GMS Economic Cooperation Program

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1 GMS Economic Cooperation Program In 1992, six countries bordering the Mekong River Cambodia, People s Republic of China (specifically, Yunnan province and later, Guangxi Zhuang Autonomous Region), Lao People s Democratic Republic, Myanmar, Thailand, and Viet Nam agreed to engage in a program of economic cooperation. With support from the Asian Development Bank, the Greater Mekong Subregion (GMS) Economic Cooperation Program was established with a vision of fostering a more integrated, prosperous and equitable subregion that complements each country s effort to promote its own sustainable development. GMS covers an area of about 2.5 million square kilometers or roughly the size of Western Europe. It has a population of over 300 million people and boasts of abundant natural resources in terms of flora and fauna that provide both income and sustenance to its inhabitants. Mekong River and its tributaries support agricultural and fishing industries as well as providing hydropower energy. The subregion is also a source of timber, minerals, and considerable coal, oil and gas reserves. Its geographical position makes it a strategic gateway for trade with Malaysia, Singapore and the rest of Southeast Asia. The GMS Economic Cooperation Program seeks to encourage trade and investment among its member countries by easing cross border movement of people and goods. It is pursuing a three pronged strategy called 3Cs i.e., Fostering greater Connectivity through the development of sustainable infrastructure and transnational economic corridors; Enhancing Competitiveness through efficient cross border movement of goods and people thus facilitating integration into the global economy; and Building a greater sense of Community among member countries as they recognize and jointly address shared social and environmental concerns. GMS countries share the view that regional economic cooperation and integration is a means for achieving a more efficient use of their regional resources, making economies more complementary, competitive and expanding foreign trade. To operationalize the GMS Economic Cooperation Program, institutional mechanisms were put in place to sustain the collaboration and ensure effective project implementation. A Strategic Framework for the GMS was adopted at the 10th GMS 1

2 Ministerial Conference in November The framework outlines the following five development thrusts: Strengthen infrastructure linkages through a multisectoral approach Facilitate cross border trade and investment Enhance private sector participation in development and improve its competitiveness Develop human resources and skill competencies Protect the environment and promote sustainable use of the subregion s shared natural resources. Flagship programs covering 11 key areas have been conceptualized and are being implemented in support of these development thrusts. They can be clustered into three primary areas of cooperation: (1) development and maintenance of physical infrastructure transport, power, and telecommunication facilities to promote overall economic growth and greater trade, investment, and tourism flows; (2) formulation and implementation of policy and institutional initiatives to maximize the benefits and opportunities from physical infrastructure; and (3) establishment of initiatives to address common social development and environmental sustainability concerns. Since its establishment in 1992, the GMS Economic Cooperation Program has achieved substantial progress as evidenced by the countries per capita GDP growth and a steady reduction of national poverty levels. In fact, it is now one of the world s fastest growing subregion (refer to Table 1). Table 1. Income and Poverty Indicators for GMS Countries Country Per capita GDP (current $) Poverty incidence based on national poverty line (%) /1993 Latest a Cambodia b 34.7 c PRC 293 d 842 d,e 7.8/23.8 f 3.4/7.9 f Lao PDR Myanmar 176 g 26.6 h Thailand Viet Nam a Cambodia and Viet Nam, 2004; Guangxi Zhuang Autonomous Region, Yunnan Province and Myanmar, 2001; Lao PDR, ; Thailand, 2002 b Data for 1993/94 c Based on 2004 Cambodia Socioeconomic Survey. 1993/94 and 2004 data are not comparable since the 1993/94 Socioeconomic Survey covered only 65% of households poverty rate comparable with 1993/94 (39%) is 28% d Covering Guangxi Zhuang Autonomous Region and Yunnan Province, PRC 2

3 e Data for 2004 f 7.8% and 3.4% refer to Guangzi Zhuang Autonomous Region while 23.8% and 7.9% refer to Yunnan Province g Data for fiscal year 2002 (April 2002 March 2003) h Based on the results of the Household Income and Expenditure Survey in 2001 with a sample size of 30,000 households from 75 sample townships Source: Beyond Borders: GMS Regional Cooperation Strategy and Program Update, , ADB ADB continues to play a multifaceted role in the GMS Economic Cooperation Program. As a financier, it extends loans and funds technical assistance for the GMS countries to implement priority crossborder projects. ADB also functions as secretariat and coordinator of the GMS Program facilitating ongoing dialogue among the key stakeholders. It provides technical and advisory support for the different activities under the GMS Program and most importantly, ADB serves as catalyst and honest broker for the GMS Program participants helping them to reach consensus on key issues. Role of cross border infrastructure in GMS Cross border infrastructure development and maintenance performs a key role in ensuring a highly interconnected GMS that can be characterized as having borders without barriers. Since 1992, priority infrastructure projects amounting to over US$ 6 billion have been completed or are being implemented. Transport is the primary infrastructure sector crucial to putting in place a region wide seamless logistics system competitive with those outside the region. However, aside from ensuring an integrated network of transport linkages, the software aspect of cross border infrastructure development require attention such as harmonizing customs procedures and rights of crossborder passage for drivers and vehicles, standardizing regulations on vehicle and load specification, and, concurring on transit and user fees including insurance provisions. Addressing these software issues will reduce time spent at international borders as well as its accompanying transaction costs. The inclusion of other infrastructure sectors, notably energy and telecommunications, among the flagship projects of the GMS Economic Cooperation Program and as core components of economic corridor projects highlight the complexity of cross border infrastructure undertakings. Benefits of the cross border cooperation are not limited to the physical opening up of previously remote or closed off areas but also entail the creation of opportunities for economic growth, spread of new ideas and innovation, and social contact and networking. 3

4 Undoubtedly, major issues also arise as a result of cross border infrastructure projects such as the distribution of costs and benefits to affected parties both within and across countries, dealing with negative externalities that emanate directly or indirectly from cross border infrastructures, managing the sustainability of the cross border infrastructure project in terms of physical maintenance and capability building for experts who will manage the hardware and software issues, as well as finding and mobilizing adequate resources to cover operations and maintenance costs of these cross border infrastructure projects. Economic corridors Economic corridors are more than just highways. Aside from having improved transport networks linking vital points across the GMS as its central component, economic corridors integrate opportunities for potential trade and production ventures. Policy, regulatory and financing initiatives are also incorporated to take advantage of the benefits created by the development of cross border transport projects. In the case of GMS, the economic corridors bring a holistic approach to infrastructure development covering a range of sectors transport, power, telecommunications, trade and investment, and tourism that focus on the same geographic area to maximize the benefits of intraregional transport and other positive impact while minimizing development costs. One of the goals of the GMS Economic Cooperation Program is to establish a network of all weather roads throughout the subregion by 2012, which are complemented by other essential infrastructures such as reliable power supply and efficient telecommunications system. The convergence of these elements is projected to attract investments in agroindustry, fisheries, light manufacturing, industry, trade and tourism as well as promote regional economic integration. The GMS economic corridors will ease the movement of people and goods throughout the region as well as reduce poverty and support the development of rural and border areas along its route by increasing the earning capacity of low income groups and providing employment opportunities to disadvantaged sectors particularly the minorities. In terms of transport, the economic corridors will entail the construction, upgrading and maintenance of all weather roads, and the fullimplementation the 2003 Cross Border Transport Agreement among all the six GMS countries. The agreement will facilitate: Single stop or single window customs inspection Cross border movement of persons, i.e., visas for persons engaged in transport operations 4

5 Harmonization of transit traffic regimes, including exemptions from physical customs inspection, bond deposit, escort, and agriculture and veterinary inspection Standardization of requirements that road vehicles will have to meet to be eligible for cross border traffic Exchange of commercial traffic rights Infrastructure development, including road and bridge design standards, road signs and signals Aside from roads, the GMS economic corridors target the improvement of multi modal transport such as railway, water and air transport development to minimize the need for transshipment. It is also engaging in capacity building for cross border planning and management of appropriate infrastructure initiatives, as well as policy and regulatory regimes. Currently, the GMS Economic Cooperation Program has three flagship corridor projects. North South Economic Corridor The North South Economic Corridor is comprised of two routes running along the north south axis from Kunming in the Yunnan Province, PRC to (1) Chaing Rai Bangkok via Lao PDR and Myanmar route and (2) Hanoi Haiphong in Viet Nam. Together with the Southern Economic Corridor, running from Bangkok to Ho Chi Minh City, it forms a large loop or ring road that covers major cities and towns in the GMS. In addition, the North South Economic Corridor intersects the East West Corridor at key junction points in Thailand and Viet Nam. This particular corridor thus provides PRC and northern Lao PDR access to critical sea ports and opens a gateway to Singapore and Malaysia. East West Economic Corridor The East West Economic Corridor encompasses a road link of about 1,450 kilometers long and will create a direct and continuous land route between the Indian Ocean (Andaman Sea) and the South China Sea. It will connect Mawlamyine Myawaddy in Myanmar to Dong Ha Hue De Nang in Viet Nam via Thailand and Lao PDR. The East West Economic Corridor will provide northeast Thailand and central Lao PDR with access to ports and increased opportunities for trade for the mediumsized cities of these GMS countries. Its completion is projected to accelerate east west economic cooperation and development. 5

6 Southern Economic Corridor The Southern Economic Corridor consists of an all weather road from Bangkok, Thailand to Ho Chi Minh Vung Tau in Viet Nam including the upgrading of critical links in the existing Asian Highway Network. It is expected to improve economic cooperation primarily among Cambodia, Thailand, Vietnam and to a limited extent southern Lao PDR. Return to 6

7 Energy sector Regional Power Interconnection and Power Trade Arrangements Ensuring reliable energy supply is critical to stimulating cross border economic development and trade. Recognizing this, the countries under the GMS Economic Cooperation Program have agreed to jointly develop and share the subregion s energy resources particularly given its uneven distribution in the area. This flagship project primarily aims to establish a commercially based energy system that can reliably and competitively supply electricity to the entire subregion while minimizing environmental and social costs. Its two pronged approach to this goal combines the development of policies and institutions for cross border power dispatch and trade with the installation of grid interconnection infrastructure utilizing a building block approach. It is also supporting the enhancement of power generation from subregional sources, rural electrification especially of isolated towns and villages, commercial energy pricing that is equitable, and setting in place measures to mitigate social and environmental costs of power projects. The regional power interconnection and power trade agreement flagship project is geared towards efficiently utilizing the energy potential of GMS by reducing individual investments in power reserves for meeting peak demand, bringing down operational costs, achieving more reliable power supply for countries and reducing system losses. It also favors the use of hydropower over coal and other fossil fuels, which generate greenhouse gases. The major components of the project include: Financing construction of transmission lines and associated stations to interconnect the national power systems comprising the subregional grid; Mobilizing private sector investments in power through an approved policy and regulatory climate; Implementing a power market trading system that encourages power sector investments including the structuring of power tariffs on a commercial basis; and Developing a corps of technical personnel to manage the integrated power sector operations. 7

8 GMS Energy Strategy Beyond establishing infrastructures that facilitate cross border electricity trade and supply, the GMS Economic Cooperation Program is developing an energy strategy to expand collaboration among its member countries to meet rising energy needs and ensuring a robust energy market. The GMS Energy Strategy intends to articulate a subregional vision and plan of action to meet the emerging energy challenges until Developing a subregional energy strategy is vital for a number of reasons: (1) The geography of energy supply options do not conform to national boundaries there are opportunities available to reduce overall energy costs by exploring supply options beyond a country s borders; (2) Individual markets are sometimes too small to justify large scale investments that are necessary for achieving scale efficiency; (3) Crossborder energy supply provides diversification of sources and ensures energy security; and (4) The energy sector has environmental implications beyond national boundaries that need to be integrated in energy planning to ensure sustainable development. The GMS energy strategy will identify priority investment projects including private sector financing to enhance energy trade and investment in the region as well as propose institutional and other arrangements to enhance regional energy security. Telecommunications backbone and information and communications technology Access to quality and affordable telecommunications service is central to the growth and development of the GMS. It is an indispensable tool for private and public sectors as well as other service sectors like health and education. This flagship project will expand the telecommunications network in the subregion by improving the backbone telecommunications infrastructure to attract private sector investment in national telecommunications networks, facilitate interconnection of national networks, provide affordable access to voice and data services including the Internet, and reduce the Digital Divide by giving the poor opportunities to access the world wide web and enjoy its benefits. This project entails both policy reforms to facilitate private sector participation and maximize the benefits of investments in the telecommunications sector, as well as harmonizing technical standards of national telecommunication networks to ensure efficient and effective integration. Establishing a telecommunications backbone will also provide essential support for the development of the economic corridors and permit the growth of e commerce. 8

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