JETROs SURVEY ON BUSINESS NEEDS AND STRATEGIES IN THE MEKONG SUB-REGION 2012 (major points of the interim report)

June 28th, 2012 Hideyasu Tamura AMEICC Secretariat/JETRO Bangkok

Overview of the survey in 2012

Objective : Follow-up to Survey on the business needs and strategies in Mekong region (August to October 2009, JETRO) and discussions in the Mekong-Japan Industry and Government Dialogues, conduct survey on the most up-dated needs/strategies of Japanese and local companies operating in the Mekong subregion. In this regard, coverage of the survey was mainly the i) members of MekongJapan Industry and government dialogue and ii) companies which JETRO interviewed during the previous survey in 2009. The survey in 2012 focused mainly on the changes from 2009, in terms of both business operation/strategies and improvement of soft- and hardinfrastructures.
Time period: March 20th to June 1st, 2012 Method: Interview to individual companies (for some companies, response to questionnaires)

Number of companies responded to the survey: 190 In Mekong sub-region---146 (Cambodia: 24, Lao PDR: 13, Myanmar: 21, Thailand: 40, Vietnam: 48) In Singapore and Japan--- 44 (Regional headquarters in Singapore and Kuala Lumpur: 10, Members of the Mekong-Japan Industry and Government Dialogue in Japan:14, Services 2 sectors in Japan:20)

Key findings and recommendations:

Upon the expansion of business operations in the Mekong sub-region (e.g., exportation to global market), prioritization of development plans/projects based on business needs is necessary.
On hard infrastructures, i) development of key seaports (e.g., Lach Huyen, Cai Mep-Thi Vai and Vung Ang in Viet Nam and Dawei in Myanmar), ii) connecting road to such seaports (e.g., completion of Neak Leoung bridge) and iii) stable supply of electricity, are prioritized projects from business viewpoint.

Trade/logistics facilitation, especially i) reduction of face-to-face communication with custom officers through introduction of e-customs, ii) enhanced utilization of FTAs through simplified ROO-related procedures and iii) implementation/improvement of CBTA (extension to GMS capitals) are strongly needed.
In order to achieve above-mentioned improvements, human resources development in terms of both government and private sectors should be further enhanced.
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Chapter-I. Overall Business Needs and Strategies in the Mekong sub-region

Summary of Chapter-I
Expanded operation between 2009 and 2012 Among 146 companies responded to the survey, 81 (55%) have expanded their operations in these 3 years either in the form of
Newly established investments (e.g., new factories/facilities/production processes) Expanding/up-grading existing operations, including shift from abroad Enhanced trade both intra-region and to the outside

Especially, operations in Cambodia (parts manufacturers) and Lao PDR (garment) have been expanding remarkably, including newly established investments. Perspective for the future While many manufacturing companies regard it efficient to concentrate the production operation in one place, they are facing the necessity to diversify the prospective risks (e.g., natural disasters, macroeconomic instability). In general, both local (especially, Thai) and Japanese companies expect expansion of operation in Cambodia in the short-term (within a few years) and Myanmar with a bit longer time frame. 5

(Reference) Enhanced production network involving CLM

<Case-I: Textile/garment products>
- Design final products (apparel) - Produce fabrics/textiles and export to Cambodia -Cut/sew/finish in Lao PDR and/or Cambodia

<Case-II: Electronics parts>

- Produce and export core parts to other ASEAN countries by AFTA/to India, China through Thailand-India, ASEAN-China FTA - Produce semifinished parts in Cambodia, and export to Thailand, Malaysia

Bangkok

Bangkok

Export to overseas (e.g., Japan, Korea) by using AJCEP, AKFTA

Chapter-II. Trade and logistics facilitation

Summary of Chapter-II
Custom procedures
Among 146 companies, 39 regard custom procedures were improved in these 3 years, through
Introduction of Authorized Economic Operator (AEO) or green-lane system
(especially in Viet Nam)

Speed-up in obtaining import/export licensing (especially in Myanmar) Enhanced mutual understanding between custom authorities and companies.

At the same time, 55 found no specific improvement . These companies pointed out bottlenecks such as
Problems in e-customs (e.g., i) systems shut down frequently, ii) face-to-face
procedures still remain (especially in Viet Nam) and iii) insufficient introduction in the local provinces (especially in Cambodia and Lao PDR)) Burdensome procedures (e.g., i) lack of single stop inspection along EWEC and SEC, ii) requirement of original documents (especially in Viet Nam)) Misclassification of HS code (necessity for introducing advance ruling system) Necessity of longer operation at border customs (e.g., 24 hours operation, out-ofregular office hours operation)

Unexpected costs through requirement of unofficial custom clearance fees

(e.g., Cambodia, Viet Nam and Lao PDR) 8

FTA utilization While ATIGA and EPAs with Japan are frequently utilized, several companies already started to use FTAs such as ASEAN-China and ASEAN-India. In further enhancing the FTA utilization, following bottlenecks were found;
Cumbersome procedures in obtaining Certificate of Origin (COO) (e.g., i) longer
time in the issuance procedures, ii) inspection in factories by issuing authorities (especially Viet Nam)) Rules of origin (e.g., i) different ROO across various FTAs, ii) stringent ROO under ASEAN-India FTA) Issues related to tariffs (e.g., i) difference in classification/understanding of HS code, ii) insufficient tariff reduction including those caused by reciprocity under ATIGA and ASEAN-China).

Cross border transportation agreement (CBTA) CBTA is utilized in carrying both cargos and passengers (tourism). However, business sectors request further improvements such as;
Deregulate limitation of transportation inside each country (triple license) Ratification/implementation of CBTA i) by Myanmar, and ii) along Southern Economic Corridor especially between Cambodia and Thailand Increased number of permissions for cargo transportation. 9

Chapter-III. Development of hard infrastructures

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Summary of Chapter-III
Hard Infrastructures on Economic Corridors
On East-West Economic Corridor (EWEC), business sectors strongly need
Improvement of road condition on EWEC (especially in Lao PDR and Myanmar) Development of seaports in Viet Nam (e.g., Lach Huyen and Vung Ang) and Easier access to such seaports through enhanced road connection.

On Southern Economic Corridor (SEC), business sectors regard fulfillment of missing links is necessary, especially,
Development of Dawei seaport and related infrastructures (e.g., road linkage to Thailand, industrial estates, trade/transport facilitation) Completion of Neak Leoung bridge and Development of Cai-Mep Thi Vai seaport and easier access from HCMC.

Other Hard Infrastructures Enhanced electricity supply through appropriate shared responsibility among relevant government agencies and private companies is strongly needed in CLMV countries. In addition, projects such as i) development of new SEZ (e.g., Thilawa), ii) improvement of key airports in CLMV countries, should be given priority.
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HARD INFRASTRUCTURES-1: EAST-WEST ECONOMIC CORRIDOR

Improvement of road condition/spec
-Considering the future possibility in carrying cargos between Yangon, Thilawa SEZ and Bangkok, improvement of EWEC inside Myanmar, as well as stable transportation at Mae Sot-Myawaddy border point would be important.
[auto parts maker and textile maker in TH, logistics company in MM] - In order to make Thilawa project useful,

Development of seaports in Viet Nam

-Development of Lach Huyen seaport, as well as improvement of connectivity with Hanoi (e.g., new National Route #5) is essentially important for manufacturers in North Viet Nam.
[auto parts makers, E&E makers in VN]

cold storage at the seaport should be equipped (processed food companies in TH) -Although the Third Mekong Bridge was opened, short-cut route cannot be used as a logistics route, since the customs and transshipment facilities are not well developed at Lao-Viet Nam border.
[logistics companies in VN and TH]

-Development of Vung Ang seaport, along with connecting route, especially at the mountainous part of National Route 12 of Lao PDR is important in order to facilitate exportation of agriculture & forestry products in Lao.
[food processing company in Lao, logistics company in VN, logistics company in TH]

New requests/proposals
-Improvement of road condition/spec of EWEC (especially Lao part), along with streetlights is essential for smoother transportation.
[auto maker in Thailand, logistics company in Viet Nam, finance company in Viet Nam]

-If railway from Vientiane to Bangkok could be used for cargo carriage, it would be useful for lowering transportation costs.
[garment manufacturers in Lao]

-Development of National Route 18 of Lao PDR to Da Nang seaport would be beneficial for sectors such as agro-business, tourism and mining.
[trading company and agro-business company in Lao]

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(Ref.) JETROS Research on a trilateral transportation (BangkokHanoi) through Third Mekong Bridge
JETRO conducted the research on the trilateral transportation through the Third Mekong Bridge from Bangkok to Hanoi in March 2012. Comparison with the route through the East-West Economic Corridor via the Second Mekong Bridge is as follows; <Mukdahan-Hong Linh>
Via 3rd Bridge 449km Via 2nd Bridge 595km

(Comparison)

Distance Average Speed Actual Drive Time Custom Clearance Time Transshipment Time
Via 3rd Bridge Via 2nd Bridge

-146km +2.0km/h -2:50 +3:26 +1:00

40.7km/h 42.7km/h 11:02 5:54 1:30 13:52 2:28 0:30

Total Distance (Bangkok - Hanoi)

1,429km 1,575km

<Suggestions> Despite shorter distance, it is more costly and took longer lead time. Shorter custom clearance will be expected by introducing Transit procedure under CBTA at the Third Bridge. Improvement of logistics infrastructure, development of human resources, promotion of the single stop / single window and extension of operating hours at the customs will contribute to the attractive business environment. 13

HARD INFRASTRUCTURES-2: SOUTHERN ECONOMIC CORRIDOR

Development of Dawei seaport and related infrastructures

-If Thailand and Myanmar governments seriously support the establishment of material industries in Dawei, including development of seaport and its road linkage to Thailand, as well as trade/transport facilitation, it would result in a remarkable re-allocation of industries.
[trading companies, steel maker, developer, chemical maker in TH]

Improvement of road condition/spec

-Improvement of road condition of SEC, including i) construction of Neak Leoung bridge and ii) development of ring-road around Phnom Penh should be expedited.
[motorbike makers in KHM and VN, logistics company in VN, trading company in TH, garment companies in KHM and VN, etc]

-Considering that automobile industries in India would grow fast, Dawei project would have a significant meaning in realizing mutual complementation between India and Thailand.
[auto company in TH]

-Access route to Cai Mep-Thi Bai seaport should be further improved.

[trading company and logistics companies in VN]

-In order for Myanmar industries to reap the benefit from Dawei project, enhanced connectivity between Yangon and Dawei would be necessary.
[E&E manufacturer in MM

New requests/proposals
- Responding to the increasing number of cargo vessels navigating through Mekong river to HCM , It need to eliminate bottlenecks at Cho Gao Canal such as narrow canal width, too low for navigating under bridge [logistics company in Viet Nam] - Maintenance/ re-connecting of the current railway between Bangkok, Phnom Penh and Ho Chi Minh City would be helpful to convey bulky products [paper manufacturer in Malaysia]

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Chapter-IV. Development of potential industries and service sectors in Mekong sub-region

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Summary of Chapter-IV
Potential industries and appropriate policy
Business sectors pointed out potential of CLM countries, especially i) parts industries in Cambodia and ii) garment industry (Yangon area) and material industry (Dawei) in Myanmar. While manufacturing sectors investment in Mekong sub-region has been increasing, several companies pointed out that agro-based industries are still important especially in CLM countries. Necessity of appropriate industrial policy (especially, automobile industry in Viet Nam) was also pointed out.

Further development of service industries

Both Japanese and local service industries (e.g., distribution, retail, finance, telecommunication) are interested in enhancing the operation across the Mekong sub-region. At the same time, service providers face bottlenecks such as i) licensing procedures, and ii) stringent regulations (e,g., foreign capital ratio, store size).

Necessity to appropriately address issues on labor/HRD

Many companies face the necessity of i) basic human resources development in Cambodia, Lao and Myanmar, and ii) appropriately responding to the hike of labor cost in Thailand and Viet Nam through advancement of industries 16 and improved productivity.