China’s most ambitious One Belt, One Road (OBOR) initiative

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Visual Capitalist – Costing between $4-8 trillion and affecting 65 countries, China’s ambitious One Belt, One Road (OBOR) initiative is the granddaddy of all megaprojects.

By the time of it’s estimated completion in 2049, OBOR will stretch from the edge of East Asia all the way to East Africa and Central Europe, and it will impact a lengthy list of countries that account for 62% of the world’s population and 40% of its economic output.

Today’s infographic from Raconteur helps visualize the initiative’s tremendous size, scale, and potential impact on Asian infrastructure.

The tangible concept behind OBOR is to build an extensive network of infrastructure – including railways, roads, pipelines, and utility grids – that help link China to the rest of Asia, as well as Africa and Europe. 

This multi-trillion dollar project will fill the infrastructure gap that currently inhibits economic growth potential on the world’s largest continent, but it has other important objectives as well. By connecting all of these economies together, China is hoping to become the gatekeeper for a new platform international trade cooperation and integration.

But that’s not all: if China’s economic corridor does what it’s supposed to, the countries in it will see more social and cultural links, financial cooperation, and a merger of policy goals and objectives to accomplish. 

Naturally, this will expand the clout and influence of China, and it may even create the eventual scaffolding for the renminbi to flourish as a trade currency, and eventually a reserve currency.

One Road or Roadblock?

When billions of dollars are at play, the stakes become higher. Although some countries agree with the OBOR initiative in principle – how it plays out in reality is a different story.

Most of the funding for massive deep-water ports, lengthy railroads, and power plants will be coming from the purse strings of Chinese companies. Some will be grants, but many are taking the form of loans, and when countries default there can be consequences.

In Pakistan, for example, a deep-water port in Gwadar is being funded by loans from Chinese banks to the tune of $16 billion. The only problem? The interest rate is over 13%, and if Pakistan defaults, China could end up taking all sorts of collateral as compensation – from coal mines to oil pipelines.

Meanwhile, Sri Lanka was unable to pay its $8 billion loan for the Hambantota Port. In the middle of 2017, the country gave up the controlling interest in the port to a state-owned company in China in exchange for writing off the debt. China now has a 99-year lease on the asset – quite useful, since it happens to be right in the middle of one of China’s most important shipping lanes to Africa, the Middle East, and Europe.

Natural Opposition

While most economies in Asia are willing to accept some level of risk to develop OBOR, there is one country that is simply not a fan of the megaproject.

India, a very natural rival to China, has a few major qualms:

  • The China-Pakistan Economic Corridor (CPEC) goes right through Kashmir, a disputed territory
  • Chinese investment in maritime trade routes through the Indian Ocean could displace India’s traditional regional dominance
  • India sees the OBOR megaproject as lacking transparency

Meanwhile, with neighboring states such as Sri Lanka and Pakistan getting billions of dollars of investment from Chinese state-run companies, it likely creates one more issue that Indian Prime Minister Modi is not necessarily happy about, either.

Source: Original article by Jeff Desjardins, Visual Capitalist, published on 15 March 2018

TFA – Africa is on the move! Why not go faster?

WTO LogoThe following article is published with the kind permission of the author, Tapia Naula who is Principal Transport Economist at African Development Bank, based in the Ivory Coast. He is an international project manager and transport economist with experience in logistics business, research and trade facilitation. This article is a must for anyone associated with or working on the TFA on the African sub-continent, and a bit of a wake up call to those countries who have as yet done little or nothing to progress their participation.

In the World TFA Cup Asia is leading Africa 72 – 35. The first scores of the WTO Trade Facilitation Agreement are out as member countries submit their Category A notifications. Initial results of the African first series are somewhat unfulfilling. Some teams are playing defensive even if attacking tactic is the only way to win.

In December 2013, WTO members concluded negotiations on a Trade Facilitation Agreement (TFA) at the Bali Ministerial Conference, as part of a wider “Bali Package”. Among trade facilitation practitioners the Agreement was received with great enthusiasm: finally there was a legal instrument, which is concrete enough to make a difference! TFA will enter into force once two-thirds of members have completed their domestic ratification process. Section I contains substantive provisions in 12 main Articles. The members are required to categorize and notify each provision of the Agreement as either A, B or C Category. The A Category commits a country to implement the provision upon entry into force of the TFA, or one year after for LDC’s. For B-Category there will be a transitional period. C-Category provisions are allowed a transitional period, technical assistance and capacity building.

First, let it be said loud and clear: the WTO TFA is an excellent collection of modern trade and transport facilitation instruments in one folder. In developing countries its implementation would mean reforms that would save time, money and efforts for regular business people and consumers. These reforms may be painful but the countries that can do it, will be the future winners of their regional competition and they will be the ones that will most benefit from joining the global value chains. TFA is the best vehicle for poverty reduction invented so far and that is why it is so important.

In August, 2015, 14 African countries and 25 Asian countries had submitted notifications for category A provisions. Asian countries had “accepted” 72 % of all the provisions as A-Category commitments on average where the respective share of the African countries is only 35 %. On Article-level African countries lag behind on every Article except one (Table 1).

In addition to the low overall share of category A-notifications, the African notifications generally look like “random picks” of sub-paragraphs, compared to many Asian members that have commonly chosen the strategy of basically accepting the whole Agreement and making exceptions for certain few paragraphs according to their particular needs.

Were African governments well-informed of the impact and substance of each paragraph – or are they just being cautious, perhaps trying to delay the final commitment? The patterns between African and Asian countries are in any case different.

Table 1

TFA includes also “low hanging fruit” – sections that require little technical expertise to be implemented. At least some of these should have been easy for member countries to accept. “Publication and Availability of Information” is one of those sections. Access to information through internet is routine and affordable. It should not require transition periods or particular technical assistance. Donors are even competing to assist governments with such low cost and high-return activities. Still, less than one third of the African Governments notified this Article.

Here are some other peculiar findings:

  • Out of 14 African countries only Morocco accepted “Border Agency Cooperation” as A –Category provision. Three of the others countries that did not notify it are landlocked countries;
  • Only four out of 14 African countries had fully notified “Freedom of Transit.” Transit challenges in Africa are probably the single most significant source of inefficiency in trade logistics;
  • One of the foundations of modern customs management is the introduction of Risk Management. Only 3 out of 14 African countries had notified this provision;
  • Only Morocco notified Trade Facilitation Measures for Authorized Economic Operators (AEO), which gives certain privileges to traders and transport operators, who show high level of compliance to regulations. One wonders why Kenya, Uganda, Rwanda, Burundi and Tanzania did not notify it as we know that an AEO program is being piloted in the East African Community;
  • Only Senegal notified the sub-Article on Single Window, which is probably the most important one of the whole Agreement. Senegal perhaps deserves this honor – being the first truly African-based single window country – and also representing the good practice of SW management. Yet, according to the African Alliance for e-Commerce, currently there are at least 16 other single windows either already operational or under development in Africa. Why weren’t these developments recognized?

Despite the above “peculiarities” the African situation is fortunately nowhere near as somber as the A-Category notifications indicate. There are plenty of trade and transport facilitation initiatives under implementation – and Africa is indeed “on the Move.” We should on one hand side make sure that the valuable TFA Agreement is not becoming a separate formal process alongside the practical actions on the ground, but rather a framework for coaching governments in climbing up the stairs toward greater competitiveness. On the other hand, the countries should not ignore the existing achievements. A lot has been achieved in Africa in recent years and this process should go on and gain speed. Some sub-regions, which have been less successful in this field need  benchmarks, encouraging and coaching. This is where African and international organizations can play a role.

Although the direct cost of TFA implementation is relatively low, the indirect cost may be extremely high. The indirect cost concerns existing structures, which generate income for organizations and individuals, who often greatly benefit from the status quo. Some governments have entered into concessions outsourcing critical government functions such as pre-customs clearance operations and processing and submissions of declarations to customs. Western firms have efficiently seized the opportunity and negotiated deals, which guarantee profits for in many cases for decades to come. Single Windows in certain countries are good examples for these. In an unnamed Southern African country for example, humanitarian aid is exempt from taxes and duties in import. If however a UN agency for example imports a container of pharmaceuticals worth five million USD, it will have to pay for a Single Window fee of 42,500 USD! Such Ad Valorem fee arrangements are against the TFA. Such concessions are often built inside structures, which profit from the concessions and in exchange – protects its operations and continuity. This is why they are difficult to tackle. This is an example of the problematics that African policy makers must deal with when taking a position in committing in TFA provisions. It may be a whole lot more complicated than what it looks like.

Association between % Share of Sub-Article Level A-Category Commitments and the Corruption Perception Index Score (CPI). Sources: WTO and transparency International.
Association between % Share of Sub-Article Level A-Category Commitments and the Corruption Perception Index Score (CPI). Sources: WTO and transparency International.

The diagram above shows the association of share of the provisions that have been covered by A-Category notifications and the Corruption Perception Index (CPI) score of the countries. For African countries the correlation is moderate (correlation co-efficient: 0.42) but for Asian countries the association is strong (correlation co-efficient: 0.73). The association of the two variables is understandable: the less corruption a country has (the higher the CPI rank is), the more reforms the government is in liberty to conduct (the higher coverage of TFA as A-category Notifications).

We need to better understand the underlying reasons why policymakers cannot let reforms take off. Traditions, corruption and outdated structures are usually the biggest obstacles. These cannot be overcome by merely providing short-term technical assistance and bench-marking the world best practices but only strong political leadership can make the change. Developing partners should raise this topic on the highest political level and “live together” through the reforms with the counterparts.

The Northern Corridor (Kenya, Uganda, Rwanda) provides an encouraging example how multiple reforms can be carried out in very short time. Only two years ago it took staggering 27 days to transport a container from Mombasa Port and deliver it in Kigali, Rwanda. Today it takes only seven days. The improvement was enabled by series of reforms, which were championed by the Heads of States of the Corridor member countries. The example proves that major improvements can indeed be achieved in very short time. On the other hand, even with the most sophisticated instruments, reforms will not succeed if there the high-level ownership is not there. Author: Tapio Naula

Dumping Ships From East-West to North-South Trade Lanes Nearing ‘Saturation’

Trade Lanes (The Jouranal of Commerce)

Trade Lanes (The Jouranal of Commerce)

Ocean carriers’ tactic of shifting surplus capacity from east-west trades to north-south routes is nearing “saturation point,” according to Drewry Maritime Research.

The “endless” cascading of tonnage from the main haul trades to regional routes is now “seriously haemorrhaging” freight rates in north-south services, and the rate of decline in the second quarter suggests carriers are running out of options to soak up surplus capacity, the London-based consulting firm said.

All-in prices from Asia to Australia, West Africa, South Africa, India and both the east and west coasts of South America based on forwarder buy rates for spot cargo declined significantly during the second quarter. Rates from Asia to India and the west coast of South America rose in July, but Drewry said it “remains to be seen if the increases are sustainable, as there have been many false dawns in other trade lanes.”

The average all-in spot rate from Shanghai to Santos, Brazil, in July was down 51 percent from January, and was 19 percent and 32 percent lower on services to Durban, South Africa, and Melbourne, Australia, respectively.

“This adversarial situation helps to explain why ocean carriers appear to have returned to war with each other over market shares between Asia and Europe since August,” Drewry noted.

The “apparent” benefit of cascading is that average vessel utilization from Asia to the west coast of North America and Europe has usually remained above 85 percent since the second quarter, thus helping to support freight rates.

“It’s been a yo-yo ride nevertheless, but freight rates are still a lot higher than they were at the beginning of the year,” Drewry explained.

Fourteen new vessels averaging 12,713 20-foot-equivalent units were delivered into existing Asia-to-North Europe schedules in the second quarter, but the overall average capacity of all ships on the route increased by just 1.7 percent from the beginning of the year to 10,456 TEUs, as carriers cascaded surplus vessels to other routes.

Drewry said further restructuring on north-south routes via alliances and consortia appears inevitable, particularly as world fleet growth of just over 7 percent in 2014 is again expected to significantly exceed cargo growth. Source: The Journal of Commerce

Czech Customs Seize Rhino Horns

Rhino horns seized from smugglers by the Czech Customs Authority

Rhino horns seized from smugglers by the Czech Customs Authority

Czech customs agents seized 24 rhinoceros horns Tuesday and charged 16 people with bringing the prized material illegally from South Africa to sell it in Asia.

“Our investigation showed that the transport is organized by an international ring of smugglers who have used fake export permissions seemingly complying with (the Convention on International Trade in Endangered Species of Wild Fauna and Flora) to import the rhinoceros horns from the Republic of South Africa to the European Union,” said Jiri Bartak, spokesman for the Czech customs department.

The arrests follow an investigation by Czech and EU customs authorities begun in 2011. The gang was alleged to have planned re-exporting the horns as trophies, according to their fake documentation. Rhino horns are popular in parts of Asia where many believe they can cure various illnesses or work as an aphrodisiac.

South Africa is home to the world’s largest rhino population, estimated at about 20 000, though the large upsurge in poaching is threatening their existence. Rhino poaching is expected to reach record levels this year, according to South African officials.

Czech authorities estimate the value of the seized rhino horns at up to 100 million koruna ($5 million), Mr. Bartak said. The authorities said the ring employed people impersonating hunters to gain permission to ship horns acquired from African poachers to Europe and elsewhere. Czech customs didn’t release details of where the charged individuals came from or give their names. If convicted they face up to eight years in prison. Source: leos.rousek@wsj.com

As Maersk Line’s Triple E, The World’s Largest Cargo Ship, Preps For Maiden Voyage, Many Ports Can’t Handle It

5_triple-eThe world’s largest cargo ship is leaving its shipyard this week to prepare for its July 15 maiden voyage, but much of its cargo space will be under-utilized as many ports don’t have the ability unload the 20-story-high container stacks the vessel can lug between Asia and Europe.

The ship, a $185-million, 1,300-foot long behemoth with a capacity of 18,000 containers, is a gamble for the vessel’s owner, Danish group A.P. Møller-Maersk A/S. Freight, which has been so battered by the recent global economic downturn that at one point it had hundreds of cargo ships sitting idle in Singapore. The ship is so big, it’s essentially leap-frogged over many ports’ ability to off-load it when it’s at full capacity.

“We will operate it as a smaller ship for the first few months while ports upgrade their cranes,” Lars Jensen, head of Maersk Line’s Asia-Europe operations, told Dow Jones Newswires.

The problem is that ports lack gantries — those giant square-shaped cranes that slide over loaded cargo ships and pick up or drop off loaded containers — that can accommodate a fully loaded Triple E. So before Maersk can utilize the ship’s full capacity at major ports, many of those ports have to invest in upgrading, a process that could take years.

Dow Jones says 16 ports on the ship’s route are certified to handle it, but “several” lack the adequate crane ability to handle it when it’s fully loaded. So for now, the ship will have to haul less, which eats into the company’s potential profit. It will embark on its first journey on July 15 from Busan, South Korea, to Europe, after a stop at Singapore. Source: Seanews.com and International Business Times

 

“Blood Ivory” – Huge seizure of Illegal Ivory in Hong Kong

An emperor, faced with the task of selecting a successor, devises a test: he lays out an array of valuable artifacts — items of gold, jade and ivory — and asks each of his sons to choose one treasure. One prince ponders his options for a while, before selecting an ivory scepter. The emperor is pleased. Ivory is valuable, he says, and also imbued with wisdom. The son with the scepter will rule. This, of course, is merely a fable. But the tale of the emperor and his son hints at ivory’s enduring lure in China. For millennia, it has been seen as a symbol of wealth, a source of wisdom and a sign of nobility. This helps explain why more than 20 years after an international ban on the trade of elephant ivory, the business is booming. “With more disposable income in mainland China, many people are flaunting their wealth, and ivory is seen as a luxury product that confers status,” says Tom Milliken of the Wildlife Trade Monitoring Network. “We are seeing the worst poaching of elephants and the worst illegal trade in ivory over the last 23 years.”

Authorities in Hong Kong have intercepted one of the largest shipments of illegal ivory in history – 1,209 elephant tusks and ivory ornaments weighing more than 8,400 pounds. The Hong Kong Customs and Excise Department announced the seizure on Saturday of 3,813 kilograms of ivory hidden inside two containers shipped from Tanzania and Kenya. One container was labeled as carrying plastic scrap, the other was marked as dried beans.

It was the largest-ever seizure of contraband ivory in Hong Kong. Even within the context of soaring wildlife poaching, the numbers are staggering: the equivalent of more than 600 dead elephants. So lucrative is the ivory trade now that well-armed mafias have gotten in on the act. Hong Kong officials estimated the value of the seizure at 26.7 million Hong Kong dollars, or just under $3.5 million.

The customs agency, which said in a statement that it had “smashed” the ivory smuggling case, reported no arrests. But the South China Morning Post reported that seven people in China were arrested in connection with the seizure. Demand from an increasingly affluent Asia, improved international transport and trade links, and weak enforcement and feeble penalties (in many countries) have caused wildlife poaching to jump over the past decade or two.

More than 300 elephants were killed in Cameroon alone early this year. A video from the World Wildlife Fund shows some of that grim slaughter. In this article, published in September, Jeffrey Gettleman reported that ivory — like blood diamonds from Sierra Leone or plundered minerals from Congo — is now a “conflict resource,” used to help finance conflicts across the African continent.

“Some of Africa’s most notorious armed groups, including the Lord’s Resistance Army, the Shabab and Darfur’s janjaweed,” he wrote, “are hunting down elephants and using the tusks to buy weapons and sustain their mayhem.” Members of some of the African armies backed by the U.S. government, Jeffrey reported, also have been implicated in poaching elephants and dealing in ivory. Source: New York Times

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WCO News – 60 year Anniversary Edition

The Organization is celebrating its 60th anniversary, an occasion which gives the global Customs community the chance to reflect on where the WCO began, where it is now, and where it hopes to go in the future. This issue highlights some of the WCO’s milestones past and present, we take a brief look at the WCO’s historical beginnings and subsequent development, follow one man’s forty year Customs journey, look at the history of containerization: the box that changed the world, and even step back to 1969 when the Apollo 11 touched down on the surface of the moon. In this dossier, not only does the WCO look back with pride, but also looks forward with optimism, conscious of the fact that the WCO has served the global Customs community with dedication for sixty years, and will continue doing so to ensure that Customs administrations remain well-positioned to deliver effective and efficient services around the world. Also in this issue –

  • Doorless containers now a reality,
  • US/EU mutual recognition programme,
  • New guidelines included in WCO Revenue Package,
  • Globally Networked Customs,
  • GS1 and the WCO,
  • Algeria Customs and performance management,
  • Georgia’s success in rooting out corruption,
  • Hong Kong moves forward with its e-Lock plans.

Source: http://www.wcoomd.org