Transport and trade facilitation issues in



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Executive Summary

This paper covers Trade and Transport Facilitation (TTF) issues in Armenia, Azerbaijan,

Georgia, the Kyrgyz Republic, Moldova, Tajikistan and Uzbekistan (as the CIS 7), as well as

Kazakhstan and Turkmenistan since they are part of the Central Asia region and play a critical

role in facilitation solutions. They all share similar constraints of international trade and

transport, and their foreign trade is characterized by distant export markets dominated by few

commodities. They all need to build the institutional and legal foundations of a market economy,

attract foreign investment, and make better use of their natural resources. The resolution of these

issues is critical for their economic development.

The goal of the paper is to (i) sensitize politicians, bus iness leaders and donors that TTF is key

for economic development and consequently for sustainable poverty reduction; (ii) demonstrate

that TTF is a multi-sectoral challenge with political, economic, administrative, technical and

technological issues, and to (iii) ask for patience, consistency and long term commitment for

TTF reforms on all levels as required by their complexity. The paper will be presented at the CIS

7 Conference to be held in Lucerne, in January 2003.

Worldwide, transport costs in foreign trade are at least three times the rate of customs tariffs. In

the CIS 7 + 2 transport costs are at least three times higher than in the developed countries.

Unofficial payments further exacerbate this situation and deteriorate their international

competitiveness (For example, truckers that transit Caucasus or Central Asian countries typically

have to pay up to USD 1,500-2,000 in unofficial payments or for semi-compulsory guard

services.) Depending on the world market prices of the commodities, total transportation costs

(official and informal) in these countries may amount up to 50 percent of the value of the goods,

, which far exceeds the comparable costs of the main competitors outside the CIS 7+2.

The costs on the different transport corridors show a great variation, e.g. the USD per km costs

from Almaty to Moscow, Baku, Tehran or Urumqi routes can be between 0.76-1.90 for road and

0.27-0.76 for rail transportation. Small and medium sized enterprises (SMEs) with little

international experience suffer the most.

There is a long list of barriers to trade and transport that drive the costs high and make them

unpredictable. The CIS - 7 countries have small and fragmented transport markets (this is not

the case for Kazakhstan or Turkmenistan) that seldom can enjoy scale economies in their

operations. When a country is landlocked the problem is even worse, as it is detached from the

major transport and trade flows. Therefore closer regional cooperation could lead to better

utilization of the scale economies also in transport. The serious regional issues that currently

constrain trade and economic growth in CIS 7+2 countries can only be effectively addressed

through improved cooperation among the countries.

Among the more specific barriers, traders and transport operators consider corruption as the most

serious one. The business community needs better access to reliable information with regard to

international trade and transport. Gradually, they become partners to the authorities in improving

governance and facilitating international economic cooperation. The role of the state is critical in

bargaining for better conditions and more access rights to international markets, but also in

becoming the engine for further reforms and facilitation measures in customs, as well as

transport. The currently under-developed logistics services, as well as the low performance of

v

transport operators and the lack of the conducive environment for the development of multimodal



transport are as much a barrier to international transport as the physical infrastructure

impediments. Customs Administrations in all the CIS 7+2 have launched modernization

programs. Further efforts are needed, however to improve cooperation among all the border

agencies within and among the countries..

Since the value of foreign trade is above 70 percent in most CIS 7+2 countries, trade and

transport facilitation would benefit a large number of economic players. According to the UN,

TTF interventions can produce savings between 2-3% of the total trade va lue. In case of the CIS

7+2, the potential savings due to TTF can be around US$1 billion in a year. The distribution of

the savings would most likely benefit first of all the SME sector as they are the most vulnerable

to the current barriers.

It is recommended that all the CIS 7 + 2 prepare (or revise) their National Trade and




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