UNECE Steering Committee on Trade Capacity and Standards

UNECE Steering Committee on Trade Capacity and StandardsRegulatory and Procedural Barriers to Trade in Kyrgyzstan: Need Assessment

Geneva, Switzerland31 August-1 September 2015

Mr. Rafkat Hasanov, Executive Director, Investment Round Table (IRT), Kyrgyzstan ObjectiveSupporting Kyrgyzstans trade development and integration into regional and global value chains On-going effortsKyrgyzstan has recently obtained membership in the EurAsEC Customs Union (CU) of Armenia, Belarus, Kazakhstan and the Russian FederationThe Government is considering the possibility of applying to join the European Union (EU) new Generalized System of Preferences (GSP) special incentive scheme for sustainable development and good governance, commonly referred to as GSP+. The Government was also keen on capitalizing on the countrys strategic geographic location as an overland bridge, which links PRC with the Russian Federation, Europe, Turkey, Iran and the Middle East. UNECEUsing the UNECE evaluation methodology, this study is meant to support the Governments renewed trade development efforts by providing action-oriented recommendations for removing regulatory and procedural barriers to trade in goods in a manner that allows for gearing regional integration efforts to addressing national priorities and interests.

2ScopeCities and provincesConsistent with the overall geographic distribution of manufacturing and trade activities in the country, the survey coveredCapital city of BishkekChui provinceOsh provinceIssyk-Kul province

SectorsNon-resource based sectors, which were selected in consultation with the Ministry of Economy, based on their contribution to exports and income growth in general:Food and live animalsBeverages Animal and vegetable oils, fatsChemicals and related productsManufactured goods classified chiefly by materialMachinery and transport equipmentMiscellaneous manufactured articles

Broadest possible participationInter-agency working group

Chaired by the Deputy Minister of EconomyBrings together public and private sector stakeholdersActs as an advisory group: feedback on the study and on follow-up activities

InterviewsMinistries and State agencies Market support institutionsTransport operators and logistics service providers30 traders

Comprehensive Evaluation Methodology:Interplay between transport, trade facilitation, standardisation and technical regulation

The study covers: 1- Trade facilitation; 2- quality control and quality assurance and, transport The aim is to capture the problems in the areas of trade facilitation, transport and standardization and highlight in details how these problems combines to increase the costs and time of export and import processes and, thereof, increase trade costs5

Evidence based

6Desk research and face-to-face interviewsThe problems and issues are identified through desk study and face to face interviews with traders, Government officials, and representatives of service providers6Problems reported by tradersComplex documentary requirements. In some cases it takes up to 30 days to obtain a document Customs clearance and at border control is cumbersome: more than 1 dayTransport and logistical services are expensive: account for up to 20 per cent of the total costs accrued by the surveyed importers, and up to 30 per cent of the total costs accrued by the surveyed exporters

Problems reported by tradersBusiness process analysisKidney beansThe trader has to provide 35 documents, including the main trade documents and the associated support documents.It takes 10 days to complete the business processes associated with exporting kidney beans from Kyrgyzstan to Serbia, and another 13 days for the goods to arrive to their final destination.Fresh apricotsThe trader has to provide 35 documents, including the main trade documents and the associated support documents.It takes around 9 days to complete the business processes associated with exporting apricots from the Kyrgyz Republic to the Russian Federation. If transportation time is taken into account, the total export time increases to 14 days8

Trade Facilitation and Transport

9AreaIssues/challenges1. Transport

2. Logistical services

Quality and price of transport and logistical servicesRegulations and lawsAdministrative proceduresInstitutional capacity of State agenciesInter-agency cooperationDevelopment plans3. Customs clearance

4. At the border control

Administrative and regulatory proceduresDocumentary requirementsRegulations and lawsInstitutional capacity of State agenciesInter-agency cooperationPublic-private sector dialogue and partnershipsDevelopment plansWhat are the reasons behind the problems reported by traders? The problems are caused by capacity building shortfalls agencies supporting trade facilitation, including Government agencies and service providers, as well as weaknesses in transport infrastructure. This slide provides a general overview of the capacity shortfalls by area and issue. The details will be provided in the following slides 9Trade Facilitation1. Transparency

Traders have to piece together information on documentary requirements, regulations and applied procedures from different sourcesTraders do not receive information on new regulations and procedures in a timely mannerTraders do not have a complete grasp of the implications of the regulations and proceduresParticipation of private sector in decision making is fragmented across 3 agencies and SMEs participation is limited

Trade Facilitation2. At the border control

Shortfalls in inter-agency coordinationCumbersome inspection proceduresNeed of pre-shipment inspectionCustoms valuation is problematicAt the border payment is time consumingWeaknesses in the rule of lawLack of proper facilities

Trade Facilitation3. Complex documentary requirementsUniform standards for structuring documentary requirements and data collection is available but not used by agenciesLicenses and permits are not structured in electronic formats such as UN/EDIFACT or XML formats Movement towards paperless trade in Headquarters and Regional offices is not synchronizedLimited steps to ensure that trade documents are processed quickly or to set deadlinesTendency to abandon the SW altogether when additional information is requiredCapacity shortfalls within State agencies33 Mandatory licenses , certificates and permits for a variety of products with up to 46 accompanying support documents

Trade Facilitation4. Regional cooperationSpaghetti bowl of agreements rendering transport regulation extremely complexRegional agreements have limited focus Lack of effective mechanisms for enforcement and dispute settlement Non-tariff barriers by neighbouring countries TIR convention is an expensive option Capacity shortfalls in Ministry of Transport

Regional agreements have limited focus: 1- Aside from articulating broad policy objectives and principles for guiding the development of regional transit transport systems, the agreements mainly address key constraints to cross-border transport, such as restrictions on the entry of vehicles and different vehicle dimension standards. The agreements do not spell out common regulations and procedures. 2- regional agreements lack effective enforcement and dispute settlement mechanisms, at a time when transit trade continues to be disrupted by border tensions. The agreements cannot prevent signatory countries from taking actions that are inconsistent with the agreements, and do not help settle trade disputes that may arise from such actions.

TIR: The TIR system is not widely used by traders, despite the concerted efforts that have been invested in promoting it. This is so because: 1- TIR Carnets remain the mechanism of choice for only a limited segment of enterprises and carriers. Its fixed costs are too high for most of the enterprises, who usually handle small volumes with fluctuating schedules (e.g. at harvest time); 2- the absence of a common insurance guarantee system for governing transit cargo between Kyrgyzstan and its neighboring countries. This system is critical for establishing a financial security mechanism, whereby the customs administrations in respective countries are reimbursed in case of revenue leakages or if goods are diverted for local consumption en-route. 13Trade Facilitation5. Inland transport

RailFragmented railroad, divided between the Southern and the Northern regions, and featuring a series of dead-end branch lineTransport by rail is cheap, but only for large volumes. Unreliable, as delivery is often delayed. Moreover, since the railway network does not reach the adjoin customs posts, traders accrue additional costs in the form of customs fees, since they customs staff should to be present during the loading/unloading of goods. Insufficient and obsolete rolling stock, including standard rail cars. Traders often resort to informal payments to avoid delays14Trade Facilitation5. Inland transport

RoadTransport by road appeared to be the exporters transport mode of choice, as it is cheap, relatively fast when exporting to nearby markets and offers a broader choice of routes. However, Not convenient for fragile goods and for large consignments (as it is more expensive compared to rail transport). Dangerous, as it exposes traders to high incidents of theftInvolves long waiting lines due to congestions.15Trade Facilitation7. MaritimeUse maritime transport for moving goods from distant markets and for a limited part of the journey. For example, goods imported from Korea are transported by sea to a PRC port, where the goods are unloaded for transport by rail to their target destination in Kyrgyzstan. Maritime transport helps them cut down on costs, and offers a safe mode of transport in that it involves adequate protection against cargo theft

8. AirProhibitively expensive. Thus only used for small volumes16Trade Facilitation9. Logistical services

Truck fleets tend to break down often and are problematic in terms of safety and environmental impact.

Traders have a limited choice of companies offering multi-modal transport services. Local companies are mostly small, and lack the facilities and expertise to provide quality services, while international companies charge high fees.

Both local and international companies cater for small shipments cargo, due to largely to the underdeveloped logistics infrastructure.

The country lacks modern logistics centers that could consolidate freight for the international market in sufficient volumes and allocate them to the most efficient transportation mode

Traders face problems in using containerized shipments, including the high container fees and significant delays with delivery

17Trade Facilitation7. Logistical services

At most border crossing points (BCPs):

logistical services are inadequate, lacking the required space for vehicle and goods inspection and facilities for inspecting goods.

Goods are unloaded by hand, resulting in damaged merchandise BCPs lack non-intrusive inspection equipment, such as x-ray and gamma-ray scanners

Both local and international companies cater for small shipments cargo, due to largely to the underdeveloped logistics infrastructure.

18Standardization and Technical Regulation: areas and issuesPlanning and implementation challenges facing regulators in ensuring product quality and safety

Quality of infrastructure (i.e. testing laboratories)Competence (expertise knowledge) Management methodologies,Regulatory framework19The problems reported by traders are also caused by capacity building shortfalls within the agencies responsible for quality control and quality assurance. This slide provides a general overview of the capacity shortfalls by area and issues. The details will be provided in the following slides

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Quality control and quality assuranceTechnical regulationsTakers of technical regulations: Not tailored to national interests

Absence of an overall strategy for guiding quality control and quality assurance: The basic principles and building blocks for such a strategy are fragmented across an assortment of legislative acts and initiatives, such as the SW initiative20Technical regulations takers: Technical regulations to date have been developed by means of transposing the EU and WTO-compliant Eurasian Economic Community (EurAsEC) common regulations into national laws, whereby the text of the regional technical regulations was adopted directly and made national laws. This approach enables swift harmonizing technical regulations, as it ensures compliance with the requirements of the WTO Agreement on TBT and renders EU compliant regulations equivalent to their corresponding, separate directives for the purpose of conformity assessment. However, by issuing the identical text of the regional technical regulations in national legislation, the Government would have to amend national laws to integrate changes and revisions introduced by either of the regional bodies, at a time when the regional technical regulations in questions may not be necessarily turned to the specific conditions of the Kyrgyz economy and its enterprise sector

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Quality control and quality assuranceStandards settingStandards takers and not standards makers

Country still lacks the resources either to demonstrate that international standards are inappropriate to local circumstances or to develop its own standards.Agencies as well as enterprises also lack the experience to participate in international standard setting

Mutual Recognition Agreements (MRAs) to date tend to have a limited focus21Agencies as well as enterprises lack the experience to participate in international standard setting. Standards bodies do not have the resources required to engage effectively with domestic constituents or to participate in international standards bodies, and the enterprises do not necessarily have the financial and human resources needed to participate in international standards activities.This impeded participation has two important results. First, international standards that are developed are most often those that respond to developed country priorities, not to developing country priorities. Moreover, even where international standards respond to developing country needs, their specifications are more likely to be suited to large, multinational companies rather than to labor-intensive SMEs21

Quality control and quality assuranceConformity assessment, accreditation & product certification

Kyrgyz Centre for Accreditation (KCA) is operating under financial constraints: Unable to cover such basic services as the translation of the guides and technical documents from English into Russian

KCAs management information system should be improved. 22KCAs management information system should be improved: The centre still uses up to 150 paper-based forms to gather information requirements associated with the issuance of accreditation certificates, and each form should be filled out manually and archived (in hard copies). Efforts to modernize the ICT system have resulted in the proliferation of fake product certificates22

Quality control and quality assuranceConformity assessment, accreditation & product certification

Lack of necessary expertise skills for attending to new accreditation areas, including certification of food safety management system.

Majority of labs lack the required equipment and expertise skills, so that their accreditation by external experts is difficult.

Absence of a proper market surveillance system for consumer goods.

23Majority of labs lack the required equipment and expertise skills, so that their accreditation by external experts is difficult. Cases in point are the laboratory for machines and furniture and the laboratory for consumer goods, packing, textile and light industry

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Quality control and quality assuranceConformity assessment, accreditation & product certification

Lapses in the legal framework. State Inspectorate of Environmental and Technical Safety (SIETS), which assumed all surveillance functions from the relevant line Ministries in 2012, still lacks the required institutional capacity . 24Lapses in the legal framework. Any enterprise could venture into manufacturing construction materials, since this activity is not subject to licensing requirements. SIETS: SIETS often carries unplanned inspections in response to complaint or as follow-up to inspections, and attaches limited importance to research and analysis

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Quality control and quality assuranceConformity assessment, accreditation & product certification

SPS control measures should be improved: The laboratory for phytosanitary testing under the Ministry of Agriculture lacks key equipmentThe laboratory for veterinary diagnosis is seeking to obtain accreditation for around 200 tests, including generic tests. KCA is unable to accredit this laboratory to ISO/IEC 17025The State laboratory for food testing is not accredited The country to be rife with certain Foot-and-Mouth Disease (FMD) strains25

Quality control and quality assuranceConformity assessment, accreditation & product certification

There is also the need to reconsider the existing allocation of functions between the different agencies. The Hazard Analysis and Critical Control Points (HACCP) system for food manufacturing is yet to be introduced at the enterprise level as stipulated by the law26Reconsider the existing allocation of functions between the different agencies. The veterinary laboratory is under the State Inspectorate for Veterinary and Phytosanitary Safety, while the laboratory for phyto testing is under the Ministry of Agriculture. This complicates inspections of food products at border crossing points, which requires the simultaneous support of both laboratories.

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Quality control and quality assuranceMetrology

Legal metrology is not fully developed: covers only base units,

Thus, the Centre for Standardization and Metrologys ability to deliver metrological services, including calibration, verification and the certification of testing and diagnostic equipment, is undermined by shortfalls in legal metrology.

The calibration laboratories lack modern facilities, with the bulk of existing equipment from pre-independence period27Thank you