Level III

Chapter 7
Reading

IC3

IC3 | TIF | IT | TOEFL | Best Answer
Language Lessons
Assessment

Appendix: Geographical Freight and Transport Glossary

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Topic: Regional and Global Trade /
Thương mại khu vực và toàn cầu

Guiding Question: How does Vietnam relate to ASEAN, and the United States to NAFTA? Do ASEAN and NAFTA position their members well in the world?

Câu hỏi hướng dẫn: Mối liên hệ giữa Việt nam với ASEAN, giữa Hoa Kỳ và NAFTA? Nằm trong ASEAN và NAFTA các quốc gia thành viên có vị thế tốt trên trường quốc tế không?

Skills:

In this chapter you will do these things:

English Language Skills:

• Vocabulary: the Geography and Transport of Produce (Finding Meaning In Context)
• An Overview for Preparing a Research Paper

-Research—Who Does It?
-Research Entails . . .
-Learning by Modeling (Reading) Behavior
-Web Searching Tools
-Distinguishing Scholarly from Non-Scholarly Periodicals: A Checklist of Criteria

• Practicing Research Methods from Periodicals and the Internet
• Practice Reading to Gather Information for Research  

Vietnamese Language Skills:

• Reading
• Vocabulary
• Questions

IC3 Skills: Marketing the Mekong:
The Asian Development Bank and the Greater Mekong Sub-Region Economic Cooperation Program

IT: Evaluating Web Documents—A Checklist

Taking It Further: Pacific Economic Cooperation Council:
The Role of Transportation Infrastructure in a Seamless System

Appendix: Geographical Freight and Transport Glossary

Intercultural Communicative Competence

 

 

In the English Section of this chapter, students have been researching what it takes to economically integrate the Greater Mekong Subregion paying particular attention to the development of transportation infrastructure that would enable farmers in the region to more rapidly send their produce to international markets. There have been several organizations involved in this endeavor: Pacific Economic Cooperation Council (PECC), Asia Development Bank (ADB), Association of Southeast Asian Nations (ASEAN), and Asia-Pacific Economic Cooperation (APEC).* This endeavor involves getting governments to cooperate and coordinate construction of a network of roadways, accommodating smoother border crossings and giving greater access to ports for shipping, import and export. This endeavor is summarized in the Forward of a paper published by PECC (see full document in the Taking It Further Section of this chapter):

Pacific Food System Outlook 2004-2005 The Role of Transportation Infrastructure in a Seamless System Forward: T ransportation infrastructure plays a pivotal role in the food system of the PECC region. Food production is the most geographically dispersed industry in the region, while food demand is becoming increasingly concentrated in urban areas. The region’s urban areas will grow by 590 million people in the next 20 years, twice the growth rate of the total population. Three-quarters of the growth will be in the less developed economies of the region. Many agricultural areas in the developing parts of the region are isolated and “taxed” by inadequate transportation access to markets, resulting in large post-harvest losses, depressed farm prices and high consumer prices. To maintain or reduce urban food costs, policymakers must either invest in streamlining domestic supply chains—including transportation infrastructure to connect urban centers with food-producing areas—or facilitate food imports through market opening measures, or some combination of the two strategies. As the examples in this report demonstrate, major efforts are underway to expand and enhance transportation infrastructure in the region. The Pacific Food System Outlook project participants also addressed factors affecting the food system in the near term. The 2004-05 economic outlook in the region promises the fastest growth since 2000. Economic growth rates across PECC are brisk: China is expected to grow 9.1 percent in 2004, Vietnam 8 percent, Japan 4.4 percent, and the United States 4.3 percent. Other key factors in the food system outlook are declining commodity prices as crop production has increased this year, and high oil prices, which will raise input and marketing costs, thus narrowing profit margins and curbing sales. More details are provided on the PECC web site: http://www.pecc.org/food/. http://www.pecc.org/food/papers/pfso-summary-2005.pdf

*For more explanation about who Pacific Economic Cooperation Council (PECC), Asia Development Bank (ADB), Association of Southeast Asian Nations (ASEAN), and Asia-Pacific Economic Cooperation (APEC) see the boxes at the end of this section.

THIS IS A GOOD IDEA, RIGHT? There are some organizations and voices that oppose this idea. To get a full understanding of the Greater Mekong Sub-Region Economic Cooperation Program look through the entire document found in the Taking It Further Section below.

Then before you read the two opposing views that follow, discuss with your class or in a small group:

1. Who are the cooperating parties? Businesses? Banks? Governments? NGOs? IGOs? the people?
2. Who would benefit from such a plan?
3. What is the motivation behind such plans?
4. Are there models of such plans working in other parts of the world? For students from North America, how is this plan similar or different than the North American Free Trade Agreement (NAFTA)?
5. Is there harm in such a plan? If yes, who could be harmed?
6. Is there a greater good for which some harm could be tolerated?
7. Who ultimately decides on such a plan?
8. Who should decide on such a plan?
9. Continue the discussion after the two articles have been read.

Marketing the Mekong: The Asian Development Bank and the Greater Mekong Sub-region Economic Cooperation Program

Shalmali Guttal
Posted on December 12 2003
http://www.jubileesouth.org/news/EpZyVyEAZFESZsvoiN.shtml

The Greater Mekong Subregion: A Regional Fantasy

The Greater Mekong Subregion Economic Cooperation (GMS) Program was initiated in 1992 by the Asian Development Bank (ADB) to transform the rich human and natural endowments of the Mekong region into a new frontier of Asian economic growth. The GMS groups together parts, or the entirety of the People’s Republic of China (PRC), Burma, the Lao People’s Democratic Republic (PDR), Thailand, Cambodia and Vietnam in the ADB’s most ambitious master plan to promote regional economic cooperation, and mobilize public and private resources towards region-wide private investment.

The ADB’s vision for the Mekong region is contained in its first brochure on the GMS, entitled A Wealth of Opportunity: Development Challenges in the Mekong Region. Its very first chapter sets the scene for the Bank’s vision:

The economic potential of the river and that of the land and peoples its passage defines is huge, although until now it has been largely undeveloped…. Water from the Mekong River supports agriculture, and its fish yields are a source of both protein and income. It can also be used to generate electricity and as transport corridors. Forests in the Mekong region protect hydropower projects and agriculture from silt and erosion, contribute to tourism potential, and provide subsistence to rural communities…

The GMS is the ADB’s regional economic fantasy. It is not a trading or economic bloc, but purportedly supports economic growth and development in the Mekong region by:

• Facilitating free trade and investment among the six participating countries;
• Facilitating sub-regional infrastructure development, particularly in energy, transportation, tourism, telecommunications, and product development;
• Resolving or mitigating cross border problems, particularly those that serve as barriers to trade and investment liberalization;
• Meeting common resource or policy needs, whereby the region is treated as a whole to create economies of scale for training, data gathering, feasibility studies, etc.

The Mekong region, according to the ADB, has the natural resources, a growing and trainable labor force, abundance of land and the strategic location to become a fast growth area. What it lacks is capital, technology and common political will to effect the transformation from subsistence to supermarket.

Here is how the mechanics of the GMS model work: First, the ADB takes the lead in surveying, identifying and assessing the best opportunities for trade and investment in the Mekong region. Next, it brings together governments, donors and private investors to prioritize the identified opportunities for project-program formulation. Then, it commissions further feasibility studies and project preparation reports (usually with the involvement of private companies who are either interested in undertaking actual implementation themselves, or linked with implementing counterparts). The next step is to raise finances for the projects-programs and develop agreements between host governments, investors, financiers and implementers. Finally, there is the actual implementation of the projects, which also require the ADB’s involvement in supervision, monitoring, disbursement of funds, resolution of disputes, among others.

Parallel to this are numerous meetings between the region’s governments and donors to develop and put in place appropriate policies, institutions and regulations at regional, national and local levels in order to facilitate smooth functioning of projects under the GMS umbrella.

The ADB draws its mandate for promoting regional and sub-regional cooperation from its Charter. Its Board policy paper instructs that as a regional development institution, “regional cooperation should be viewed as being inherent in Bank operations”. However, regional cooperation is hampered unless participating countries are willing to “harmonize” their particular domestic development policies in line with regional initiatives. Therefore, the ADB considers it crucial that the internal reform processes of the GMS countries reflect regional imperatives for economic growth and development.

In the ADB’s words, countries in the Mekong region are undergoing a “double transition,” from subsistence agriculture to more diversified economies, and from centrally planned to market-based economies. The prospects of economic success for countries in the region—particularly Burma, the Lao PDR, Cambodia, Vietnam and PRC--hinge on domestic policy, regulatory, administrative and institutional reforms (especially in the sectors of trade and finance), and good governance, all of which are crucial for markets to function:

“For these transition economies, competitiveness entails creating and maintaining a business climate conducive to private sector enterprise.”

In addition, the ADB says these countries must build the connections and infrastructure to trade effectively with international markets. In today’s world of globalization, inter-dependence and trade liberalization, countries and firms must respond rapidly in order to maintain their competitiveness and market position, or they risk falling behind.

Regional cooperation is thus a stepping-stone to full-blown economic globalization. The GMS Programme promotes the creation of special sub-regional economic zones across contiguous parts of countries where participating governments agree to put in place policies that are more liberal than national policies in order to attract capital, and to use natural resources for regional imperatives rather than national self-sufficiency. Accordingly, the ADB notes with approval that economic integration in the region is marked by growing cross-border trade, investment and labor mobility, and that increasingly, natural resources such as agriculture land, hydropower and petroleum resources are being developed on a subregional basis

As with all its programmes, the GMS programme is now linked with the ADB’s recently launched strategic goal of poverty reduction (October 1999). As before, privatization plays a central role in realizing the ADB’s vision of sustainable economic growth, improved living standards and poverty reduction:

“The primary strategy for realizing these goals is to let the market forces of demand and supply function more freely, and to reduce government intervention and state ownership in the allocation and use of human, natural and capital resources. Market liberalization has led to industrialization and modernization, and greatly expanded trade and investment. To be competitive, the six Mekong countries must develop their natural resources and employ their human resources efficiently.”

The GMS also apparently has a peace dividend because regional economic cooperation contributes to stability and better relationships:

“These are important factors in creating a positive climate for investment and business enterprise, and thereby for promoting faster growth.”

The ADB claims that its own role in the GMS has been catalytic, to provide technical expertise and facilitate development initiatives, while participating governments take the lead in setting the development agenda. However, its strategy for regional cooperation disproportionately emphasizes the role of the private sector in national development:

“…the private sector must fuel the process by providing capital, technology, training and markets. ADB thus deliberately supports private sector development as a matter of policy…As such, ADB acts as an ‘honest broker’ for mitigating perceived risks for private investments in the region.”

The ADB’s love for the private sector is no secret. Over the past fifteen years it has expanded its support for private sector operations through new forms of project financing—such as co-financing and the Complementary Financing Scheme—and ensuring that business opportunities for the private sector are generated in all its public sector projects. The subregional cooperation model of the GMS provides the perfect opportunity for defining and entrenching the private sector’s presence in key sectors such as energy, water, transportation and human development.

The Challenge of Cash Flows

An extremely important dimension of the GMS Programme is its financing. Most GMS projects are extremely large in scale and require financial outlays that cannot be sourced from a single financier. The ADB has been aggressive in mobilizing finance for the Program, which raises a number of problematic issues.

Co-financing

The ADB’s solution to the cash flow challenge is co-financing. While it has channeled significant financial resources from its own pot towards feasibility studies, project preparation and actual implementation, it has played a crucial role in mobilizing capital from other sources—bilateral and private—through its co-financing mechanism. To date, about US$247 million has been raised from sources outside the ADB for the GMS.

Co-financing, however, is not as benign or genial as the term might suggest. It involves a legally binding set of financial agreements and obligations towards the project financiers that host governments must adhere to in order to realize the development dream.

Much of the co-financing for GMS projects has come from the ADB’s rich members countries, particularly in the North (this is also called official co-financing), which include Japan, Australia, Canada, Finland, Norway, France, Singapore, Sweden, Switzerland and the United Kingdom. It is important to bear in mind that co-financing is tied money: Japan or Norway are not likely to put up finance for projects in which lucrative contracts go to companies in a third country.

During the 1990s, over 60 percent of official co-financing in the GMS went to energy projects. The continued emphasis on hardware projects in the GMS indicate project pushing, whereby, countries and / or financiers will deliberately develop and promote projects of interest to their own domestic companies. Co-financing, thus, serves as an important avenue for subsidizing the domestic industries of contributing countries.

Privatization

In general, financing arrangements for GMS initiatives favor private sector participation. Given that most countries in the region do not have well developed and well-endowed private sectors, companies involved in the GMS are likely to be from outside the region. China and Thailand are exceptions, although many Thai companies either went out of business, or had to scale back their investments in the aftermath of the financial crisis.

Given the general scarcity of physical infrastructure, capital, and technical and institutional capacity in most GMS countries, host governments themselves woo private investors under the ADB’s watchful eye. In fact, privatization is the watermark of GMS projects. The role of host government is to “create an enabling environment” to attract private sector investors, both domestic and foreign.

The different modes of private sector involvement in the GMS include: joint ventures (foreign and domestic public and private companies partner with each other), public-private partnerships (public sector companies partner with private investors, foreign or domestic), Build-Own-Operate (BOO), Build-Own-Operate-Transfer (BOOT), Build-Operate-Sell (BOS) and Build-Operate-Transfer (BOT). In all of these, whether or not the government contributes to direct financing, it nonetheless plays an extremely important role by making the terms of investment attractive to the investors. These terms include tax holidays, exemptions from customs duties, full repatriation of revenues, profits, and purchase agreements (such as power purchase agreements in the case of energy projects).

Perhaps the most problematic aspect of private sector involvement is the allocation or distribution of risks. Governments commonly provide investors with protection against a range of risks such as: demand risks (they agree to purchase specified amounts of the produced output); foreign exchange convertibility risk (in the event of devaluation of the national currency, the investor can claim a significant portion or the entire amount of revenues in hard currency; the price of the output can also be guaranteed in part or full in hard currency); risks associated with operation (for example, the investor is not liable for changing labor conditions), among others.

The ADB participates in providing risk protection to private investors by brokering the guarantee process and by providing financial and legal advice to host governments. Risk protection is operational-ized through a system of guarantees and counter-guarantees in which, the investors usually bear the most minimum of commercial risks. Majority of the immediate financial and longer-term economic risks are assumed by governments and borne by the people of the country.

The ADB recently signed a Memorandum of Understanding (MoU) with the Multilateral Investment Guarantee Association (MIGA) of the World Bank group. MIGA provides private investors with protection against sovereign risk, that is, against the rights of governments to reconsider investment decisions. If a government is compelled to change the terms of a contract that is has guaranteed (for whatever reasons), the terms of the guarantee and counter-guarantee kick in. MIGA pays the investor an agreed amount, which it can then claim from the errant government.

The involvement of multilateral banks such as the ADB and the World Bank in providing or facilitating risk protection to private investors in public-private partnerships seriously obstructs efforts by governments to protect public interest. Since the abilities of the two banks to leverage development financing go well beyond their portfolios in borrowing countries, host governments are reluctant to disregard their advice for fear that they will be cut off from future aid, trade and credits.

Private sector involvement in critical sectors such as energy, water and transportation has implications for access by local populations to these services, and to the manner in which public finances are used. Key sticking points here are the determination of tariffs and the provision of subsidies. Private companies want profit—fair enough—while people want affordable, good quality services—also fair. Determining tariffs in favor of private companies, as is often the case, means a higher market price for the service or product, which in turn has impacts on the cost of living.

Having more electricity, water, hotels, telephones or roadways is not much use if people cannot afford to use them. In the transition countries of the region, domestic reform packages prohibit the use of direct or even cross subsidies to the public, since in keeping with market principles, the price of services must reflect their “true costs.” The private sector, on the other hand, is subsidized quite directly through tax breaks, financial guarantees and other facilities paid for from public coffers.

Official Development Assistance (ODA)

The GMS programme is located in a broader interplay of externally driven and often competing economic agendas. Private investors do not come to the negotiating table alone. They are usually backed by their home governments. In fact, securing business contracts for their own domestic companies is a key objective of bilateral ODA and investment. As already discussed above, official co-financing is an important avenue for this.

Take, for example Japan, which is an important actor in the GMS as donor, investor and market. Japan is the single largest contributor to official development finance in the Mekong region, from the PRC to Cambodia to Thailand. It is also expected to be the largest official and private investor in GMS projects and is an important actor in inter-governmental regional dialogue through the Forum for the Comprehensive Development of Indochina, and the Working Group on Economic Cooperation in Cambodia, Lao PDR and Burma. The massive amounts of capital pumped into the Southeast Asia region through its Miyazawa Initiative is as important to kick-start investment in the Mekong region as it is to revive its own economy by ensuring that its firms are gainfully employed.

In general, ODA remains an important source of development finance in the Mekong region, particularly for the Lao PDR, Cambodia, Vietnam and the PRC. Japan and France account for the largest bilateral pledges to the Lao PDR and Cambodia, while the ADB and the World Bank combined account for more than 60 percent of multilateral pledges to these countries.

ODA—whether grant or loan—has practically taken the place of internal resource generation in the smaller countries of the Mekong region. In these countries, much of the public investment in education, health, transportation, energy, water, agriculture and telecommunications is financed through ODA.

ODA does not come free, nor does it come cheap. Bilateral donors bring their own policy and economic demands, which are conditioned on enhancing the economic edge of their domestic industries. Norway is eager to provide technical assistance for hydropower potential assessment in order to win hydropower contracts for its private companies. Japan is more than willing to finance feasibility studies for export processing zones in the Lao PDR and Cambodia, since Japanese companies can get first dibs on the most promising projects. According to a senior World Bank official, France’s only interests in providing ODA to Laos are ensuring that the Nam-Theun 2 Hydropower project goes ahead, and in promoting the French language.

But the World Bank has little room to criticize. Not only is the World Bank the largest lender to the region, but twinned with the International Monetary Fund (IMF), it is also the most powerful international institution in terms of policy influence and brokering.

The Lao PDR, Cambodia and Vietnam are in the grips of World Bank-IMF structural adjustment programs--now called Poverty Reduction Strategy Papers (PRSP) and the Poverty Reduction and Growth Facility (PRGF). These programs demand fundamental reforms in national fiscal, economic, trade, agriculture and social policies in order to rapidly propel the countries towards market based economies. Economic globalization is the new paradigm of development and concepts such as self-sufficiency, sovereignty and import substitution are taboo. Should any of the countries decide not to comply with these policy demands, they stand in danger of being shut out of international aid and trade, since the richest bilateral donors of the world (the OECD) have all agreed to align their aid programmes with the World Bank-IMF PRSP-PRGF framework.

The PRC has also had to implement its share of structural adjustment reforms. Thailand has suffered some of the most draconian austerity measures imposed by the IMF after the onset of the Asian financial crisis. In fact, the IMF is charged with converting a crisis of financial liquidity into a full-blown, structural crisis of the real sectors. Even so, the PRC and Thailand have considerably more bargaining power than their smaller regional neighbors.

The ADB has been engaged in its own efforts to manipulate national policies, albeit at a smaller scale than the World Bank. The ADB has moved from project lending to policy lending, although project financing still makes up the majority of its loan portfolios. According to the ADB, its influence over domestic policies and reforms are more effective when a loan is being processed since when a loan is given, policy and institutional reforms can be included as substantive components of the loan. This is certainly evident if we consider the national level policy reforms pushed by the ADB in relation with the demands of the GMS Program. Quite clearly, national policy regimes are being altered to facilitate the levels of trade and investment liberalization on which the success of the GMS depends.

Financing for GMS projects is thus a complicated affair because of the range of donor and creditor influences in the region. At the same time, the GMS Program provides donors and creditors with yet more opportunities to pursue their particular economic and political interests.

What is Wrong With this Picture?

The GMS is not a plan for regional development. It is a plan for investment and trade liberalization. Nor does the GMS offer any potential for the emergence of a progressive regionalism.

However, in the contemporary paradigm of “economic globalization equals development”, the ADB argues that development must by necessity be market-based, and that the GMS offers a good opportunity for using regional economies of scale to develop national development infrastructure.

To date, the only challenge to GMS projects have come from communities negatively affected by projects and policies, and civil society activists, all of who are systematically excluded from GMS negotiations. Outlined below are the main problems with the GMS Program and approach.

1. There are serious shortcomings in the design of the subregional economic zones (SREZ) model that the GMS is based on.

The centrality of a hub country is problematic since it practically determines project formulation; the priorities of the hub influence the nature of projects to be developed, since hubs are the main markets for goods and services produced in the SREZ.

Economic gains in less developed participants of the SREZ hinge on the hub country; fluctuations in the hub’s economy, or domestic political and social changes in the hub affect the viability of projects even if the hub is not directly involved in the projects.

The centrality of natural resource exploitation (water, land, forests, energy, minerals, fisheries) results in the large-scale expropriation of resources crucial to daily sustenance. The primary attractions of the GMS for investors are opportunities to exploit the immense and varied natural resources in the region. This endangers long-term development potential in participating countries where natural resources are crucial for food security and local livelihoods.

The distribution of benefits is uneven since participating countries have differing levels of development and capacity; what does the Lao PDR gain from the East-West Corridor?

Internal disparities within participating countries are widened because of pockets of high capital and infrastructure investment in specific parts of countries, while other parts are ignored; this can result in tensions and conflicts between national and local government, and between the government and the people.

The entry of cheap goods from neighboring countries threatens the incomes of domestic farmers and producers (e.g., Thai and Chinese goods in other Mekong region countries).

2. The vision of development promoted through the GMS serves regional investment and resource transformation, and not national or local development priorities. Projects are formulated and pursued based on their potential for profits for investors rather than on their potential to respond to social, economic, ecological or institutional needs among local and national communities in the region.

3. GMS projects have already resulted in negative impacts on local communities through road and hydropower projects (e.g., Road 1 in Cambodia and the Theun Hinboun hydropower project in the Lao PDR); impacts include displacement of families, loss of livelihood sources, loss of lands, among others. Future GMS projects will likely result in:

• Competing claims on the use and stewardship of land, water, forest and other natural resources;

• Conflicting ideas of how natural resources should be used and for whose benefit;

• Conflicts among local communities, and between communities and governments, as customary resource tenure systems are overridden by governments in favor of privatized ownership;

• Increased displacement of local communities because of energy, transportation, mining, plantation, industry, agriculture and tourism projects (this includes physical displacement, as well as dislocation from traditional sources of employment and livelihood);

• Increased impoverishment of rural and urban communities as they are displaced from traditional livelihoods and are unable to develop new ones;

• Replacing lost livelihoods and developing alternative livelihoods are extremely difficult tasks, the complexities of which are generally unrecognized by project planners; and,

• Specific negative impacts on women and youth from displacement, tourism, changes in farming and fishing systems.

4. In the GMS framework, the rights of investors are protected, but the rights of local people and communities are not. The issue here is not simply compensation of violated rights, but a larger issue of the development vision promoted in the GMS program.

5. Local-national communities outside of governments and private sector have not been involved in drawing up GMS plans. For such a large and expensive investment programme, there is an alarming lack of independent oversight. There is no room in GMS structures for public monitoring, especially by those directly impacted by GMS projects. There is no public discussion or debate about how national wealth will be used in the GMS program, or abut the financing of GMS projects; the ADB as the GMS’ chief sponsor has made no attempt to bring the discussion about the GMS to public forums.

There is no systematic process of redress for those who are negatively affected by projects; problems of negative impacts raised by NGOs and local groups are dealt with case by case, but no room is made for systematic checks and balances within the GMS structure.

6. The financing of GMS projects have tremendous debt implications for participating countries: new forms of project financing are creating new forms of debt and financial liabilities. Surprisingly, little attention seems to have been paid to long-term debt issues by GMS planners.

7. Participation in GMS forums and meetings is exclusive; decisions about GMS plans are made by a small group of national, regional and international elites. It is interesting to note who attends GMS meetings: government officials, consulting companies (many of who are from outside the region), expert panels / committees (that usually comprise of government officials, consultants and ADB staff), private sector representatives, business groupings and consortia, international organizations (UN agency and selected international NGO staff), representatives from the ADB, bilateral donors and possibly, the World Bank.

Local people are not present at these meetings: in meetings on economic corridors, farmers who will ostensibly gain from feeder roads and access to markets are not invited; in meetings on tourism, sex workers and those who might be employed in local nightclubs, hotels and restaurants are not invited; in meetings on human resource development (where labor upgrading is always an important issue) workers and labor unions are not present.

The ADB set up a GMS Business Forum, but it did not set up a GMS Workers’ Forum, or Small Farmers’ Forum, or Indigenous Peoples’ Forum, or Street Vendors’ Forum (although they are technically private sector, street vendors are not likely to be allowed to join the Business Forum).

8. Governments play conflicting roles as owners, investors and regulators in public-private partnerships in infrastructure projects. In the Theun Hinboun hydropower project in the Lao PDR, the government has 60% equity in the project; similarly, in the Road 1 project in Cambodia, the government is an equity holder, as well as responsible for providing compensation for affected families. These multiple and contradictory roles render governments unable--and unwilling--to fulfill their obligations of protecting the public interest over recouping their investments.

9. GMS projects facilitate the transfer of local-national wealth to private actors external to the Mekong region. The exploitation of natural resources form the basis of GMS projects. The bulk of the funds for studies, capacity building and implementation go to consultants and firms outside the region. Profits from most investments are also repatriated to countries outside the region.

10. The governance frameworks in the GMS Programme are as alien to the interests of the majority of the region’s people as the model of development that the GMS programme promotes.

The governance framework requires that countries develop legal, administrative and regulatory systems that facilitate the creation of wealth for a minority, both within and outside the region. It is extremely important to examine who benefits from the entire gamut of activities in the GMS Program, from feasibility studies to turnkey construction contracts.

Countries with varying economic and social conditions, and whose interests in the development of particular resources might differ, must still put in place the same types of governance regimes to create a favorable climate for open investment across the region.

The GMS Program provides no forum for fair and equitable resolution of conflicts among countries in the region regarding project / investment decisions. The Upper Mekong Navigation Channel is a case in point, in which the PRC has decided to blast rapids in the upper Mekong despite serious concerns among downstream riparian countries. Although the ADB is not financing the blasting of the rapids, it has supported past studies to develop the navigation channel as part of the GMS Program.

There is, however, no space in the Programme to discuss the concerns of the smaller participating countries regarding the channel.

ADB (and World Bank) governance regimes do not favor the development of domestic / local private sectors since they generally discourage preferential support for domestic firms; investors who benefit are usually external to the countries in the Mekong region (Thailand and China are exceptions, and many of their companies benefit as investors in other parts of the region).

11. Participation and national interest are conflicting concepts in the GMS framework.

National interest is a tricky issue. It is used by governments as a powerful rhetorical tool to urge local residents (who are often already economically and politically marginalized) to make sacrifices for the wider good of society and nation. However, it is important to examine which groups of people determine the national interest, and the criteria by which they arrive at these definitions. To what extent does the public participate in determining / defining what constitutes national interest?

National interest often collides with the interests and priorities of communities who are cash poor, live in rural and / or remote areas, and who receive few benefits in exchange of displacement, the loss of land and the loss of access rights to natural resources. Large dams are excellent examples of how purported national interest deepens inequalities, impoverishment and political marginalization; those who are expected to sacrifice the maximum for national interest have the fewest opportunities to participating in planning and decision-making.

Even if we accept that governments have sovereign rights to determine national interest, the issue is problematized by the range of international influences and pressures on national decision making about projects and policies.
For countries such as the Lao PDR, Cambodia and Vietnam, national interest becomes difficult turf to defend when negotiating with business consortia whose annual turnovers exceed the national budgets of the countries. Protecting national interest is particularly difficult for smaller countries when they face bilateral donors, the ADB and the World Bank, on whom these countries depend for future access to financing and international linkages.

More often than not, national interest simply becomes whatever keeps the money coming into national coffers, even if it requires trade-offs in crucial domestic priorities to keep foreign investors, donors and creditors happy.

12. The GMS program deepens competition between different types of “environmentalisms” in the region.

Local communities practice an environmentalism based on local livelihoods, intra- and inter-community exchanges, and very real interests of survival, sustenance and protecting food and economic sovereignty.

While this type of environmentalism is not yet acknowledged by national decision-makers in Burma, the Lao PDR, Cambodia, Vietnam and Yunnan as a significant force to negotiate with, it is only a matter of time before hundreds of rural communities in these countries may have no option left but to fight aggressively for their rights to sheer survival.

Environmental and development experts and professionals bring environmentalism based on the notion that global interest in the “global commons” directly translates to local and sub-regional interests in a healthy and diverse natural resource base.

Such environmentalism has been the source of frameworks and programmes to protect forests, biodiversity, wetlands, estuaries and other special microenvironments and eco-systems through conservation projects and protected areas. But such initiatives also threaten to alienate local communities from their natural resource base, much in the same vein as conventional development projects.

The GMS Out of the Mekong Region

By putting the GMS “frame” around the vast and diverse Mekong region, the ADB is attempting to dominate the development paradigm in the region. The narrow lens of the GMS Program reduces social, cultural, economic, ecological and geographic specificities to a homogenous lot of economic “challenges and opportunities”. It also renders invisible people, communities, local social relations and structures, ecologies, cultures and geographic areas that are not of “investment interest” to the GMS Program promoters.
If a regional plan for cooperation and development is to be formulated for the Mekong region, it is the vision of the peoples and communities of the region that must prevail, not that of the ADB, bilateral donors and foreign investors. •

The Mekong Region – Quick Facts

• The Mekong river is the world’s 12th longest river in the world (about 4,200 km long); 10th largest in terms of annual water yield (about 475,000 million cubic metres); and, is one of the most seasonal rivers in the world, as measured by the difference between maximum and minimum monthly flows.

Its origins in the snow-fed plateau of Tibet, the Mekong flows through six countries: Yunnan province in the Peoples’ Republic of China (PRC), Burma (at its eastern-most border with the Lao PDR), the Lao PDR, Thailand (through its north and northeastern regions), Cambodia and Vietnam (in its southern-most region). It passes through and shapes a wide range of topographies and geographies, from the high Tibetan plateau and uplands of the Lao PDR to the flood plains of Cambodia and the nine-tailed dragon of the Mekong Delta in South Vietnam.

• The Mekong region is a region of immense environmental, social, cultural and economic wealth and diversity. From water, timber, forest products and medicinal plants to gemstones and minerals, the natural wealth of the region provides a strong base for diverse domestic and local economies. Changes in the main artery or its tributaries can effect significant changes in the region’s environment and economy.

• More than 250 million people inhabit the region, of which more than 50 million live in the basin itself. The region has over 70 distinct ethnic and linguistic groups, who are often, though not always, found in varying proportions across all six countries of the Mekong region. About eighty percent of the population in the region depends on agriculture (farming and fisheries) as the main source of livelihood, much of it at subsistence level.

• The Mekong freshwater system is the third most diverse in the world, with more than 1,200 fish species, many of which are endemic to specific tributaries of the Mekong.

• The region is also home to an extraordinary variety of land, forest and water use, stewardship and management methods, many of which have evolved from age-old traditional practice and local knowledge. While tensions over resource tenure issues have always existed among different communities inhabiting the same micro-region, modernization has worsened these tensions, often turning them into full-blown conflicts. Traditional methods of conflict resolution are proving to be less effective as new forms of resource use and tenure – introduced as part of “development” – compete with traditional practice and values.

• The region has a varied and diverse political history. Four of the region’s countries—PRC, Lao PDR, Cambodia and Vietnam—are undergoing transition from centrally planned to market based economies. With the exception of Cambodia, these countries still uphold socialism as a political creed. Thailand is a constitutional monarchy with an elaborate market economy. Burma is run by an oligarchy of generals, with no clear “ism” to describe its political-economic paradigm. Over a span of just sixty years, countries in the region have variously moved through a number of political-economic formations--colonies, monarchies, military dictatorships and communist republics, as they established their current identity as modern nation states.

• During the 1960s and 1970s, much of the lower Mekong was consumed by war, whose human, social, economic and environmental costs have yet to be fully mapped and acknowledged. The cold war provided the US and its allies with the impetus for full-blown war (in Vietnam), the heaviest bombing recorded in history (in the Lao PDR), and political meddling with tragic consequences (in Cambodia). China and Thailand, while quick to protect their own lands from becoming theatres of war, colluded with external aggressors at various times.

• The countries of the region are not economically and socially comparable. Burma, the Lao PDR, Cambodia and Vietnam are significantly less developed and less economically powerful than China and Thailand. In terms of natural resources and environmental wealth, these countries surpass their larger neighbors, who have aggressively depleted and degraded their natural reserves through ill-considered development strategies. The PRC--and even Yunnan—is further characterized by tremendous unevenness across its sub-regions in economic potential and standards of living. Cambodia, the Lao PDR and Burma are the smallest economies and in per capita income terms, the poorest. Vietnam and Yunnan are mid range economies. Thailand is the most prosperous in terms of income and consumption, and is the hub for much of the post-cold war economic activity in the region.

Key Components of the GMS Program
Policies to attract foreign investors.

These include:

• Lowering risks and costs to investors;

• Removing discrimination against sources of capital (i.e., foreign firms get national treatment);

• Removing ‘cumbersome’ laws and regulations (such as environment, health and labor standards) that might hamper investment opportunities;

sing financial measures related to taxation, customs duties and the mobility of foreign capital that might inhibit foreign investors; and,

• Guaranteed supply of raw materials and other resources required for production, as well as markets for the output produced.

Implementation of projects in key economic sectors. To date, the areas that have been identified for project development in the GMS are: energy, environment, human resource development, investment, telecommunications, tourism, trade and transport.

• Energy. Projects in the energy sector include the Theun Hinboun, Nam Leuk and Nam Ngum 3 hydropower projects in the Lao PDR; the Nam Ngum (Lao PDR) - Udon Thani (Thailand) transmission line; preparation of a Master Plan on subregional power interconnection and transmission grid; and preparation of the Inter-Governmental Agreement on Power Trade, which is being developed with the support of the World Bank. River basin studies for Sekong, Sesan and Nam Theun river basins have been completed, identifying additional possibilities for hydropower development. The ADB also assisted in setting up the GMS Power Forum, which has undertaken the responsibilities of developing the subregional power transmission and market systems.

Almost all the hydropower projects were undertaken with Thailand as the final destination. The entire hydropower strategy of the Lao PDR was based on exporting 5000 MW of power to Thailand. However, the financial crisis, falling domestic demand for electricity in Thailand and increasing monitoring by Thai society of Thailand’s economic role in the region, have compelled the Thai power sector to adopt a more cautious approach to entering new commercial agreements regarding power and energy.

• Transport. GMS projects in the area of transportation are focussed on a variety of roads linking major cities and ports across the region, as well as rural “farm-to-market” feeder roads in rural areas. Investments have also been facilitated (for actual implementation and / or feasibility studies) in airports, bridges, ports, waterways and railways

• Economic Corridors. The jewel in the GMS crown is the concept of economic corridors where infrastructure improvements are linked with simultaneous investments in production, trade, tourism and other economic opportunities across contiguous sub-regions to provide “a range of benefits, from better access to raw materials to attracting foreign direct investment.” According to the ADB, by linking infrastructure development with the expansion of production and investments, economic corridors will increase employment, generate income and reduce poverty.

The East-West transport corridor has been taken as a pilot case, which spans approximately 1,500 km, from Mawlamyine ( Burma) in the west to Da Nang ( Vietnam) in the east, passing through southern Laos and Thailand. It is hardly a coincidence that the Lao PDR may soon boast its first export-processing zone through the very region that the corridor passes.

Quiet but Steady: The Asian Development Bank’s Support for Burma 27 February 2004 The only thing Burma does not receive from the Asian Development Bank (ADB) is direct financial assistance. But the ADB is actively engaging with Burma’s military regime in many different ways. The ADB sends consultative missions to Burma to make findings and advice on macroeconomic and other reforms. The ADB also issues Country Assistance Plans for Burma. A representative of the ruling military regime sits on the ADB’s Board of Executive Directors. The most significant method of engagement, however, probably is done through the Greater Mekong Subregion economic cooperation program. Under this cover, the ADB is promoting plans for a deep-sea port, highways and a large dam to be built in Burma. Evidence #1: Tasang Dam on the Salween River The controversial Tasang project in ethnic Shan State, Burma is included in the ADB’s “Regional Indicative Master Plan on Power Interconnection in the Greater Mekong Subregion” (Mekong Power Grid).

What is the Mekong Power Grid? The Mekong Power Grid lays out a power connection scheme in the greater Mekong River region. The ADB strongly promotes this scheme. Under the scheme, broadly put, electricity generated by large-scale hydropower plants in China, Laos, and Burma will be exported and consumed in Thailand and Vietnam. Why Tasang should not be in the Mekong Power Grid: The Tasang project will involve a very large dam on what is now the longest free-flowing river in Southeast Asia. In addition, it will bring serious human rights abuses to an area that already suffers from the effects of forced relocation and other acts of violence by the Burmese military. Tasang is the sole hydropower project in Burma included in the Mekong Power Grid. While acknowledging that Tasang is considered “very controversial from an environmental point of view,” the Mekong Power Grid nevertheless describes it as one of “the most promising interconnection projects investigated during the master plan study,” and goes on to identify Tasang as one of the sources of electricity to be exported to Thailand. The ADB has yet to address allegations of human rights abuses, such as forced labor, in relation to the Tasang project. Evidence #2: Deep-sea port on the Andaman Sea The ADB labels the building of an industrial port at Mawlamyine ( Moulmein) in southern Burma on the Andaman Sea, as well as a road leading to it from the east, eventually connecting to Da Nang on the South China Sea in Vietnam, as “high priority” components of the East-West Economic Corridor (EWEC). What is the East-West Economic Cooridor (EWEC)? The EWEC is one of the priority programs in the Greater Mekong Subregion. A key goal of the EWEC is to reduce significantly travel time and transport costs between the Andaman Sea and the South China Sea by establishing a land route through Burma, Thailand, Laos and Vietnam. Connecting the dots: ADB, GMS and Burma Burma is part of the Greater Mekong Subregion (GMS) economic cooperation program, which is strongly supported, facilitated and largely financed by the ADB. Six countries comprise the GMS: Burma, Thailand, Cambodia, Vietnam, Laos and China. The objective of the GMS scheme is stronger economic integration in the region, backed by physical infrastructure development. Projects involve the building of highways, bridges, and power lines to connect cities, ports, and sources of electricity. The GMS scheme provides a convenient cover for the ADB to extend technical assistance and other support to Burma. As a full member of the GMS, Burma participates in GMS-related meetings and seminars, as well as GMS-wide projects financed by the ADB. Given the current political situation in Burma, the ADB does not provide any direct financial assistance to the Tasang project or to the deep-sea port. The ADB’s facilitation and promotion of the Mekong Power Grid and the EWEC does, however, encourage the construction of the components with support from other institutions. http://www.bicusa.org/en/Article.1322.aspx

Who Are the Organizations?

PECC Members: Australia Brunei Darussalam Canada Chile China Colombia Ecuador Hong Kong, China Indonesia Japan Korea Malaysia Mexico New Zealand Peru The Philippines Singapore Pacific Islands Forum Chinese Taipei Thailand The United States Vietnam

Pacific Economic Cooperation Council (PECC) PECC is a unique tripartite partnership of senior individuals from business and industry, government, academic and other intellectual circles. All participate in their private capacity and discuss freely current, practical policy issues of the Asia-Pacific region. PECC aims to serve as a regional forum for cooperation and policy coordination to promote economic development in the Asia-Pacific region, based on the following premises The respective strengths of business and industry, government, academic and other intellectual circles can be better focused to promote the acceleration of economic growth, social progress, scientific and technological development and environmental quality in the region, and Trade, joint ventures, mutual aid and other forms of linkage, when developed in a spirit of partnership, fairness, respect and genuine cooperation, strengthen the foundation needed for a prosperous, progressive and peaceful Pacific Region.

ASEAN Members: Brunei Darussalam Cambodia Indonesia Laos Malaysia Myanmar Philippines Singapore Thailand Vietnam

Association of Southeast Asian Nations (ASEAN) Secretariat The ASEAN Declaration states that the aims and purposes of the Association are to accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of Southeast Asian nations, and to promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries in the region and adherence to the principles of the United Nations Charter.

ASEAN: GREATER INTEGRATION FOR MORE RAPID RECOVERY (Beginning and Ending of Speech) Luncheon address by H. E. Rodolfo C. Severino, Secretary-General of the Association of Southeast Asian Nations, at the meeting of the Standing Committee of the Pacific Economic Cooperation Council (PECC) Canberra , 15 April 1999 I wish to thank your chairman, my former boss, Bobby Romulo, for inviting me to be around for this meeting of the Standing Committee of PECC.

Being here reminds me of my first encounter with PECC. It was at the general meeting in Vancouver, in 1986. I remember that meeting for two things. One is the fact that it was the first time that representatives of China and Taiwan sat down together in an international body. The second is the offer that, as the Philippine Government representative, I made to the South Pacific countries of training in fisheries under the Philippines' modest technical assistance program. As a non-governmental institution, PECC from the beginning advocated an inter-governmental body for economic cooperation in the Pacific. APEC is now with us, and has been for the past ten years. PECC has remained closely linked with APEC, and APEC is the better for it. The unique tripartite composition of PECC ensures that, beyond the normal considerations and mental processes of government officials, its work is leavened by the fresh insights of academics and is anchored firmly on the ground by the pragmatic calculations of businessmen. APEC's linkage with and support from PECC have served it well. It has been a natural and useful partnership. ASEAN and PECC are both observers in APEC. As Bobby Romulo and I sat side-by-side at the APEC ministerial meeting in Kuala Lumpur last November, we both wondered why ASEAN and PECC had not worked closely together before, when, in fact, it had become clearer and clearer over the years that they had much to share with each other, that each could benefit from the work of the other. I hope that my participation in your meeting today will lead to a close partnership between ASEAN and PECC in the future. Today, I have been asked to update you on the economic situation in Southeast Asia, a situation that has caused so much concern in the rest of the Asia-Pacific, and on what ASEAN is doing about it. We could also take a look at the longer term, at some of the measures that ASEAN intends to take in the next few years. . . . I wish to thank your chairman, my former boss, Bobby Romulo, for inviting me to be around for this meeting of the Standing Committee of PECC. Being here reminds me of my first encounter with PECC. It was at the general meeting in Vancouver, in 1986. I remember that meeting for two things. One is the fact that it was the first time that representatives of China and Taiwan sat down together in an international body. The second is the offer that, as the Philippine Government representative, I made to the South Pacific countries of training in fisheries under the Philippines' modest technical assistance program. As a non-governmental institution, PECC from the beginning advocated an inter-governmental body for economic cooperation in the Pacific. APEC is now with us, and has been for the past ten years. PECC has remained closely linked with APEC, and APEC is the better for it. The unique tripartite composition of PECC ensures that, beyond the normal considerations and mental processes of government officials, its work is leavened by the fresh insights of academics and is anchored firmly on the ground by the pragmatic calculations of businessmen. APEC's linkage with and support from PECC have served it well. It has been a natural and useful partnership. ASEAN and PECC are both observers in APEC. As Bobby Romulo and I sat side-by-side at the APEC ministerial meeting in Kuala Lumpur last November, we both wondered why ASEAN and PECC had not worked closely together before, when, in fact, it had become clearer and clearer over the years that they had much to share with each other, that each could benefit from the work of the other. I hope that my participation in your meeting today will lead to a close partnership between ASEAN and PECC in the future.

Today, I have been asked to update you on the economic situation in Southeast Asia, a situation that has caused so much concern in the rest of the Asia-Pacific, and on what ASEAN is doing about it. We could also take a look at the longer term, at some of the measures that ASEAN intends to take in the next few years.

 

ADB Members: 67* Developing Nation Members: Afghanistan Armenia Azerbaijan Bangladesh Bhutan Cambodia China Cook Islands Fiji Islands Georgia Hong Kong India Indonesia Kazakhstan Kiribati Korea Kyrgyz Republic Laos Malaysia Maldives * for a complete list go to: http://www.adb.org/ About/members.asp

Marshall Islands Micronesia Mongolia Myanmar Nauru Nepal Pakistan Republic of Palau Papua New Guinea Philippines Samoa Singapore Solomon Islands Sri Lanka Taipei Tajikistan Thailand Timor-Leste Tonga Turkmenistan Tuvalu Uzbekistan Vanuatu Viet Nam

Asian Development Bank (ADB) The work of the Asian Development Bank (ADB) is aimed at improving the welfare of the people in Asia and the Pacific, particularly the 1.9 billion who live on less than $2 a day. Despite many success stories, Asia and the Pacific remains home to two thirds of the world's poor. ADB is a multilateral development financial institution owned by 67 members, 48 from the region and 19 from other parts of the globe. ADB's vision is a region free of poverty. Its mission is to help its developing member countries reduce poverty and improve the quality of life of their citizens. ADB's main instruments for providing help to its developing member countries are policy dialogue loans technical assistance grants guarantees equity investments. ADB's annual lending volume is typically about $6 billion, with technical assistance usually totaling about $180 million a year. Our headquarters is in Manila. http://www.adb.org/About/

APEC Members: Australia Brunei Darussalam Canada Chile China (PRC) Hong Kong , China Indonesia Japan Republic of Korea Malaysia Mexico New Zealand Papua New Guinea Peru Philippines Russia Singapore Chinese Taipei Thailand United States Viet Nam Observers: ASEAN PECC PIF-Pacific Islands Forum

Asia-Pacific Economic Cooperation (APEC) is the forum for facilitating economic growth, cooperation, trade and investment in the Asia-Pacific region . APEC is the only inter governmental grouping in the world operating on the basis of non-binding commitments, open dialogue and equal respect for the views of all participants. Unlike the WTO or other multilateral trade bodies, APEC has no treaty obligations required of its participants. Decisions made within APEC are reached by consensus and commitments are undertaken on a voluntary basis. Pacific Islands Forum (PIF) Secretariat PIF is the paramount regional inter-governmental forum in the South Pacific. PIF addresses issues such as regional trade, economic development, the environment and regional law enforcement, cooperation and security in the South Pacific.

NAFTA Members: Canada Mexico United States

The North American Free Trade Agreement The North American Free Trade Agreement (French: Accord de libre-échange nord-américain (ALENA)) (Spanish: Tratado de Libre Comercio de América del Norte (TLCAN)) is the trade bloc in North America created by the North American Free Trade Agreement (NAFTA) and its two supplements, the North American Agreement on Environmental Cooperation (NAAEC) and The North American Agreement on Labor Cooperation (NAALC), whose members are Canada, Mexico, and the United States. It came into effect on 1 January 1994. The North American Free Trade Agreement (NAFTA) eliminated the majority of tariffs between products traded among the United States, Canada and Mexico, and gradually phases out other tariffs over a 15-year period. Restrictions were to be removed from many categories, including motor vehicles, computers, textiles, and agriculture. The treaty also protects intellectual property rights (patents, copyrights, and trademarks), and outlines the removal of investment restrictions among the three countries. The agreement is trilateral in nature (that is, the terms apply equally to all countries) in all areas except agriculture, in which stipulations, tariff reduction phase-out periods and protection of selected industries, were negotiated on a bilateral basis. Provisions regarding worker and environmental protection were added later as a result of supplemental agreements signed in 1993. NAFTA was an expansion of the earlier Canada-U.S. Free Trade Agreement of 1988. Unlike the European Union, NAFTA does not create a set of supranational governmental bodies, nor does it create a body of law superior to national law. NAFTA is a treaty under international law, though under United States law it is classed as a congressional-executive agreement rather than a treaty. http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement

 

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Taking it Further

Pacific Economic Cooperation Council
Pacific Food System Outlook 2004-2005
The Role of Transportation Infrastructure in a Seamless System

http://www.pecc.org/food/papers/pfso-summary-2005.pdf

Forward: T ransportation infrastructure plays a pivotal role in the food system of the PECC region. Food production is the most geographically dispersed industry in the region, while food demand is becoming increasingly concentrated in urban areas.

The region’s urban areas will grow by 590 million people in the next 20 years, twice the growth rate of the total population. Three-quarters of the growth will be in the less developed economies of the region.

Many agricultural areas in the developing parts of the region are isolated and “taxed” by inadequate transportation access to markets, resulting in large post-harvest losses, depressed farm prices and high consumer prices.

To maintain or reduce urban food costs, policymakers must either invest in streamlining domestic supply chains—including transportation infrastructure to connect urban centers with food-producing areas—or facilitate food imports through market opening measures, or some combination of the two strategies. As the examples in this report demonstrate, major efforts are underway to expand and enhance transportation infrastructure in the region.

The Pacific Food System Outlook project participants also addressed factors affecting the food system in the near term. The 2004-05 economic outlook in the region promises the fastest growth since 2000. Economic growth rates across PECC are brisk: China is expected to grow 9.1 percent in 2004, Vietnam 8 percent, Japan 4.4 percent, and the United States 4.3 percent. Other key factors in the food system outlook are declining commodity prices as crop production has increased this year, and high oil prices, which will raise input and marketing costs, thus narrowing profit margins and curbing sales. More details are provided on the PECC web site: http://www.pecc.org/food/.

THE ROLE OF TRANSPORTATION INFRASTRUCTURE IN A SEAMLESS FOOD SYSTEM

The most important challenge facing the PECC food system in the next two decades will be rapid urbanization, particularly in the region’s less developed economies. Providing basic services, particularly quality, low-cost food supplies, is one of the most critical issues decision makers face as they work to sustain urban growth.

Transportation infrastructure—roads, railroads, inland waterways, ports and airports—is critical to the food system because food production is the most geographically dispersed industry in the region, while food demand is becoming increasingly concentrated in urban areas. At the PECC Pacific Food System Outlook project’s annual meeting in Hanoi, Vietnam, May 18-20, 2004, economists, government leaders and food industry representatives from the PECC region examined transportation infrastructure issues facing the region’s food system.

The following key implications emerged:

• Development policies for PECC countries must recognize the critical role of transportation infrastructure in linking dispersed food producing areas with urban consuming areas. Many agricultural areas in the developing parts of the region are isolated and “taxed” by inadequate access to markets, resulting in large post-harvest losses, depressed farm prices, and high consumer prices. Even in the developing economies, urban areas are often well connected with the rest of the world through modern ports and airports. To reduce urban food costs, policymakers must invest either in streamlining domestic supply chains—including expensive transportation infrastructure to connect urban centers with food-producing areas—or facilitate food imports through market opening measures, or some combination of the two strategies.

• While critical, transportation infrastructure alone will not create an efficient food supply system. As have repeatedly been emphasized by the APEC Food System Initiative and the Pacific Food System Outlook project, the food system is a complex of economic relationships that tie the region’s food producers to consumers. For the system to efficiently facilitate the movement of food to urban consumers, requires not just adequate transportation infrastructure, but also appropriate economic incentives, competitive transportation and logistic services, and policy reforms. These factors, so important inside the borders of individual economies, must be more fully integrated with negotiations to liberalize agri-food trade policies across the region.

• Development of transportation and related infrastructure leads to more efficient resource allocation and greater economic prosperity within an economy. Infrastructure development, combined with trade policy reform, will lead to a larger proportion of labor-intensive food production occurring in emerging economies, with capital-intensive crop production occurring in the more developed economies of the region. This may well increase consumer benefits from lower prices for a greater variety of foods, and realign agri-food trade patterns in the region.

ECONOMIC IMPACTS OF TRANSPORTATION INFRASTRUCTURE P oor data and difficulties in discerning quality differences have long hampered the ability to measure the economic impact of transportation infrastructure. The amount of infrastructure is generally associated with higher income levels, but its direct influence on development and the direction of causality is still debated. Several studies have found a strong positive relationship between infrastructure and economic growth, including farm productivity. Some researchers have found that infrastructure stocks—transport, power, and telecommunications—have a positive impact on long-run economic growth and reduce income inequality. Others contend that the largest economic potential from infrastructure expansion is in economies where it is least developed. Some researchers have found the impact of infrastructure by itself is weak, revealing its necessary-but-not-sufficient character. From a local perspective, building or enhancing physical infrastructure acts like the removal of a tax on farmers, lowering transaction costs for marketing products and purchasing inputs, raising returns and ultimately lowering consumer costs (Figure 1). The building of a simple dirt road with a few small bridges into a poor isolated rural area allows farmers to reach markets more quickly. Eventually they can take advantage of motorized vehicles to carry in production inputs and carry out harvested produce in larger volumes, delivering it even more quickly to local markets with less spoilage. Rural households gain better access to health care and schools, contributing to higher labor productivity on the farm. When the road is graveled or paved, costs decline even further as travel times diminish and weather is less of an obstruction to travel. From a broader perspective, an economy’s transportation network is the medium through which arbitrage and competition occur, promoting more efficient resource allocation. Specialization and economies of size result in a more efficient food system and lower food prices, key to sustaining economic development and urbanization. Infrastructure needs to be constantly maintained, upgraded and expanded to keep pace with a growing economy. It also must be complemented with competitive transportation and communication services, as well as improved coordination, performance and scheduling of transportation services to avoid bottlenecks.

Infrastructure must be thoughtfully conceived and developed, with public and private sector input and support, as well as regional planning for ports and intra regional road and rail networks. It is not automatically a good thing. Sometimes investments are made in infrastructure to alleviate bottlenecks, when the real problem lies in regulatory policies that protect special interests. Government policy has a significant impact on transportation systems serving the food system. Reduction of tariffs and other restrictions affect the flow of food products from domestic and foreign sources. Other regulations, like cabotage restrictions, affect the service and cost of transportation providers. Finally, governments impose taxes on transportation through licenses, tolls and fuel taxes that ultimately get passed on to agricultural producers and consumers.

Food Supply and Demand

In the Asia-Pacific region, food production is distributed broadly around the region. With the exception of the Arctic North and mountainous regions, food production is located throughout North America, in pockets along the western coast of South America, throughout much of Southeast Asia, along the eastern and southern coastal areas of Australia, and in the eastern half of China. Some food is produced in nearly every state, province and prefecture of the region, yet many food-producing areas struggle to be economically viable. Large areas of Southeast Asia and Southern China, for example, have good soils but suffer from lack of adequate infrastructure to profitably access markets and yield-enhancing inputs, including seeds, fertilizer and pesticides.

On the other hand, food demand and food processing is geographically concentrated in or close to urban centers, a trend that is expected to continue in the future. The region’s urban areas will grow by 590 million in the next 20 years, twice the growth rate of the total population, with increases of 300 million in China, 75 million in Indonesia, and 25 million in Mexico. Three-quarters of the growth will be in the less developed economies of the region, and a large part of this growth will arise from rural-urban migration.

Urban areas are where most of the middle and upper classes reside and where a disproportionate share of the economy’s output is produced. Mexico City has 14 percent of Mexico’s population but accounts for a third of national income. Shanghai, with 1.2 percent of China’s population, generates 12.5 percent of the nation’s GNP. Urban food demands are disproportionate too, with per capita diets richer in meats, fruits and vegetables than are those in rural areas. In urban locales, demand is also greater for food services, convenience and eating away from home.

Dispersed food production and more concentrated urban-based food demand require an increasingly complex supply chain, spanning longer distances, even overseas. Densely populated urban areas require far more infrastructure per square kilometer than rural areas, although less on a per capita basis, which underscores economies-of-scale advantages for cities. Well-functioning roads and mass transit systems are needed to get large numbers of people to retail outlets on a regular basis. Sophisticated distribution systems are needed to deliver often perishable food to the point of sale. Strong linkages to the outside world are important for the provision of agricultural raw materials, and processed and fresh foods.

Linkages with foreign sources are facilitated by the coastal location of many expanding urban areas. More than half the world’s population now lives and works within coastal zones that can extend 200 kilometers inland. About 60 percent of China’s population live in its 12 coastal provinces, including the fast growing areas of Shanghai and the Shenzhen-Pearl River Delta area. More than half of Indonesia’s population lives on 10 percent of the land area–the narrow island of Java—and almost all of Vietnam’s population lives close to the coast (Hinrichsen 1999).

Status of Transportation Infrastructure in the Region

Many developing economies invest first in modernizing port facilities and airports in or near large coastal urban areas. This allows for engagement in global trade, facilitating agri-food exports and increasing access to foreign agri-food imports. Part of this modernization may include privatization of formerly government-owned entities, with private interests providing both scarce financial support for these expensive facilities and introducing market principles. This private, market-driven motivation promotes conformity with international standards of trade and adoption of fast changing technology. Private interests have played a critical role in port and infrastructure development in the less developed economies of Malaysia, the Philippines, Mexico, Korea, Thailand and Vietnam.

Ocean transport costs are the lowest of all transportation modes over long distances. As a result, foreign suppliers can sometimes be more competitive in coastal urban markets than inland domestic producers. Inland producers may face inadequate transportation infrastructure which makes it difficult to meet the high freshness and consistency standards of higher income urban consumers in their own economies.

The performance of the region’s ports can be assessed by container throughput or such productivity measures as “moves per crane per hour.” The region has the world’s three busiest container ports—Hong Kong ( China), Singapore, and Shanghai. Containerized shipping is more and more commonly used for perishables and other processed products, but is even making inroads with bulk commodities, like grains and oilseeds. In 2003, the region’s overall container throughput grew 13.5 percent, compared with 12.3 percent in the rest of the world. This growth was led by Shanghai which has seen the most spectacular growth—from 500,000 twenty-foot equivalent units (TEUs) in 1990, when the port ranked 40 th in the world, to 11.3 million in 2003, when it was the world’s third busiest port. China’s top 10 ports grew 24 percent from 2002 to 2003; Ningbo (near Shanghai) and Chiwan (one of three Shenzhen ports near Hong Kong), both grew more than 40 percent. Ports in Korea and Malaysia are also growing rapidly.

While customs regulations might make port clearance slower in the less developed parts of the region, the port facilities themselves are approaching “best practices” and are equal in productivity to ports in the more developed economies. Shanghai averaged 28 moves per crane per hour in 2003, Manila International Container Terminal 32, and Malaysia’s Tanjung Pelapas 32, comparing well with Sydney at 27, Southern California ports at 26, and Rotterdam at 30. Highly productive, modern facilities in less developed parts of the region suggest that with regulatory reform, port throughput could be even greater and less costly.

Ports facilitate access by foreign food suppliers, but inland transportation infrastructure is critical to the competitiveness of the domestic agricultural economy. The quality and miles of roads and railroads vary greatly across the PECC region. As expected, road and rail systems, as measured by length of road or rail per square kilometer, are generally more comprehensive in the developed, densely populated economies, such as Singapore and Hong Kong, Korea, Chinese Taipei and Japan. For the less developed economies in Southeast Asia, Latin America and China there is significant underinvestment in road and rail systems (Table 1 and Figure 3). A difficult challenge in Southeast Asia is overcoming the fragmented geography of its extensive archipelago nations, Indonesia and the Philippines. For example, it takes a truck three days, 850 kilometers and two ferry crossings, to deliver fruit from Manila to Davao on the southern island of Mindanao in the Philippines.

A key constraint to transportation infrastructure development is financial support from local and national governments, or from domestic and foreign private investors. Infrastructure is a public good. Once the initial investment is made, many interests can make use of it, often without payment. This “free-rider” aspect of infrastructure means that market forces alone will result in underinvestment in infrastructure. Hence, governments play a crucial role in encouraging and funding infrastructure investments.

Bond markets have been slow to develop, limiting the ability of investors to tap the high savings rates in many of the developing Asian economies. International financial institutions have played only a modest role in the development and enhancement of physical infrastructure. Between 1997 and 2003, the World Bank, the Asia Development Bank (ADB) and the Inter-American Development Bank (IDB) averaged only $5 billion per year in loans for transportation/ communication-related projects worldwide (Figure 4), with particularly large programs in China and Southeast Asia. With the exception of the ADB, these programs have declined as a share of total lending since 1997. Yet, total global needs for rail and road infrastructure in less developed economies are estimated at about $100 billion per year for new investment and maintenance (Fay 2003).

Though existing transportation infrastructure levels are low in the developing parts of the PECC region, some economies—China, Mexico, and parts of Southeast Asia, in particular—are quickly expanding or enhancing road and rail infrastructure, supporting agricultural and economic development in their respective economies.

Infrastructure Development

Infrastructure development is best viewed on a case-by-case basis because it plays a central but varied role in different parts of the region. Three examples illustrate how development of transportation infrastructure is improving the connections between agricultural areas and consumers in the Asia-Pacific region, creating a more seamless food system:

• China , connecting interior provinces with populous coastal areas;
• NAFTA, north-south linkages integrating a less developed partner; and
• Greater Mekong Sub-region, linking remote agricultural areas with urban centers and ports.

CHINA —CONNECTING INTERIOR PROVINCES WITH POPULOUS COASTAL AREAS

China is rapidly evolving from an agrarian subsistence to an urban, market-oriented economy. More than 300 million people are forecast to be added to the economy’s urban areas by 2020, fueled by rural-urban migration and natural increase. China’s urban population, concentrated in coastal provinces, will surpass its rural population by 2015.

While lagging the more developed economies in the PECC region, China’s infrastructure development is expanding rapidly on many fronts, some in collaboration with international lending institutions. After favoring investments in coastal regions for many years, China is now putting more emphasis on developing road, rail and waterway networks to serve and connect its interior provinces with coastal regions.

As these infrastructure networks are more fully developed, China should be better able to exploit its agricultural comparative advantage in high-value, labor-intensive perishable food products. As transport and other marketing costs fall, the broader economy will become more efficient—realigning regional production patterns, eliminating spot shortages, equalizing prices, raising farm incomes in China’s interior provinces, and providing low priced, high quality foods to its growing urban areas.  

Rapid expansion of roads

Improving China’s road system is a significant priority. By 2020, China’s road network is forecast to reach 2.5 million kilometers (km), including a doubling of major highways to 70,000 km.

One example is a recent ADB supported project, consisting of construction of a 173-kilometer, four-lane toll expressway from Changde to Huaihua, and upgrading 517 km of local roads servicing hundreds of poor villages. The new expressway will significantly cut travel times between Changde and Huaihua, and increase profit margins for poor farmers by lowering transport costs for both agricultural inputs and outputs (ADB Press Release, September 9, 2004).

China also plans to improve road links with its neighbors, including a highway link with Southeast Asia (see section on the Greater Mekong Sub-region). These overland links will foster growth and economic integration, particularly with remote areas where agriculture remains a dominant sector (Map 1).  

Rejuvenating China’s railway system

As in many economies, China’s railway system has been in decline, with rail’s share of the nation’s cargo dropping to 50 percent in 2000 from 70 percent in 1990 (Far Eastern Economic Review, July 18, 2002).

China ’s leaders realize that the nation’s railways require an overhaul if the economy is to continue to develop. Central goals are to connect the less developed, but resource rich northern and western parts of the economy (coal, minerals, and grain) with the more populous and prosperous manufacturing centers in the east, and to foster development outside the coastal provinces.

Public efforts to introduce market mechanisms and competition, and to invest in improving and expanding the rail network, are improving the outlook for the rail sector. China is spending $42 billion to add 7,000 km of new track by 2005. Physical improvements and expansion are underway on eight east-west lines—Beijing-Lanzhou, north corridor, south corridor, land bridge corridor, Nanjing-Xi’an, riparian railway, Shanghai-Kunming and southwest sea outlet corridor—and eight north-south lines—Beijing-Harbin, eastern coast corridor, Beijing-Shanghai, Beijing-Kowloon, Beijing-Guangzhou, Dalian- Zhanjiang, Baotou-Liuzhou and Lanzhou-Kunming.

These investments are lowering transportation costs by reducing travel times and making service more reliable. For example, the improved 2,500-km Beijing-to-Kowloon ( Hong Kong) railway has cut travel times in half along its route. This project is revitalizing rural areas along the route by expanding farmers’ access to markets, attracting outside investment, and allowing rural labor to take advantage of higher-wage opportunities in urban areas (ADB Press Release, March 17, 2003).

China ’s railways, however, are still hampered by the lack of refrigerated cars, containers and the supporting inter-modal infrastructure needed for efficient transport of perishable goods to coastal markets and export positions. Shandong and Shaanxi provinces, for instance, already produce and export temperate climate fruits and vegetables to East and Southeast Asia. If rail transportation inefficiencies were overcome, North China and the eastern Loess Plateau likely could make further inroads in urban and international markets for apples, pears, vegetables and other horticultural products. Similarly, South Central China could increase production and trade in citrus crops, semi-tropical fruit like lichi and longan and some vegetable products, as well as regain a competitive position for pork production.

Ports move food trade

Given the gains made through trade, it is not surprising that China has made port development and modernization a top priority. China’s ports are a conduit for food exports, providing foreign food suppliers more efficient access to the nation’s populous coastal regions, and providing cheaper transport of agricultural commodities within China—for example, from northeastern producing provinces through the port of Dalian to consuming areas around Shanghai and Guangzhou (Gale 2004).

To keep pace with growing trade, China must continually develop and expand its facilities to achieve greater efficiencies in ship navigation and scheduling, berthing, cargo off loading, inspection, customs clearance, security, tracking and storage. Influencing port development in China and elsewhere is a globalized and highly innovative shipping industry that makes widespread use of standardized containers, and larger and larger vessels.  

Waterways: major east-west thoroughfares

China possesses the most extensive inland waterway system in the PECC region, with 116,500 km of navigable rivers, primarily the Yangtze, Zhujiang ( Pearl), Huaihe, and Helongjiang rivers. The Yangtze and its tributaries account for about half of the total. New construction is also underway to extend and increase the capacity of the Beijing-Hangzhou Grand Canal, which has a navigable length of more than 1,700 km.

Inland waterways are currently under-utilized for long distance bulk commodity transport, accounting for less than 5 percent of total domestic freight movements. But this is changing. For example, container traffic through major river ports grew by 26 percent per year to almost 2 million TEUs in 2000, from around 100,000 TEUs in 1990. Traffic along the Yangtze, Pearl, Heilongjiang, Songhuajiang and Liaohe river systems—critical to the transport of perishable agrifood products—may grow to 7 million TEUs by 2015 and 15 million TEUs by 2030. Official plans for the inland waterway network emphasize port development and construction of 15,000 km of inland river channels in major north-south and east-west corridors. Completion of the Three-Gorges Dam and better regulation of water levels on the Yangtze River allow larger vessels and more reliable service along the more-than 2,000 km stretch between Shanghai and Chongqing. Lower transportation costs are spurring development, making this area a potential rival to the Guangdong-Hong Kong area and enhancing the movement of agri-food products to Shanghai and other coastal cities (Journal of Commerce, Dec. 17, 2003).

Other constraints

In addition to transportation infrastructure, warehousing and storage facilities are critical to efficient marketing of the high value frozen and perishable foods that are in growing demand in China. To accommodate domestic and international demand for perishable foods, cold chain infrastructure and management must be improved. China’s cold storage capacity is estimated to be only 20 percent to 30 percent of demand. A lack of controlled atmosphere and refrigeration equipment leads to spoilage losses of up to 33 percent of perishable food. China now produces such equipment, but incentives are not yet sufficient for widespread use.

NAFTA: FACILITATING NORTHSOUTH LINKAGES TO INTEGRATE A LESS DEVELOPED PARTNER

The food system of the North America Free Trade Agreement (NAFTA) faces different challenges in expanding and enhancing transportation linkages, particularly

between Mexico and its trade partners, the United States and Canada. While Canada and United States have mature and well-integrated transportation networks, the Mexican system is less integrated with its northern neighbors. North-south rail and road corridors are being developed to accommodate growing trade. Cross border regulations will continue to be a problem, but their effect is being offset by innovations in information technology and advances in inter-modal systems. New technologies facilitate security and product integrity inspections further from congested border crossings.

Despite physical and regulatory impediments, growth in food and agricultural trade in NAFTA has been rapid in the 1990s. NAFTA is now the most important regional market for U.S. food and agricultural exports, surpassing East Asia and Europe. Given the long land borders separating the three economies, overland transportation modes are most significant and agriculture dominates them. In the United States, food, raw commodities, processed agricultural products, and farm inputs account for one-third of total freight shipments. Trucking is by far the leading mode, with rail systems historically in decline except for recent years.

Within NAFTA, trucks account for more than two-thirds of all food shipments. Trucks are particularly dominant in the shipping of meats and other perishable because of the premium on speed and flexibility of delivery. Long haul modes—rail, barge and ocean shipping—are used for such lower-valued commodities as grains and oilseeds. Heightened demand for high-value perishables (e.g., berries, stone fruit) has stimulated growth in NAFTA’s use of air transport.  

Roads are key to the region’s food system

The United States and Canada share one of the best-developed highway systems in the world in terms of quality and density. This enables trucking to dominate North American freight transportation. But Mexico’s road system is not nearly as developed or comprehensive as its northern partners. It has, however, been expanded rapidly in recent years, with substantial investment in highway construction and development of strategic nodes and feeders to connect regional and state road networks. Road length expanded by one-third between 1990 and 2000. Modern, privately-operated toll roads are still underutilized because tolls are too expensive for widespread commercial use. Thus, trucking firms continue to rely on deteriorating public roads, which follow routes that are longer and less safe.

Highway funding in the United States since NAFTA has encouraged the identification of north-south trade corridors, and given priority to investment in infrastructure that promotes trade. Over the past decade, three highway corridors have emerged as principal Canada-U.S.-Mexico trade routes: The West Coast, CANAMEX, and the Mid-Continent Trade Corridor (Map 2). These connect the horticultural producing areas of northwest Mexico with U.S. and Canadian markets; and U.S. and Canadian grain producing areas with Mexico’s industrial heartland, an area outlined by Mexico’s three largest cities: Monterrey, Guadalajara and Mexico City.

Productivity of NAFTA’s rail system improving

For long-distance hauls, rail transportation throughout NAFTA is becoming more competitive with trucking for two reasons: mergers and acquisitions that reduced the number of Class I rail companies to 9 from 56, and privatization of Mexico’s state-run rail system in the late 1990s.

U.S. mergers have generally led to greater efficiencies—fewer companies with less rolling stock across smaller networks with fewer employees and at less cost. The impact on agriculture has been mixed with lower rates for bulk commodities but reduced services for remote agricultural areas. Privatization of Mexico’s rail system led to agreements with U.S. and Canadian companies, resulting in upgraded north-south service and increased shipments.

A 1995 constitutional amendment paved the way for privatization of Mexico’s rail system. The system was divided into five concessions, including three main lines: the northeast corridor from Laredo to Mexico City (Ferromex); the northwest corridor through Hermosillo and Nogales and Saltillo to Eagle Pass (Transportación Ferroviaria Mexicana or TFM); and the ports of Veracruz and Coatzacoalcos to Mexico City. Greater integration of Mexico’s rail system with those of the United States and Canada, combined with investments in warehousing and inter-modal facilities, has made shipping agricultural commodities by rail an attractive alternative to trucking in some cases.

With a 26-percent stake in Ferromex, the U.S. based-Union Pacific Railroad now offers “Aztec Eagle” service between the western United States and west/central Mexico. Kansas City Southern acquired 50 percent of TFM, linking Canadian, Mexican and U.S. shippers through the heart of the U.S. corn belt. This consortium provides international freight services from the U.S. Midwest to south-central Mexico, including the Chicago-to-Mexico City “NAFTA Run-Through” and “NAFTA Express” services. A railcar loaded with grain in the interior of the United States now can go directly to Mexico City, compared with the three handlings needed for a competing alternative: barge, ship, and truck via New Orleans, Veracruz and Mexico City.

North-south ocean shipping: an uncertain outlook

Most intra-NAFTA trade is overland. Ocean shipping is an economic alternative to overland transit in some instances. The ocean share accounts for 40 percent to 50 percent of total U.S.-Mexican grain shipments, primarily via U.S. gulf ports through Veracruz, Mexico. Rates for grain and oilseed shipments are about 10 percent to 15 percent lower than rail (Hall 2001). Large containerships now offer rates and transit times from the Pacific Northwest to the Mexican port of Manzanillo that are comparable to trucking for high-value commodities. Mexican importers of apples from British Columbia and the state of Washington, for example, have found that refrigerated container service via ocean is cost effective, reduces product damage and takes only slightly longer than by truck. Ocean container movements between Manzanillo and Long Beach now offer a substantial price advantage over both trucking and rail.

Port privatization in Mexico in the 1990s led to increased investment in infrastructure, intensified competition among service providers, and improved port productivity. At Mexico’s major ports of Veracruz, Manzanillo, Lázaro Cárdenas, and Tampico/Altamira, fully mechanized terminals are replacing outdated equipment and facilities.

While ocean shipping may be cheaper, its dependence on other transport modes for final delivery causes uncertainty and raises costs. Rapid trade growth, for example, threatens to increase congestion, undermine productivity, and raise costs at the ports of Long Beach- Los Angeles, the most important NAFTA-Asia gateway. Shippers are being forced by new economic realities to consider alternative, more distant ports, even on the East Coast.

Regulatory environment imposes trade costs

Freight movements in NAFTA are hampered not just by inadequate infrastructure, particularly in Mexico, but by an array of protectionist and other regulations across all three economies. Greater border surveillance in the aftermath of September 11, 2001, is also a factor.

Among the measures that can impede the flow of trade and impose costs are cabotage restrictions, which are designed to protect domestic trucking and ocean shipping services by limiting pickup and delivery of cargo within an economy to national carriers. In the United States, for example, the Jones Act restricts ocean shipments of goods between coastal points in the United States to vessels built in U.S shipyards and owned and crewed by U.S. citizens. This law inhibits shipments of grain by water within the United States, making it cheaper in some instances for southeastern U.S.livestock producers to use Brazilian soybeans or Canadian feed grains. Cabotage policies raise costs to U.S. shippers and producers.

Given the predominant role of trucking in NAFTA, the absence of a cross-border trucking agreement between the United States and Mexico has been a significant barrier to efficient transportation in the region and contributes to delays at the U.S.-Mexico border.

Under NAFTA, trucks from the United States and Mexico were to be given access to states on either side of the international boundary in 1995, and full nationwide access by 2000. However, a prohibition remained in place because of U.S. concerns about the safety of Mexican trucking—overweight trucks, lack of operational logs, and no limits on number of hours driven per shift.

In June 2004, a U.S. Supreme Court ruling lifted the last legal obstructions to reciprocal U.S.-Mexico truck. Reciprocal access should commence as soon as there are sufficient resources at the border to certify that Mexican trucks are in compliance with U.S. law. However, the continuation of a complicated three-step transfer system still causes delays at the Laredo border. Removing such bottlenecks would reduce travel time between Chicago and Monterrey, Mexico by as much as 40 percent, according to estimates by Texas A&M International University.

Customs regulations have tightened along all international boundaries in NAFTA since September 11, 2001. Time-consuming customs procedures are likely to continue. Some northbound delays result from efforts to interdict drugs and undocumented immigrants. Other delays arise from inspections for agricultural pests and diseases. Despite greater surveillance since September 11, 2001, traffic volumes across international boundaries continue to grow (Journal of Commerce, April 14, 2004).

Technological innovations and expanded inter-modalism promote trade  

Innovations in information technology and expansion of inter-modal systems are reducing delays caused by inadequate infrastructure and customs and other regulations at international borders. Intelligent Transportation Systems (ITS), including electronic toll collection systems, vehicle X-ray and weigh-in-motion devices, electronic data interchange systems, and vehicle-to-roadside communications systems, help reduce congestion, infrastructure needs and environmental pollution.

The expansion of inter-modalism is also lowering transaction costs and promoting a more efficient food system. Standardized shipping containers can be more efficient and versatile than truck trailers or rail cars. These containers can be double stacked on flat railcars, transported by the thousands via containerships, and set onto truck chassis. This efficiency and versatility, however, depend on well-developed inter-modal links between rail and truck, truck and marine, and rail and marine. Trucking continues to begin and end most freight movements, but a growing combination of modes will be employed on the long-haul portion of transportation routes.

THE GREATER MEKONG SUBREGION: INTEGRATING REMOTE AGRICULTURAL AREAS WITH URBAN CENTERS AND PORTS

The Asia Development Bank (ADB) is supporting an ambitious integration with six countries in the Mekong River region— Cambodia, China, Laos, Myanmar, Thailand and Vietnam. Initiated in 1992, the program is designed to integrate the roads, railways and electric power of these six countries, and connect them with other parts of the region. The program has the potential to improve the economic conditions of 70 million people who live in the Mekong basin, many of whom are subsistence farmers (Far Eastern Economic Review, August 26, 2004). In addition to improvement and expansion of transportation infrastructure, customs procedures and practices across the six economies will be streamlined to reduce time spent at border checkpoints.

At the heart of the program are three major road projects (Map 3):

• North-South Economic Corridors between southern China and Bangkok, Thailand and southern China and Hanoi, Vietnam;
• East-West Economic Corridor between Myanmar and Da Nang, Vietnam; and
• Southern Corridor between Bangkok, Thailand and Ho Chi Minh City, Vietnam

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The North-South Economic Corridor will connect Kunming in southwestern Yunnan Province, China, with Bangkok, Thailand, covering a distance of 2,000 km. This corridor, along with established roads from Bangkok to Singapore, and Kunming to Beijing, will provide a 4,500-km continuous, all-weather overland route between Singapore and Beijing. Several sections of the road are under construction or are being upgraded, primarily in China and Laos, but significant sections are still impassable during the rainy season. Mountainous terrain in some sections in Yunnan has required the building of numerous tunnels and bridges. Another link will connect Kunming with Hanoi and the ports of Haiphong and Cai Lan.

By 2006, the all-weather Southern Corridor will connect Bangkok, Thailand, with Ho Chi Minh City, Vietnam.

According to the ADB, this project will also improve 540 km of feeder roads, reduce travel times and transport costs, and provide broader access for farm products in the region’s major urban markets.

Road improvements completed to date are already strengthening economic linkages between Cambodia and Vietnam, particularly in agriculture and agribusiness. This has enhanced transport reliability, helped raise agriculture productivity, and improved income opportunities. Traffic volumes are expected to continue to grow at 7 percent annually. Vietnamese trucks carrying fruit and other products are increasingly using the highway; likewise Cambodian trucks with agricultural products are supplying markets in Ho Chi Minh City. Fruit vendors and restaurant owners along the highway between Phnom Penh and the Vietnamese border are benefiting from increased traffic and the availability of cheaper food supplies.

The East-West Economic Corridor stretches almost 1,500 km from Vietnam to Myanmar. It is the only land route that traverses mainland Southeast Asia east to west. Improvements scheduled for completion in 2006 include rehabilitation of a 130-km segment of highway in Laos, building a second international bridge across the Mekong River, and constructing a tunnel between Hue and Da Nang. When combined with improvements in north-south routes, the corridors will promote development in remote areas, growth of secondary towns, and improved access to coastal markets and ports. Laos and Northeastern Thailand will gain access to Vietnam’s port of Da Nang. Ports on the western end of the corridor will provide farmers and processors better access to South Asian markets (Asia Development Bank, 2002a).

Conclusions

These three examples illustrate how major transportation infrastructure development is taking place throughout the PECC region, linking dispersed surplus food-producing areas with urban consumers, and contributing to a more efficient, seamless regional food system.

But transportation infrastructure is only one of the necessary elements of an efficient food system. As has been repeatedly emphasized by the APEC Food System Initiative and the Pacific Food System Outlook project, the region’s food system is not limited to production agriculture but encompasses the entire complex of economic relationships and linkages that tie the region’s food consumers to producers. To complement well-functioning transportation infrastructure requires competitive transportation and logistics services and policy reform.

Transportation infrastructure development allows for the freer play of comparative advantage by expanding or enhancing the ability of price signals to be transmitted throughout an economy and region. Infrastructure development, combined with trade policy reform, will lead to greater production of