Trans Asian Railway Economic Development in the BIMSTEC

Trans Asian Railway & Economic Development in the BIMSTEC Region 1 NAIR Workshop 24 September, 2014 Vadodara, India

About United Nations Economic and Social Commission (UNESCAP) Subregional Office for South and South-West Asia 2 • UNESCAP is the regional development arm of the United Nations for the Asia-Pacific region (53 Member States and 9 Associate Members) • Established as Economic Commission for Asia and the Far East (ECAFE) in 1947 • Renamed as ESCAP 1974 to reflect both the economic and social aspects of development and the geographic location of its member countries Work programme of UNESCAP-SSWA Analytical work, policy advocacy, technical assistance and capacity building on: §Promoting inclusive growth and accelerating MDGs achievement, women’s empowerment §Strengthening transport connectivity and regional economic integration §Regional cooperation for food and energy security § Regional cooperation for disaster risk reduction in SSWA § Assisting LDCs and LLDCs in building productive capacities in support of Istanbul Programme of Action and Almaty Programme of Action

Contents 3 • Trade and Connectivity Issues in BIMSTEC Region Overview of Developmental Challenges High Trade Costs (Observations from South Asia) Key Connectivity Challenges Overlapping Regulatory Frameworks • Trans-Asian Railway Network and BIMSTEC Overview of TAR Map of Subregional TAR Network (Multimodal Options) Overlapping Definitions of Regional Transport Corridors • Conceptualizing Economic Utility of Trans-Asian Railway Key Objectives Factors for Selection of Corridors • Transport Corridors Proposed by UNESCAP-SSWA (ITI–DKD-M) Rail Corridor Integrated Approach to Trade Facilitation • Exercises

Trade and Connectivity Issues in BIMSTEC Region Economic Profile of BIMSTEC Countries 4 Country GDP (US$ bn) Trade (US$ bn) Trade/GDP Ratio (%) Intra-regional Trade (% of total trade) Bangladesh 141 63. 2 44. 74 5. 7 Bhutan 2 0. 4 21. 09 88. 5 India 1, 871 741. 2 39. 62 6. 1 Myanmar 59 28. 9 48. 55 17. 7 Nepal 19 6. 6 34. 16 54. 0 Sri Lanka 66 26. 2 39. 76 6. 0 Thiland 387 465. 1 120. 14 4. 7

Trade and Connectivity Issues in BIMSTEC Region Trade Potential of BIMSTEC Countries 5 207 Actual Trade Potential Trade Projected Trade (Cyclic Transport Cost Effects) 143 81 38 2010 2017

Trade and Connectivity Issues in BIMSTEC Region Overview of Developmental Challenges 6 • BIMSTEC region has high concentration of poverty - Accounts for 40. 3 percent of world’s poor (Headcount 502 million under $1. 25 per day at about) • Headcount of population under extreme poverty in BIMSTEC region has remained static at over 500 million for the past three decades • Deprivation leading to vicious cycle of poverty is still a major obstacle to development in the region • Intra-regional Trade in BIMSTEC is only 2. 8 per cent of total trade of the region • UNESCAP-SSWA estimates show that 57% of intraregional trade potential remains unexploited in the South Asia subregion, indicating lost opportunities for trade-led growth and development • Poor land routes and transport facilitation are major barriers to realization of intraregional trade potential

Trade and Connectivity Issues in BIMSTEC Region High Trade Costs (Observations from South Asia) 7 Average Bilateral Non-Tariff Trade Costs (2012) (in%) Country Ideal costs within the region Ideal costs with Rest of the World Bangladesh 82 82 India 74 63 Nepal 74 74 Pakistan 100 82 Sri Lanka 97 78 SA Average 85 76 Average Global Benchmark 38 Source: (The World Bank and UNESCAP Trade Cost Database, 2013)

Trade and Connectivity Issues in BIMSTEC Region Potential Savings from Reforms (Observations from South Asia) (Figures for 2012 in US$ billion) 8 40 0. 65 35 1. 45 30 0. 59 4. 63 1. 14 (in %) 25 0. 78 20 0. 31 15 0. 50 10 5 1. 22 0. 10 0. 002 - Bangladesh India Nepal Potential Savings_Country-Specific Ideal costs Pakistan Sri Lanka Overall South Asia Potential Savings_Average Global Benchmark

Trade and Connectivity Issues in BIMSTEC Region Key Connectivity Challenges 9 • Transport infrastructure gap is huge for BIMSTEC region and comparatively higher than world average - Recent estimates show that investments up to US$ 2. 5 trillion may be required to cover the overall infrastructure gap in South Asia alone, requiring increase in spending up to about 9 percentage points of GDP annually until 2020 • Lack of region-wide transit and transport Agreements has stifled seamless connectivity • Improvements in trade infrastructure not complemented with favorable trade rules and regulations - Border procedures in BIIMSTEC region falls behind that of advanced integrated regions such as the EU and therefore needs substantial improvements • Investment in trunk trade routes note supplemented with feeder networks limiting utility and network externalities • Investments speadover an array of disconnected transport segments and linking them will help to increase usage rate across all segments of the corridor

Trade and Connectivity Issues in BIMSTEC Region Overlapping Regulatory Frameworks 10 • Multiple overlapping frameworks for regional economic integration – ECO, SAARC, BIMSTEC: connectivity on the agenda – Bilateral and trilateral initiatives: Bangladesh, India and Nepal; Turkey, Iran and Pakistan, India-Nepal, India. Bhutan, Pakistan-Afghanistan, among others • Integration of transport corridors across the region with feeder routes is the primary policy challenge – Trade Policy Harmonization – Transit Rights

Trade and Connectivity Issues in BIMSTEC Region Overlapping Regulatory Frameworks 11

Trans-Asian Railway Network and BIMSTEC Overview of TAR 12 • Conceptualized by UNESCAP and was initiated in the 1960 s, with the objective of providing a continuous 8, 750 miles (14, 080 km) rail link between Singapore and Turkey, with possible further connections to Europe • The Intergovernmental Agreement on the Trans-Asian Railway Network was opened for signature in 2006 and entered into force on 11 June 2009. UNESCAP acts as Secretariat for the Agreement • Integration of four corridors studied under the Asian Land Transport Infrastructure Development (ALTID) project by UNESCAP • Often called the “Iron Silk Route”, the TAR network now comprises 117, 500 km of railway lines serving 28 member countries • Complemented by the Intergovernmental Agreement on the Asian Highway Network (entered into force on 4 July 2005) and The Intergovernmental Agreement on Dry Ports (opened for signature from 8 November 2013)

Trans-Asian Railway Network and BIMSTEC Map of Subregional TAR Network 13

Trans-Asian Railway Network and BIMSTEC Map of Subregional TAR Network (Multimodal Options) 14

Trans-Asian Railway Network and BIMSTEC Overlapping Definitions of Regional Transport Corridors SAARC Rail Corridors 15 SAARC Rail Corridors SAARC Regional Multimodal Transport Study (2006) Corridor 1: Lahore (Pakistan) – Dhaka (Bangladesh) [via Delhi, Kolkata] Corridor 2: Birgunj (Nepal) –Kolkata (India) Corridor 3: Jodhpur (India) – Karachi (Pakistan) [via Khokhrapar-Munabao] Corridor 4: Birgunj (Nepal)– Chittagong (Bangladesh) [via Dhaka] Corridor 5: Chennai (India) – Colombo (Sri Lanka) [via Rameshwaram -Talaimannar ferry-link]

Conceptualizing Economic Utility of Trans-Asian Railway Network Key Objectives 16 • Cost Minimization • Network Externalities • Possibilities for Production Networks • Extended Corridors and Inter-regional Connectivity

Conceptualizing Economic Utility of Trans-Asian Railway Network Factors for Selection of Corridors 17 • Optimal use of existing infrastructure – Financial resource requirements can be minimized if the corridors are selected in such a way that they can build on existing infrastructure • Environment friendliness – Possibilities for bulking of cargo, options for electrification of rail lines and usage of renewable energy etc. are some of the desirable environmental friendly characteristics of efficient economic corridors • Impact on competitiveness – Given the prevailing high costs of intra-regional trade, potential contributions of selected corridors in terms of reducing trade costs and thereby enhancing competitiveness of traded sectors/products is crucial • Multi-modal transport linkages – The overall efficiency of the corridor also depends on connectivity across different modes of transport, which would allow the users to take advantage of multimodal transport options.

Conceptualizing Economic Utility of Trans-Asian Railway Network Factors for Selection of Corridors (Cntd. ) 18 • Extended inclusive corridors – The main corridors must have well-established links with local transport networks • Connectivity to populous regions and places with high concentration of poverty –Geographical spread of poverty is uneven across the region and one of the main criteria should be that maximum number of poor localities gets access to the selected corridors • Connectivity to LLDCs – Landlocked countries of the region have special development needs and connectivity with rest of the worldis extremely important to address them • Connectivity to major markets beyond the subregion – It is important that intraregional connectivity also leads to better integration of the subregional economies with external markets

Transport Corridors Proposed by UNESCAP-SSWA Istanbul-Tehran-Islamabad-Delhi-Kolkata-Dhaka-Myanmar (ITI–DKD-M) Rail Corridor 19

Transport Corridors Proposed by UNESCAP-SSWA (ITI–DKD-M) Rail Corridor 20 Corridor Important Sub-Links South Asia ITI-DKD-M (Rail) Countries Connected: Bangladesh, India, Iran, Myanmar, Pakistan, Turkey Central Asia Birgunj (Nepal) – Kolkata Dhaka – Jibram (North. East India) Links to AH network: (Kathmandu, Thimpu) – Kolkata (Kathmandu, Thimpu) – Dhaka (onwards to Mongla and Chittagong ports) (Kathmandu, Thimpu) – Delhi Countries connected: * Afganistan, Bhutan, Nepal Connectivity Gaps Ashgabat – Mari – Mashhad - Tehran (Almaty, Bishkek, Tashkent) – Mari. Mashhad –Tehran (Almaty, Bishkek, Tashkent) - Mari. Mashhad – Bafq – New Delhi Gauge breaks Lack of transit beyond Istanbul-Islamabad sector (transit allowed for Central Asian countries) Poor Trade facilitation at border crossings Countries connected: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan * Afghanistan and Bhutan has multimodal connectivity to ITI-DKD-M rail corridor through AH segments. Sri Lanka has access to both ITI-DKD-M and TIPI-BM corridors through Southern Indian Ports, Tuticorin being the closest.

Transport Corridors Proposed by UNESCAP-SSWA (ITI–DKD-M) Rail Corridor - Missing Links in BIMSTEC Region 21 Countries Sector Distance (Km) Estimated Costs (US$ Mn) Bangladesh Dohazari - Gundum 129 300 India Jiribam - Moreh 219 649 Myanmar Tamu-Kalay 127 98 Myanmar Thailand Thanphyuzayat (Myanmar) – Namtok (Thailand) 263 750 738 1797 Total Source: Various ESCAP Estimates

Transport Corridors Proposed by UNESCAP-SSWA Integrated Approach to Trade Facilitation 22 BPA+: Coverage of BPA, TCD and TRS Country 1 (Exporter) Traderelated procedures before cargo movement Cargo origin Country 2 (Importer) Border crossing point TRS TCD BPA Cargo destination Traderelated procedures after cargo arrival Business Process Analysis “Plus” (BPA+), supplemented by ESCAP Time-Cost. Distance (TCD) and WCO Time Release Studies (TRS).

Transport Corridors Proposed by UNESCAP-SSWA Integrated Approach to Trade Facilitation (Cntd. ) 23 ADB/ESCAP SASEC BPA Template Rules Regulatory Authorities in Country of Origin procedures before cargo movement Documentation Payments in Country of Origin Rules Regulatory Authorities in Destination Country Transport Infrastructure In Country of Origin • Contacting the Importer • Fixing the Contract • Sending the contract and proforma invoice • Receiving acceptance letter and acknowledge L/C copy • Obtaining cargo insurance • Preparing documents for export • Load in truck and deliver to port • Deposit chalan fee, VAT and customs declaration • Customs inspection and clearance by C& F agent • Out Pass handing over by C&F Agent to importer’s representative and unloading of the commodity to importer’s carrier • Receive payment Transport Infrastructure in Destination Country • • • Documentation Payments in Destination Country Destination procedures after cargo arrival Contacting the exporter Negotiating the contract and fixing Opening the L/C account Sending the copy of L/C and acceptance letter Documents prepared for customs declaration (to be used by C&F agent) Payment to C&F agent Customs inspection and clearance Collect out pass from port Transport to destination Reform areas requiring harmonization/coordination

Transport Corridors Proposed by UNESCAP-SSWA Integrated Approach to Trade Facilitation (Cntd. ) Issues with Electronification 24 • • • BPA is the first technical step in preparing for paperless trade and SW. International model, universal methodology (UML) It provides – Inventory of processes, documents, data, parties, rules & regulations etc. – Description of the processes – Specifications for harmonizing data and development of electronic documents – Specifications to develop software for the automation of procedures – Business Models for operation of SW – A basis for maintenance and improvement

Transport Corridors Proposed by UNESCAP-SSWA Integrated Approach to Trade Facilitation (Cntd. ) Issues with Levels of Access 25 Individual contracts Manufacturer/Trader Manufacturer/ Trader (Freight Forwarders, transporters) Trade Service Provider Contracts with Freight Forwarders, Documentation Agents, Transporters Holistic Logistic Service Providers

Transport Corridors Proposed by UNESCAP-SSWA About New UNESCAP Project 26 Objective: To strengthen connectivity of countries in South and Central Asia, particularly Landlocked and Least Developed Countries (LLDCs), to link with, subregional and regional transport and trade networks Period: July 2014 – December 2017 Implemented by: ESCAP (in Cooperation with ECE) Beneficiary Regions/Countries: South and South-West Asia (Afghanistan, Bangladesh, Bhutan, India, Islamic Republic of Iran, Nepal, Pakistan, Turkey) & Central Asia (Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan and Tajikistan).

Exercises Regulatory Issues for Rail Transport Corridors in BIMSTEC Region 27 1. Listing of possible trade facilitation issues and solutions for cross-border transport of cargo through rail 2. Listing of major multimodal transport options available to BIMSTEC region and necessities for intermodal transport facilitation