Express Delivery Services: Integrating ASEAN to Global Markets

June 2005

A Report By:

US-ASEAN Business Council 1101 17th St., NW Suite 411

Washington, DC 20036 Tel: (202) 289-1911 Fax: (202) 289-0519

The US-ASEAN Business Council is dedicated to the strengthening of business, cultural, and political ties between the United States and the ASEAN region. For more information, please refer to our website at http://www.us-asean.org

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EXPRESS DELIVERY SERVICES: INTEGRATING ASEAN TO GLOBAL MARKETS

TABLE OF CONTENTS

I. EXECUTIVE SUMMARY ................................................................................................. 2

II. INTRODUCTION ............................................................................................................... 3

III. EXPRESS DELIVERY SERVICES: AN OVERVIEW.................................................. 6

A. CHARACTERISTICS OF AN EXPRESS DELIVERY COMPANY................................................. 6 B. BENEFITS TO BUSINESSES .................................................................................................. 7 C. ECONOMIC BENEFITS.......................................................................................................... 8

IV. INTERNATIONAL TRADE POLICY AND GOVERNMENT REGULATION ....... 14

A. INDUSTRY LIBERALIZATION AND GOVERNMENT POLICY................................................ 14 B. THE WTO AND INTERNATIONAL TRADE POLICY............................................................. 21 C. REGIONAL INTEGRATION.................................................................................................. 22

V. CONCLUSION .................................................................................................................. 24

ANNEX A: ASEAN COUNTRY PROFILES AND POLICY RECOMMENDATIONS .... 25

BRUNEI DARUSSALAM .............................................................................................................. 25 CAMBODIA ................................................................................................................................ 26 INDONESIA................................................................................................................................. 27 LAO PDR................................................................................................................................... 28 MALAYSIA................................................................................................................................. 29 MYANMAR................................................................................................................................. 30 PHILIPPINES ............................................................................................................................... 31 SINGAPORE................................................................................................................................ 32 THAILAND ................................................................................................................................. 33 VIETNAM ................................................................................................................................... 34

ANNEX B: ASEAN EXPRESS DELIVERY SERVICES REGULATORY MATRIX ........ 35

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I. Executive Summary The express delivery services (EDS) sector is a great catalyst for trade and investment growth. Delivering the fastest and most reliable services in the logistics sector, EDS is essential to modern manufacturing and service industries. Demanding “end to end” solutions, “just in time” services, and accurate information, businesses view EDS as critical to efficient supply chain management and maintaining their own competitiveness. The multiplier effects stemming from efficiencies in this sector are profound, and contribute greatly to economic growth across several vertical industries. For example, in addition to the functions of its core businesses, EDS firms are also supported by information technology and data centers, financial services centers, and distribution centers. The additional investment and employment generated across vertical industries stimulates growth and benefits multiple stakeholders, creating a positive impact on foreign investment, small and medium-sized enterprises (SMEs), and regional development. The ASEAN region (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) can greatly benefit from an improved environment for EDS. Today, the region is experiencing an interesting dynamic. South East Asia’s “tiger” economies of the 1980s and 1990s now face strong competition from other global markets including China and India. As such, ASEAN as a region is tasked with the challenge of strengthening its global competitiveness as a trade and investment hub, and further integrating itself into the networks of global supply chains. Recognizing the transportation and logistics sector as one of the lead drivers for economic growth and regional integration, the corporate membership of the US-ASEAN Business Council looks forward to working with Governments to develop an efficient regulatory environment where non-discrimination, transparency, and predictability exist. As a priority and achievable target for the immediate term, we call upon ASEAN member countries to improve customs clearance and undertake measures to promote trade facilitation, including the establishment of appropriate de minimus levels; the introduction of full Electronic Data Interchange (EDI); and the adoption of risk management strategies. To promote robust inter-regional trade, harmonization of customs policies and procedures in ASEAN should also be accelerated. In addition, we urge ASEAN Governments to support bilateral, multilateral, and regional open-skies initiatives, with focus on fifth and seventh freedom rights (for all cargo carriers). To stimulate further investment in this sector, we encourage ASEAN Governments to pursue the following additional strategies for the medium term:

- Improve market access for EDS firms including more opportunities for full equity ownership in Vietnam, the Philippines, Thailand, and Indonesia.

- Provide national treatment so that express delivery service providers can operate on a level playing field with local industry.

- Address fair competition in the sector including cross subsidization provided by national postal administrations, and the need for the establishment of an independent regulator;

- In addition to regional harmonization of customs and trade facilitation measures, consider accelerating ASEAN initiatives to integrate and implement the ASEAN Free Trade Agreement (AFTA), ASEAN Framework for Services (AFAS), Roadmap for ASEAN Competitive Air Services Policy, ASEAN-China Free Trade Agreement and ASEAN-India Free Trade Agreement.

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II. Introduction

A liberal environment for express delivery services (EDS) can stimulate growth in the ASEAN region. (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam) The industry is a strong catalyst for trade and investment and has the potential to generate multiplier effects for the wider economy. EDS links local businesses to regional and global markets and supply chains. A restricted, inefficient EDS sector chokes overall growth by making it difficult for local firms to efficiently access international buyers and low cost suppliers. Expediting border control procedures, liberalizing aviation regimes, and promoting foreign investment in this important service sector will produce efficiencies that ultimately lead to lower costs and greater access to global supply chains for ASEAN’s exporters. Balancing Brick-and-Mortar Projects with Sound Policies Progress on logistics must keep pace of growth in trade. While there is a basic need for the development of core infrastructure, such programs should “rapidly be supplemented by initiatives to make supply chains more efficient.”1 According to a study conducted by the McKinsey Group, many countries mistakenly focus too much attention on expanding core infrastructure, and overlook the importance of efficient networks brought about by sound policies. Indeed, to sustain air cargo growth for the region currently forecasted at 8.4 percent annually through 20212, development in core infrastructure must be paired with progress on network efficiency. Significant differences in capabilities among countries in the ASEAN region have been found to impede trade growth as a bloc. According to studies done by the World Bank, only 20 percent of ASEAN’s trade is internal trade. This is the result of the “pattern of logistics costs and the institutional barriers to land-based trade.”3 These attributes render many countries in the region closer to industrial countries than to their geographical neighbors. (Thailand, for example, is closer, in an economic sense, to the U.S. market, than to some markets in Vietnam) Therefore, to promote further growth, bringing lagging economies and landlocked countries in the region up to median performance levels is a must. The EDS industry can assist with bringing markets closer to lagging economies, and is a catalyst for promoting robust inter and intra-regional trade. Integrating SMEs into Global Supply Chains As the largest source of domestic employment, small and medium-sized enterprises (SMEs) in ASEAN are a powerful potential engine driving economic growth. Recognizing this, Governments have set out to establish policies aimed at accelerating the formation and integration of SMEs into competitive and dynamic regional and global suppliers, and encouraging the formation of SME-based clusters and special economic zones, inter-firm networks, and linkages within and beyond ASEAN. A recent study published in the UPS Asia Business Monitor surveying 1,200 SMEs in 2004 cites access to overseas markets, cash flow, and supply chain efficiency as some of the biggest challenges to success for SMEs in the region.4 EDS firms play an important role in meeting these needs through the establishment of dynamically linked networks, and provide opportunities for SMEs to achieve economies of scale and overall cost savings. Capturing Opportunities from the Changing Competitive Landscape ASEAN today is experiencing an interesting dynamic. With China’s integration into the global community and India’s rapid economic growth, ASEAN countries face the challenge of not only

1Nikolai Dobberstein, Carl-Stefan Neumann, and Markus Zils, “Logistics in Emerging Markets,” McKinsey Quarterly, 2005, Number 1 2 Boeing World Air Cargo Forecast, 2002-2003 3 Robin Carruthers; Jitendra N. Bajpai, and David Hummels, Trade & Logistics in East Asia: A Development Agenda, EASTR Working Paper No. 3, Transport Sector Unit, Infrastructure Department, East Asia and Pacific Region, World Bank. June 2003. 4 UPS Asia Business Monitor, 2005

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competing with each other as they traditionally have, but also with their neighbors in the north and in the west for foreign direct investment (FDI). China’s accession to the WTO in 2001, coupled with overall reforms aimed at eliminating trade barriers and ensuring non-discriminatory treatment, predictability and transparency for foreign investors, is drawing robust inflows of FDI. In 2004, China attracted FDI in excess of $60 billion.5 In contrast, FDI to ASEAN only amounted to a little over $20 billion6. To foster the growth of its manufacturing sector, China has been proactive in opening up its EDS sector. The U.S.-China Air Services Agreement signed in June 2004 not only allows for more than a 500 percent increase in cargo capacity between the U.S. and China for the next five years, but also provides “open skies” type rights, including fifth and seventh freedom rights, for U.S. carriers that establish hubs in China. China’s WTO services obligations also commit it to allow wholly-owned foreign courier companies in December 2005. India’s market, with its one billion plus population, is also force to reckon with. Since 1991, India’s economic growth has averaged 6 percent, making it one of the ten fastest growing countries in the world.7 Early this year, India signed an Open Skies Agreement with the U.S., allowing the unlimited operations of U.S. carriers in India. But China and India’s growth also present many opportunities. In recent years, intra-Asia trade has grown from representing 38 percent of world trade to more than 49 percent8. While complementary economies like Japan and Korea are expected to benefit most from these trends, ASEAN countries like Indonesia, Vietnam, Thailand, and Malaysia are also expected to benefit if they also further liberalize their EDS sector.9 To integrate more fully into the world’s supply chain networks, ASEAN must strengthen its own global competitiveness as a leading trade and investment hub. The US-ASEAN Business Council is dedicated to the strengthening of business, cultural, and political ties between the United States and the ASEAN region. With a membership of close to 150 U.S. companies, the Council aims to build strong public-private partnerships with U.S. and ASEAN Governments. This report explores in greater depth issues mentioned in the 2000 US- ASEAN Business Council Report “The Integrated Express Industry in the ASEAN Region: Delivery Business into the 21st Century.” It is our hope that this will provide useful feedback to policy makers and industry regulators on issues important to the efficient operation of EDS. There is much to be gained from an efficient EDS sector if sound policies are adopted in areas of customs and trade facilitation, market access, national treatment; and competition policy. The adoption of open skies policies by Governments is also a priority. The Council would like to thank members of the Project Oversight Committee - UPS, FedEx, APL, Boeing, and Unisys - for their guidance. Additional thanks also to the Singapore Economic Development Board, Embassy of Indonesia (Singapore), Indonesia Investment Coordinating Board (BHPM), Indonesia Directorate General of Customs and Excise, Philpost, Royal Malaysia Customs Directorate, PWC Laos, Embassy of Brunei (Singapore), Vietnam General Department of Customs, and Vietnam Ministry of Transportation. The author would also like to extend her sincere thanks to the following members of the US-ASEAN Business Council team for their assistance to the project: Dana Doan, Elizabeth Hernandez, Virginia Foote, Evelyn Mariano,

5 China, Ministry of Foreign Affairs & Commerce, Foreign Investment Administration, http://www.fdi.gov.cn. For the purposes of this report, all dollar amounts, unless otherwise specified, refer to US dollars. 6 ASEAN Secretariat, http://www.aseansec.org 7 U.S. Commercial Services, http://www.buyusa.gov, March 2005 8 World Trade Organization, 2004 9 Richard Cohen, Trade Liberalization, Regional Growth and the Air Express Industry, Robert Cohen, Economic Strategy Institute, February 2004.

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Marc Mealy, Susan McKinney, Pham Minh Tri, Fauzia Sheh, Ira Sugita, Patricia Tran, Vu Thanh Thuy, and Frances Zwenig. Finally, on behalf of the US-ASEAN Business Council and its corporate members, we thank the Governments of ASEAN for the opportunity to provide feedback on the industry. We remain committed to assisting with ASEAN’s overall development and look forward to strengthening our partnership with both Government and business in the region.

The Author Shiumei Lin is Sr. International Trade Policy Analyst for the US-ASEAN Business Council. She covers trade policy for the ASEAN region including issues relating to the U.S.-Thai FTA, U.S.-Singapore-FTA, U.S.-Vietnam Bilateral Trade Agreement, and Vietnam’s and Cambodia’s WTO accession. Since 1996, she has through her work with the U.S.-Vietnam Trade Council collaborated with U.S. companies and the international trade legal community to provide technical assistance programs in support of BTA implementation and WTO Accession for Vietnam. Ms. Lin has a Master of Arts in International Trade & Investment Policy from the George Washington University Elliott School of International Affairs.

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III. Express Delivery Services: An Overview A. Characteristics of an Express Delivery Company Four major integrators – UPS, FedEx, TNT, and DHL – account for almost 85 percent of the world’s express shipments.10 The services that these companies provide generally share the following characteristics which differentiate them from other traditional forms of delivery services: - Door to door delivery: This includes

the seamless transfer across multiple modes of transport. The “integrated” aspect of the service offered frees the customer from the need to make complex transportation arrangements for pick-up and delivery.

- Close custodial control: Using sophisticated information systems that enhance security, EDS firms maintain close custodial and administrative control over all shipments. This is particularly important to reduce the risk of loss or damage to goods in transit.

- Track and trace technology: Shippers

and consignees may track the precise movement and location of their shipments and confirm delivery with the use of sophisticated ‘track and trace’ technology that an EDS firm provides.

- Facilitation of customs clearance:

EDS firms assist with customs clearance so that customers do not have to navigate bureaucratic customs regimes and the required paperwork.

10 The Integrated Express Industry in China, U.S.-China Business Council, 2003.

- High level of reliability: EDS firms

promise that packages will arrive at the required destination, on time. This is particularly important for shipments of high-tech components due for production lines, as well as essential financial documents.

- Global service: The major EDS firms offer their customers delivery to markets and cities worldwide through an intricate network of air hubs and stations. EDS is a network business.

- Speed of delivery: Most importantly,

Overnight and Second-day express services reduce overall inventory and warehousing needs, and maximize supply chain efficiency. The average shipping time from the U.S. to Southeast Asia is about 2-3 working days door-to-door.

Together, these characteristics bring businesses timely, secure, and guaranteed worldwide delivery of documents, products, components, and spare parts to assist with efficient supply chain management.

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B. Benefits to Businesses Air cargo represents 40 percent of the value of global trade.11 The bulk of this is handled by EDS firms.12 Servicing the needs of both multinational corporations and the emergent small and medium enterprise (SME) sector in their manufacturing, import, and export activities, this industry has been an important engine for economic growth. Sectors which heavily rely on EDS to remain competitive are knowledge-based and technologically advanced, including that of pharmaceuticals and biotechnology, information technology and telecoms, textiles, automotive & transport, engineering, financial and business services, and traditional manufacturing.13 To remain competitive, companies today focus not only on product performance but also factor in how well costs can be managed and reduced through distribution and production, and how quickly parts can be brought together, assembled, and distributed to global markets. EDS firms help with the smooth orchestration of these activities and are therefore part of the critical infrastructure for efficient supply chain management.

National Semiconductor / UPS Global Distribution Center, Jurong, Singapore. Reducing Inventory and Other Indirect Costs With the support of EDS, companies no longer have to maintain large inventories and can therefore carry out better concentration, rationalization, and location of warehouses. In a study conducted by Gausch and Kogan (2001), companies in developing countries were found to have 2 - 5 times more inventory holdings in the manufacturing sector than companies in the U.S.14 Halving these inventories could consequently reduce unit production costs by 20 percent. In a typical Asian emerging market, logistics supply chain costs is as high as 22 - 24 percent of total production costs for manufacturers.15 In another study, it was found that for every $1 spent on express transportation, companies would save $1.50 in warehousing and inventory cost.16 For manufacturers, taking advantage of the availability of EDS allows for more efficient stock management and production techniques to be practiced, including the ability to respond more

11 Boeing World Air Cargo Forecast, 2002-2003 12 D. Kay, “It’s Time to Set Air Cargo Free,” Airport World, 2004. 13 The Economic Impact of Express Carriers in Europe, Oxford Economic Forecasting, October 2004. 14 Luis J. Gausch and J. Kogan, Inventories in Developing Countries: Levels and Determinants, a Red Flag for Competitiveness and Growth, World Bank, 2001 15 Dobberstein, Neumann & Zils, McKinsey Quarterly, 2005, Number 1 16 Essential Trade Infrastructure: Express Delivery Services, FedEx, March 2002

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quickly to stock outages, and production interruptions. These indirect costs are not always visible and often overlooked but are critical to SMEs in emerging economies. Other immediate cost savings can also be realized through greater flexibility in sourcing. The flexibility allows companies to source from a wider array of suppliers and reduce their input costs. Introducing Flexibility into Business Structure EDS allows for more flexible business solutions. Relying on EDS to bridge distances removes the traditionally important time-to-market consideration and allows companies to make strategic decisions on where to locate their business units based on factors of competition, proximity to supporting industries, and complementary industry hubs. This is particularly relevant for knowledge-based industries in the biomedical and pharmaceutical field. In a survey conducted of European companies in Germany on the usage of EDS, 80 percent of survey respondents reported the importance of being based in locations providing “maximum participation in leading research associations.”17 Decentralization of research & development units to hubs where these laboratories, testing centers, hospitals, patent registration offices, and research think tanks are located allows businesses to benefit from an environment of innovation important to product development. At the same time, product development units rely on EDS to ship samples to markets for clinical trials, deliver highly classified and proprietary legal documents and patent applications, ship urgently needed drugs to hospitals; and maintain “just-in-time” stock-management practices for its laboratories. C. Economic Benefits In many parts of the world, the EDS sector has been a catalyst to trade and investment growth, generating profound multiplier effects for the wider economy. For ASEAN countries looking to extend their reach to global markets, networks that EDS firms build are critical. These networks render supply chains more efficient and contribute greatly to export growth, stimulate foreign direct investment, and foster regional development and SME growth. Facilitating Export Growth In ASEAN, intra-regional trade accounts for about 20 percent of overall trade.18 This is considerably less than in most regions. The main reasons for the limited intra-regional trade are the “pattern of logistics costs and institutional barriers to land-based trade.”19 This phenomenon makes countries of the region effectively closer to industrial countries than to each other. To fully realize the benefits the ASEAN Free Trade Agreement (AFTA), bringing lagging economies and landlocked countries in the region up to median performance levels is key. There is a causal link between connectivity and overall growth in trade, and an even stronger correlation between transportation and logistics infrastructure and export performance. Transportation and logistics-related costs in ASEAN continue to represent a substantial percentage of the actual cost of goods. A country with high logistics costs is far, in an economic sense, from international markets. In the study “Towards a Geography of Trade Costs” (Hummel 1999) which compared sales by manufacturers of similar products, exporters with 1 percent lower shipping costs enjoy a 5 - 8 percent higher market share. 20 In another study conducted by the McKinsey Group, annual GDP for one Asian country is forecasted to increase by 1.5 to 2 percent by 2010 if logistics costs are reduced by 15 to 20 percent. (This is in contrast to an ongoing $10

17 Oxford Economic Forecasting, October 2004. 18 Carruthers, Bajpai, & Hummels, World Bank, June 2003. 19 Ibid, p.9 20 David Hummels, Towards a Geography of Trade Costs, University of Chicago (1999)

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billion infrastructure project which would only generate 0.7 to 1 percent GDP growth over the same period).21 Indeed, injecting competition into the industry to lower logistics costs can give a

UPS Pampanga Clark Hub: Facilitating the exports of local manufacturers in the Philippines.

significant competitive edge to producers in an open economy. Efficient inter-modal transportation, including the use of EDS, would result in more efficient supply chain management. These efficiencies undoubtedly replicate gains in the export sector. A study conducted by the Economic Strategy Institute concluded that further development and liberalization in the air express industry could result in percentage gains for exports per year from 2004 - 2008 between 0.386 - 0.562 percent per year for Singapore; 2.895 – 4.215 percent per year for Malaysia, Thailand, and the Philippines; and 3.86 – 5.62 percent per year for Vietnam and Indonesia.22 (See Table 1) Country Cluster Gains Relative to

China Low Range Gain High Range Gain

Singapore, Taiwan, Hong Kong, Australia, New Zealand

0.2 0.386 0.562

Japan and Korea 0.5 0.965 1.405

China and Sri Lanka 1 1.93 2.81

Malaysia, Thailand Philippines, India

1.5 2.895 4.215

Vietnam, Indonesia, Pakistan

2 3.86 5.62

Table 1: Export Gains due to Liberalization of the Air Express Industry,

Percentage Gain per year, 2004 – 2008 (Source: Economic Strategy Institute, 2004)

21 Dobberstein, Neumann, & Zils, McKinsey Quarterly, 2005, Number 1 22 Economic Strategy Institute, February 2004.

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Integrating Small and Medium Enterprises (SMEs) into Global Supply Chains

As the largest source of domestic employment, SMEs in the ASEAN region are potentially a powerful source of economic growth. Recognizing this, Governments have introduced policies and measures aimed at accelerating the formation and integration of SMEs into competitive and dynamic regional and global supply networks. These policies focus on encouraging the formation of SME-based clusters, inter-firm networks, and linkages within and beyond ASEAN. With cash flow, resources, and funding as their primary concerns, SMEs in Asia count on EDS to provide the following: - Networks for reaching global markets

EDS firms create networks for SMEs to reach global markets without the heavy burden of establishing a commercial presence through investment. Such networks not only allow SMEs to have access to customers outside their domestic market, they also allow manufacturers to have access to a greater variety of inputs and raw materials to lower overall production costs.

- Expertise to navigate complex import and export regulations EDS firms provide their clients with expertise on import and export regulations. This

is of great value especially to SMEs without the in-house expertise necessary to navigate the web of proliferating free trade agreements (FTAs) faced by importers and exporters today.

- Opportunities to achieve economies of scale and overall cost savings EDS firms allow for greater flexibility to be practiced by businesses. Companies benefit from the flexibility of shipping small quantities and are able to take advantage of economies of scale on costs relating to freight, transportation, insurance, and security. Opportunities for cost savings are key considerations for SMEs in the ASEAN region – with 23 percent identifying cash flow and funding as the most worrying issue, and 78 percent emphasizing the importance of the transport and logistics to growth in the next two years.23

The benefits and export gains for SMEs in the ASEAN region are supported by analyses conducted by the Economic Strategy Institute illustrated in Table 1. With further liberalization of the industry, the study demonstrates that gains for Vietnam would be double that of benefits earned by China and estimated at 3.86 – 5.62 percent gain in exports per year for 2004 – 2008. Export gains for Thailand could range from 2.895 – 4.315 percent per year, 1.5 times more than benefits gained by China.24 These gains are likely to mainly benefit the SME sector.

Continued…….

23 UPS Asia Business Monitor Survey, 2005 24 Economic Strategy Institute, February 2004.

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SMEs continued…. Thailand In 2004, SMEs accounted for 2.5 trillion baht of Thailand’s overall trade and represented 38.4 percent of the country’s gross domestic product (GDP). To date, the average logistics costs of SMEs in Thailand is 25 - 30 percent of total production costs.25 The comparable figure for SMEs in the U.S. and Japan is 10 - 11 percent, and in Europe is 7 percent. Thailand’s Office for Small and Medium Enterprises expects SME trade volume to grow by 50 percent in the medium term. EDS firms are committed to assisting with this growth target and are actively participating in the Government’s “One Tambon One Product Project” promoting local products of rural villages and connecting them to the world.

Vietnam Local FedEx and UPS managers in Vietnam believe SMEs represent approximately 80 percent of their client base. In 2002, Vietnam’s SMEs - a large percentage of which are in the informal sector - made up 99.7 percent of enterprises.26 Industrial output value by SMEs accounted for about 28 percent of national industrial output value, and 35 percent of export volumes. In the IT sector, software localization companies rely on the services of EDS firms to import industry sensitive data for translation. The services of such carriers are particularly important due to the high telecommunication costs and low internet bandwidth capacity in Vietnam. Proprietary data is then re-exported in a timely, secure, and trackable way back to the U.S. and other countries where Vietnamese versions of such software are sold on the market. The Vietnamese software localization industry is one of Vietnam’s highest valued exports in the service sector. The success of this industry is highly dependent on the ability of EDS firms to operate efficiently in Vietnam.

25 Thailand, Office of Small and Medium Enterprises 26 Vietnam, Statistics General Bureau, 2003. In 2002, there were 733.453 businesses having less than 300 labourers, hold 99.7% of enterprises, with an assumption that enterprises without tax code are considered SMEs. Enterprises having less than 10 labourers hold the majority.

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Facilitating FDI and Promoting Regional Development EDS firms play a critical role in influencing company decisions on how much and where to invest. This is especially applicable to remote markets where EDS firms assist in overcoming problems of geography and weaker transportation infrastructure. Fifty-eight percent of participating companies in a survey conducted for the report “The Economic Impact of Express Carriers in Europe” (Oxford Economic Forecasting, 2004) consider easy access to markets, customers or clients, as “absolutely essential” when deciding where to locate.27 In the EU, the importance of EDS is compelling – without EDS, 35 percent of those interviewed for a study in Portugal said they would have to relocate; 15 percent of the UK and 10 percent of the Italian companies surveyed would consider relocating abroad; and 30 percent of the French companies and 10 percent of the Belgian firms surveyed would consider outsourcing.28 The EDS industry now supports 530,000 direct and indirect jobs in the EU. Their presence has injected the much needed downstream investment for creating jobs in the 10 new EU member states. 12,000 employees work directly for the four main integrators in new EU countries, and countless more are employed in automotive manufacturing, warehousing, IT support, and service centers. The EDS industry is a dynamic instigator of regional development in two ways. First, it allows for businesses to be located in regions that are not close to their markets. Second, the clustering effect (businesses wanting to be near hubs to take advantage of the latest pick-up time possible) that major express hubs create stimulates regional development. For example, it is estimated that further liberalization of the industry in China will do much to assist with the regional development of its western provinces. Already, it is expected that growth in the industry will generate $84 billion in increased manufacturing output, and 800,000 jobs for China’s export industry over five years.29 Similar benefits can be expected in ASEAN. The experiences of FedEx and UPS in the Philippines provide an excellent example. FedEx has been located in Subic Bay since 1995, and UPS has had its intra-Asia hub in Pampanga Clark since 2002. Both hubs, with dynamic networks to all parts of Southeast Asia, have been successful in bringing about the clustering of industry, and stimulating development for regions in the Philippines vacated by the U.S. military.

27 Oxford Economic Forecasting, May 2004 28 Ibid, p. 25 29 U.S.-China Business Council, 2003.

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FedEx Subic Bay Hub Contributions

In September 1995, FedEx opened its first Asia Pacific (APAC) hub in Subic Bay, Philippines and also launched a comprehensive intra-Asian overnight service through the FedEx AsiaOne network. Based on the innovative "hub and spoke" concept introduced by the company in its U.S. operations, the APAC hub now connects more than 30 countries and territories in the region. FedEx started its Subic hub with six flights per day and about 100 employees. The facility now employs over 650 people that manage over twenty flights per day. In the five years between 1993 and 1998, general employment in Subic Bay grew from 7,000 to 40,000. Investment has grown from $436 million to $2.4 billion. Between 1995 and 2000, 150 new firms were established around the airport and exports increased from $24 million to more than $1 billion annually. FedEx now employs over 1,000 people in the Philippines and has 295 intra-Asian flights per week.

FedEx Sorting Center Subic Bay, Philippines

UPS and Pampanga Clark Hub Contributions

UPS operates its intra-Asia hub out of Pampanga in the Philippines. Since its establishment in 2002, flights operating out of the hub have increased from an initial 24 to 90 flights per week, while employees have increased from 124 to over 200 working two shifts. Volumes have grown steadily since the opening of the hub. For the fourth quarter of 2004, export volumes are estimated to have grown by 30 percent as compared to the same quarter in 2003. To meet the growing demand from trade growth, UPS has recently invested $1.4 million and expanded its intra-Asia hub by tripling its sorting capacity from 2,500 to 7,500 packages per hour. The 5,900 square meter hub directly links Clark to major Asian cities including Hong Kong, Shanghai, Toyko, Singapore, and Taipei. In April 2005, UPS added another two flights directly connecting Clark with Osaka, Japan and Shenzhen, China. The Clark Special Economic Zone now hosts more than 400 local and foreign investors.30

The newly expanded UPS hub in Pampanga Clark will serve as the central sorting point within four hours of all major Asian cities.

30 Clark Development Corporation, http://www.clark.com.ph

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IV. International Trade Policy and Government Regulation

The EDS industry thrives in countries with efficient import and export procedures, open aviation regimes, and attractive investment climates. The environment for the EDS industry in ASEAN ranges from highly liberalized and open economies with independent regulators to those in which postal administrations continue to maintain jurisdiction and control over the provision of such services. To avail themselves of the benefits that accrue to economies with efficient EDS, ASEAN countries must take immediate steps to improve border clearance procedures and liberalize aviation regimes. Over the medium term, greater market access, including the liberalization of investment regimes, fair competition, and closer regional integration should be pursued with vigor.

Several trends affect this sector in ASEAN. National postal administrations are corporatizing and extending their services to include telecommunications, internet, financial services, and EDS. Initiatives have been launched to integrate the region into a single market for goods and services, with active participation by Governments to liberalize air transport services and regional aviation markets. For WTO members, further commitments with regard to market access, national treatment, and fair competition are expected under the Doha Round. Separately, rigorous disciplines for the service sector have already been incorporated into the U.S.-Singapore Free Trade Agreement, and are expected under the U.S.-Thailand FTA. A. Industry Liberalization and Government Policy The most efficient and highest standard economies are those in which the distribution sector is competitive and has been left free of burdensome regulations and barriers to investment and market entry. The US-ASEAN Business Council looks forward to working with ASEAN Governments to shape policy that will assist with the efficient movement of goods and services. As a priority and an achievable target for the immediate term, we urge ASEAN member countries to undertake measures to promote trade facilitation including the elimination of barriers to efficient customs clearance; the establishment of appropriate de minimus levels; the introduction of full Electronic Data Interchange (EDI), and overall integration for customs policies and procedures. Customs and Trade Facilitation Customs and trade facilitation is a priority for the industry and one of the four key areas proposed under the WTO Doha Round (2001) for discussion.31 In an era of heightened security requirements, the adoption of trade facilitation measures is essential. Facilitative customs measures - the adoption of automated customs clearance, risk management strategies, the separation of goods release from accounting processes, the establishment of a de minimus level, and the general simplification and modernization of customs processes and procedures - would most benefit less developed and developing economies, where on average 25 percent of costs and 20 percent of transit time are spent in and/or on customs practices.32

- Automated and Expedited Customs Clearance In 2002, customs clearance times in Asian countries were high. Average customs clearance times were 3.7 days at airports, and 8 days and 4.6 days respectively for LCL (Less than Container Load) and FCL (Full Container Load) shipments at sea ports.33 With the application of Electronic Data Interchange (EDI) technology, and the adoption of risk management

31 Known collectively as the “Singapore” issues, four areas – trade facilitation, investment, competition policy, and government procurement - are under discussion under the WTO Doha Round. 32 “The 2003 Air Cargo Quality Survey.” The International Logistics Quality Institute, Air Cargo World, October 2003 33 International Exhibition Logistics Associates, http://www.iela.org, 2002

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strategies (which will be discussed below), ASEAN countries such as Singapore, Thailand, Philippines, and Malaysia have successfully reduced average air shipment customs processing to one day or less. In Singapore, 90 percent of the physical cargo is cleared within 8 minutes, 100 percent within 13 minutes.34 EDI allows traders to input data electronically, with links to customs and other supporting import licensing agencies, for efficient approval and release of goods. Recognizing the need for adequate resources and infrastructure for the development of EDI particularly in the ASEAN CLMV (Cambodia, Lao PDR, Myanmar & Vietnam) countries, EDS firms are committed to working with Governments and donors to provide technical assistance.

ASEAN Country Average Customs Clearance EDI for Air Shipments

Singapore Same day (100 percent of cargo cleared in 13 minutes)

Yes

Malaysia Same day Yes

Philippines 1 working day Yes

Thailand 1 working day Yes

Brunei 1 working day No

Cambodia 1 working day No

Vietnam 1 working day No

Indonesia 1-2 working days Yes

Lao PDR 1-2 working days No

Myanmar No service available No service available

Table 2: Customs Clearance Times for Air Cargo and the Use of EDI. [Note: These values are an "average" for a high value shipments not requiring special import documentation such as quarantine certificates, import licenses etc. Air express volumes are also relatively low in Brunei, Cambodia, Vietnam, and Laos]. Source: UPS

In addition to the introduction of automation, customs clearance for imports can also be facilitated through moderate restructuring in administrative practices. Specifically, improvements could be achieved by conducting customs operations beyond traditional office hours, allowing for shipments to be processed at the place of arrival (in this case at airports), and most importantly, separating the release of goods from the accounting process. On the latter, a two-step process should be undertaken: the more urgent process of releasing shipments is separated from the more complex process of customs and other border entry paperwork. Countries that have introduced the use of surety bonds and other bank guarantees for importers, plus a system of post-clearance audit, have found such policies to be more time efficient and cost effective, without revenue losses. - Establishment of a de minimus To assist with efficient processing, customs administrations across the world set de minimus levels and value thresholds for the import of goods. The concept of “de minimus” is the point at which it will cost Governments more resources to collect duties than to simply waive them. De minimus levels vary according to country – in the United States, this is $200; in Mexico this is $50; and in New Zealand this is NZD400 (approximately $235). The establishment of such a de minimus level does not mean that Governments forego their rights to police borders. Such shipments continue to be subject to inspection, detention or seizure if suspected to be illegal.

34 Singapore Economic Development Board, 2005

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Among ASEAN countries, de minimus levels range from S$400 (approximately $241) in Singapore to 10 pesos (approximately $0.18) in the Philippines. Brunei, Cambodia, Laos, Myanmar, and Vietnam do not have de minimus thresholds. To promote greater efficiency at borders, we look forward to the opportunity to provide feedback on appropriate de minimus levels for businesses in ASEAN. (Please see Annex B – ASEAN Regulatory Matrix for comparative de minimus levels among ASEAN members.) - Risk Management To expedite customs clearance, Governments ought to should consider the establishment of a risk management system where vigilant enforcement could be practiced without sacrificing trade facilitation. Risk management strategies match factors affecting risk with probability and likelihood, and take into account past performance to come up with a profile for importers. Based on such factors, and with the use of X-Ray equipment, Governments are able to identify high risk categories and focus their efforts on monitoring and enforcing compliance for these importers. - Customs harmonization for ASEAN To facilitate trade and fully benefit from trade liberalization in ASEAN, harmonization of customs practices is critical. Harmonization is even more crucial if ASEAN is to smoothly implement the ASEAN-China FTA35 and the planned ASEAN-India FTA. To promote intra-regional trade facilitation and take advantage of China and India’s supply chains, risk management strategies that ensure pre-entry clearance and post-clearance audit ought to be undertaken. Finally, to transform ASEAN into a single platform for manufacturing, harmonization of policies and practices must be paired with the vision of ASEAN as a single customs union. We urge ASEAN Governments to consider the acceleration of these initiatives to develop and enhance the region’s competitiveness as a manufacturing center.

With the goal of offering its customers the most efficient express service for shipments of any size, weight, and value, the industry looks forward to working with ASEAN Governments, including providing technical assistance, in the adoption and implementation of such policies.

Market Access and Equity Ownership Few countries have undertaken market access commitments in this service sector under the WTO. Restrictions on equity ownership in this sector serve no economic purpose and are in fact inimical to the economic interests of local businesses they are designed to protect because they raise prices for consumers and limit the sales options of local entrepreneurs who might wish to sell a business to an international firm. Liberal investment policies give service providers greater control over their operations allowing companies to raise productivity and efficiency. This in turn encourages further investment into the sector and other vertical industries. (Transportation, infrastructure, information technology, telecommunications) Market access and foreign ownership continues to be restricted in some ASEAN countries, limiting EDS firms to doing business through an agent. In some countries, this arrangement is further aggravated when counterpart agencies are national postal administration bodies, making it difficult for EDS firms to have full custodial control over their consignments and protect proprietary business information from potential competitors. Agency agreements are also an extra cost, and are for this service industry the least efficient business model to adopt. While joint-ventures come with similar problems, they are preferable if majority ownership is permitted and if companies are able to freely enter into or exit from joint ventures with local, non-local, private, or government partners. Also important to the industry is access to inter-modal markets, which allows service providers to practice flexible and seamless solutions. Inter-modal rights allow companies to have control over 35 Implementation of the ASEAN-China FTA (Goods Agreement) begins on 1 July 2005.

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their airline operations and conduct their own ground pick-ups and deliveries. These rights encourage companies to invest further in the downstream end of the supply chain including vehicles, drivers, parking and auto-maintenance, customer service, IT support, and financial service centers.

FedEx’s fleet of vans at Kuala Lumpur International Airport (KLIA). Greater market access promotes downstream investment in vehicles, drivers, parking, and auto-maintenance centers.

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Access to Aviation Markets

While “traditional” market access issues (commercial presence) are of great importance to service providers, access to aviation markets or air routes for cargo – arising out of civil aviation agreements between countries – is equally important. The causal link between air cargo and growth in overall trade warrants a strong call for the liberalization of aviation markets. When considering the liberalization of aviation markets and the adoption of “open skies” policies, Governments ought to be reminded that air routes represent highways in the sky, and are as important as surface transportation infrastructure. EDS firms serve the ASEAN region using point-to-point or hub services or a combination of both. They may use their own aircraft, chartered aircraft, or secure space in the bellies of scheduled passenger aircraft.36 To meet the demands of modern global supply chains, “fifth freedom”37 and “seventh freedom”38 rights are instrumental. These rights allow EDS firms operating through a “hub and spoke” network to connect to third countries so that aircraft may be efficiently utilized. With manufacturers and businesses demanding inputs from multiple sources, fifth and seventh freedom rights lend the greatest flexibility to carriers serving these dynamically linked multiple nodes. Naturally, the granting of such rights by Governments has also been instrumental in influencing investment decisions affecting the location of hubs for EDS firms. More importantly, other businesses - especially those that are reliant on EDS - also choose to invest in locations where there is a mature aviation transportation infrastructure to receive their inputs and get their products to global markets. In ASEAN, aviation liberalization allows countries with less developed trade flows with the U.S. or Europe (where these carriers originate), to take advantage of an existing network for intra-regional, or intra-ASEAN trade. Thus, while Laos or Cambodia may not have strong bilateral trade with the U.S., they could become part of a larger network provided by EDS firms and other airlines to service strong bilateral trade with other ASEAN countries and beyond with access to their aviation market through fifth and seventh freedom rights

Continued……..

36 The Integrated Express Industry in the ASEAN Region: Delivery Business into the 21st Century, US-ASEAN Business Council, 1999. 37 Fifth Freedom Rights: “The right or privilege, in respect of scheduled international air services, granted by one State to another State to put down and to take on, in the territory of the first State, traffic coming from or destined to a third State.” Manual on the Regulation of International Air Transport of the Air, ICAO, http://www.icao.int/icao/en/trivia/freedoms_air.htm 38 Seventh Freedom Rights: “The right or privilege, in respect of scheduled international air services, granted by one State to another State, of transporting traffic between the territory of the granting State and any third State with no requirement to include on such operation any point in the territory of the recipient State, i.e. the service need not connect to or be an extension of any service to/from the home State of the carrier.” Ibid, http://www.icao.int/icao/en/trivia/freedoms_air.htm

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Access to aviation markets continued…

Among the ASEAN member nations, Brunei, Indonesia, Malaysia, Thailand,39 and Singapore permit unlimited fifth and seventh freedom rights for U.S. cargo carriers. The Philippines recently passed regulations allowing open skies in Clark and Subic Bay. Vietnam permits bilateral access and limited fifth freedom access, but does not permit seventh freedom access for cargo carriers. (See Annex B: ASEAN Express Delivery Services Regulatory Matrix) In March 2004, Singapore, Thailand, and Brunei formalized a multilateral Open Skies Air Cargo Agreement, including the granting of fifth and seventh freedom rights, allowing carriers from the three countries to operate unlimited air cargo services. The US-ASEAN Business Council applauds this move and urges ASEAN Governments to consider further liberalization of aviation markets, including the effective implementation of the Roadmap for Integration of ASEAN to achieve full liberalization of air freight services by 2006.40

Open skies policies allow FedEx to manage its “hub and spoke” operations out of Subic Bay in the Philippines.

On the multilateral front, Brunei and Singapore have signed on to the Multilateral Agreement on the Liberalization of International Air Transportation (MALIAT), of which the United States, New Zealand, Chile, Peru and Samoa are also party to. The MALIAT is the first multilateral agreement to contain elements of an open skies regime. The US-ASEAN Business Council encourages ASEAN country members to participate in this regime.

National Treatment and the Establishment of a Level Playing Field Very important to industries across all sectors, national treatment or non-discriminatory treatment ensures that foreign companies are able to reap the benefits of market access and compete on an equal basis with domestic entities. As the basis of all WTO and international trade agreements, national treatment is instrumental to the maintenance of an attractive foreign investment regime, and encouraging the local industry to become competitive. Measures that deny national treatment include the lack of access to government programs available to domestic providers, and discriminatory access to facilities (highways, airports, and railroads), radio frequency, and location of warehouses. We hope that such issues could be addressed by ASEAN Governments in the formulation of policies for the service sector. Competition Policy and Deregulation Due to the predominance of state-owned operators and the tendency for national administrations to extend their services beyond their core business, meaningful liberalization in the EDS sector

39 The U.S. and Thailand have an Open Skies Agreement for cargo carriers (signed in October 2003) and are building upon this agreement towards an Open Skies Agreement for passenger traffic. 40 In 2002, a Memorandum of Understanding on Air Freight Services was established under the ASEAN Framework. http://www.aseansec.org/13144.htm

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can only be achieved by addressing issues such as the establishment of an independent regulator, postal subsidies, cross subsidization and fair competition in this sector. Such measures prevent suppliers from distorting fair participation in the market and engaging in or continuing anti-competitive measures as a result of their dominant market position.

- Defining the scope of the postal monopoly In determining the scope of the postal monopoly, Governments should uphold the principle of reserving such a monopoly only to ensure the provision of basic and essential universal postal delivery services. EDS firms are not in direct competition with national administrations in the provision of postal services, but request the establishment of at least a level playing field in the services in which they do intersect. Defining the scope of the monopoly in the narrowest way, and excluding all value-added services such as EDS, will not only stimulate economic efficiency but increase consumer choice by promoting competition.41 It is for this reason that the industry strongly supports a separate classification for their services and advocates this agenda as part of the ongoing services negotiations under the WTO Doha Round. (See section on “The WTO and International Trade Policy” and “Revising the Industry’s Services Classification”) - Establishment of an independent regulator for postal services Instrumental to the provision of fair market conditions in the EDS sector is the establishment of an independent regulatory body. In China for example, China Post plays a dual role as operator and regulator. This makes it difficult for it to be impartial when making decisions affecting the regulation of the industry. According to the Universal Postal Union (UPU), an independent regulator is determined by the following criteria:42 - In its decisions, the regulator is guided solely by the criteria of post-specific and

competition legislation. - The regulator’s decisions are not subject to political influence. - In making regulatory decisions, the regulator does not take instructions from other

parties. - The regulator monitors the entire postal market, not just the public operator. All operators

are required to comply with the same rules. - The regulator decides in an impartial, fair and transparent manner, i.e. the process of

decision making is transparent for both operators and customers. - Cross subsidization Recent FTAs concluded with the United States have incorporated disciplines on cross-subsidization by state owned operators.43 These disciplines prohibit state-owned operators like postal administrations from using profits derived from government granted monopoly operations (e.g. postal services) to subsidize operations for which it competes with others on. Such policies not only ensure a level playing field for private EDS firms but also encourage postal administrations to be more competitive. These disciplines were adopted by Singapore in its FTA with the U.S. Accordingly, “Singapore Post Pte. Ltd. is prohibited from using revenues from the provision of postal services to cross subsidize in an anti-competitive manner the price of express delivery services.”44 We applaud this effort and hope that Governments across ASEAN will also consider adopting such disciplines.

41“Foreign Industry Associations Call for Level Playing Field and Equal Footing in Postal Privatization.” Coalition of Service Industries, 28 March 2005 42 Universal Postal Union, http://www.upu.int 43 U.S.-Singapore Free Trade Agreement, Chapter 8, Annex 8A, 2003. 44 Ibid

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B. The WTO and International Trade Policy Ongoing services negotiations conducted under the WTO Doha Round are expected to address issues of concern to EDS firms. Few WTO member countries have undertaken services commitments in this sector, but with the industry now representing a multibillion dollar market worldwide and deeply engaged in the supply chains of manufacturers, importers, and exporters, international trade policy is expected to correspondingly recognize and address the importance of having a separate classification for the service sector and additional regulatory guidelines for overseeing the liberalization of the industry. Revising the Industry’s Services Classification The EDS industry warrants its own classification under international trade policy because of the critical role it plays. Traditional classifications for the industry inappropriately focus on the nature of the service provider and not the service itself. For example, EDS is often categorized under the WTO General Agreement on Trade in Services (GATS) framework as “courier services”, whereas “postal services” are services delivered by national post offices. Although there is a tendency for state-owned postal operators to diversify their services into financial services, telecommunications, internet, and EDS, they continue to be classified separately. Under the UN Central Product Classification (CPC) guide, EDS provided by a private party is a “courier service” and that provided by a public entity is a “postal service.” Such separation is counterproductive to liberalization efforts, because they make it difficult for EDS firms to be extended national treatment.

Understanding the nature of the business: Traffic restrictions for EDS vans during rush hour with no exceptions stem from a lack of understanding for the demand for time-sensitive responses by businesses. While other modes of transportation may be used, efficiencies are often lost.

In addition, a separate classification is warranted because inadequate or detrimental policies that directly impact the daily operations of companies sometimes stem from a lack of understanding of the nature of the business, rather than the urge to protect the domestic carrier or postal administration. For example, in an attempt to control traffic flows, some ASEAN countries have introduced restricted zones for trucks and vans in the central business district during rush hour. This is applied to all vehicles, whether public or private, with no exceptions. Such policies demonstrate a lack of understanding for the demand for time-sensitive responses by businesses, as well as the value of allowing for the latest possible pick-up time for next day delivery of documents and goods. Another example of a lack of understanding of the nature of the business is reflected in administrative policies governing the operating hours of customs checkpoints. Again, due to the demand for time-sensitive responses by businesses, documents, products, spare parts, and other components at times need to be cleared through customs outside of traditional business hours to meet tight production schedules or other urgent requirements.

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Additional Regulatory Guidelines In addition, Governments should consider undertaking further commitments relating to the regulation of the EDS sector. Due to the predominance of state-owned operators and the tendency for national administrations to extend their services beyond their core business, meaningful liberalization in the EDS sector can only be achieved by addressing issues such as the establishment of an independent regulator, the elimination of cross subsidization, and fair competition in this sector. See section on “Industry Liberalization & Government Policy” above. C. Regional Integration Under the ASEAN framework, Governments have undertaken initiatives to promote economic integration, with the ultimate goal of creating a single customs union of 560 million people by 2020. The US-ASEAN Business Council and its corporate membership are fully committed to facilitating this goal for the regional grouping, and urge ASEAN Governments to remain committed to the realization of a free trade area, an integrated services market, and a fully liberalized regional aviation market. AFTA Established in 1992, the ASEAN Free Trade Agreement, or AFTA, seeks to eliminate all tariffs and non-tariff barriers among countries in the region by 2010 (for ASEAN’s original 6 members Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand), and 2015 (for ASEAN’s CLMV countries - Cambodia, Laos, Myanmar and Vietnam).45 Through its Common Effective Preferential Tariff (CEPT) scheme, it aims to integrate ASEAN economies into a single production platform and common market. In response to calls to promote quicker integration, ASEAN’s CLMV countries have brought forth their timelines for categories of goods for which tariffs will be reduced to less than 5 percent. Vietnam has committed to do this in 2006, Laos and Myanmar in 2008, and Cambodia in 2010. To facilitate trade, ASEAN has also set out to harmonize customs procedures through harmonized tariff nomenclatures, the quicker implementation of the WTO Agreement for Customs Valuation, and Mutual Recognition Agreements (MRAs) for telecom products, cosmetics, pharmaceuticals, and electrical and electronic products, and industry standards. ASEAN Customs Cooperative Framework To fully realize the benefits arising out of the AFTA, the ASEAN Agreement on Customs was signed in 1997 with the goal of simplifying and harmonizing customs practices for the region. In addition to promoting the principles of “consistency, simplicity, efficiency, transparency, access to appeals, and mutual assistance” in this area, the Agreement advocates the adoption of an ASEAN Harmonized Tariff Nomenclature (AHTN); the uniform application of the WTO Customs Valuation Agreement; the simplification and harmonization of customs procedures in line with the disciplines of the Kyoto Convention; information sharing to prevent and enforce fraudulent or illegal trade; the right to appeal; and cooperation and consultation with the private sector. ASEAN Framework Agreement on Services (AFAS) Recognizing the growing importance of trade in services, ASEAN countries launched the ASEAN Framework Agreement on Services (AFAS) in 1995. The AFAS aims to eliminate restrictions for trade in services among ASEAN service suppliers by 2020 through the provision of market access and national treatment, thereby promoting the free flow of services. Since its launch,

45 The reduction and eventual elimination of tariffs in the ASEAN region is being implemented in stages, with tariffs on the most sensitive categories of goods the last to be eliminated.

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several packages have been negotiated, including an Agreement on the Liberalization of Air Transport Services. This Agreement covers the sales and marketing of air transport services, computer reservation systems, aircraft repair, and maintenance. Roadmap for ASEAN Competitive Air Services Policy Eleven priority sectors46, including transportation and logistics, were identified as lead drivers for ASEAN’s integration toward the ASEAN Economic Community (AEC) by 2020. In response, ASEAN’s Transport Ministers have set out “to intensify activities to enhance multimodal transport linkages and connectivity, promote the seamless movement of peoples and goods, promote further liberalization in the air and maritime transport services, and further improve integration and efficiency of transport services and the supporting logistics systems.”47 As part of these efforts, a regional action plan for the staged and progressive implementation of an opn skies arrangement was introduced. This Roadmap for ASEAN Competitive Air Services Policy now guides the progressive liberalization of regional air cargo services. In March 2004, Singapore, Thailand, and Brunei also formalized a multilateral Open Skies Air Cargo Agreement, allowing carriers from the three countries to operate unlimited air cargo services, including the granting of fifth and seventh freedom rights. ASEAN-China and ASEAN-India Alliances Efforts to form alliances with China and India reflect the increasing expectation among ASEAN members of the opportunities that may be captured from the economic growth of these nations. ASEAN is now China’s fifth largest export market and fourth largest import source. The growth of ASEAN exports to and imports from China reached $ 47.3 billion and $ 30.9 billion in 2003, - an increase of 51.7 percent and 31.2 percent respectively from the previous year.48 In 2004, a landmark ASEAN-China Free Trade Agreement (on Goods) was signed and will be entered into force in July 2005. Trends for India are also expected to take on a similar pattern. ASEAN and India are currently working on a framework for the provision of Rules of Origin (ROO) and the Operational Certification Procedures for an ASEAN-India Free Trade Agreement. Together, these initiatives are viewed by U.S. businesses and EDS firms as fundamentals of ASEAN integration. To be competitive in trade and investment, the U.S. business community urges ASEAN to consider accelerating full implementation of these initiatives towards a common ASEAN market before 2020. The US-ASEAN Business Council remains confident of ASEAN’s capabilities and looks forward to strengthening our partnership with the region’s nations.

46 Under the ASEAN Pioneer Projects Scheme (APPS), 11 priority sectors constituting 57% of intra-ASEAN trade were chosen to undergo accelerated integration within ASEAN. These are Agro-based Products, Air Travel, Automotives, e-ASEAN (ICT sector), Electronics, Fisheries, Healthcare, Rubber, Textiles, Tourism and Wood-based Products. 47 ASEAN Secretariat, http://www.aseansec.org 48 Ibid

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V. Conclusion

A liberalized market for EDS can help drive trade and economic growth in ASEAN. Inefficient logistics services cost ASEAN businesses money and markets. The cost savings and networks established by EDS firms can help create a conducive environment for the development of export related industries. For countries like Indonesia and Vietnam, where SMEs employ a large percentage of the population, the potential benefits and jobs to be gained are abundant. EDS can also facilitate the development of landlocked and more remote nations like Laos and Cambodia by removing the “proximity to market” factor in investment decisions of large multinationals. For more developed ASEAN nations targeting vibrant growth in particular industry clusters whether in life sciences, electronics, or information technology, the availability of EDS first offers companies flexibility in location of different business units, and then is crucial to linking these decentralized R&D, product development, or manufacturing units to global markets.

The growth of competing markets in the Asia-Pacific region is both an opportunity and a challenge for ASEAN. The opportunities may be captured through the effective integration of businesses into global supply chains, and capitalizing on strong intra-ASEAN and intra-regional trade. Liberalizing the environment for EDS will boost that effort. Although forecasts for air cargo growth in the region are estimated at 8.4 percent annually through 2021,49 this can only be sustained if it is matched with policies promoting trade facilitation and liberalization in the EDS sector. ASEAN Governments should adopt sound policies to ensure a competitive environment of non-discrimination, predictability, and transparency. As a priority, the US-ASEAN Business Council strongly recommends that immediate steps be taken to improve customs clearance procedures and liberalize aviation regimes. Over the medium term, we hope that greater market access, including the liberalization of investment regimes, fair competition, and closer regional integration will be pursued vigorously. The corporate membership of the US-ASEAN Business Council, including its EDS firms, strongly supports ASEAN’s overall integration. As an industry deeply engaged in the supply chains and activities of so many parties, EDS firms hope to assist in the shaping of international trade policy and the regulatory environment for the sector. We are thankful for this opportunity to provide feedback and remain committed to strengthening our partnership with ASEAN and its member Governments.

49 Boeing World Air Cargo Forecast, 2002-2003.

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Annex A: ASEAN Country Profiles and Policy Recommendations

Brunei Darussalam Brunei is a member of the WTO but has not undertaken any commitments in the EDS sector under it GATS schedule. Brunei and the U.S. have an Open Skies Agreement, including seventh freedom rights for scheduled all-cargo carriers. In March 2004, Singapore, Thailand, and Brunei formalized a multilateral Open Skies Air Cargo Agreement, allowing carriers from the three countries to operate unlimited air cargo services, including the granting of fifth and seventh freedom rights.

SMEs account for almost 98 percent of all active business enterprises in Brunei, employing close to 92 percent of the population and 70 percent of the GDP in the non-oil sector. Recognizing this, the Government of Brunei has undertaken measures to assist this sector by promoting the diversification of industry in Brunei. These measures, coupled with liberal foreign investment policies, have stimulated export growth outside of the energy sector and encouraged the development of the private sector.

As proponents of active private sector participation in the development of economies, the US-ASEAN Business Council looks forward to assisting with the facilitation of SME development in Brunei. In addition, we hope that Brunei will actively take part in the shaping of the policy environment for trade facilitation in ASEAN including customs integration. Specifically, to help speed up customs clearance for consignments, we urge the Government of Brunei to consider the following:

Establishment of a de minimus level - To assist with efficient processing, customs administrations across the world set de minimus levels and value thresholds for the import of goods. The concept of “de minimus” is the point at which it will cost Governments more resources to collect duties than to simply waive them. We hope that the Government of Brunei will consider establishing an appropriate de minimus level for customs clearance.

Electronic Data Interchange (EDI) - With the application of Electronic Data Interchange (EDI) technology, coupled with the adoption of risk management strategies, several countries in ASEAN have successfully reduced average customs processing time for air shipments to one day or less. EDI allows traders to input data electronically, with links to customs and other supporting import licensing agencies, for efficient approval and release of goods. While customs clearance for air cargo is quick in Brunei, to sustain expected growth in trade volumes, we hope that EDI technology for air shipments will eventually be made available.

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Cambodia Cambodia formally acceded to the WTO in 2004. Under its services schedule, Cambodia does not list any restrictions with regard to market access or national treatment for “courier services.”50 Cambodia and the United States have also concluded a bilateral trade agreement on trade in goods and the protection of intellectual property rights,51 and a bilateral textile agreement. Cambodia’s international trade obligations serve as an important framework for improving the business environment for foreign investment. Although physical infrastructure is nascent and the domestic market remains small, EDS firms recognize developing market access opportunities and look forward to working with the Government of Cambodia to provide customers with efficient services. In particular, Cambodia’s developing textile and footwear industry has much to gain In addition to highlighting the importance of strong and timely implementation of Cambodia’s WTO obligations, we hope that attention could be paid to the following: Transportation costs - The lack of adequate infrastructure in Cambodia has placed great logistical constraints on companies, thereby hampering overall economic growth. Transportation infrastructure here is one of the poorest in Asia, with only 78.6 km of roads per 1000 km2 and only 11.6 percent of these roads paved.52 The lack of infrastructure translates into frequent road closures, suspension of services, and high transportation costs. For example, truck rates for distances over 100 km range from 137 to 467 riel per tonne km, depending on road conditions. Port charges at Sihanoukville remain the highest in the ASEAN region – almost as much as four times as much as Songkhla Port in Thailand, which is relatively the same size. With overall trade growth so contingent upon easy access to markets, it is hoped that transportation costs can be addressed as part of the agenda for the implementation of trade facilitation measures.

50 WTO, WT/ACC/KHM/21/Add.2, 19 August, 2003, http://www.wto.org 51 Agreement Between the United States and the Kingdom of Cambodia on Trade Relations and Intellectual Property Rights Protection ,1996. 52 “East Asia Transport and Logistics Strategy: Measuring Progress.” Public Policy Research Corporation on the basis of CIA (2002).

Customs and trade facilitation – According to a pilot study conducted by the Cambodian Ministry of Commerce in 2001, customs clearance at ports averages about 8 days for imports and 10 - 14 days for exports. In addition, informal payments are often required for extending customs operations beyond 5:00 PM at Sihanoukville.53 All air express packages continue to require opening. Absent the availability of EDI to speed up customs clearance, it is hoped that the establishment of an appropriate de minimus level and consolidated entry thresholds will be considered so that customers would be able to receive their consignments on a timely basis.

53 Cambodia, Ministry of Commerce, Integration and Competitiveness Study – Part B, 2001. A pilot study prepared under the Integrated Framework for Trade-Related TA.

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Indonesia Indonesia is a member of the WTO but has not made any commitments in the provision of EDS under its GATS schedule. In 2004, the U.S. and Indonesia concluded an Open Skies Agreement, including seventh freedom rights for cargo carriers. Since 1998, both FedEx and UPS have served Jakarta 5 times a week with overnight delivery services from major Asian centers. To meet the growing export needs of SMEs in the provinces, EDS firms also have offices outside of Jakarta including Bali, Denpasar, Medan, Semarang, and Surabaya. These networks facilitate some of Indonesia’s biggest exports including garments/textiles, furniture, bird’s nest and pulp/paper products. To assist with efficient supply chain management of Indonesia’s biggest exporters, and facilitate export growth for manufacturers of the extensive network of small scale enterprises (SSEs), the US-ASEAN Business Council looks forward to continuing its partnership with the Government of Indonesia to address the following concerns: Foreign equity ownership – Under current law guiding foreign investment in Indonesia, foreign investors may own up to 95 percent of a foreign invested company. Recent draft legislation issued, however, would reduce this foreign equity limit for EDS to 49 percent. This would be a step back for the industry and the overall foreign investment climate in Indonesia. Although companies like UPS and FedEx currently operate under agency agreements in Indonesia, limiting foreign equity in the core aspect of the business would prevent these companies from investing in the downstream side of the business, including warehousing, and transportation, IT support, and customer service centers. Such investments are particularly beneficial to Indonesia’s provinces, generating employment for delivery drivers, garaging, auto-maintenance and servicing centers.

Customs and Trade Facilitation – Indonesia could do much to improve customs clearance procedures. Immediate priorities would be to raise the de minimus level to a more realistic level and permit pre-clearance of imports. Over the longer-term, Indonesia should work with the industry to institute EDI procedures to speed clearance and eliminate the need for original paperwork, and allow for post-clearance payment of duties and taxes. As there are no regulations governing the retrieval of packages from Indonesian customs authorities, shipments which are the subject of fraudulent credit card transactions will not be released by customs for return to the shipper without the payment of duties and taxes. To give EDS firms with full custodial control over their consignments, these cases should be deemed free transshipments and returned upon request. . Postal monopoly – Indonesia’s parliament is currently considering legislation relating to postal exclusivity for Pos Indonesia, including provisions reserving the delivery of all packages under 500 grams to the national postal administration. On behalf of the foreign investment community in Indonesia, we urge the Government of Indonesia to consider the ramifications of this policy on the efficiency of supply chains throughout the nation, and consequently work to overturn this decision.

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Lao PDR

The People’s Democratic Republic of Laos is currently seeking accession to the WTO and has a bilateral trade agreement with the United States.54 Under its bilateral trade agreement with the U.S. signed in 2003, no commitments have been made on EDS. Although the market is in its developmental stage, corporate members of the US-ASEAN Business Council look forward to assisting the Lao Government in its bid to stimulate foreign direct investment and develop the exports of cottage industries and other small-scale enterprises (SSEs). For the EDS industry, issues of primary concern include:

National treatment and dual pricing – Dual pricing exists for most utilities in Laos, including fixed costs such as telecommunications, electricity, and water. Recognizing that dual pricing is often used by developing countries to balance out the low demand and revenue generated by local parties, foreign investors maintain that there are other ways which Governments may generate revenue without resorting to dual pricing. We hope that in anticipation of Laos’ WTO accession, such national treatment issues could be addressed. Freedom to choose agents – EDS firms hoping to establish a presence in Laos are currently limited to working with Lao Post as an agent. Although the challenges relating to customs clearance may currently warrant such an arrangement, it is hoped that the Government of Laos not only permit foreign companies to choose their agents freely, but also realize the conflicts of interest that may arise with Lao Post also providing EDS.

54 The U.S.-Lao Bilateral Trade Agreement was initialed in 1997, signed in 2003, but only recently ratified by the US Congress in 2004.

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Malaysia Malaysia is a member of the WTO and currently has a Trade & Investment Framework Agreement (TIFA) with the United States. It has not made any multilateral or bilateral obligations with respect to the provision of EDS, although the market for the industry is fairly open. The Government of Malaysia has undertaken broad measures to promote the development of the air transport sector as an important foreign exchange earner including the establishment of a comprehensive network of airports and open skies policies. The government conducts regular reviews of its policies to ensure that “all the key elements, which are required to provide the right business environment for the transfer of goods in and out of the country, are in place.”55 The nation’s main airport Kuala Lumpur International Airport (KLIA) in Sepang, Selangor, is a major hub for air cargo, handling up to 650,000 tonnes of cargo per year. The airport is expected to handle three million tonnes of cargo per year by the year 2020, and up to five to six million tonnes of cargo thereafter. In addition to KLIA, Malaysia has successfully established a network of secondary airports to manage its growing trade volumes and foster regional development. Penang International Airport in particular has drawn a cluster of industries in the IT field, including hi-tech electronics, computers, disk drives, and other IT components. The deep engagement of EDS in the supply chains of Malaysian manufacturers and businesses is a testament to the efforts made by the Government of Malaysia to create an environment where standards for trade facilitation are highest. A few issues however are of concern: Licenses for delivery trucks – A somewhat archaic policy, Malaysia maintains a strict licensing system with regard to the ownership of trucks. Known as A-permits, these licenses are not only limited in quantity but can only be purchased directly from the Government by a bumiputra (local Malay) party. To own and operate a truck, EDS firms are therefore forced to purchase A-permits from local parties. Such a system is cumbersome, particularly in situations where there is a low supply. Moreover, the selling of these permits has become a lucrative business opportunity for many. This system should be abolished immediately.

55 Metro Washington Airports Authority News, Vol. 3, Issue 1, Spring 2000

Customs operations – To meet the pressing demands of manufacturers in Malaysia, we hope that operating hours for KLIA and Penang, which service the majority of air shipments, could be extended to include 24 hour customs processing. Currently, KLIA Customs is closed during three breaks each day and Penang International Airport’s customs is closed from 12:00 AM - 6:00 AM. De minimus – In response to calls for a higher de minimus, Malaysian authorities raised this to 500 MYR (about $131). The US-ASEAN Business Council applauds this decision but hopes that this level could be further raised to be comparable with more developed countries in the Asia Pacific region such as Singapore (approximately $241) and New Zealand (approximately $235). EDI – Although EDI has been available for nine years, we urge the Government of Malaysia to consider introducing competition into the provision of this service and standardizing EDI for all ports of call. Malaysia should also introduce a system for the electronic payment of customs duties – currently these are paid daily by check at a customs cashier. While data is transmitted using EDI technology, final approval of clearance continues to be done manually. Foreign Ownership – Current law governing foreign investment in Malaysia requires for projects to be at least 30 percent owned by local bumiputra parties, limiting foreign ownership to a maximum of 70 percent only. Together with other members of the foreign investment community, we hope that the Government of Malaysia will consider revising this policy.

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Myanmar U.S. companies face a range of restrictions on doing business in Myanmar under U.S. law. For example, since 1997, there have been sanctions prohibiting new investment by U.S. companies in Myanmar. Since 2003, U.S. importation of goods of Myanmar origin has also been prohibited. These sanctions are pursuant to successive Presidential Executive Orders under the International Emergency Economic Powers Act (IEEPA). Myanmar through its original membership with the General Agreement on Trade and Tariffs (GATT) is a member of the WTO. Its major trading partners are Thailand, India, China, Singapore, Malaysia, Taiwan, South Korea, Japan. The U.S. business community hopes that ASEAN, the U.S., and other nations will continue to engage the Government of Myanmar to attain long term and viable solutions for national reconciliation and economic stability. In particular, to assist with Myanmar’s re-integration into the global economy, the US-ASEAN Business Council looks forward to eventually participating actively in the overall development of the nation, including advancements in infrastructure, private sector growth, and poverty reduction.

31

Philippines The Philippines is a member of the WTO but has made no commitments in the EDS sector under its GATS schedule. The US-ASEAN Business Council welcomes recent regulations issued by the Civil Aeronautics Board providing open skies policies to carriers operating in Subic and Clark.56 The Philippines currently hosts hubs for both FedEx and UPS in Subic Bay and Pampanga, Clark respectively, connecting more than thirty countries and airports in the region. To assist with further trade growth and regional development, the US-ASEAN Business Council looks forward to continuing its partnership with the Government of the Philippines to shape regulatory policy for the EDS industry in the following areas: Foreign equity ownership in the transportation sector – A recent Opinion of the Department of Justice57 concluded that 40 percent equity limitations imposed by the Constitution on "public utilities”58 only apply to companies engaged in domestic freight forwarding. This Opinion reversed a Department of Justice Opinion issued just months before. The industry therefore believes that the Philippine Government's position is that international freight forwarding companies can be 100 percent foreign owned. However, the uncertainty introduced from the changing opinions of the Department of Justice and the possibility of these being challenged in Court, diminishes the predictability factor that foreign investors in general would like to see. The US-ASEAN Business Council strongly urges the Government to issue a clear direction on its interpretation of the Constitution and authorize the Civil Aeronautics Board to issue international freight forwarding licenses to 100 percent foreign owned freight forwarding companies. Access to inter-modal markets – The process of multi-modal transport is cumbersome in the Philippines, with no one agency assuming the responsibility for the whole logistics chain. Because of such inefficiencies, inland destinations are not only difficult to reach in the Philippines but a challenge for companies dealing with trade documentation and customs

56 Resolution No. 16, 2005 Amending the Implementing Rules and Regulations of Executive Order 253 57 DOJ Opinion No. 98-2004 58 1997 Philippine Constitution, Article XII, Section 11, and 1936 Commonwealth Act, Public Service Law, Chapter II, Section 13

clearance. Together with other manufacturers and investors, we hope for a streamlining of this situation. A more efficient multi-modal system will do much to reach out to inland provinces, and provide the much needed stimulus for regional development in the Philippines. De minimus level – The de minimus level for the Philippines is 10 pesos (approximately $0.18). To facilitate trade and assist with efficient customs processing, we urge the Government of the Philippines to establish a de minimus comparable to similar economies in the Asia Pacific region. As a comparison, Thailand’s de minimus is 1000 baht or approximately $25; Malaysia’s de minimus is 500 MYR or approximately $131; and Indonesia’s de minimus is $50.

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Singapore In 2001, Singapore and the U.S. concluded a state-of-the-art free trade agreement (FTA) not only to further liberalize their markets for goods and services, but to incorporate standards that have not been achievable under the WTO and other multilateral frameworks. For the EDS industry, the U.S.-Singapore FTA sets a precedent in addressing issues relating to its services classification, trade facilitation, and fair competition. As a strong advocate for deeper regional integration, Singapore has been highly conscious of the direct correlation between efficient supply chain management and industry growth. It has therefore set forth to develop and provide a set of conditions conducive for companies to establish integrated value chains - from R&D, to production, marketing, sales, and servicing - to sharpen its competitive advantage in ASEAN. Despite continuing to face stiff competition from its neighbors in Malaysia, Hong Kong, and even Thailand, growth in air freight volumes remains robust for the nation. In 2004, Changi Airport handled 1.78 million tonnes in air cargo – 10 percent higher than 2003. According to the International Air Transport Association (IATA), this trend is expected to be maintained at 6 percent annually from 2004 and 2008, although air freight numbers for 2004 were at 10 percent.59 With open skies policies and an open market for the establishment of logistics and EDS firms, Singapore is today in reach of 2.8 billion people within a 7 hour flight radius. Changi International Airport is serviced by 77 airlines (19 of which are cargo carriers), with 178 city links, and 3,852 weekly flights60. These networks have supported the more than 3,000 international and local logistics companies that have made Singapore the region’s logistics nerve center. Below are some highlights adopted: Airport free trade zone - Changi International Airport’s 47 hectare free trade zone houses five cargo agents’ buildings, eight air freight terminals, ten freight aircraft parking bays, two express delivery and courier centers, an airmail transit center, a customs checkpoint and warehouse, plant and animal quarantine 59 Singapore Air Cargo Directory 60 Singapore Economic Development Board, statistics are as of April 2005

facilities, and a trade permit office. No duties or taxes are required for the removal, consolidation, storage, break-bulk and repacking of cargo. Air-to-air transshipment within the free trade zone can be done within the hour, and sea-air transshipment can be completed in less than 12 hours.61 Postal deregulation & independent regulator In response to Singapore’s WTO commitment to liberalize its telecommunications sector in 2000, Singapore Post & Telecom came under the regulatory and licensing authority of Info-Communications Development Authority (IDA). In May 2003, government-owned Temasek Industries divested its 69 percent ownership in SingPost through an initial public offering. SingPost is currently preparing for full deregulation, and will remain the exclusive provider of basic mail services until 31 March 2007. To reinforce its commitment to deregulate the postal sector and promote fair competition in the EDS sector, Singapore has committed under its FTA obligations with the U.S. to “prohibit SingPost from using revenues from the provision of postal services to cross subsidize in an anti-competitive manner the price of express delivery services.”62

61 Singapore Air Cargo Directory 62 Ibid

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Thailand The U.S. and Thailand currently have a bilateral Treaty for Amity and Economic Relations (AER) which some companies operate under. The AER is expected to be superseded by a Free Trade Agreement (FTA) pending successful negotiations. Thailand is also a member of the WTO but has made no commitments in the EDS sector under its GATS schedule. Building upon an Open Skies Agreement for cargo carriers signed in October 2003, the U.S. and Thailand are currently negotiating open skies for passenger traffic, with the hope of concluding before the end of 2005. In 2003, air express shipments in Thailand were $80 million, with 8 million shipments on 36 express flights a week.63 According to major EDS firms operating in Thailand about 50 percent of their clients are small and medium enterprises (SMEs) in the garment, textile and silver sector, including participation by members of the “One Tambon One Product Project”64 which promotes local products of rural villages and connecting them to the world. In preparation for the opening of its transport and delivery service sector in three years, and in light of the government’s policy of improving its logistics and supply chain management industry, a new airport – Suvarnabhumi International Airport – is due for opening in June 2006. The US-ASEAN Business Council views this as positive and look forward in great anticipation to these developments. A few concerns remain:

Postal fines – EDS firms currently face additional levies under Thailand’s Postal Law65 which carves out an absolute monopoly in the handling of postal materials. While there is no prohibition on the handling of documents, any note (including invoices) enclosed in consignments are deemed “letters” and therefore in violation of the law. Such fines end up amounting to three times the cost of a stamp or 37 baht (about $1) per item.66 To mitigate these fines, Thailand should grant a permanent waiver, or consider redefine the monopoly and adopt a weight and price threshold that would separate out the services provided by EDS from the purview of the Postal Act.

63 Air Cargo World, 28 January 2004. 64 http://www.thaitambon.com/English/AboutTTB.htm 65 CAPEC, http://www.capec.org 66 The Minister of Post and Telegraphs has the authority to waive the fines and penalties but this has never been done. The law also authorizes the Minister to arrest anyone who is in violation of the law.

Full electronic clearance – Full electronic clearance is currently not available for imports and exports handled by EDS firms. To take advantage of Thailand’s “One Day Clearance” policy, paperless customs clearance should be extended to both informal and formal customs entries. Foreign equity for surface transportation – Current Thai foreign investment law limits foreign equity ownership to 49 percent.67 To improve efficiency and maintain greater custodial control over its consignments, companies hope that the Government will consider allowing 100 percent foreign ownership for the industry. Such policies encourage further investment in the downstream end of the supply chain and have the effect of generating profound multiplier gains in activities related to IT support, vehicles, drivers, parking, auto-maintenance, and customer service centers. Finally, with the scheduled opening of the new airport, we hope that much consideration will be put into the significance of air cargo to Thailand’s overall trade volumes. Current plans for the express warehouse and customs free-zone to be half a mile away from the airside area have the potential to slow down processing for express shipments and transshipments by half a day and one day respectively. With adequate facilities at the new airport, express flights could triple to more than 100 per week.

67 The U.S.-Thai Treaty of Amity and Economic Relations (AER) however allows US companies to own up to 51% equity in investment projects.

34

Vietnam In 2001, the U.S. and Vietnam concluded a Bilateral Trade Agreement (BTA) covering goods, services, investment, and intellectual property rights. Under the BTA, Vietnam has not made any commitments in the EDS sector. However, in its bid to become a member of the WTO, it is expected to consider increased market access and national treatment for this sector. In preparation for opening up the service sector, the Government of Vietnam designated the Ministry of Post & Telecommunications (MOPT) as the agency in charge of regulating this industry. Currently, all EDS firms in Vietnam are required to work under the auspices of “Agency Agreements” with the Ministry of Post and Telecom (MOPT). Only one joint-venture license has granted in this sector. The US-ASEAN Business Council looks forward to monitoring developments in this sector. In anticipation of Vietnam’s accession to the WTO, we highlight the following issues for consideration: Foreign equity ownership – Current Vietnamese law is unclear on the establishment of joint ventures for this service sector.68 Under Decree 157 guiding the implementation of the Ordinance on Posts and Telecom (18 August 2004), foreign invested joint ventures are permitted if authorized by the Prime Minister. Corresponding laws guiding foreign investment however limits foreign investment operations in this sector to Business Cooperation Contracts (BCCs).69 To sustain the huge demand for its services, and to support the export growth potential of SMEs in Vietnam, such regulations should be clarified but full ownership in this sector should also be considered.

68 Decree 157 of the Government dated 18 August 2004 guiding the implementation of the provisions of the Ordinance on Post & Telecom. 69 Decree 27 -2003-ND-CP of the Government dated 19 March 2003 amending the foreign investment regulations issued with Decree 24-2000-ND-CP of the Government dated 31 July 2000 implementing the Foreign Investment Law (2001), Annex 1, Section IV.

Independent regulator - The EDS industry is currently regulated under the Ministry of Post and Telecommunications, most recently established as separate from national postal service provider Vietnam Post & Telecom (VNPT). This is a positive development for the industry and the US-ASEAN Business Council looks forward to the further separation of the licensing and service provider function including independent accounting measures, and the elimination of cross-subsidization practices. Customs clearance – To assist with overall customs clearance procedures, we strongly urge Vietnam to establish a system separating the accounting process from the release of goods. This is usually done by other countries through a bond debit or bank guarantee system to cover duty payments, and supported by post entry audit measures. Coupled with the introduction of paperless technology and sound risk management strategies, such practices promote trade facilitation while ensuring that enforcement of borders is not compromised. Establishment of a de minimus level - To assist with efficient customs clearance, the US-ASEAN Business Council recommends the establishment of a de minimus level for imports entering Vietnam. This is the point at which it will cost Governments more resources to collect duties than to simply waive them. The establishment of such a provision exempting shipments from duties, taxes, and formal entry requirements will not mean that Vietnam foregoes its rights to police its borders. Such shipments would continue to be subject to inspection, detention, or seizure if suspected to be illegal.

Annex B: ASEAN Express Delivery Services Regulatory Matrix This matrix lists policies and regulations adopted by the various ASEAN Governments that are relevant to express delivery services.

We hope that this will be a useful tool for comparing sector liberalization in the region.

Issue Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

MARKET ACCESS Limitations on foreign ownership and the ability to form joint ventures

100% foreign ownership is permitted in most sectors

100% ownership is permitted.

Under the current law governing foreign investment, the equity limit allowed to foreign investors is 95%.70 A negative list lists sectors for which this law does not apply – courier services are not on this negative list. A draft decree by the Ministry of Transport is however seeking to reduce this to 49%.

100% foreign ownership in this sector is permitted although agency agreements are encouraged. Joint ventures are permitted through special arrange-ments with the Ministry of Post and Telematics.

Foreign investment projects in the courier / logistics sector must be at least 30% owned by a “bumiputra” (local Malay) party.71

Not applicable. US sanctions on new investment with Myanmar

Wholly-foreign owned international freight forwarders are allowed according to recent DOJ Opinion No. 98, but domestic transportation and freight are still subject to a 40% limit.72

No limits on foreign ownership

Only joint ventures of up to 49% ownership are allowed. Partners do not have to be authorized. Under the US-Thai Treaty of Amity, US companies are allowed to have majority ownership in investments.

Unclear. Under Article 21.3(a) of Decree 157,73 the Prime Minister decides the foreign equity based upon recommendations by the Ministry of Post & Telecom and the Ministry of Planning & Investment. Vietnamese law is not consistent on the ability to establish joint ventures.74 The current understanding is service suppliers may only enter into agency agreements with authorized local agencies only

70 Indonesia Investment Coordinating Board (BKPM) Investment Technical Guidelines, 2002. However, the Ministry of Transportation is currently considering a draft decree that will reduce foreign ownership equity limits to 49%. 71 Postal Services Act, 1991, Akta Perkhidmatan Pos (APP) 1991 72 The Philippines Constitution limits foreign ownership in “public utilities” to 40%. 73 Decree 157 of the Government dated 18 August 2004 guiding the implementation of the provisions of the Ordinance on Post & Telecom. . 74 In particular, Decree 157 states that joint ventures with foreign equity are to be decided by the Prime Minister, while Decree 27, Annex 1, Section IV only allows foreign investment in mail delivery services (local and international) in the form of BCCs. Under Decree 157, Article 27 and Circular 06,74 Section III.3.7, foreign express delivery service suppliers may also enter into agency agreements with domestic authorized companies. Decree 157 authorized the MPT to promulgate regulations on foreign express delivery agency. However, no such regulations have been enacted.

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Issue Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

NATIONAL TREATMENT

Discriminatory fees

None None, but dual pricing exists in fixed costs (electricity, water, telecom)

None None, but dual pricing exists in fixed costs (electricity, water, telecom)

None Not applicable

None None Under Thai Postal Law, a fine of 27 baht is levied for each consignment considered to be a letter (invoices are considered letters). With the hike in postage, this is now 37 baht per consignment.

None

Discriminatory taxation

None None, but dual pricing exists

None None, but dual pricing exists

None Not applicable

None None None None specific to the industry. All parties to agency agreements are however subject to VAT and corporate income tax applicable only to foreign contractors.75

Access to facilities (highways, airports)

Yes Yes Yes Yes Yes. Airside access at KLIA and Penang International Airport. Permits for owning trucks must be purchased by a bumiputra party

Not applicable

Restrictions on highway traffic (limited to certain days of the week)

Full access to roads. Air side access at airports

Limited access to highways due to traffic regulations. Limitations on the size of trucks at the airport requires application to local police for annual waivers. No airside access at airports.

Restrictions for trucks on highways in Ho Chi Minh City but express delivery vans are exempt through a sticker system.

75 Circular 05 of the Ministry of Finance dated 11 January 2005 on taxation applicable to foreign organizations which do not have Vietnamese legal person status and foreign individuals carrying out business or earning revenues in Vietnam

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Issue Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

TRADE FACILITATION

Round-the-clock or after hours customs

Yes No, but overtime may be requested at a charge

Yes, for terminal and cargo rough handling

No, but overtime may be requested at a charge

No. KLIA customs is closed during three breaks each day and Penang airport customs is closed from 12:00 - 6:00 AM

No Yes Yes Yes, with overtime charge

No, but overtime may be requested at a charge. According to current law for postal and courier services, expedited clearance is available upon request.76

De minimus level

None None USD$50 None RM500 (approx. USD$131)

None 10 pesos (approx. USD$0.18)

S$400 (approx. USD$241)

USD25 (THB1000)

None

EDI availability for air cargo

No No. All packages inspected.

Yes. All packages inspected.

No Yes No Yes Yes Partial EDI for air cargo

None All packages inspected.

DOMESTIC REGULATION

Industry Regulator

Ministry of Communications

Ministry of Post and Telecommunications

Ministry of Communi-cations

Ministry of Communi-cations, Transportation, Post & Construction

Malaysia Communi-cations and Multimedia Commission

Ministry of Communi-cations, Post & Telegraph

Civil Aeronautics Board

Info-Communications Develop-ment Authority (IDA)

Ministry of Information, Communica-tions, and Technology

Ministry of Post & Telematics77

76 Circular 01 of the Post and Telematics and the Ministry of Finance dated 25 May 2004 on responsibilities, co-ordination in customs inspection in relation to imported, exported mails, postal matters and parcels sent by postal services and courier services, Section II.1 77 Decision 190 of the Prime Minister dated 8 November 2004 on the management of courier services.

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Issue Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

Postal Exclusivity

Yes

Yes

Yes

No (The Law on Post and Telecommu-nications reserves only postal services related to money transfers, national defense, security and stability to Lao State Postal Enterprise.

Yes, but Pos Malaysia has statutory exclusivity for a fixed period of time.

Yes

Not reserved; Phil Post has no statutory exclusivity rights

Yes, but Singapore Post has statutory exclusivity until 2007

Yes

Yes

Cross Subsidization

No information available

No information available

No information available

No information available

The Malaysian Communi-cations & Multimedia Commission Act promotes competition & prohibition of anti-competitive conduct. Pos Malaysia maintains EDS as a separate business unit.

No information available

Undergoing privatization and is currently seeking bids for acquisition of express mail functions.

No. Under the US-Singapore FTA, Singapore has committed to prohibiting cross subsidization for Singapore Post Pte. Ltd.

No information available

Vietnam Post is required by law78 to conduct separate cost accounting in relation to the public utility postal services

78 Decree 157

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Issue Brunei Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

AVIATION LIBERALIZATION (BASED ON US AVIATION AGREEMENTS WITH THE US)

Aviation routes for all-cargo services (7th freedom rights noted where applicable)

Open Skies, 7th freedom rights for scheduled air cargo carriers

None U.S.-Indonesia Open Skies Agreement signed in July 2004, including 7th freedom rights

None Open Skies, 7th freedom rights for scheduled air cargo carriers

None Executive Order 253 (as amended, 2005) provides open skies, including 7th freedom rights for cargo carriers. Others fall under the U.S.-Philippines bilateral aviation agreement. Each carrier designated by the US (up to 3 carriers) may service any point or points in the Philippines via intermediate points with full fifth (with unlimited change of gauge) and sixth freedom rights.

Open Skies, including 7th freedom rights for scheduled all-cargo carriers

U.S. Thailand Cargo Open Skies Agreement signed in 2003, including 7th freedom rights. Building on this agreement, the U.S. is currently negotiating an Open Skies agreement with Thailand.

Fifth freedom rights for cargo, except for between Hong Kong & Vietnam, and between Vietnam and Japan, Taiwan, or France until 15 October 2005.