While Bhutan has leapfrogged in ease of doing business ranking, bureaucratic hurdles, lack of coordination and poor system are still impeding cross border trade.
Despite the government’s effort to facilitate trade and boost export, implementation of trade facilitation measures in Bhutan, at 27 percent, is below the average level in Asia and the Pacific (46.5%), and in South Asia and Southwest Asia (42%).
An Asian Development Bank’s (ADB) baseline study on trade and transport facilitation monitoring mechanism (TTFMM) found that countries in South Asia, including Bhutan, often face high trade costs.
According to the latest data, intra-regional trade costs of Bangladesh, Bhutan, and Nepal amounts to 186 percent of the actual tariff, which is the highest among other countries in the sub regions of Asia and the Pacific.
The overall cost of trading goods among the three largest European Union economies is equivalent to 43 percent of tariff.
TTFMM reviews the importance of trade facilitation at global, regional, and national levels, and highlights key initiatives and efforts made by Bhutan in advancing trade facilitation.
For instance, to import a light vehicle from Korea, it takes 28 and half days to complete the import process. Should production and shipping be included, an additional 45 days would be consumed.
Roughly, it takes about 2.5 to 3 months for a vehicle to be delivered to Bhutan from the date of placing an import order. Of the total time, the maximum of about 10 days or 40 percent of the total transaction time is spent on making final payment, which entails receiving original dispatch documents from the manufacturer or exporter by mail or courier and processing remittance.
Placing and confirming an import order takes about five days. The next time-consuming procedure is opening a letter of credit, which takes about 2.5 days. Transportation from Kolkata to Phuentsholing takes about two days.
In terms of trading cost, about 33 percent of the transaction costs are attributed to transit clearance at Kolkata and 14 percent to transport the vehicle to Phuentsholing. This means that almost half of the total costs were incurred for transport and transit in India.
The baseline study also revealed that an importer pays about USD 1,289 (excluding duty and taxes) in Bhutan to deliver a vehicle that typically costs USD 19,870. This represents 6.5 percent of the total price of the vehicle.
Besides this, an existing trader is required to fill in 11 documents to complete the import process. For a new trader who has to complete all onetime procedures, 14 documents are required to complete the import process. There are about 20 stakeholders involved in importing the vehicle.
To complete these 14 procedures, 31 documents such as application forms, application letters and permits are needed, of which 12 documents need extra copies. Altogether, 85 documents are required.
Similarly, it generally takes 16 days on average to import the goods from Dhakha to Burimari, Dhaka to Thimphu. It costs about USD 719 to import a truckload (about eight tons) of melamine products from Burimari to Thimphu. To complete this transaction, 31 documents are needed to complete the 15 processes, of which 12 documents need extra copies. Overall, 77 copies of these documents are required.
The average speed along the Burimari – Phuentsholing corridor is between 5 km/hr to 16 km/hr. “This highlights that both transport infrastructure and vehicles remain a challenge for efficient transport along the corridor,” the report stated.
In all these cases, the number of documents and trading time is significantly reduced if one-time procedures like obtaining licenses, permit, and certification among others are excluded.
Another example the ADB provided is on the export of ferro-silicon products. The study found that it takes 126 days to complete all export procedures.
If the onetime procedures are excluded, the total time is reduced to 17 days. This difference is explained by the most time-consuming procedure for a new industrialist such as applying for an industry license, which takes a minimum of 3.5 months and obtaining environmental clearance that takes at least three months to a year.
After reaching Kolkata, it takes about half a month for an export cargo to be loaded onto a ship at Kolkata Port after the manufacturer or exporter makes advance payment. Transportation to Kolkata takes about five days. The time to clear the export at Kolkata Port is three days.
The total cost for completing all procedures, including onetime procedures, is USD 2,610. Onetime procedures for new traders accounted for almost half of the total costs (USD 1,270), including USD 962 for applying for industry license and taxpayer number and USD 308 for applying export cargo certification.
In terms of documentation, a new manufacturer or exporter has to complete 11 procedures to export ferrosilicon from Bhutan to Europe. For an established exporter or manufacturer, the procedures are reduced to nine. To export to Europe, the exporter needs 28 documents to complete the process and 103 copies of these documents need to be submitted. If onetime procedures are excluded, the total number of documents required is reduced to 19 and the total number of copies to 94.
The necessity of repeated submission of documents highlights the importance of introducing a national single window to substantially reduce the number of submissions.
The report also highlighted that low speed of transportation indicates that the corridor faces numerous challenges with low quality infrastructure, old transport vehicles and equipment, inspection of vehicles and cargoes and logistics efficiency.
The report also shows that if a vehicle along the South Asia Sub Regional Economic Cooperation (SASEC) corridor can travel at 30 km/h from Kolkata to Phuentsholing, which is still low compared to the average speed along the Central Asia Regional Economic Cooperation corridors, potentially 67 hours of journey time on average, or approximately two-thirds of the journey time, can be saved.
One of the common bottlenecks along the two corridors in Bangladesh-Bhutan and India-Bhutan is multiple stops.
Data show that a vehicle needs to stop an average of 10 times during the journey from Kolkata to Phuentsholing and about five times from Burimari to Phuentsholing. This is attributed to inspections in India, queuing at border crossings and key junctions, rest and accommodation. In some cases, heavy vehicles are allowed to drive at nights only.
Unofficial payments along the corridors are also one of the reasons.
Recommendations
The ABD has provided both short-term and long-term interventions.
It recommends implementation of online application and approval, issuance, and renewal of licenses, certificates and permits in a number of similar processes among government organisations, and between government organizations and stakeholders.
Electronic exchange of documents for transit clearance in India between Bhutanese, Bangladeshi, and Indian Customs, and within Indian Customs could ease the burden.
Removal of repetitive or redundant processes, harmonisation of data and documentary requirements, strengthening professional relationships among all parties involved in the trade process are some of the short-term measures.
In the long-term, introduction of national single window, ensuring legal consistency for the introduction of single window and transparency in legal, policy, and procedural requirements are also recommended.
Tshering Dorji