Express Delivery Services: Integrating ASEAN to Global Markets
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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.orgEXPRESS 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
1I. 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.
2II. 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
1
Nikolai 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
3competing 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.
4Marc 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.
5III. 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 - High level of reliability: EDS firms
modes of transport. The “integrated” promise that packages will arrive at the
aspect of the service offered frees the required destination, on time. This is
customer from the need to make particularly important for shipments of
complex transportation arrangements high-tech components due for
for pick-up and delivery. production lines, as well as essential
financial documents.
- Close custodial control: Using
sophisticated information systems that - Global service: The major EDS firms
enhance security, EDS firms maintain offer their customers delivery to markets
close custodial and administrative and cities worldwide through an intricate
control over all shipments. This is network of air hubs and stations. EDS
particularly important to reduce the risk is a network business.
of loss or damage to goods in transit.
- Speed of delivery: Most importantly,
- Track and trace technology: Shippers Overnight and Second-day express
and consignees may track the precise services reduce overall inventory and
movement and location of their warehousing needs, and maximize
shipments and confirm delivery with the supply chain efficiency. The average
use of sophisticated ‘track and trace’ shipping time from the U.S. to Southeast
technology that an EDS firm provides. Asia is about 2-3 working days door-to-
door.
- Facilitation of customs clearance:
EDS firms assist with customs Together, these characteristics bring
clearance so that customers do not businesses timely, secure, and guaranteed
have to navigate bureaucratic customs worldwide delivery of documents, products,
regimes and the required paperwork. components, and spare parts to assist with
efficient supply chain management.
10
The Integrated Express Industry in China, U.S.-
China Business Council, 2003.
6B. 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
7quickly 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)
8billion 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 Low Range Gain High Range Gain
China
Singapore, Taiwan, 0.2 0.386 0.562
Hong Kong, Australia,
New Zealand
Japan and Korea 0.5 0.965 1.405
China and Sri Lanka 1 1.93 2.81
Malaysia, Thailand 1.5 2.895 4.215
Philippines, India
Vietnam, Indonesia, 2 3.86 5.62
Pakistan
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.
9Integrating 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.
10SMEs 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.
11Facilitating 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.
12FedEx 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 FedEx Sorting Center
and has 295 intra-Asian flights per week. 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 The newly expanded UPS hub in
million and expanded its intra-Asia hub by Pampanga Clark will serve as the central
tripling its sorting capacity from 2,500 to sorting point within four hours of all major
7,500 packages per hour. The 5,900 square Asian cities.
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
30
Clark Development Corporation, http://www.clark.com.ph
13IV. 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
14strategies (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 Yes
cleared in 13 minutes)
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
15Among 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.
16their 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.
17Access 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
18Access 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
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
Open skies policies allow FedEx to manage its regime.
“hub and spoke” operations out of Subic Bay in the
Philippines.
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
19can 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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