statistics for market analyses and marketing policy formulation but also help government agencies in trade policy, trade surveillance and trade monitoring. Currently, there is no lead agency to spearhead the development of a comprehensive e-trade documentation system. In this regard, The Ministry of Economic Development and Trade could be tasked to work with the Department of Informatization to propel the country into an e-commerce trading environment. The Ministry of Economic Development and Trade and the Department of Informatization need to explore the possibility of integrating other agencies involved in trade facilitation into a basic electronic trade documentation system. In order to do so, various stakeholders need to consider integrating their systems to provide for a seamless system (See ESCAP Trade Facilitation Framework Steps Bv 1-7 for the details). As a first step, the alignment and reduction of all existing trade documents and supporting documents into a single online form needs to be carried out. Next, a paperless e-trade documentation system has to be applied and the national ICT infrastructure has to be opened up for direct submission by traders via secure open network such as the Internet. The trading community and agencies involved in trade should play an active role to ensure that their needs are considered. Special attention should be made in relation to digital signatures, protocols, existing law on contract and arbitration, basic security features and responsibilities and legal obligations of service providers. 5.3. Recommendations Pilot electronic trade documentation system project in free economic zone Free economic zones could be used as stepping stones to promote the use of the electronic documentation for trade. Such zones enable all participants of trade to be 120
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gathered at one point, for example the importer, the exporter, customs and other controlling agencies. Pilot implementation of electronic trade documentation system could be conducted in the Bishkek Free Trade Zone. ICT education and training The ICT industry in Kyrgyzstan should develop a national ICT education and training road map to enable issues related to equipping students and workers with ICT training and upgrading skills in order to service the ICT industry. The Government should lead by being the first to its staff and agencies to adopt e-practices and e-systems.
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V. MONGOLIA 1. BACKGROUND Mongolia has a total land area of 604,247 square km. Its population reached 2,832,224 in 2006. In the early 1990s, Mongolia went through a transition from a planned communist economy to a freemarket system. It struggled with economic decline and inflation. Severe winters and summer droughts in the period 2000-2002 resulted in massive livestock dieoff and zero or negative GDP growth. This was compounded by falling prices for Mongolia’s primary exports and widespread opposition to privatization. Growth recovered 10.6 per cent in 2004 and 5.5 per cent in 2005, largely because of high copper prices and new gold production. Economic activity in Mongolia has traditionally been based on herding and agriculture. Mongolia’s main exports are copper, livestock, cashmere, wool, hides, fluorspar, and nonferrous metals; most of its foreign trade is with China, the Russian Federation, the United States, and the Republic of Korea. Since joining WTO in 1997, Mongolia substantially liberalized its trade regime, applying low tariffs, no quantitative restrictions and no export subsidies. The Government has undertaken a number of measures directed towards refining and aligning trade laws with WTO rules and obligations. The new laws include the law on licensing; the law on quarantine and inspection for transferring animals, plants, raw materials and products from their origin through the State border; the labour law; the free zone law; the laws on the legal status of Altanbulag and Tsagaannuur Free Trade Zones; the law on the legal status of Zamyn-Uud Free Economic Zone; and the trademarks and geographical indications law. Necessary amendments were also made to the laws on customs, customs tariff, minerals, standardization and conformity assessment, environmental protection, excise tax, VAT, foreign investment, copyright, patents and taxation. Mongolia has acceded to a number of major international conventions on the streamlining and harmonization of border procedures and the improvement of transit systems with neighbouring countries. Mongolia acceded to the Revised Kyoto Convention on the Simplification and Harmonization of Customs Procedures on 30 June 2006, which became effective in Mongolia on 1 October 2006. It adopted the harmonized commodity description and coding system nomenclature, commonly known as the harmonized system nomenclature, which is administered by the World Customs Organization for the classification of all products imported into and exported from the country. Mongolia is also a party to the Convention on Temporary Admission signed in Istanbul on 26 June 1990. The Convention includes annexes A (concerning temporary admission papers or ATA Carnets, B.1 (concerning goods for display or use at exhibitions, fairs, meetings or similar events), B.2 (concerning professional equipment), B.5 (concerning goods imported for educational, scientific or cultural purposes). Implementation started in April 2004. 122
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Mongolia uses a transaction method for customs valuation purposes and does not apply pre-shipment inspection. Mongolia has a relatively simple tariff structure with a 5 per cent ad valorem duty applied to most imported products. All tariff rates are bound. About 30 per cent of the national industrial standards are harmonized with international standards. The Mongolian Agency for Standardization and Metrology manages the legal metrology, standardization, testing and quality system in Mongolia, and coordinates the national calibration system for measuring instruments. Responsibility for local metrology activities is executed by the metrology centres located in the provinces. 2. INSTITUTIONAL MECHANISM Within the public sector, the controlling agencies, including customs, play a vital part in the trade facilitation regime, especially with regard to fast-track clearance of cargo and the lowering of business costs. The Foreign Investment and Foreign Trade Agency is the main body involved in export promotion and facilitation, and attracting foreign investment into Mongolia. The key bodies involved in trade facilitation consist of the following ministries and other government agencies: • • • • • • • • • • • • • •
Ministry of Industry and Trade Ministry of Roads, Transport and Tourism Mongolian Customs General Administration ICT Agency Ministry of Nature and Environment Ministry of Education, Science and Culture Ministry of Food and Agriculture Ministry of Health Ministry of Finance Ministry of Infrastructure State Specialized Inspection Agency Railway Authority Civil Aviation Authority Foreign Investment and Foreign Trade Agency.
Private sector organizations involved in trade facilitation include the Mongolian National Chamber of Commerce and Industry, the Freight Forwarders Association, transport and logistics companies, such as Tuushin Company, Mongol Trans Company, Mongol Express, Road-Transport 5 Company and Mon Logistic, and associations of importers and exporters. There are two coordination and advisory mechanisms for trade and transport facilitation, operating in Mongolia: (a) the National Committee for Simplification of Procedures for Transport and Trade, operating as an inter-agency body at the governmental level, and (b) the trade facilitation committee, known as MONPRO, operating 123
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at the business sector level under the Mongolian National Chamber of Commerce and Industry. 2.1. Mongolian National Chamber of Commerce and Industry and MONPRO The Mongolian National Chamber of Commerce and Industry (www.mongolchamber.mn) is the main body for representing the country’s business community. In addition to its regular services, it provides a wide range of trade facilitationrelated services including the following: • • • • •
Issuing ATA Carnets Receiving and remitting all payments related to the operation of the ATA system Issuing certificates of origin Inspecting the quality and quantity of exported and imported goods Allocation of bar codes.
The chamber established the MONPRO with the aim of facilitating foreign trade transactions through streamlined rules and regulations, and simplified trade procedures. Since May 2005, MONPRO has operated as a subcommittee of the Public Private Partnership Consultative Committee. The Committee brings together public and private sector representatives in order to enhance their collaboration in carrying out trade and transport facilitation reform. Some of the main activities of MONPRO include the following: • Analysing and optimizing the national rules, procedures, practices and documentary requirements related to foreign trade and international freight forwarding services; • Submitting proposals and recommendations on developing a set of optimal rules and regulations on trade to the Public Private Partnership Consultative Committee; • Standardizing documents, forms and instructions indicated in foreign trade rules and regulations; • Working on introducing electronic trade documents; • Considering laws and regulations related to foreign trade and international transportation before submitting proposals to make additions and changes; • Cooperating with the other trade facilitation committees, gain experience and implement joint projects and programs; • Organizing bilateral meetings on foreign trade rules and regulations with neighbour countries; • Organizing trainings on rules and regulations related to customs, export, import and transportation; • Launching and maintaining relations with other international organizations with the same goals. In February 2006, MONPRO established the Trade and Transport Logistics Council as its advisory body.
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2.2. National Committee for Simplification of Procedures for Transport and Trade The National Transit Committee, which was operating since 2003 under the direction of the Ministry of Roads, Transport and Tourism, became the National Committee for Simplification of Procedures for Transport and Trade in July 2006. The committee has a total of 10 members, drawn from the Ministry of Roads, Transport and Tourism, Ministry of Rail Transport, the Ministry of Industry and Trade, the Mongolian Customs General Administration, the Chamber of Commerce and Industry and some freight forwarder organizations. The Chairperson of the Committee is the deputy minister of Road Transport and Tourism; and the vice-chairpersons, the Deputy Minister of Trade and Industry and the president of the Mongolia National Chamber of Commerce and Industry. 3. TRADE REGULATORY ENVIRONMENT The main legislation administering the importation and exportation of goods are the customs law and customs tariff law, which were adopted in 1996. Both laws have been amended a few times since adoption. The most recent amendments to these laws were drafted with a view to align them with the Revised Kyoto Convention on the simplification and Harmonization of customs procedures. Amendments to the customs law relating to trade facilitation include the following: • Submission of the customs declaration forms in writing, or through the electronic information exchange network, based on the selection of applicable channel (green or red); • Consideration of electronic documents that have been certified by digital or electronic signature as original documents, when permissible according to the regulations; • Application of customs ICT for speedy transmission of foreign trade-related documents and timely exchange of information on risky goods and the simplification of customs procedures; • Utilization of risk management techniques in customs control; • Implementation of a post-clearance audits by customs, carried out after goods or the means of transport has been cleared through customs in order to thoroughly check the accuracy of the goods’ declaration forms. 3.1. Import tariffs Most imports entering Mongolia are subject to an average applied MFN duty of 5 per cent. The average bound rate was 18.4 per cent in 2004. A zero tariff rate is applied to 49 tariff lines which include live animals for breeding, horses, cows, pigs, sheep, goats, information dissemination equipment and spare parts for such equipment, machines for information development, transistor diodes and similar transistors, and various types of medical equipment. Exemptions from the payment of customs duties apply to imported goods, which are used to benefit the country by 125
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promoting direct foreign investments in specialized sectors, the development of the country’s health and medical facilities, as well as the information technology industry. A seasonal import duty rate of 15 per cent is applied on flour and vegetables to protect domestic producers between 1 August and 1 April. Outside of this period the rate is 5 per cent. 3.2. Export taxes Export taxes are levied only on the country’s natural resources, including some ferrous and non-ferrous metals; non-processed animal products, such as non-processed camel wool, raw cashmere and non-processed goat skin; and timber. 3.3. Excise duty and VAT In accordance with the value-added tax law, Mongolia applies value added tax to all goods and services. The current rate is 15 per cent. The tax base is the price determined by customs in conformity with the custom tariff law, plus customs duty, excise tax and other taxes. The taxable amount based on the current market value of goods sold, jobs performed and services rendered. Export-oriented companies are also exempt from VAT and excise tax. Under the excise tax law, excise taxes are levied on goods considered to be damaging to the health of the population and/or the environment, luxury items and items related to gambling. Excise taxes are imposed on alcoholic beverages, tobacco products, motor vehicles, and petroleum and diesel fuel. 3.4. Customs offices and customs control points The main functions of the Mongolian Customs General Administration (www.ecustoms.mn) include the following: • • • • •
Processing and clearance of cargo Enforcing legislation and regulations Imposing and collecting customs duties, taxes and other fees and charges Collecting data for trade statistics Improving the qualifications of customs staff.
The focus of the administration is, however, shifting from an enforcement to a trade facilitation approach, using risk-assessment based methods and ICT applications. There are 21 permanent and temporary border control points. Rail is the major mode of transport and movement of goods into and out of Mongolia. For this reason the Ulaanbaatar Customs House was established close to the main railway terminal. About 80 per cent of customs activities are carried out at the Ulaanbaatar Customs House. 126
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3.5. Customs clearance procedures of imports and exports Customs documentation Goods are cleared based on the presentation of a customs declaration form. Although the form conforms to the ISO A4 size paper with each set containing 4 pieces of self-carbonized enclosures, it is not yet fully aligned with the UNLK for Trade Documents. The following documents are required to accompany the customs declaration form submitted to the customs offices: • • • • • • • • • •
Contract for import Licence for import Cargo manifest Commercial invoice Packing list Bill of lading Transportation invoice Payment receipt (bank-in slip) Certificate of origin Licence from controlling agencies.
Customs procedures Goods are cleared based on a customs declaration form, which needs to be completed in the Mongolian language. According to the customs law, the importer/ exporter can use the services of a customs broker. General steps to clear imported goods include the following: 1. The importer/exporter obtains a set of the required shipment documents from the transport operator at the point of arrival of goods; 2. The customs inspector, at the Ulaanbaatar Railroad Customs House, Ulaanbaatar Airport, or road border crossing point, checks whether the document set has the required number of originals and copies and that the necessary data are filled in; 3. Customs broker company to prepare a customs declaration form; 4. Taxes and fees are paid into the bank, if the goods are shipped by railway, payment can be made at the bank located on the premises of the Ulaanbaatar Railroad Customs house; 5. The importer/exporter brings all required trade documents to a customs inspector at customs and obtains a number for the customs declaration form; 6. Goods are inspected and released, if no problem occurs. The customs officer verifies that all documents are in place, unless they are submitted electronically. Using the GAMAS software, the data are entered into the 127
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customs computer system. An approval certificate is generated and a customs permit allocated. When submitted in diskette form, the data are verified against the accompanying trade documents and a customs permit is generated. In the case of documents submitted in paper forms, the customs officer endorses the customs declaration form with a customs stamp and returns the customs permit to the importer/exporter/broker. The importer/exporter/broker then presents the customs permit at the unloading point managed by the Customs Enforcement Division. The unloading points are either container yards or other licensed premises. At this point the importer/ exporter/broker submits the permit at the customs counter. The officer selected by GAMAS to examine and clear the consignment receives his assignment from his superior officer. The customs officer then proceeds with the importer/exporter/broker to the location of the cargo. All imports/exports are examined. Random or selective examinations are not the norm. However, as a form of risk management, the Mongolian Customs General Administration adopted a scheme to grant 25 companies, which had a high degree of compliance with trade and customs rules and procedures, with a fast track clearance mechanism. This practice was not well received by the general trade community, which felt that it was unfair, and lacking transparency and consistency. After examining the cargo thoroughly the goods are released to the importer/ exporter/ broker. A copy of the form retained by customs is batched and sent to the Customs Statistical Office. The Customs Enforcement Division takes custody of and stores the trade documents. The Customs Statistical Office processes the retained copy of the customs declaration form and each physical document is checked against the electronic copy in the GAMAS system. The statistics officers focus on the original currency transacted and its conversion based on accepted exchange rates. Where errors are detected, supporting documents may be recalled for re-confirmation. 3.6. Customs modernization and computerization The customs has worked to ensure the transparency of its operations. Electronic procedures have been introduced and put into operation, for example when GAMAS replaced ASYCUDA, to make customs procedures more transparent, simplified and timeefficient. In addition, a one-stop service was introduced to speed up customs services and to reduce the corrupt of a bureaucratic red tape. Mongolia adopted the customs brokerage system, allowing importers/exporters to use the services of customs brokers to prepare, submit and clear cargo. Customs brokerage houses have been provided access to the GAMAS data entry module for a fee and can submit their customs declaration form via e-mail to customs. The information can then be downloaded onto a diskette, which subsequently still has to be presented to the customs office. 128
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The ASYCUDA computer-based system was replaced in 2000 by the Internetbased GAMAS system, which had been developed by the Mongolian Customs General Administration. GAMAS is a stand-alone system, which solely serves the customs authority. It provides a means for capturing data from the physical copy of the customs declaration form. In addition to other functions such as the sorting and tabulating of data, GAMAS produces a flat-file format containing the mirror image of data captured on the customs declaration form. GAMAS can be accessed via the Internet and thus provides real time information to all customs offices which are served through fibre-optic lines or via satellite if located in remote regions of the country. GAMAS is programmed to allocate officers to different customs offices on a weekly basis. Similarly, GAMAS selects which officer to carry out the examination of cargoes presented for clearance. This feature is meant to inject a sense of neutrality in the selection of examining officers. This creates an element a form of control that prevents familiarity with the importer/broker thus reducing the probability of preventing possible corrupt practices. GAMMA can also be used to monitor the performance of customs offices. 3.7. Pre-clearance facility The Mongolian Customs General Administration also supports pre-clearance of goods based on submitted documents. Prior approval must be sought from the customs office concerned normally 10 days prior to the arrival of goods. The goods involved are usually fragile or perishable goods that require special storage facilities. The trade documents submitted are similar to those listed previously but must include certificates of quality or documents regarding the technical characteristics of the goods. Tariffs are computed based on the exchange rates applicable on the day of pre-clearance. This facility allows the goods to be moved on arrival but does not preclude the inspection of the cargo at the point of destination within Mongolia. 4. TRADE DINANCE The current banking system of Mongolia was formed in the early 1990s when many newly founded commercial banks launched their operations along with the State banking system. Prior to 1991, no Western-style commercial or central banking system existed in Mongolia. After the introduction of a new banking law was introduced in 1992, the banking system was reorganized into a two-tier structure with the Bank of Mongolia acting as the central bank by implementing monetary policy and the other banks providing commercial services. Currently, 13 banks are operating in the banking system, of that number, 6 have State shares in their equity funds and 6 are fully owned by the private sector. To develop the commercial banking sector and to promote competitiveness, Mongolia has begun to review and evaluate risks such as asset quality, management 129
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capability, earnings quality, and the performance of fiduciary obligations. Mongolia has prepared a complete set of measures for the stabilization of the banking sector and increasing public confidence. These measures involve a medium and long-term development strategy for the financial sector, which includes measures to establish a deposit insurance system and to encourage financial organizations to introduce new financial products and services. The Bank of Mongolia administers exchange controls aimed at maintaining a free-flowing exchange regime. The Bank of Mongolia and the Mongolian Government have placed no limits on foreign transfers and have imposed no capital controls. Income repatriation is relatively unregulated. Banks in Mongolia have started offering basic Internet and mobile phone banking. Customers can gain access to their bank account using the Internet or through short message service (SMS). The Trade Development Bank has started providing credit cards to its customers, which can also be used for making electronic payments. Awareness and implementation of security measures has been basic, with banks adopting the secure sockets layer protocol. Greater security measures may be needed in the future as banks expand their Internet banking services to allow the transfer of funds out of the banking system. There are some potential security threats related to SMS banking. Transactions through SMS are conducted through non-secure messaging making it possible for the manager of the SMS server conducted to exploit banking communications. The Mongolian Government has drafted an ICT law that provides for the legalization of digital signatures and the protection of customer privacy. In the future this will facilitate expansion of the current e-banking and e-payment services to traderelated transactions. 5. APPLICATION OF ICT 5.1. ICT strategy Information and communication technology not only helps to facilitate trade through automation but also fundamentally changes the concept of customs and government services. This is due to the introduction of various ICT-enabled techniques such as risk management, paperless trade documentation and real time informationsharing with relevant agencies within and across national boundaries. Mongolia has good basic ICT infrastructure within the main city of Ulaanbaatar.36 However, other areas lack ICT infrastructure and effective protocols and regulations.
36 UNESCAP report "Initiatives for E-Commerce Capacity-Building of Small and Medium Enterprises (ST/ESCAP/2261)"
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In terms of policy papers, Mongolia has developed the “Mongolian ICT Vision 2010”, with the support of UNDP through the Mongolian ICT Summit in 1999. The result of the paper was the creation of the National ICT Committee in April 2001 and the Mongolian Information Development Association, which comprised a committee of experts that, among other things, support the National ICT Committee by sharing expert knowledge. The National ICT Committee, chaired by the prime minister, conducts the following activities related to ICT policy development and its implementation: • Creating a favourable legal environment for the development of ICT; • Creating information policy and coordination regimes and developing a public management information system in support of ICT; • Enhancing ICT related businesses in order to establish an efficient, effective and competitive economic sector; • Introducing efficient and rapid economic and business information systems; • Introducing ICT into the local manufacturing, service and education sectors; • Ensuring equal access to social services for the people using information technologies; • Introducing ICT to public services; • Evaluating the current situation in ICT development and the implementation of ICTrelated activities. The Information and Communication Technologies Agency was established as a lead agency to spearhead the development of a comprehensive e-government system. Development of e-customs is included in the Agency’s purview. 5.2. Electronic trade documentation system Mongolia has recently adopted new laws on electronic commerce and electronic signature, which enable electronic trade documentation submission. However, a strategy for transiting to e-documentation system is not yet available. In this regard, GAMAS is a good start but the National Committee for Simplification of Procedures for Transport and Trade and MONPRO, jointly with the ICT Agency, need to explore the possibility of integrating other agencies involved in trade facilitation basic ETDS. In order to do so, various stakeholders need to consider integrating their systems to provide a seamless electronic trade documentation system. As a first step, the reduction and simplification of trade processes and procedures and associated trade documents should be conducted. Next, data and information contained in the documents must be aligned with international standards. Furthermore, a electronic trade documentation system has to be developed and the national ICT infrastructure has to be opened up for direct submission by traders via a secure open network such as the Internet. The trading community and agencies involved in trade should play an active role in ensuring that their needs are considered. Special attention should be paid to digital signatures, contract and arbitration issues, basic security features and the responsibilities and the legal obligations of service providers. . 131
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6. RECOMMENDATIONS 6.1. Comprehensive trade facilitation strategy and policy guidelines Mongolia is in the midst of drafting a national trade facilitation strategy and formulating policy guidelines to determine the strategic trade options for Mongolia. The Government is working to make domestic rules and procedures and laws consistent with WTO and other international standards and conventions related to trade facilitation. During the national workshop in Ulaanbaatar in April 2006, the advisory team of the ESCAP secretariat made recommendations with regard to reinforcing the national coordination institutions for trade and transport facilitation and assisted in developing the national action plan37 for trade and transport facilitation. The establishment of the National Committee for Simplification of Procedures for Transport and Trade (see part 2.2) is a positive step towards reinforcing the country’s coordination institutions. It is, however, imperative that this agency initiate a consensus-building process in order to enhance awareness and understanding among key stakeholders on trade and transport facilitation issues. It is also important for the Committee to carry out and monitor the implementation of the action plan. 6.2 Certification Problems One problem related to certificates is related to the meat industry. The clearance of meat for export requires a veterinarian certificate, a certificate of quality and standards and a certificate of origin. Representatives from the cattle industry queried whether it was necessary to have the certificate of quality since the Veterinarian Inspectorate is present in the factories concerned. The association felt that the certificate of quality could be an unnecessary business cost since veterinarians would have attested to the quality of the meat involved. A similar problem was encountered in the cashmere/wool industry. The industry did not understand the requirement for a veterinarian certificate. The establishment of meaningful dialogue at functional levels could help to resolve these issues. It is not certain whether these issues were raised in the Government and Private Sector Consultative Committee, which forms the higher level of the publicprivate sector dialogues. The issue of certification could be brought under the purview of the National Committee for Simplification of Procedures for Transport and Trade.
37 The Mongolia National Action Plan for Trade and Transport Facilitation can be downloaded from http://www.unescap.org/tid/itt/mtg/mong06.asp
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VI. TAJIKISTAN 1. BACKGROUND Tajikistan is the smallest country in Central Asia by area and has a population of 7,320,815 (in 2006). After independence, Tajikistan suffered from a devastating civil war which lasted from 1992 to 1997. Since the end of the war, the recently established political stability and foreign aid have allowed the country’s economy to grow substantially. Its GDP expanded at an average rate of 9.6 per cent over the period 2000-2004. This improved the position of Tajikistan among the other Central Asian countries. Tajikistan is mostly an agrarian country. Almost half of the labour force is employed in the agricultural sector while more than 70 per cent of its total population lives in rural areas. It has an undesirable trade structure: the main share of exports is made up of raw materials, while imports are dominated by foodstuffs and energy-products. The Government has applied a progressive approach to trade liberalization. In order to stimulate exports and promote foreign trade, the Government adopted an export promotion policy. Export duties were abolished and differential rates for import duties were adopted. The country aims to deepen the integration of its national economy into the global economy. One of the key issues of the external economic policy is accession to WTO, which was initiated in 2001. Bilateral market access negotiations are under way on the basis of revised offers in goods and services. 2. NATIONAL TRADE FACILITATION STRATEGY The development and dissemination of an integrated national trade facilitation strategy and the corresponding policy statements are essential in order to ensure that all stakeholders are aware of the direction being taken to achieve to follow to reach an efficient trading environment. Only with a clear vision, backed by political will from the highest level, and supported by an effective coordination mechanism, can the various stakeholders be encouraged to work together towards a common, mutually beneficial goal. Currently, Tajikistan does not have an integrated trade facilitation strategy or policy statement. Improvements have been made in individual areas, such as the drafting of new trade laws and regulations, and the streamlining of trade procedures, but an overall strategy or policy needs to be developed in order to lay down clear objectives and targets for the various implementing agencies and stakeholders including the private sector to follow. Being a landlocked country, Tajikistan is heavily dependent on the trade and transit conditions of neighbouring countries and other transit countries in the region. 133
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Its national trade facilitation policy must be in congruence with any regional initiative that is implementing similar cross-border trade facilitation measures. During the advisory mission in 2004, several government authorities and private sector representatives involved in trade facilitation in Tajikistan were consulted. The stakeholders agreed that trade facilitation is becoming a key area in the country’s efforts to reduce the cost of transit and transport, and to enhance export competitiveness. Trade facilitation measures are most effective when based on an integrated, national and regional trade facilitation strategy. They are also more effective when agreeing with the measures of the private sector, and they are strongly backed by political will from the highest political level. Representatives of the Government and private sector conducted a detailed stakeholder needs analysis to identify, assess and prioritize the trade facilitation reform needs for Tajikistan (see ESCAP Trade Facilitation Framework Stage Ai). During the national workshop in Dushanbe in May 2006, the advisory team of the ESCAP secretariat made recommendations with regard to reinforcing the national coordination institutions for trade and transport facilitation and assisted with developing a road map towards a national action plan for trade and transport facilitation.38 The workshop finally formulated the road map towards the national action plan based on the following: • The study and recommendations for national trade and transport facilitation coordination mechanisms • The study for ICT application for trade and transport facilitation and ESCAP • The ESCAP trade facilitation framework • The ESCAP time-cost/distance model • The study on legal regimes for transport facilitation, including cross-border transport. This action plan serves as a basis for further action the country’s ministries and other governmental agencies together with the private sector. 3. INSTITUTIONAL MECHANISM FOR TRADE FACILITATION There are various governmental institutions looking into different aspects of trade and transport facilitation in Tajikistan. In 2001, a coordinating mechanism was set up entitled the Inter-ministry Commission for Transport. The commission is led by the Ministry of Transport, with representation from other agencies dealing with regulations regarding cross border transport, private sector logistics providers and road transport services. The primary focus of the commission is the policy issues associated with cross-border transport.
38
A road map towards a national action plan for trade and transport facilitation is available at http:// www.unescap.org/tid/itt/mtg/tajik06.asp
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3.1. Government stakeholders The key government entities involved in trade facilitation are the Ministry for Economic Development and Trade, the Tajikistan Customs Services, and the Ministry of Transport. The Ministry for Economic Development and Trade is responsible for investment regulation and promotion policy. The ministry is also responsible for coordinating State agencies regarding their activities in this field. The Department of Macroeconomic Analysis and Economic Reforms deals with a variety of investment and trade related issues within the Ministry of Economy and Trade. The functions of this Department are as follows: • Reviewing and developing policies related to foreign investment and drafting amendments to the existing legislation • Preparing proposals for possible accession to multilateral conventions and drafting bilateral investment agreements • Implementing the country’s policy on foreign investment attraction through economic policy instruments • Participating in publicizing investment opportunities in Tajikistan • Participating in negotiations, providing investment legislation and other related information to potential and existing investors. The ability of the country’s institutions to attract foreign investment is one of the key factors for ensuring sustainable growth in Tajikistan. However, the institutional capacity of the Ministry for Economic Development and Trade, and other related bodies, to elaborate and implement the country’s investment policy is limited and needs to be substantially improved. Promotion of the country’s investment opportunities is carried out primarily through the provision of necessary information and the undertaking of relevant imagebuilding activities on the sidelines of meetings and events organized by consultative groups and international donors. 3.2. Recommendations Lead Agency Because trade facilitation is a multidisciplinary task, it involves various stakeholders from the public and private sectors. A suitable government lead agency is needed to be responsible for spearheading, managing and coordinating trade facilitation initiatives in Tajikistan (see ESCAP Trade Facilitation Framework Stage Aii-1). It is recommended that the Ministry for Economic Development and Trade be entrusted with this role. The ministry is well placed for this task. In addition, the Ministry of Communications will play a significant role in the development of ICT and the subsequent electronic trade documentation system in tandem with the Ministry for Economic Development and Trade. 135
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In addition, it is also recommended that the Ministry for Economic Development and Trade take the lead in raising the level of awareness among government agencies on a holistic approach to trade facilitation by conducting seminars and workshops so that government agencies are more aware of what other agencies are doing and their role with regard to trade facilitation. A formal trade facilitation advisory committee (see ESCAP Trade Facilitation Framework Stage Aii-2) should be established and headed by the Ministry for Economic Development and Trade in order to promote trade and transport facilitation. This Committee must have the political will to promote the national trade facilitation agenda, and have the power to enforce trade facilitation implementation. It is recommended that a reporting mechanism be established between the Committee and the lead agency. In this way, new proposals, methods, procedures or other systems that are recommended by the Committee have a formal link to the ministry. The ministry can then take the appropriate action to implement the relevant changes. Public-private partnerships Cooperation between the public and the private sector is necessary for trade facilitation measures to succeed, for costs to decrease and effectiveness to rise. A fruitful dialogue between private sector representatives and policymakers will help better define the real needs of the market, improve transparency and the flow of information, and encourage the search for viable and sustainable solutions that follow economic criteria without becoming sidetracked by political consideration. Currently, there are several public-private sector dialogue fora including the Entrepreneurs Foundation and Council, which reports the needs of the business sector directly to the president. Although in place, these mechanisms appear to be weak. It is therefore recommended that advisory committees be established in key sectors, including transport facilitation, logistics and ICT. Such committees can be headed by a secretariat consisting of high-level officials from the relevant ministries. Private sector membership in the committees could be based strictly on an invitational basis, with a one-year tenure for each member to ensure that no one private sector member with vested interests monopolizes membership, and to allow other companies to participate in this dialogue. 4. TRADE REGULATORY ENVIRONMENT The trade regulatory environment governs the conduct of trade activities and the most fundamental aspect of a trade facilitation system is the country’s trade and customs legislation. These regulatory frameworks establish the level of compliance that traders have to abide by while conducting the import-export business. Hence, they have a direct bearing on how trade is carried out.
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4.1. Import regime Tariff structure Trade reforms were initiated in 1995 and bolstered in 1999 with the adoption of a new tariff structure aiming at harmonizing its tariff schedule with other Commonwealth of Independent States Customs Union members. The country’s import tariff rates range from 0 to 15 per cent, with a simple average tariff rate of 7 per cent. Specific tariffs were introduced for imported fruit and vegetable juices, mineral water, soda, beer, wine, alcohol and tobacco products. Imports of electricity and natural gas, amounting in value to 12 per cent of GDP, remain zero-rated. Sales taxes are levied on exports of cotton at a rate of 10 per cent and aluminium at 2 per cent. The Government maintains licensing with quotas on exports and imports of ethyl alcohol and alcohol products. Exports and imports of tobacco and tobacco products are also subject to licensing requirements. Value added tax VAT of 20 per cent is imposed on goods imported into Tajikistan, excluding specific products stipulated by legislation. Selected goods are subject to excise taxes and VAT. They are also subject to a special tax. Import documentation Packaging and labelling requirements vary according to the kind of imported goods. Once goods reach the point of customs clearance, documents certifying that the goods have passed control are required. In accordance with the customs code, the clearance of goods may be completed only after veterinary, phytosanitary and any other appropriate inspections have been completed. According to the customs code, customs bodies including the Tajikistan Customs Services and other entities are authorized to perform these conformance measures. The customs clearance procedures includes the submission of a customs declaration and accompanying documents, their verification and acceptance, presentation of the goods to customs officials, calculation of customs fees and charge, and release of the goods. Restrictions on imports There are no quantitative restrictions on imports, but there is a list of commodities, which can only be imported after the Ministry for Economic Development and Trade has examined the contract. This list includes trucks, oil and oil products, fertilizers, wheat, flour, rice, tea, sugar and vegetable oil. There is also a list of commodities that require government permission to import, including natural gas, uranium and other radioactive substances, narcotics and psychotropic substances, weapons and other military equipment, ammunition, cipher equipment and electric power. 137
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Standards Standards, testing, labelling and certification for export goods are in accordance with the standards of the Russian Federation. Certificates of quality for imported goods are checked by three government agencies: the Trade Industrial Agency, the State Committee on Standards and the State Veterinary Control. Phytosanitary control was recently introduced. Environmental regulations for imported goods are in the process being developed. 4.2. Export liberalization A decree was signed in February 1996 liberalizing export operations. All export customs duties were cancelled effective 1 March 1996. This was designed to stimulate exports in order to reduce the trade deficit and to promote the retention of hard currency earnings in the country. Local exporters may use their hard currency profits freely but payments on the export-import operations of Tajikistan enterprises with foreign partners cannot be held in offshore banks. As a result of this decree, all hard currency profits of exporters are free of taxes except for exporters of cotton and aluminium, with sales taxes of 5 and 25 per cent respectively. The Government hopes that this decree will encourage exporters to return their hard currency earnings to Tajikistan instead of sending them abroad. The Government stipulates that exporters may use them for their own purposes. However, the government would prefer that the hard currency be used for purposes meeting the interests of Tajikistan by developing further production. Perhaps the most important feature of the decree is the cancellation of the obligation for exporters to sell 30 per cent of their hard currency profits to the goldcurrency fund of the Tajik National Bank. This onerous requirement had encouraged the outflow of profits from Tajikistan. 4.3. Other administrative procedures The existing administrative system in Tajikistan, as in other Commonwealth Independent States countries, is still highly bureaucratic and lacks the required efficiency and transparency. The administrative procedures required for establishing and operating a company, including site development, tax reporting, getting licensing and permitting, and dealing with numerous inspections are very time-consuming and difficult. Most functions performed by public authorities are being duplicated. Trade and customs legislation review It is recommended that the guidelines advocated in ESCAP Trade Facilitation Framework Stage Bi, be carried out according to the recommended steps and methodology from Steps Bi-1 to Bi-6 on a periodic basis in order to review and implement necessary 138
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changes in keeping with developments in the external trade and global investment environment. Continued reforms are needed to overhaul remnants of the old Soviet system and to facilitate Tajikistan’s WTO accession process. Adapting to the legislative and institutional framework necessitated by WTO accession continues to be one of the key priorities for the country. Experts in the various technical disciplines related to WTO, especially those related to technical regulations, coordination and enforcement can be sought through ESCAP or donor agencies to assist the Government to further draft, enforce and implement new laws and regulations and reform existing ones. This is to ensure harmonization with international conventions, agreements and standards. Simplification of trade documents Further steps can be taken to simplify and harmonize documents and procedures by following the steps and stages laid out in ESCAP Trade Facilitation Framework StageBii. Harmonization and streamlining of trade documentation can be made by adopting ULNK, and related codes and recommendations of UN/CEFACT. This step will be part of a long-term objective to introduce automation and ICT in an effort to expedite document processing and to introduce computerized transit or customs procedures or electronic trade documentation in the country. Customs declaration and clearance procedures Taking steps to implement a system for self-assessment and self-declaration, which are commonly conducted as part of trade regulation in most developed countries, can shorten the processing of customs declarations. To help reduce non-tariff barriers and to speed up clearance times, one-stop shops for import and export clearance using the single-window concept can be introduced. It is also possible to coordinate and restructure the various documentary requirements and inspection agencies and consolidate them in one location for one-stop control procedure at the border. Customs infrastructure and quality of services and standards There is a need to raise the awareness of the private sector on existing procedures and documentary requirements at border checkpoints. It is recommended that redistribution centres or distriparks could be built to help decentralize clearance points in order to decrease clearance times and congestion. The Tajikistan Customs Services can establish information access centres, which can be used to disseminate useful and pertinent information on customs procedures and practices. This could be a way to reduce, if not eliminate, discretionary practices. This can be done using ESCAP Trade Facilitation Framework Step Biv as a guideline by employing the use of workshops, seminars, Internet notices and information booklets.
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Trade security and risk management Risk management techniques, as provided by international conventions and standards promoted by WCO, can be further introduced to improve security at the borders. For example, sampling inspection has been introduced at customs houses, but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared under the green channel. Training activities are also needed to assist agencies to manage risk through specific methods and interventions that facilitate trade on one hand and ensure compliance on the other. It is imperative that further training be carried out to equip customs officials with a sense of professionalism and with the knowledge and skills necessary to adopt risk management techniques (see ESCAP Trade Facilitation Framework Step Biii 9-1). Traders need to be educated to ensure that they know how to maintain an internal compliance system (see ESCAP Trade Facilitation Framework Step Biii 9-2). Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with the collection of accurate trade data and intelligence (see ESCAP Trade Facilitation Framework Stage Biii-1 to Biii-3). Once a reliable trade database is developed, the processed data can be used to guide customs officials in carrying out selective risk profiling and inspection. Non-compliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. Post-clearance audit Post-clearance is based on intelligence about an economic operator and therefore concentrates on high risk cargoes. Controls are more systematic and comprehensive, as they involve not only analysis of trade documents, but also accounting books and other records of the economic operator, as opposed to the traditional controls, which are performed randomly. It is recommended that the Tajikistan Customs Services introduces post-clearance audit system, as it allows customs authorities to shift from a purely transaction-based control to a thorough company-oriented control. 5. TRADE FINANCE The banking system in Tajikistan consists of three levels, the National Bank of Tajikistan, other commercial banks and non-bank financial organizations. In 2004, there were 13 local banks, one foreign bank and four non-bank financial organizations. The financial and investment sectors of Tajikistan are still underdeveloped. There are no forward currency markets, futures and commodity options markets. The absence of credit guarantees and export insurance organizations creates additional obstacles for the expansion of trade financing activities in Tajikistan. However, the adoption of proper laws, SME facilitation programmes, and the initiation of trade finance schemes are gradually improving the business environment. 140
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There are only a few banks that provide of electronic payment services such as debit and credit cards and ATM services. However, the use of electronic payment is not widespread. The National Bank of Tajikistan has established an electronic clearing and settlement system for use by banks. However, the development of retail and consumer electronic payment is still in its infancy. 6. APPLICATION OF ICT 6.1. Use of ICT The use of ICT is still low. Based on information obtained from the Ministry of Communications of Tajikistan, there are only 3,000 active Internet users. In 2002, the law on electronic documents was adopted, however has not yet been implemented. Some of the main reasons for slow ICT development in Tajikistan are: • Insufficient funds to develop the telecommunication infrastructure • Absence of modern communication means between regions • Costly and very difficult to develop telecommunications infrastructure due to mountainous topograph. 6.2. Electronic trade documentation system The Ministry for Economic Development and Trade can be tasked with the role of lead agency, and work with the Ministry of Communications to propel the country into an e-trading environment and to spearhead the development of comprehensive electronic trade documentations. Both ministries should explore the possibility of integrating other agencies involved in trade facilitation reform in order to create the basic preconditions for an electronic trade documentations. To achieve this, various stakeholders need to consider integrating their systems to provide for a seamless system (see ESCAP Trade Facilitation Framework Steps Bv 1-7 for the detailed steps). As a first step, the alignment and reduction of all existing trade documents and supporting documents into a single online form needs to be carried out. Next, a paperless e-trade documentation system has to be applied and the national ICT infrastructure has to be opened up for direct submission by traders via secure open network such as the Internet. The trading community and agencies involved in trade should play an active role to ensure that their needs are considered. Special attention should be made in relation to digital signatures, protocols, contract and arbitration issues, basic security features and responsibilities and legal obligations of service providers.
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VII. UZBEKISTAN 1. BACKGROUND The population of Uzbekistan is 26.3 million; the land area of the country covers 447,400 square km. It is the most populous of the Central Asian countries and one of two double-landlocked countries in the world. This means that market access, trade facilitation, infrastructure development and regional cooperation are the key to Uzbekistan’s development. Agriculture is a mainstay of the economy which, also produces oil and gas, gold, some industrial products, and processed food. Uzbekistan is one of the world’s biggest suppliers of cotton. However, Uzbekistan is one of the poorer countries of the former Soviet Union. Uzbekistan is a member of the Central Asian Cooperation Organization and the Economic Cooperation Organization. Uzbekistan has been in the process of accession to WTO since 1994. In 1996, it signed an agreement with Georgia calling for increased cooperation in trade, customs and excise matters. 2. NATIONAL TRADE FACILITATION STRATEGY AND INSTITUTIONAL MECHANISM Uzbekistan’s trade policy is formulated and enforced by the Cabinet of Ministers with the involvement of a number of ministries, agencies and State bodies. The lead role in devising foreign trade policy belongs to the Department on Coordination of Foreign Economic Activities, which is under the direct control and supervision of the Cabinet of Ministers and of the Ministry for Foreign Economic Relations. The Department makes proposals about the country’s foreign economic policy and about improvements to the regulatory framework of the foreign economic activities. The Department’s activities are aimed at promoting foreign economic relations; coordinating the work of the ministries, agencies, state organs and organizations of the country; strengthening cooperation with the international financial and economic organizations, and creating a favourable investment environment. Uzbekistan does not have an integrated trade facilitation strategy. Thus, an overall trade facilitation guideline, establishing clear objectives and targets for the various implementing agencies and stakeholders, needs to be developed. This will ensure greater transparency for the private sector in Uzbekistan. There is no institution dedicated to trade facilitation reforms in Uzbekistan. During the advisory mission to Uzbekistan, the team met with several government authorities and the private sector representatives involved in trade facilitation in order to assess the various organizations and to determine a suitable institutional mechanism for trade facilitation. The majority of them agreed that trade facilitation is becoming a key 142
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issue in the country’s efforts to reduce the cost of transit and transport, and in enhancing export competitiveness. As Uzbekistan is heavily dependent on the trade and transit conditions of its neighbours and other transit countries in the region, its national trade facilitation policy should be in congruence with any regional initiative in this area. 2.1. Ministry of Foreign Economic Relations The Ministry for Foreign Economic Relations, Investments and Trade (www.mfer.uz) has the overall responsibility for regulating and streamlining foreign economic relations and export/import activities. The main functions of the Ministry are to: • Analyze international markets for goods and services • Develop strategy for the country’s foreign economic activities in a number of special areas, such as pricing, promoting foreign trade activities and the advertisement of goods • Regulate foreign economic activities of commercial entities, both State-owned and private • Draft trade regulations • Coordinate work for accession to WTO and other international economic organizations. 2.2. State Customs Committee The major functions of the State Customs Committee (www.customs.uz) are to implement customs policy, issue customs regulations and set rules to protect the domestic market. It creates the necessary conditions for foreign entities to participate in export/ import operations, enforces and controls export/import operations, and protects the country’s economic interests and security. Uzbekistan is a member of the WCO. 2.3. Recommendations Need analysis Trade facilitation measures are most effective when based on an integrated, national and regional trade facilitation strategy, agreed by the private sector and strongly backed by political will at the highest level. It is recommended that the Government of Uzbekistan, in a close cooperation with the private sector, conduct a detailed stakeholder needs analysis to identify, assess and prioritize the trade facilitation reform needs (see ESCAP Trade Facilitation Framework Stage Ai). A survey could be carried out to determine the trade facilitation existing conditions. The survey should be repeated every two years to find out if improvements have been made to the problem areas. The information gathered will help to define clearly Uzbekistan’s national and regional trade facilitation strategies and reform programme. Only then can the needs be prioritized and an implementation plan and action items be developed at the national and regional level. 143
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The next step is the consensus stage, in which agreement on targets is obtained and concrete and realistic time limits are set for the achievement of these targets. Strategic implementation can only work if backed by political will and the capacity of the Government to control its agencies. It is recommended that this exercise focus more on the enforcement of existing laws and regulations, and implementation of commitments made under international and regional conventions and agreements as well as on identification of priority technical assistance projects in these areas. Lead agency Because trade facilitation is a multidisciplinary task and involves various stakeholders from both public and private sectors, a suitable lead government agency is needed to be responsible for spearheading, managing and coordinating trade facilitation initiatives (see ESCAP Trade Facilitation Framework Stage Aii-1). It is recommended that the Ministry for Foreign Economic Relations, Investments and Trade be entrusted with the role of acting as the lead agency. The Ministry is well placed for taking the lead in raising awareness of the benefits of trade facilitation among government agencies as well as business. A formal trade facilitation advisory committee (see ESCAP Trade Facilitation Framework Stage Aii-2) should be established and headed by the Ministry to promote trade and transport facilitation in Uzbekistan. This Committee must have the political support needed to pursue the national trade facilitation agenda and the power and qualified staff to enforce the implementation of trade facilitation measures. It is recommended that a reporting mechanism be introduced between the Committee and the Ministry. In this way, proposals, for new measures that are recommended by the Committee will have a formal link to the Ministry, which can then take the appropriate action to implement the relevant changes. Public-private partnerships Cooperation between the public and private sectors is a fundamental prerequisite for success of trade facilitation. A partnership between public and private sector representatives will help to better define the real needs, improve transparency and information flows and encourage viable and sustainable solutions that follow economic criteria without becoming sidetracked by political considerations. It is recommended that advisory committees be established in different key sectors such as transport and logistics and ICT under the trade facilitation advisory committee to encourage more private sector feedback on trade facilitation issues. Such committees can be headed by a secretariat from the Government. Private sector membership in the committees could be based strictly on an invitational basis, with one-year tenure for each member. This would ensure that no one private sector member with vested interests monopolizes the committee membership; it would also enable other companies to participate in the dialogue. 144
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3. TRADE REGULATORY ENVIRONMENT The trade regulatory environment governs the conduct of trading activities and the most fundamental aspect of a trade facilitation system is the country’s trade and customs legislation. These regulatory frameworks establish the level of compliance that traders have to abide by while conducting export/import activities, and hence have a direct bearing on how trade is carried out. The tariff system is based on the WCO Harmonized Commodity Description and Coding System. The law on customs tariff, adopted in 1998, provides for the levying ad valorem, specific, and combined duties. The report elaborates on some of the key regulations in Uzbekistan. 3.1. Import contract registration The requirement to register import contracts with the Ministry for Foreign Economic Relations was introduced in 1996. Since 1998, the import contracts of only those entities that have no foreign exchange of their own are subject to registration. The Government claims that the purpose of import contract registration is to protect the interests of the State, to shield consumers from low-quality goods, and to streamline foreign exchange operations. Registration of contracts exceeding US$ 50,000 must be made within 5 to 10 working days from the date of receipt of an application by the Ministry. Registration of contracts that involve imports that are subject to pre-shipment inspections is made within two working days of the receipt of the application. Requests for changes to a registered contract are considered within seven working days. Applications for import contract registration may be refused for the following reasons: • Non-compliance with the standards of international trade law or with the laws of the country • Import of environmentally harmful technologies, equipment or other goods • Over or under invoicing of imports • Import of outdated equipment and technology. The decision to refuse registration is communicated to the applicant in writing with an explanation of the reasons for refusal. An applicant has the right to appeal the decision in a court of law. 3.2. Import tariffs According to the Cabinet of Ministers resolution No. 189 of 31 May 2002, new rates of import customs duties came into effect from 1 July 2002. Uzbekistan applies customs duties ranging from 0 to 30 per cent to the imports from countries that have a most 145
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favored nation status. Currently, 38 countries are accorded the MFN status by Uzbekistan. In accordance with an agreement between Uzbekistan and the European Union on trade in textiles, Uzbekistan applies preferential tariffs on imports of textiles from the European Union. 3.3. Tariff quotas and tariff exemptions Uzbekistan applies no tariff quotas and the following goods have been exempted from the payment of customs duties: • Goods supplied under intergovernmental or credit agreements signed on behalf of the government or under its guarantees; • Goods imported from the countries which have signed agreements on a free trade regime with Uzbekistan; • Goods imported by foreign legal persons making a direct foreign investment of more than US$ 50 million, on the condition that such imported goods are used for production in Uzbekistan; • Goods imported into (or exported from) Uzbekistan according to established procedures are not subject to customs duties, if: o The goods are brought into the country as exhibits for exhibitions, for advertising purposes or presentations o The goods are raw materials or other components imported for processing into final products which are to be exported; • Property brought into the country for production purposes or for the personal needs of the foreign staff of enterprises with foreign capital; • Vehicles engaged in international transportation of cargo, luggage and passengers as well as their logistic facilities; • Logistic facilities, fuel and other property taken outside the customs territory for ensuring the operation of ships leased by juristic and physical persons of Uzbekistan; ships engaged in fishing or the fishing products brought into the customs territory of Uzbekistan; • Goods brought into the customs territory or taken outside of it for an official or personal use by the representatives of foreign States or by physical persons entitled to dutyfree importation of such objects, based on national laws of or international treaties signed by Uzbekistan; • Goods carried into or out of the customs territory of Uzbekistan for humanitarian assistance, grant aid or for charitable purposes in which states, and international organizations are involved; school textbooks for free education, pre-school and medical institutions; • Goods in transit that are moved under customs control through the customs territory but intended for third countries; • Goods moved across the customs border by physical persons, not intended for manufacturing or commercial activities, pursuant to customs law; • Technological equipment for the modernization and upgrading of the production processes imported according to established procedures; 146
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• Technological equipment imported by small and medium-sized enterprises through foreign credit. The exemption also applies if the equipment is meant to be used for production by the small and medium-sized enterprises; • Imported equipment for the creation of ICT networks and software programs by enterprises engaged in the field of ICT; • Imported goods originating from Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, the Russian Federation, Tajikistan, Turkmenistan and Ukraine, with which Uzbekistan has signed free trade agreements. 3.4. Import quotas and prohibitions Currently, Uzbekistan does not apply import quotas; however, it prohibits imports of published materials, manuscripts, stamps, drawings, pictures, films, negatives, movies, audio-visual products, phonographs, recordings and records that are aimed at: • • • •
Undermining the State and public order Violating the country’s territorial integrity, or its political or State sovereignty Advocating of war, terrorism, violence, ethnic superiority, religious hatred, or racism Distributing pornographic materials.
3.5. Import licensing The import licensing system applies to arms and military equipment, precious metal alloys and precious stones, radioactive substances, audio-visual products and professional activities carried out by foreign citizens in Uzbekistan. Goods imported under import licensing procedures are not subject to quantitative limits. Any economic entity, regardless of the type of ownership, has the right to apply for an import licence. Application for a licence can be made at any time and must be accompanied by properly executed import contract. Applications are normally processed within 10 working days from the date of application. A licence is issued for the period necessary to complete the transaction, as indicated in the contractual provisions but for no more than one year. There is no minimum time-frame between the date of the issuance of the licence and the date by which the importation must occur. A decision to refuse the issuance of a licence must have a reasonable basis. The reasons for refusal are provided in writing to the applicant, who may contest the decision through the judicial system. 3.6. VAT and excise tax According to the tax code, a 20 per cent value-added tax is charged on imports, with some exceptions. Technological equipment brought into Uzbekistan is exempt from VAT, if it is: • Intended for investment projects financed by foreign loans under governmental guarantees 147
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• Intended for enterprises which are in the process of construction, are under rehabilitation, or are specialized in the production of consumer goods • Brought into the country by foreign investors as their contribution to the statutory capital of foreign investment enterprises. 3.7. Anti-dumping, countervailing and safeguard measures The law on the customs tariff allows the imposition of anti-dumping, countervailing and safeguard measures on the import of goods. Anti-dumping duties are imposed if goods are imported at lower prices than the prices prevailing in the exporting country, and if such importation is deemed to cause damage to domestic producers of similar goods, or to create impediments for the establishment or expansion of the production of similar goods in Uzbekistan. The introduction of anti-dumping duties has to be preceded by an investigation conducted at the initiative of the customs bodies. The rates of anti-dumping duties are set by the Cabinet of Ministers, based on the outcome of the investigation into every case. Uzbekistan has not yet applied any anti-dumping duties. The law on antidumping duties, which will be aligned with the respective WTO rules, is under preparation. Countervailing duties are imposed on the imported goods, for which the production or export is directly or indirectly is found to be subsidized and if importation of such goods is proved to cause damage to the domestic producers of similar goods, or to create impediments to the establishment or expansion of the production of similar goods in Uzbekistan. The procedural rules for the introduction of countervailing duties are the same as for anti-dumping duties. Uzbekistan has not yet applied any countervailing duties. The law on countervailing duties, which will be aligned with the respective WTO rules, is under preparation. Safeguard measures are envisaged for situations where goods are imported in such quantities and on such terms that they are likely to damage domestic producers of similar goods; or as a response to the discriminatory actions of other countries, if such actions concern the interests of Uzbekistan. The law also allows the introduction of special duties as a measure of retaliation for discriminatory actions taken by other countries against Uzbekistan. Uzbekistan has not yet imposed such duties. 3.8. Pre-shipment inspection An independent examination of import contracts and a pre-shipment inspection of imported goods can be carried out by consulting firms. The consulting firms must be accredited by the State Standards Committee under the Cabinet of Ministers, according to the WTO Agreement on Pre-shipment Inspection and procedures approved by the International Chamber of Commerce. Pre-shipment inspection has been made obligatory for imports in excess of US$ 10,000 for the following commodities: • Meat and meat products 148
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• • • • • •
Dairy products Oilseeds Alcoholic and non-alcoholic drinks Tobacco Different types of equipment and mechanical devices Electric machines and equipment.
Pre-shipment inspection is not applied to the imports of specific goods, the imports of which are subject to licensing by the Ministry. 3.9. Rules of origin The law on the customs tariff establishes rules of origin that are based on international standards for two main categories of goods: (a) goods produced entirely in one county to be considered in determining the origin; or (b) goods that have undergone “sufficient processing”, or goods manufactured, processed or assembled in one country while some of components are from at least one other country. The first category covers mainly natural products, such as live animals, plants and minerals, whereas the second category covers various products manufactured in one country with components from third country. In the latter case, the criteria for a sufficient level of processing of goods are applied in order to determine the country of origin. 3.10. Export regulations There is no requirement for export enterprises to register with the Ministry for Foreign Economic Relations, Investments and Trade in order to engage in export activities. Export licensing is not required, except when exporting arms and military equipment, precious metal alloys and precious stones, radioactive substances and audio-visual products. There are no export duties; however, the export of the following commodities is prohibited: • • • • • • • • • • • •
Grains including wheat, rye, barley, oats, rice, maize and buckwheat Flour and cereals Cattle and poultry Meat and meat by-products Powdered milk Tea and tea leaves Sugar Ethyl alcohol Antiques Vegetable oils Leather skins and raw skins Silkworms, raw silk and silk waste.
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Under the tax code, newly created export-oriented manufacturing enterprises with foreign participation are temporarily exempt from income tax: • For five years after the beginning of production, if more than a quarter of the output is comprised of goods for children. Afterwards, the applicable rate is twice as lower as the effective one; • For two years after the beginning of production, if the share of foreign capital in the statutory funds of a company is half of the total or more. The export of goods is not subject to VAT or excise taxes, except in cases where the goods are sold to the countries which apply similar taxes to goods exported to Uzbekistan. The following privileges and preferences are provided to enterprises exporting their own manufactured goods in exchange for a freely convertible currency: • The right to export domestically produced goods without an advance payment or the opening of a letter of credit, under a guarantee of an authorized bank and in compliance with the period of receipt of proceeds in foreign exchange specified by the existing law (effective 1 February 2002, economic entities can carry out export activities upon furnishing a guarantee from the buyers bank); • In cases where the share of exported goods is 30 per cent or more of total sales, the rate of profit tax is two times lower than the existing one; • The enterprises exporting to Commonwealth of Independent States for a freely convertible currency are exempt from excise and value added taxes, if otherwise not provided for by international agreements. The stated privileges and preferences do not cover trade and intermediary organizations or manufacturing enterprises that export raw materials. 3.11. Import duty drawback schemes Under the customs code, the drawback of the paid import customs duties may be granted in respect of the goods imported for processing of exports. For a drawback of duty, the goods should be processed within a specified time and the processed goods should be exported within two years of the date of importation of their relevant components. The customs code also exempts from duties and taxes on those goods that were declared as goods for re-export, provided that such goods are re-exported within six months of the date of their importation. If the goods have not been re-exported within six months, they will be subject to duties, taxes and interest. The drawback of duties and taxes may be granted if: • Goods are re-exported on the same terms as when imported • Goods are re-exported within two years after importation • Re-exported goods have not been used for obtaining income. 150
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3.12. Technical standards and norms Goods imported into Uzbekistan must comply with the country’s technical, pharmacological, sanitary, veterinary and environmental standards, norms and regulations. All imported goods that are subject to mandatory certification, must be accompanied by a certificate of conformity, including goods imported for humanitarian aid. The certificate of conformity must be issued by accredited certification bodies, which include the Ministry of Health, the Ministry of Agriculture and Water Resources, and the State Committee on Environmental Protection. If imported goods are accompanied by documents issued by the national certification bodies of the country of origin, confirming that the imported goods conform to the applicable safety requirements, then such documents must be examined by Uzgosstandart, the State authority for standardization, metrology, certification and testing. 3.13. Sanitary and phytosanitary measures The Ministry of Health certifies that many types of imported consumer goods, food, raw materials, medicines, chemicals and minerals meet the countries hygiene standards. These goods must also meet medical and biological standards. In cases of non-compliance with these standards, the goods are prohibited from entering the country. The State Veterinary Department of the Ministry of Agriculture and Water Resources manages a network of veterinary services. Its activities also include regulating the cross-border and internal transportation of animals and managing the authority of the state veterinary inspectors. The State Inspectorate for Plant Quarantine under the Ministry of Agriculture and Water Resources exercises control over the import and export of plants and administers uniform State quarantine control over plants. The State Inspectorate oversees sanitary, phytosanitary and quarantine control to prevent the spread of livestock diseases and agricultural pests. 3.14. State-trading activities State trading activities in Uzbekistan include the exports of cotton, energy, black and coloured metals and grain, the purchase of domestically produced commodities for state needs, and provision of services for facilitating foreign trade transactions. The State trading enterprises perform the following functions: • Conduct centralized exports on the basis of contracts concluded with the manufacturers • Procure imported goods for state needs • Provide services involving the forwarding and transport of export/import cargoes.
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The purpose of state trading in cotton is to generate export earnings for the national treasury and to protect the interests of farmers. Of cotton grown in Uzbekistan, about 30 per cent is subject to the State order system. The State joint-stock association for the processing and sale of cotton handles the procurement of cotton subject to State order. The State joint-stock association pays producers the prevailing market price in domestic currency, as determined by the official exchange rate of the central bank. The sale of cotton for exports is handled by the State-owned joint-stock companies under the Ministry for Foreign Economic Relations and the State-owned joint-stock association. A private trader may purchase cotton not subject to State order and export it through one of the above-mentioned joint-stock companies if such a trader has registered an export contract with the Ministry. The national corporation for the oil and gas industry, Uzbekneftegas, is responsible for the exploration, extraction and sale of domestic oil and gas resources. The corporation has the right to import and export oil and gas. Private companies may also engage in the purchase and export of oil products and refined oil on the basis of appropriate contracts registered with the Ministry. 3.15. Free economic areas The law on free economic areas covers the creation of free trade areas, which may consist of consignment warehouses, free customs areas, and goods processing, packaging, sorting and storage areas. The customs code has provisions for the creation of free customs areas and free warehouses for production and commercial activities, except retail trade. Customs duties and taxes on the goods brought to such areas and warehouses, or from them, are not levied, nor are economic restrictions applied, until the goods enter the customs territory of Uzbekistan. However, no such areas have yet been created. 3.16. Goods in transit Goods in transit must be declared to the customs authorities upon entry into the country, and after release from customs they may move only along the routes determined by the customs bodies. No duties or taxes are charged for goods in transit. Once goods are classified as transit goods they must not be altered and must not be used for any economic purposes. Such goods must be transported to the customs point of their destination, along established routes. If this is not the case, the carrier will be responsible for the payment of all duties and taxes accrued as a result of the goods being released in free circulation. The carrier will also face possible imposition of an administrative penalty, unless it has been proved that the goods were imported, destroyed, or lost due to an accident. The following goods are prohibited from transit through the territory of Uzbekistan: armaments and live ammunition, aircrafts and aircraft parts, machine-tools
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and machines intended for making armaments, live ammunition, explosives, poisons, ethyl alcohol and objects forbidden for import into Uzbekistan. However, the transit of prohibited goods may be undertaken with the permission of the Ministry for Foreign Economic Relations, Investments and Trade. For those goods, which are subject to excise taxes and are moved through the customs territory of Uzbekistan, the payment to customs must be made into a deposit account of the State Customs Committee. When such goods exit the country’s territory, the payment is returned to the payer. The transit of alcohol and tobacco must have a customs escort through the territory of Uzbekistan. 3.17. Recommendations Trade and customs legislation review Continued reforms are needed to overhaul the remnants of the old Soviet system and to facilitate the process of accession of Uzbekistan to WTO. Adapting to the legislative and institutional framework as necessary by WTO accession continues to be one of the key priorities for the country. Experts in the various disciplines, especially those related to technical regulations, coordination and enforcement, can be sought through ESCAP or other agencies to assist the Government of Uzbekistan in further drafting, implementing and enforcing new laws and regulations and updating existing ones, to ensure harmonization and alignment with international standards. It is still recommended that the guidelines advocated in ESCAP Trade Facilitation Framework Stage Bi (Steps Bi-1 to Bi-6) be carried out. Simplification of trade documents Further steps can be taken to simplify and harmonize documents and procedures by following the steps and stages laid out in ESCAP Trade Facilitation Framework StageBii. Harmonization and streamlining of trade documentation can be made by adopting ULNK, and related codes and recommendations of UN/CEFACT. This step will be part of a long-term objective to introduce automation and ICT in an effort to expedite document processing and to introduce computerized transit or customs procedures or electronic trade documentation in the region. Customs declaration and clearance procedures Implementing a mechanism for self-assessment and self-declaration can shorten the processing of customs declarations. This is a common practice in most developed countries. To help reduce non-physical bottlenecks and to speed up clearance times, single window facilities for import and export clearance can be introduced. It is also possible to coordinate and restructure various documentary and inspection agencies and consolidate them in one location for a one-stop control procedure at the border.
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Improvement in the quality of customs services and higher standards Adoption of standard operating procedures (or code of conduct) together with customs modernization and computerization by State Customs Committee could greatly improve transparency at all stages of customs procedures and inconsistent practices. Such standard operating procedures could be tailored for each individual operation. The bounded instructions should also be available at all customs posts and offices. Training of customs officials to familiarize themselves with the standard operating procedures as well as new ICT applications would require tailored capacity building plan. Trade security and risk management Risk management techniques, as provided by international conventions and standards promoted by WCO, can be further introduced to improve security at the borders. For example, sampling inspection has been introduced at customs houses, but the process needs to be improved, with the ultimate aim of increasing the percentage of goods declared under the green channel. Training activities are also needed to assist agencies to manage risk through specific methods and interventions that facilitate trade on one hand and ensure compliance on the other. It is imperative that further training be carried out to equip customs officials with a sense of professionalism and with the knowledge and skills necessary to adopt risk management techniques (see ESCAP Trade Facilitation Framework Step Biii 9-1). Traders need to be educated to ensure that they know how to maintain an internal compliance system (see ESCAP Trade Facilitation Framework Step Biii 9-2). Risk profiling and monitoring are key areas to develop in order to improve trade enforcement and ensure compliance while facilitating trade. This begins with the collection of accurate trade data and intelligence (ESCAP Trade Facilitation Framework Stage Biii1 to Biii-3). Once a reliable trade database is developed, the processed data can be used to guide customs officials in carrying out selective risk profiling and inspection. Noncompliant traders can be targeted. This will promote effective enforcement and speed up trade for legitimate businesses and traders. Post-clearance audit Post-clearance is based on intelligence about an economic operator and therefore concentrates on high risk cargoes. Controls are more systematic and comprehensive, as they involve not only analysis of trade documents, but also accounting books and other records of the economic operator, as opposed to the traditional controls, which are performed randomly. It is recommended that the State Customs Committee introduces post-clearance audit system, as it allows customs authorities to shift from a purely transaction-based control to a thorough company-oriented control.
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4. TRADE FINANCE The country’s central bank regulates the banking system. Uzbekistan has various types of banks: state-owned, partially state-owned, foreign-owned and private banks. According to the survey made by the ESCAP advisory team, medium-sized banks represent the widest group in the banking system of Uzbekistan, totalling more than 15 in number, among them are the Alp Jamol Bank, Galla Bank, People’s Bank (formerly Sber bank) and UzTadbirkor Bank. Uzbekistan experienced a devaluation of the national currency devaluation over the period from 1996 to 2002, with an unstable exchange rate and uncontrolled inflation. However, in 2002, the Government started step-by-step implementation of IMF recommendations. This entailed lifting various restrictions on the monetary and credit policy, and has led to a more stable currency. The National Insurance Company, Uzbekinvest, was transformed into a national company for providing export-import insurance, including the insurance of export credits. The main objectives of Uzbekinvest are to insure against political or commercial risks to domestic exporters and provide guarantees to export creditors. There are only a few banks that provide some form of electronic payment services such as debit and credit cards and automated teller machines; however, the use of electronic payment is not widespread. According to the interbank innovation company Plastic Card, the total number of Som cards in Uzbekistan exceeded 200,000.39 The banks engaged in the debit and credit card business in Uzbekistan have installed over 150 automated teller machines and 1,800 terminals, and the number is increasing. An important step in the expansion of the debit and credit card market was the interbank settlement system, which merged the National Bank of Uzbekistan for Foreign Economic Relations (NBU), Asaka Bank, UzJilSberBank, UzPromStroyBank, the People’s Bank and UzPrivatBank. This system allows the credit card owner of the above mention banks pay for goods and services, as well as withdraw cash from terminals or ATMs of partner banks. 5. APPLICATION OF ICT 5.1. Use of ICT ICT use in Uzbekistan is still low; only about 1 per cent of the population uses the Internet. Since 2002, the Government has taken a number of steps to improve the 39
The Som is the local currency of Uzbekistan; at the end of March 2007, the exchange rate was US$ 1.00 = 1.242 Soms.
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– regulatory framework for ICT development and liberalize the Internet service industry, in order to close the digital divide. To spearhead ICT development, the Government established the Communication and Information Agency of Uzbekistan. National ICT programme for 2003-2010 was developed with the main goals to develop the ICT infrastructure, establish a legal framework for e-commerce and develop the ICT industry. While the strategic plan was set up, specific action plans are necessary to implement it. Among other things, the following concerns can be highlighted: • The development of e-commerce law and the use of digital signatures is crucial • Most of the country, especially in remote and mountainous areas, is poorly covered by telecommunication networks • There is no reliable information on current ICT development and Internet usage • There is no institution conducting ICT monitoring, research and training. However, it should be noted that many international organizations have been active in providing assistance to the country in its development of the digital economy. One of the initiatives is the Digital Development Initiative. This is a UNDP strategic initiative aimed at the identifying conutry’s needs for the promotion of ICT and ensuring maximum usage of ICT applications for public and private stakeholders as well as civil society. The Communication and Information Agency of Uzbekistan has been a strategic partner of this programme. 5.2. Recommendations Electronic trade documentation system An electronic trade documentation system, using a single e-document, could greatly reduce turnaround time for processing traditional trade documents in paper format to as little as several minutes. This could result in productivity and efficiency improvements and cost reduction. Benefits also accrue to government agencies as well as traders using the system. Customs authorities can move from a system of post-approval of applications to pre-approval, based on advanced cargo information. Customs duties can be also prepaid through electronic means so that customs authority can receive payments faster. The electronic trade documentation system will also enable faster compilation of more accurate and complete external trade statistics. This is possible as data from the documents do not need to be re-keyed in by the Government agencies to compile the trade statistics. Such accurate statistics could not only serve the private sector better by providing them with timely trade statistics for market analyses and marketing policy formulation, but could also help the government agencies in terms of trade policy, trade surveillance and trade monitoring.
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Currently in Uzbekistan, there is no lead agency to spearhead the development of a comprehensive electronic trade documentation system. Ministry for Foreign Economic Relations, Investments and Trade could be tasked to work with the Communication and Information Agency to propel the country into an e-commerce trading environment. Furthermore, the Ministry together with the Agency could explore the possibility of integration with other agencies involved in trade facilitation into a basic electronic trade documentation system. In order to do so, various stakeholders need to consider integrating their systems to provide a seamless system (see ESCAP Trade Facilitation Framework Steps Bv 1-7 for the detailed steps). The key to the successful implementing of ETDS depends on these factors: (a) simplification and standardization of trade procedures and documents, (b) efforts of the lead implementing agency to convince the business community of the merits of the system; (c) use of appropriate ICT applications (hardware and software); and (d) training of the officials using the system. In addition to the key factors listed above, the following recommendations are also important for successful implementation of electronic trade documentation system. Initially a reduction in the number of trade documents and standardization of their format and contents should be implemented, followed by the development of a single form. After this is achieved the system can be implemented and suitable applications should be made available online. The trading community and agencies involved in trade should play an active role in ensuring that their needs are considered. Special attention should be paid to legislation on digital signatures and e-commerce practices, contracts and arbitration, basic e-security features and responsibilities as well as to the legal obligations of service providers.
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