Working Group Report on East Asian Trade and Investment Facilitation and Connectivity
NEAT Working Group Meeting on EastAsian Trade and Investment Facilitation and Connectivity was held in Beijing, Chinaon 1 July 2011. NEAT members and experts from 10 of the ASEAN Plus Three (APT) countries and the ASEAN Secretariat participated in this meeting (Brunei, Cambodiaand Indonesiarepresentatives were absent). The Meeting consisted of an opening session,three panel discussions and a wrap-up session.
Professor Qin Yaqing, CountryCoordinator for NEAT Chinaand Executive Vice President of China Foreign Affairs University, made openingremarks and Professor Ma Xiaohe, Vice President of Academy of MacroeconomicResearch, National Development and Reform Commission, delivered a keynotespeech on China's12th five-year-plan at the Opening Session.
The three panels were:
1. East Asian Trade and InvestmentFacilitation and Connectivity: Progress and Opportunities;
2. East Asian Tradeand Investment Facilitation and Connectivity: Challenges and Obstacles; and
3. Policy Recommendations to Promote East Asian Trade and Investment Facilitationand Connectivity.
Professor Qin Yaqing wrapped up the meeting.
I. East Asian Trade and Investment Facilitation and Connectivity[1]: Progress and Opportunities
In the aftermath of the globalfinancial crisis, economic globalization and new international division oflabor have brought East Asian countries unprecedentedly closer. Countrieswithin the region have accelerated the pace of economic integration, leading tofreer intra-regional movement of capital, personnel and goods, and theestablishment of closely-connected regional production networks. Today, theeconomies of the region are more intertwined, interdependent and indispensable,working together to provide the sources for world economic growth.
1. Key elements of APT connectivity
The Master Plan on ASEAN Connectivity adoptedat the 17th ASEAN Summit in October 2010 covers three dimensions of physical,institutional and people-to-people connectivity, which are equally applicableto APT countries.[2] Connectivity will facilitate APT's flow of goods,services, labor and capital in the short run, and improve APT's transport systemand logistic network and enhance people-to-people contacts in the long run.
2. Progress of infrastructure connectivity among APT countries
2.1 Intra-ASEAN infrastructure connectivity
Significant progress has been made bythe ASEAN members in infrastructure connectivity. The Iskandar Coastal Highway between Singaporeand Malaysiais under construction. Upon its completion in Dec 2011, the highway would tremendouslyimprove traffic flows between Singaporeand Iskandar Malaysia,reducing travel time from 45 minutes to less than 10 minutes. To facilitatepeople-to-people connectivity between Malaysiaand Singapore,a 1.5kmundersea tunnel connecting underground systems has been proposed and expectedto be put into traffic in 2018.
2.2 Preliminary network of connectivity between ASEAN and China
A multi-modal transport systemincluding air, land and water transport between China and ASEAN countries has takenan initial shape. (See Table 1 and Table 2)
Table1: Major InternationalHighways Connecting Chinaand Southeast Asia in 2010
Name of the International Highways
Yunnan Section Mileage
Sections Outside China Mileage
Class II and III
expressway & Class II
Class II and III
expressway & Class II
Class III
Source: TransportationDevelopment Report 2010 of Yunnan China, p.56.
Table2: Major International Railways Connecting China and Southeast Asia
Name of International Railways
Total Mileage(km)
Newly constructed Railways (km)
Newly Constructed in Yunnan Section (km)
Investment (US Dollars)
Construction Start Date
Newly constructed Sections outside China (km)
Source: TransportationDevelopment Report 2007 of Yunnan China, p.58.
The first highway linking China and ASEAN has been in operation,connecting the primary roads to Hanoi, creatingconditions for the development of a modern logistics network between ASEAN and China.Kunming to Bangkok Highway and Trans-Asian RailwayNetwork will also become major logistics channels between China and ASEAN.
To assist the implementation of the Master Plan on ASEAN Connectivity,Chinaannounced 15 billion US dollars credit support to ASEAN countries, including6.7 billion US dollars in concessional loans, with a focus on highways, railways,waterways, energy pipelines, information and communications, power grids andother infrastructure projects. To date, 10.1 billion US dollars including 3.1billion US dollars of concessional loans has been used. The two sides areworking closely to implement the priority projects in the Strategic Plan for China-ASEAN Transport Cooperation, so as toachieve more facilitative land transport connectivity between China and ASEAN countries within 10to 15 years. In addition, after six years of negotiations, ASEAN and Chinaare working on an agreement to remove the barriers to intra-regional airservice and to establish a liberal air services region. The signing of theagreement will mark a big move towards "open skies" between China and ASEAN and further liberalizationof regional aviation.
2.3 Japanand intra-regional infrastructure connectivity
As an island country, the connectionbetween Japanand the outside world largely relies on water transport. In terms of road, Tokyo is the startingpoint of AH1 of Asian Highway Network. Although Japan is not directly involved inTrans-Asian Railway Network, it has lent vigorous support to the development ofEast Asian infrastructure through provision of both funds and technicalassistance. The investment of Japanese multinational corporations hasstimulated the infrastructure construction in investment target countries sincethe development of export-oriented industries need the support of transportinfrastructure facilities. In the meantime, Japan has provided direct orindirect technical support for infrastructure construction in the developingcountries of the region through government's ODA or ADB.
2.4 South Korea and intra-regional infrastructure connectivity
South Korea is expected to becomethe starting points of two routes of the Asia.Highway Network: AH1 connecting Japan—Busan—Seoul—Pyongyang —Sinuiju—China—Vietnam—Thailand—India—Pakistan—Iran-Turkeyand AH6 connecting Busan— Gangneung—Wonsan—Russia—China. The section of AH1 between Japan and South Korea uses ferries from Busan port to Fukuoka port. In the long run, theKorea-Japan Undersea Tunnel with a distance of approximately 128 kilometersconnecting Karatsu and Busan was proposed by Japan and is likely to provide afixed crossing. As one of the largest construction projects in Asia, the proposal for its construction has been put onthe agenda, its technical feasibility has been proved, and more concretedetails are to be worked out.
2.5 Infrastructure connectivity in Asia
In 1992, Asian Land Transport InfrastructureDevelopment (ALTID) project was first proposed by UN Economic and SocialCommission for Asia and Pacific at itsforty-eight session. The project has three main components: the AsianHighway network, theTrans-Asian Railway network, and the facilitation of land transport.The Asian Highway Network crosses 32 Asian countries with a total length of141,000 kilometers. The Intergovernmental Agreement on the Asian HighwayNetwork entered into force in July 2005. All contracting countries are bound tobring highway routes located within their territories into conformity with theclassification and design standards described in the Agreement. Up till now, 28countries are signatories (among "10+3"member countries, only Singaporeand Bruneihave not entered the agreement; the AsianHighway Network has become an important channel for current roadinfrastructure cooperation of "10+3").
3. Progress of Institutional Connectivity among APT Countries
3.1 Great progress in ASEAN institutional connectivity
In recent years, ASEAN had made effortsto build a strong ASEAN community. In terms of trade facilitation, ASEANendorsed a number of important agreements and documents, including Master Plan on ASEAN Connectivity, ASEANStrategic Transport Plan 2011-2015, ASEAN Information and CommunicationsTechnology Master plan (AIM) 2011-2015, and Protocol 7 Customs Transit System under ASEAN Framework Agreement onthe Facilitation of Goods in Transit, to expedite the implementation ofcustoms-related measures of ASEANEconomic Community Blueprint,particularly those relating to customs clearance andcustoms facilitation. It also endorsed the updated ASEAN Trade Facilitation Work Program, recommending ASEAN membersto conduct a survey on the status of trade facilitation, to improve free flowsof ASEAN originating goods within the region. [3]Interms of the implementation of ASEAN Single Window, Brunei,Indonesia, Malaysia, the Philippines,Singapore and Thailand have activated their National SingleWindows (NSW) and expand the operational scope of their NSWs in line with thetimeline set in the Agreement; Cambodia,Laos, Myanmar and Vietnam are undertaking thepreparatory work to implement the NSWs. In addition, ASEAN Economic Ministerssigned the Memorandum of Understanding ofthe ASW Project and reiterated their commitment in activating the NSWs andASEAN Single Window in line with the ASW Agreement.[4] Interms of investment facilitation, ASEANComprehensive Investment Agreement 2010 (ACIA) has come into force. [5]
3.2 Institutional connectivity between China and ASEAN
Since the establishment of theChina-ASEAN Free Trade Area, trade and investment between China and ASEAN have been growingyear by year; countries within the region have become ever closer. TheASEAN-China FTA covers a community of 1.9 billion people. China emerged as ASEAN's largesttrading partner in 2010 and set a goal of increasing bilateral trade to 500billion US dollars by 2015. Under the framework of FTA, ASEAN-China economicrelations and trade have experienced sustainable and rapid development. [6]
Moreover, China and individual countries of ASEANtry to improve bilateral institutional connectivity. For example, China and Malaysiasigned an agreement on mutual recognition of academic degrees,which involves not onlyinstitutional connectivity, but also people-to-people connectivity.
3.3 Institutional connectivity between Japan and ASEAN
In May 2011, at the annual meeting ofADB held in Hanoi, Japanese Finance MinisterYoshihiko Noda made a formal proposal to realize real-time connectivity ofcustoms clearance procedures between Japan and ASEAN by 2020-- theconcept of "Asian Cargo highway". In detail, Japanwill support ASEAN countries to introduce Japanese management systems forcustoms clearance, import and export procedures and to dramatically simplifythe import and export procedures for enterprises meeting standards, so as tofacilitate trade and enhance Japanese enterprises' supply chain infrastructurein Asia. On this basis, Japan will realize the connectivity of customsclearance in ASEAN, between ASEAN and Japan, and instant share and use ofinformation on export licenses, certification of origin between countries withtrade cooperation, in order to expedite the lengthy customs clearanceprocedures for qualified enterprises. Japanhopes that through the realization of this concept, a seamless logisticsnetwork can be established between Japan and ASEAN. [7]
3.4 Institutional connectivity between South Korea and ASEAN
ASEAN-ROK Free Trade Agreement was putinto force in 2007, followed by signing and implementing of the agreements onservice and investment liberalization. In 2009, ASEAN-ROK Free Trade Area wasfinally established. In 2009, ASEAN and the ROK adopted the Framework of Transport Cooperation between Transport Authorities of the Association ofSoutheast Asian Nations and the Ministry of Land, Transport and MaritimeAffairs of the Republic of Korea. Currently, theyare working toward an agreement on aviation cooperation.
3.5 Institutional connectivity between China,Japan and South Korea
China-Japan-ROK economic integration,which is of crucial importance in East Asian and even world economy,constitutes the key to regional economic development in East Asia. After seven years of talks, consensus on some key terms ofChina-Japan-ROK investment protection agreement has been reached and the talksare expected to conclude in 2011.
The feasibility study onChina-Japan-ROK FTA has also made progress and negotiations on China-Japan-ROKFTA has been put in the agenda. In addition, in APT Finance Ministers' Meetingheld in Hanoi Vietnamin May 2011, China, Japan and South Korea agreed to startstudying the possibility of using local currencies in trade settlement.
3.6 Institutional connectivity under the framework of APT
In terms of trade and investmentfacilitation, the APT Macroeconomic and Research Office (AMRO), as an importantadministrative institution of East Asia regional foreign exchange reserves, wasofficially established in May 2011 at APT Finance Ministers' Meeting held in Hanoi Vietnam.As an independent regional economic surveillance institution, AMRO will promotethe quality of regional economic surveillance and analysis and facilitate theimplementation of the CMIM.
4. Progress of people-to-people connectivity among APT countries
Tourism is the major industry promotingflow of people among countries. East Asian countries are endowed with beautifulnatural landscapes and glorious cultures, which draws tourists from all acrossthe world. ASEAN countries alone are currently receiving more than 65 millioninternational travelers; among whom 60% are from APT countries. Currently,ASEAN and Chinaare taking steps to meet the goal of 15 million mutual visits by 2015. Theincreased intra-regional visits help to build a "shared identity" in East Asia.
Besides, ASEAN and China formulated a program ofDouble 100,000 Goal of Students Mobility in 2020. Also, some APT countriesparticipate in APEC Business Travel Card (ABTC) Scheme, an important proposalinitiated by APEC Business Advisory Council to APEC Summit in 1996, aimedto assist the travels of business people within the APEC participatingeconomies. Holders of ABTC with valid passports and ABTC have the advantages ofbeing eliminated the need of applying for entry visas over a three year period,smooth entry and exit flow in APEC participating economies and using SpecialAPEC lanes in major international airports. Among APT countries, South Korea and Philippine, Malaysia, Bruneiand Thailand, China and Indonesia became participatingeconomies in the scheme in 1997, 1999, 2001 and 2002 respectively. Up till now,the APT countries except Laos,Myanmar and Cambodiahave joined APEC Business Travel Card Scheme.
II. East Asian Trade and Investment Facilitation and Connectivity: Challenges and Obstacles
Trade and investment facilitation andconnectivity are facing numerous difficulties and challenges, which indicatesthat there is a long way to go before realizing long-term goal of "greatcirculation, great mobilization, building an economically dynamic zone withseamless connection".
1. Poor infrastructure conditions
East Asian countries have generallypoor hardware and software conditions for trade and investment facilitation andconnectivity.
1.1 Hardware: Most East Asian countries are developing countries.Incomplete road networks, missing railway links, inadequate maritimetransportation capacity, poor aviation facilities, widening digital divide havemade it hard to meet the demand of fast development of trade and investmentfacilitation and connectivity in the region.
1.2 Software: The implementation of large-scale infrastructure projectsconstitutes an essential component of trade and investment facilitation andconnectivity. This requires that the governments of member countries have highadministrative capability (including both managerial and executive skills) and human resources toestablish more transparent, convenient and efficient transit management system.Institutional connectivity in particular involves amendments to domestic lawsand regulations, adjustment of economic systems and institutional cooperationand coordination among member countries in the region. All these have posedhuge challenges to the developing countries of East Asia,whose levels of institutional and human resources development are relativelylow. In addition, the customs of some countries in the region apply harshrequirements for customs clearance, lengthy cross-border procedures and evencreate unnecessary barriers, which impede free and efficient flows of goods inthe region.
2. Huge development gap between member states
Big differences in economic developmentlevel and technical standards also constrain trade and investment facilitationand intra-regional connectivity. How a country understands or senses theurgency for trade and investment facilitation and connectivity is directlyrelated to its economic development level. Countries with higher levels ofeconomic development, higher per capita GDP, better capacity in outbound trade andinvestment tend, have deeper understanding of the importance of trade andinvestment facilitation and connectivity, and therefore, have greater impetus toenhance connectivity. In contrast, countries with lower levels of economicdevelopment have relatively low capacity for building connectivity and lessimpetus for involvement.
Another factor impeding trade andinvestment facilitation and connectivity in East Asiais that some East Asian countries have adopted different technical standards ininfrastructure construction, creating problems for smooth connection ofinfrastructures in different countries. For example, there is a distinctionbetween standard gauge railways and narrow gauge railways in the region. Theswitch between different railway standards has affected the efficiency ofinternational railway and caused inconvenience for the management ofcross-border transportation. Also, the evident difference in power transmissionand communication technical standards has caused difficulty in connectivity.
3. Limited financing support
Connectivity covers various aspectsranging from seamless connection, institutional integration and capacitybuilding, to free flows of intra-regional movement of labor. Among them, theseamless connection of infrastructure largely depends on the implementation oflarge-scale transport and communications infrastructure projects. However, theconstruction of roads, railways, ports and airports pose great challenge to thedeveloping countries on tight financial budgets in East Asia. It is estimated that in the next ten years, the expenditureon the construction of power plants, hubs of transport, telecommunicationsfacilities and water supply systems will exceed 8 trillion US dollars. Besides, to most developingcountries in East Asia, especially thoselagging behind countries, the costs of reforming modern customs clearance,establishing electronic data interchange system, software maintenance andupgrading, network connection between governments, customs, and enterprises areso high that governments alone can hardly bear the financial burden. Thecurrent East Asian financing for infrastructure connectivity mainly relies onthe preferential loans and assistance funds from ADB, Japan and China. This limited financingchannel and financing volume can no longer meet the need of the rapidlydeveloping connectivity.
4. Insufficient institutionalization
To improve trade and investmentfacilitation and connectivity in East Asiaconsiderable policy coordination and cooperation is required among thecountries in the region. Therefore, an effective cooperation mechanism isneeded to strengthen trade and investment facilitation and connectivity amongAPT countries. Up till now, An effective coordination mechanism is not inplace. The complex political and economic interests, the territorial, ethnicand religious disputes and the political unrest of certain countries in theregion undermine the confidence of some enterprises within and outside theregion to participate in trade and investment facilitation and connectivity,negatively affecting the creation and improvement of intra-governmentalinstitutional mechanism for connectivity in East Asia.
5. Slow progress in building economic integration mechanism
East Asian trade and investment facilitationand connectivity serve the purpose of realizing regional trade and investment integration.Regional economic integration arrangements, such as FTAs, are the driving forceand institutional guarantee for East Asian trade and investment facilitationand connectivity. Due to the long absence of an APT FTA, trade and investmentfacilitation and connectivity are mainly carried out through the implementationof intra-governmental cooperation proposals, sub-regional cooperation projectsand bilateral FTAs. A large number of bilateral FTAs functioning together havecreated "noodle bowl" effects, making limited contributions to intra-regionaltrade and investment liberalization and facilitation.
III. Policy Recommendations to Promote East Asian Trade and Investment Facilitationand Connectivity Building
Trade and investment facilitation (TIF)is the simplification, rationalization and harmonization of procedures andinformation flows associated with international trade and foreign directinvestment. TIF often generates more trade and investment than trade andinvestment liberalization. Connectivity through hard and soft infrastructure isone of the effective ways of facilitating trade and investment in the region. Thecore objective of TIF and connectivity cooperation is to achieve the seamlessmovement of goods, services, investment, and labor in the most dynamic economiczone in the world, realize inclusive and sustainable growth, and bring commonprosperity to all people in East Asia.
Key recommendations for TIF and connectivity are as follows:
1. Formulate an ASEAN+3 technicalframework to simplify and rationalize TIF-related information flows,procedures, standards and practices; promote mutual recognition arrangements(MRAs) concerning qualifications, certification and accreditation; harmonizerules of origins (ROOs) and other regulations; enhance information andregulatory transparency; and step up capacity building.
2. Improve cross-border transits on thesimplification of customs procedures, adoption of common quarantine procedures(such as WTO's sanitary and phytosanitary agreement) and enhancement oflogistics services.
3. Improve the overall investmentclimate by strengthening transparency of members' investment rules (such assharing their catalogues for investment guidance and lists of investmentrestrictions), and rationalizing investment approval procedures andrequirements.
4. Relax the restrictions on the entryand exit of businessmen by implementing mutual recognition of qualifications ofskilled labor.
5. Speed up the process of forging anEast Asia Free Trade Agreement to allow the expansion of trade and investmentwithin the region.
6. Focus on infrastructure connectivityin transport, information, communication and technology (ICT), and promotetrade to support expanding regional supply chains and upgrade industrialdivision of labor in East Asia.
7. Set up an "East Asia CooperationFund for Infrastructure Connectivity" to expand financing channels for regionalinfrastructure investment, including the mobilization of sovereign wealth fundsin the region.
8. Create a master plan for TIF andconnectivity cooperation as an international agreement to coordinate thestrategic planning of TIF and connectivity in the region, and establish a taskforce for TIF and connectivity cooperation to monitor and speed up the implementationof international agreements at national and regional levels.
East Asian countries, closely connectedin terms of geopolitics, ecology, economy, and security environment, are at aperiod of transition in their economic development under new circumstances. How to shape the new role of East Asia in the world economy, how to further improvethe international competitiveness of East Asia, and how to build inclusivedevelopment partnerships in East Asia will have a direct bearing on the futuredevelopment of East Asia. As East Asiancountries have strong economic complementarity, active cooperation on TIF andconnectivity building will undoubtedly provide new opportunities and new growthpoints for the development of economic cooperation and trade in East Asia. In spite of various difficulties andchallenges, East Asian countries should work together for common development with the cooperation on TIF and the connectivity building as priorities andbreakthroughs. While making bigger fresh contribution to regional peace, development and prosperity, they should make more efforts to take East Asiancooperation and the relations between countries in this region to a higher level.
[1]This year the report will focus much on Connectivity given that a comprehensivestudy on TIF last year is there.
[2] ASEAN connectivity provides a new opportunity for APT trade andinvestment facilitation and integration in dual ways. On the one hand, the APTframework is conducive to mobilizing regional resources and support ASEANconnectivity; on the other hand, the implementation of the Mast Plan on ASEAN Connectivity promotes APT trade andinvestment facilitation.
[3] Joint Media Statement of the 4th ASEAN EconomicCommunity (AEC) Council Meeting, Da Nang, Vietnam,25 August 2010.
[4] Joint Media Statement of the 42nd ASEANEconomic Ministers' (AEM) Meeting (AFTA Council - Related Section), Da Nang, Viet Nam, 24-25 August 2010.
[5] Joint Media Statement of the 42nd ASEANEconomic Ministers' (AEM) Meeting (AFTA Council - Related Section), Da Nang, Viet Nam, 24-25 August 2010.