Support for Implementing the Action Plan for Transport and

Trade Facilitation in the GMS:

Scoping Study on Developing Border Economic Areas and
Cross-border Linkages Between Thailand and its Neighbours

Revised June, 2014

Prepared for the Asian Development Bank, Thailand Resident Mission
George Abonyi*
Anthony M. Zola

George Abonyi (gabonyi@gmail.com), Team Leader, is Visiting Professor, Dept. of Public

Administration and International Affairs, and Executive Education Program, Maxwell School,
Syracuse University; Anthony M. Zola is a Laos and Thailand-based consultant and Senior
Researcher, Mekong Environment and Resources Institute (MERI). Research assistance for the
case studies provided by Mr. Eggaluck Suwannakarn, Senior Researcher, Fiscal Policy Research
Institute (FPRI), Bangkok.

CONTENTS
Page
CURRENCY EQUIVALENTS
ABBREVIATIONS
Executive Summary
I.

II.
III.

Border Area Development: Special Economic Zones (SEZ) and Beyond

1.
Introduction
2.
Overview: border area development
3.
Special economic zones in Asia and the
Greater Mekong Subregion
4.
SEZ: lessons from international and GMS experience
General Conclusions from the Case Studies
1.
Brief description of the border areas in case studies
2.
General conclusions
Case Studies
A.
Border economic zone and agribusiness linkages at
Ubon Ratchatani (Thailand) and Champasak (Lao PDR)
B.
Toward cross-border economic zones and value chain linkages
at Mae Sot (Thailand) and Myawaddy (Myanmar): case study
C.
Border economic zones at Sa Kaeo (Thailand) - Banteay Meanchey
(Cambodia); Trat (Thailand) - Koh Kong (Cambodia)

References

10
10
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43
61
82

CURRENCY EQUIVALENTS
(as of 27 June 2014)
Currency Unit
B1.00
$1.00

=
=

Baht (B)
$0.0308
B32.4580

ABBREVIATIONS
ACMECS

AEC
AFTA
ASEAN
AISP
BEZ
BOI
CBEZ
CBTA
CCA
CCQ
CLMV
CP
CMP
EWEC
FDI
FTA
GDP
GMS
GSP
IPP
IZ
JCBD

JPPCC
Lao PDR
MOU
OBM
ODM
OEM
OSS
PPP
PRC
SEC
SEZ
SME

Ayerwaddi - Chao Phraya - Mekong Economic

Cooperation Strategy
ASEAN Economic Community
ASEAN Free Trade Area
Association of Southeast Asian Nations
ASEAN Integration System of Preferences
Border Economic Zone
Board of Investment (of Thailand)
Cross-border Economic Zone
(GMS) Cross-Border Transport Agreement
Customs Controlled Area
Customs, Immigration (controls), and Quarantine
Cambodia, Lao PDR, Myanmar, and Viet Nam
Charoen Pokphand
Cutting, Making, and Packing
East-West Economic Corridor (GMS)
Foreign Direct Investment
Free Trade Agreement
Gross Domestic Product
Greater Mekong Subregion
Generalized System of Preferences
Independent Power Producer
Industrial Zone (Myanmar)
Joint Committee (Thailand-Cambodia) on Border
Area Development and Connectivity
Joint Public-Private Sector Consultative Committee
Lao Peoples Democratic Republic
Memorandum of Understanding
Original Brand Manufacturing
Original Design Manufacturing
Original Equipment Manufacturing
One Stop Service
Public Private Partnership
Peoples Republic of China
Southern Economic Corridor (GMS)
Special Economic Zone
Small- and Medium-scale Enterprises

Executive Summary
I.

Context

Thailands national development strategy includes a focus on border areas, with

particular emphasis on strengthening cross-border economic linkages, especially with
neighbouring Greater MekongSubregion (GMS) countries. This is intended to support
the competitive performance of Thai firms, and the development of local communities.
More generally, effective collaboration through increased economic linkages in border
areas can support the development of all the participating countries by developing local
communities, and also serving as gateways for the wider domestic economy.
A key objective of less developed GMS economies such as Myanmar, Cambodia and
Lao PDR, is product/market diversification, initially through labour-intensive activities and
industries, aimed at regional and global markets. A key objective of Thailand, a more
developed economy that is losing comparative advantage of low labour costs, is
upgrading to more capital-, skill-, and knowledge-intensive activities and industries.
Therefore strengthening cross-border economic (e.g. production) linkages through
effective development of border areas can bring benefits to all participating economies.
II.

Mechanisms for border area development

Consistent with Thailands national development strategy, an important dimension of

GMS cooperation has involved a focus on special economic zones (SEZ), including in
border areas. However, border area development for exploiting local and cross-border
advantages can take broadly 3 different forms: (1) special economic zone (SEZ); (2)
border economic zone (BEZ); and (3) cross-border special economic zone (CSEZ).

Special economic zone (SEZ) is a formally incorporated geographic area that has
certain general characteristics such as single management or administration; well
defined geographic boundaries; eligibility of businesses located there for various
benefits such as tax incentives, access to specially provided infrastructure
services within the zone; and often a separate customs area and streamlined
procedures. In the case studies, this may be a most effective mechanism for
developing Mae Sot, particularly in the context of Myawaddy (Myanmar).

Border economic zone (BEZ) is an area that uses effectively linkages with
economic activities across the border. It should be guided by a clear and
coherent vision and strategy, but need not involve a formal special economic
zone with separate administration, regulations, and services. The goal is to
develop the comparative advantage of a given area, leveraging economic
developments across the border, for example, focusing on specific value chains;
and strengthen related cross-border linkages, e.g. customs procedures, logistics
services, access to labour. In the case studies, this exists in Ubon Ratchatani;
and may be appropriate for developing border areas in Trat and Sa Kaeo, given
the goals of local communities, and local constraints and opportunities.

Cross-border special economic zone (CSEZ) is established in close collaboration

by two (or more) governments, with synchronized rules and regulations, for
example related to trade, investment, and customs. It involves creating an
interdependent operational and administrative environment for business on both

sides of a border. In principle, a CSEZ builds on viable SEZs in the respective

countries. This requires agreements related to specific cross-border linkages
between two adjacent SEZs. There are no examples in the GMS, although there
has been an initiative to establish what is referred to as a Cross-Border
Economic Zone (CBEZ) along the North South Corridor between Hekou in
Yunnan Province, PRC, and Lao Cai in Viet Nam. This form of border economic
development may be very effective for collaborative development of Mae Sot
(Thailand) and Myawaddy (Myanmar) to support cross-border mutually beneficial
linkages in labour intensive value chains or industries, particularly garments.
III. Case Studies
The key conclusions with respect to the case studies may be summarized as follows:
Ubon Ratchatani (Thailand) Champasak (Lao PDR): This involves well-functioning
border economic areas and related cross-border cooperation, that creates a viable
border economic zone (BEZ). Lao PDR provides labour, commodities and some
processing; and Thailand provides higher value added processing and related services
(e.g. logistics). The interests of the participating countries and communities are
strategically and operationally relatively well aligned. The challenge, at this stage, is to
strengthen and expand what is already there. For example there are opportunities to
further strengthen connectivity (e.g. transport linkages) through coordinated investment;
to expand existing trade, for example by building on Ubons Charoensrie Market as a
regional commodity hub; and through more effective involvement of key stakeholders,
for example government and business, including through public-private collaboration
(PPP) and related to that, greater authority to the GMS Governors Council.
Mae Sot (Thailand) Myawaddy (Myanmar): There are significant opportunities but also
challenges for developing this border area in a way that builds on the comparative
advantages of the two economies. There is strong interest at all levels in Thailand to
develop a Mae Sot SEZ. But it seems to lack a coherent and shared guiding vision and
strategy; and therefore the appropriate implementation mechanism is also not clear, e.g.
what kind of SEZ. The basic challenge is to define a clear, coherent shared vision and
collaborative strategy for cross-border cooperation and development. The case analysis
suggests that such a vision and strategy could focus on complementary and linked
development of labour-intensive industries, in particular garments. This could be an
effective and sustainable response to broader development challenges and priorities in
both Myanmar and Thailand. It could be implemented through collaborative development
of linked SEZs to form a cross-border special economic zone (CSEZ), including in-bond
processing system, supported by appropriate infrastructure and border procedures.
Sa Kaeo (Thailand) Banteay Meachey (Cambodia), and Trat (Thailand) Koh Kong
(Cambodia): The Thai and Cambodian governments, and local communities all have
strong interest in developing these border areas. The basic constraint to date, and that
could significantly hinder future development and cross-border linkages, is apparent key
differences between the visions and aspirations of the local communities (Trat, Sa
Kaeo), and the perceived preferred strategy and related implementation mechanism
(SEZ) of the Thai central government. The local (business) communitys vision for
development focuses on leveraging cross-border linkages through trade-related
services, value added agro-processing (including bio-energy), and tourism. Industrial
(e.g. manufacturing) development through SEZs is seen as neither feasible, given local

constraints such as land (particularly in Trat), nor fitting with local aspirations for
development. The basic requirement for successful cross-border collaboration therefore
is to first reconcile conflicting visions and strategies for local development. Depending on
the strategy selected, the implementation mechanism may also take different forms. For
example, it could involve an SEZ, if suitable for agro-processing or for services such as
logistics; or a more informal border economic zone (BEZ), strategically focused on
particular cross-border linkages, as in Ubon. Furthermore, the location of this area on
the GMS Southern Economic Corridor could provide opportunities for wider subregional
development and linkages, for example through expanded logistics services.
IV.

General conclusions from the case studies for border area development

Specific recommendations with respect to the border area development include relatively
wellunderstood requirements such as strengthening local infrastructure, and upgrading
trade facilitation factors (e.g. customs facilities and procedures). The history of GMS
cooperation suggests that although such issues are well known, addressing them
operationally can be challenging, and success varies with local conditions and
constraints. Beyond this, a number of more fundamental conclusions emerge from the
case studies, consistent with international experience. These include:

Clear and coherent vision and related strategy of border area development,
anchored in local conditions, is essential: The starting point for the viable and
sustainable development of border areas, particularly in the context of crossborder economic linkages, is a clear and coherent vision and strategy for
development. This has to reflect both local and national interests; needs to be
anchored in local conditions (constraints and opportunities); and consider
potential spillovers to the wider domestic economy. The cases of Mae Sot
(Thailand) Myawaddy (Myanmar); Sa Kaeo (Thailand) Banteay Meanchey
(Cambodia); and Trat (Thailand) Koh Kong (Cambodia), all illustrate the
importance of this issue for border area development and cross-border linkages.

Strategy focused on specific (cross-border) value chains: A viable and

sustainable strategy of developing particular border areas should also focus on
strengthening cross-border linkages in specific value chains of joint interest,
consistent with local conditions. This builds on recognition that constraints facing
firms in the garment value chain or industry are likely to differ in important ways
from those facing firms in electronics or agro-industry, for example with respect
to needed logistics and skills. It is not clear the proposed Mae Sot or Trat SEZ
has such focus; and this may be contributing to uncertainty, and constrain future
viability. Furthermore, it is important to be imaginative in formulating such a
strategy. The minimum wage of Baht 300/day may seem to suggest that Mae Sot
is no longer viable for garment production. However, the case analysis presents
a strategy for the joint development of Mae Sot (Thailand) Mywawaddy
(Myanmar) based on cross-border linkages in the garment value chain.

Collaborative development of a shared vision and strategy: It is essential to align

the visions and strategies of key stakeholders with respect to border area
development. This vision and strategy should reflect the aspirations of the local
community; and should also be consistent with broader national development
priorities. Otherwise it will be resisted by key stakeholders, and will be difficult to

implement. This is reflected in the experience in Sa Kaeo and Trat, (and perhaps
Mae Sot), where developing a shared vision and strategy is a pre-requisite for
both viable local development and effective cross-border linkages.

There is a diversity of mechanisms for border area development and crossborder cooperation: A SEZ is not the only option for implementing a strategy of
border area development. In some settings the focused but more informal
approach of a Border Economic Zone (BEZ) may be more appropriate. This is
reflected in the Ubon Ratchatani (Thailand) Champasak (Lao PDR) case; and
may also be an effective option for addressing constraints and opportunities in
Trat. The Mae Sot (Thailand) Myawaddy (Myanmar) case illustrates possible
application of the alternative mechanism of cross-border special economic zone
(CSEZ), involving the collaborative linking of SEZs on each side of the border,
focused on cross-border linkages in the garment value chain.

Align selected strategy and implementation mechanism with the neighbouring

countys development strategy and local conditions: Since the focus is on crossborder linkages for mutual benefit, which require collaboration in various forms,
strategies and mechanisms of participating countries must be aligned from the
outset. This is essential to guide more specific subsequent decisions to ensure
complementarity. For successful development of Trat and Koh Kong, a shared
cooperative strategy between Thailand and Cambodia, including the local
communities, is necessary to guide specific decisions addressing issues such as
infrastructure investment and trade facilitation measures. Similarly, for a Mae Sot
Myawaddy CSEZ, Thailand and Myanmar (and the local communities) have to
align their strategies and implementation mechanisms from the outset, to ensure
viable and sustainable cross-border development.

Approach cross-border economic development, where possible, in the context of

wider subregional (e.g. GMS) cooperation and integration: Developing border
areas and cross-border linkages within the wider context of subregional
cooperation can provide significant additional benefits; and in turn, facilitate such
wider cooperation and development. For example, cross-border cooperation in
logistics in Sa Kaeo (Thailand) Banteay Meanchey (Cambodia), and Trat
(Thailand) Koh Kong (Cambodia), could accelerate implementation of linkages
along the GMS Southern Economic Corridor with additional benefits to the border
areas and beyond. Similarly, a Mae Sot (Thailand) Myawaddy (Myanmar) CSEZ
can link development to the GMS East West Economic Corridor (EWEC).

V.

SEZ: lessons from international and GMS experience, and case studies

Given the extensive use of SEZs in border area development, it is useful to summarize
key lessons from international and GMS experience:

1. Special economic zones must be special: Successful SEZs offer investors

something significantly different from and better than what is available in the rest
of the economy, not just marginal improvements. The exact characteristics of
SEZs depend on their goals. For example, a Mae Sot SEZ may (should) differ in
important ways from a Sa Kaeo SEZ, if they aim to attract mostly different
industries (e.g. garments vs. agro-industry). International evidence indicates that
SEZs are likely to be most successful when they are targeted at particular value

chains or industries, and offer concrete and efficient solutions to the specific
competitive challenges faced by firms in those value chains.

2. Global -- or regional -- competitiveness is what counts: Being better than the

host domestic economy is unlikely to be sufficient for viable and sustainable
SEZs. Investors, especially foreign investors, have a wide range of choices, and
select particular SEZs for a variety of different reasons. A wide range of factors is
considered in investment decisions, including location, market access, logistics,
trade facilitation, and stability of rules and regulations. It is the overall contribution
of an SEZ to competitiveness in particular value chains that is critical; and these
are largely dependent on the competitive dynamics of the specific value chains.
Few investment decisions are made on the basis of financial incentives alone.
The relevance of this general issue is illustrated in the context of Banteay
Meanchey (Cambodia), where logistics costs and time are important constraints.

3. SEZs are not the best instrument to solve the problems of poor regions: SEZs
are often established as a means for developing poorer regions of a country. This
is also reflected in the experience of the GMS. These are generally some of the
least successful SEZs. Regions are usually poor because they lack key factors
for development such as infrastructure, access to markets, or labour skills. It
requires extensive investment and/or subsidies to overcome such constraints. It
is generally very difficult to compensate for such shortcomings in a way that is
economically viable or sustainable, particularly if the costs are to be recovered.

4. The rest of the domestic economy also has to work: Although SEZs are
specific and bounded geographic areas, their contributions to national
development will be severely limited if they are isolated islands in an economy.
The more supportive or business friendly the surrounding environment, and the
more such external linkages are consistent with business performance, the more
an SEZ is likely to contribute to the wider domestic economy. This specific issue,
and the more general relationship between an SEZ and the domestic economy is
reflected in the experience to date of Cambodian SEZs (Section III.C).

5. SEZs should have clear, coherent and viable business and economic
rationale, anchored in local conditions: SEZ design has a great deal of flexibility,
and can offer tailored responses to local business constraints and opportunities.
The key is for an SEZ to help address specific constraints that limit the growth
and performance of particular value chains or industries in the domestic
economy. For example, in a low income and low productivity and long isolated
economy such as Myanmar, an SEZ at Myawaddy should focus on addressing
the needs of labour-intensive industries, involving lower skill activities in
particular global value chains such as garments and electronics. In a more
developed economy such as Thailand, an SEZ at Mae Sot, could focus on the
needs of more knowledge intensive activities in particular value chains, that
strengthen the capacity for innovation for regional (AEC) markets, while
leveraging lower cost labour in through focused linkages with Myawaddy.

6. For economies where labour is a key resource, the costs and flexibility of
employment matter: This is largely the case in the CLMV countries, where SEZs
have to address the particular needs of labour-intensive industries. Factors such
as wages, flexible labour markets, and laws governing work, have to allow firms

to respond to changing competitive pressures, which are particularly intense in

low skill, labour intensive activities and industries. It is also important to ensure
appropriate working conditions, both for improving quality of life in local
communities, and in response to demands of global markets for proper labour
standards. Labour intensive activities and industries require more than unskilled
workers. They also need cost-efficient and reliable services (e.g. logistics) and
inputs, and a level of skilled workers, which may have to be supplied initially from
abroad. Koh Kong (Cambodia), and Myawaddy (Myanmar), provide examples.

7. SEZs need clear, credible and consistent political commitment at the highest
levels: SEZs involve a number of government-linked agencies and enterprises to
provide needed support, services, and enabling conditions. This requires clear,
credible and consistent commitment from the highest levels of government to
ensure that businesses feel assured the basic strategy for the SEZ, and related
policies and rules, will be sustained over the longer term. Mae Sot, Sa Kaeo and
Trat all seem to be government priorities. Yet expressed support is not seen by
the local (business) communities as sufficiently clear, credible, and consistent.

8. The most successful SEZs are public-private partnerships: Government owned

and operated SEZs have had generally limited success. International experience
suggests that the governance structure for successful SEZs requires effective
collaboration between the public and private sectors. Governments role is to
formulate policy and strategy, make and enforce laws and regulations, and
provide key public goods. The private sectors role is to develop and operate
SEZs, including master planning, investing in real estate and services, undertake
construction, manage operations, and market the zone to investors. This division
of roles and labour reflects the comparative advantages of the partners. This is
generally the pattern followed in the GMS, though with mixed results.

9. Effective investment promotion agencies are a key part of a viable SEZ

strategy: SEZs are most successful when investment promotion agencies can
attract appropriate FDI. This includes delivering on promises, such as one-stopshops that involve a variety of government-related agencies. Furthermore, the
nature of FDI is changing. In the fragmented world of global value chains and
related production networks, less visible contract manufacturers such as
Flextronics, and international suppliers such as Li & Fung, are key players
organizing international production and sourcing. Effective investment promotion
agencies therefore play a more focused and proactive role. This begins with a
clear understanding of differing structures and competitive dynamics of particular
value chains and industries (e.g. garments, electronics), and targeting for
particular SEZs firms with key and leading roles in specific value chains.

10. SEZs should fit with local conditions, and local communities vision of
development: For a viable and sustainable SEZ, and one that is more than an
isolated island, it must have local community support, and fit with local needs,
constraints, and aspirations. Unless this is the case, it may be difficult to initiate
or sustain an SEZ. This is reflected in the cases of Sa Kaeo and Trat, and also
Mae Sot. Successful development of these areas requires mutual understanding
and alignment of the development visions and strategies of key stakeholders;
and on that basis selecting appropriate implementation mechanisms, which will
shape the design of an SEZ, or alternatively, may not involve an SEZ at all.

I.

Border Area Development: Special Economic Zones (SEZ) and Beyond

1.

Introduction

Thailands national development strategy includes a focus on developing border areas,

with particular emphasis on strengthening cross-border economic linkages, especially in
the Greater Mekong Subregion (GMS). This is intended to support the competitive
performance of Thai enterprises, and the development of local communities.
Consistent with Thailands development strategy, an important dimension of GMS
cooperation has included a focus on special economic zones (SEZ), including in border
areas. Such initiatives are seen as important for strengthening subregional economic
integration to support the growth of participating countries, and to facilitate local
development. Experience to date with border SEZs in the GMS, however, has been very
uneven at best. Although there have been many such planned SEZs, relatively few have
been implemented to date. Furthermore, existing border SEZs have generally been far
less effective than had been hoped in their contribution to facilitating cross-border
economic integration and strengthening linkages to external markets; and more
generally in their contribution to subregional economic growth and local development.
Building on a review of the literature, interviews, and four (4) case studies, the purpose
of this scoping study is to identify key issues that should be considered in developing
viable and sustainable border and cross-border economic zones to strengthen
Thailands economic linkages with neighbouring countries. This has potential
implications for wider GMS cooperation and development, an issue not directly
addressed in this study. As a scoping study, the case studies are intended to identify key
issues for further and more detailed analysis (e.g. through feasibility studies).
The organization of this report is as follows: Part I presents an overview of border area
development, including the role of special economic zones (SEZ), and with particular
focus on the GMS experience. It summarizes key lessons from international and GMS
experience; but suggests that SEZs may not be the only or even the most appropriate
mechanism for border area development, particularly in the context of fostering crossborder economic linkages. Part II reverses the usual organization of such reports by first
summarizing key general conclusions from the four case studies. Part III then presents a
discussion of the four case studies that are the source of these conclusions, namely1: (1)
Ubon Ratchatani (Thailand) Champasak (Lao PDR); (2) Mae Sot (Thailand)
Myawaddy (Myanmar); and two on the Thai Cambodia border (3a) Sa Kaeo (Thailand)
Banteay Meanchey (Cambodia); (3b) Trat (Thailand) Koh Kong (Cambodia).
2.

Overview: border area development

2.1

Rationale

From an economic perspective, a border is basically a barrier to the free mobility of

production inputs, including: labour, capital, technology, and information. This results in
differences in available supply, and therefore factor prices across borders. In principle,

1 Preparation of the case studies included field visits to the Thai side of the border and to Ubon
Ratchatani (Lao PDR); but did not include visits to Cambodia and Myanmar.

10

economic activity along the border can expand more efficiently and quickly by combining
complementary inputs to produce cost-competitive products and services. Border areas
between relatively less-developed and more advanced economies can therefore provide
their respective complementary inputs for mutual benefit. For example, Myanmar and
Cambodia can provide lower-cost labour and land, while Thailand can offer other inputs
(materials, parts, and components), technology, capital and information (e.g. on external
markets) for the complementary development of production. In this context, border areas
in the relatively less-developed economies, such as Myanmar and Cambodia,
constrained by high service-link costs (e.g. transport) and unstable utility services (e.g.
power) can, in principle, take advantage of the higher-level infrastructure (e.g. transport,
power, telecommunications) in the more advanced economy, Thailand; and gain access
to international transportation hubs, for example Bangkok and Laem Chabang ports.
This can provide a complementary, and potentially more effective strategy for developing
border communities than focusing only, or even primarily, on strengthening domestic
internal linkages to central areas of the respective economies.
Effective collaboration through increased economic linkages in border areas can support
the development of participating countries. A key objective of less developed GMS
economies such as Myanmar, Cambodia and Lao PDR, is product market diversification,
initially through labour-intensive activities and industries, aimed at regional and global
markets. A key objective of Thailand, a more developed economy that is losing its
comparative advantage of low labour costs, is upgrading to more capital-, skill, and
knowledge-intensive activities and industries. Therefore strengthening cross-border
economic (e.g. production) linkages can bring benefits to all the participating economies.
In addition to leveraging locational advantages for the development of border
communities, such areas can also serve as gateways for the wider domestic economy.
They can provide access to international input and end markets, for example by linking
to regional and global value chains and related production networks. This, in turn, can be
the basis for spreading development to the wider economy through spillovers, such as
linkages to domestic suppliers, and transferring knowledge, skills and technology. To
achieve these gains, development of border areas, building on cross-border economic
linkages, requires cooperative strategies within and across borders, and effective
frameworks or mechanisms for collaboration.
2.2

Mechanisms for border area development

Border area development for exploiting locational advantages, in particular, focused on

strengthening cross-border linkages, can take broadly 3 different forms: (1) special
economic zone (SEZ); (2) border economic zone (BEZ); and (3) cross-border special
economic zone (CSEZ).

Special economic zone (SEZ) is a formally incorporated geographic area that has
certain general characteristics such as single management or administration; well
defined geographic boundaries (often physically secured or fenced in); eligibility
of businesses located there for various types of benefits such as tax incentives,
access to specially provided infrastructure services within the zone; and often a
separate customs area (e.g. duty-free benefits) and streamlined procedures. It
will be discussed in more detail, as SEZs have been used extensively for
development, and there are important lessons to consider, including from their
uneven performance in the GMS. In the cases in this study, this form of border

11

area development may be very effective for Thailands Mae Sot, particularly in
the context of potential developments in Myawaddy (Myanmar).

3.

Border economic zone (BEZ) may be defined as an economic area on one side
of the border, e.g. in Trat (Thailand), that utilizes effectively linkages with
economic activities across the border, e.g. production in Koh Kong (Cambodia).
BEZ development should be guided by a clear and consistent vision and
strategy; but it need not require creation of a formal special economic zone with
separate rules, regulations, and services. The goal is to develop the comparative
advantage of the border area, including focusing on specific value chains, to
leverage developments across the border, and to strengthen, as needed, related
cross-border linkages, e.g. customs procedures, logistics services, access to
labour. As reflected in the cases, this may be appropriate for developing the
border areas in Thailands Trat and Sa Kaeo, given the goals of local
communities, and existing economic opportunities and constraints.

Cross-border special economic zone (CSEZ) is an area established in close

collaboration by two (or more) governments, with synchronized rules and
regulations, for example in trade facilitation and customs. It involves creating an
interdependent operational and administrative environment for business. In
principle, a cross-border economic zone builds on viable SEZs in the respective
countries. This is the most complicated form of cross-border economic
cooperation involving agreements on specific linkages between adjacent SEZs
(at the limit, joint sovereignty). There are no such examples in the GMS, although
there has been an initiative to establish what is referred to as a Cross-Border
Economic Zone (CBEZ) along the North South Corridor between Hekou in
Yunnan Province, PRC, and Lao Cai in Vietnam. This may be an effective
mechanism for the collaborative development of Mae Sot (Thailand) and
Myawaddy (Myanmar) to support cross-border linkages in labour intensive value
chains or industries, for mutual benefit.
Special Economic Zones in Asia and the Greater Mekong Subregion

There has been widespread use of SEZs in Asia. They have also received significant
attention in the GMS, including in the context of Economic Corridors, and for the
development of border areas. For example, in the cases in this study, SEZs are the
primary mechanism put forward by the respective governments in their planned
strategies for border area development. Given the uneven experience with SEZs in the
GMS, it is useful therefore to examine very briefly their nature in the broader context of
Asia (3.1); touch on the relationship between SEZs and global value chains and related
production networks (3.2); look at the GMS experience with SEZs (3.3); and building on
these and wider international experience, draw general lessons on SEZ success (3.4),
especially in the context of border area development.

12

3.1

SEZs in Asia: Introduction2

Starting with the establishment of the original export-processing zone in Kaohsiung,

Taipei,China in 1965, variations on special economic zones have been designed in Asia
to overcome constraints on investment climates in the wider domestic economy. Since
the 1980s SEZs have proliferated in Asia also as catalysts for economic reform, and to
alleviate poverty. Some SEZs have been successful in achieving significant employment
and trade growth, and in strengthening technology and skills transfers, as illustrated by
Shenzen (PRC), which also played a key role in broader spillover of economic reforms.
The most successful locations for SEZs in Asia have been in close proximity to global
gateways. Examples include SEZs in the Pearl River Delta in PRC; Singapores linkages
to the Indonesian provinces of West Sumatra and Riau in the Malaysian state of Johor or
the Singapore Johor Riau (SIJORI) Growth Triangle, a forerunner of the GMS
program; and the developing Seoul Incheon Gaesung triangle.3
The recent emergence of new special economic mega-zones is intended to overcome
the often enclave-like character of SEZs that limits their benefits to the wider economy;
and to link more effectively to global value chains and production networks (as
discussed in section 3.2). Such special economic mega-zones often integrate the
traditional characteristics of SEZs with airport, seaport, new town, and tourism under a
single authority. This model of SEZs is anchored in the historical success of Shenzen,
which was selected to leverage its locational advantage as a gateway to the international
economy, and provided access to its own container port terminals (Yantian, Chiwan, and
Shekou), and the Shenzen Baoan International Airport.
In general, successful SEZs in Asia are characterized by factors such as improved
business environment through streamlined legal and regulatory framework; more
efficient operational environment, through the provision of infrastructure and other
services, for example related to labour and immigration; effective trade facilitation
environment, including on-site customs services; often combined with fiscal and tax
incentives, but more generally competition on the basis of business facilitation and
services rather than financial incentives; and top-level support from government.
Increasingly SEZs integrate broad economic activities and foster competitive enterprise
clusters in particular value chains or industries, e.g. electronics, garments, automotive.
3.2

SEZ and cross-border value chains and production networks

Traditionally, SEZ strategy focused on strengthening the general business environment

in specific protected settings to compensate for existing constraints in the wider
domestic economy. Often missing has been the link to particular value chains and
enterprise clusters, reflecting the fragmentation and globalization of production in key

There are a number of extensive discussions of experience with SEZs in Asia. See for example
Bhattacharyay, Biswa Nath, Mashiro Kawai, and Rajat Nag (eds.), 2012. Infrastructure for Asian
Connectivity. ADBI and Edward Elgar; Carter, Connie and Andrew Harding (Eds.), 2011. Special
Economic Zones in Asian Market Economies. Routledge, London; Rimmer, P.J., and H. Dick.
2010. Appropriate Economic Space for Transnational Infrastructural Projects: Gateways,
Multimodal Corridors, and Special Economic Zones. ADBI Working Paper 237. Tokyo: Asian
Development Bank Institute; and FIAS, 2008. Special economic Zones performance, lessons
learned, and implications for Zone development. The World Bank, Washington D.C., April.
3
See Bhattacharyay et al (2012), op cit.

13

industries. Until relatively recently there has been much less emphasis on recognizing
this role of SEZs as nodes in cross-border production networks, and the related need to
address more specific and differentiated constraints of firms in particular value chains.
This alternative perspective on SEZs builds explicitly on recognition of the international
fragmentation of production in key industries such as electronics, automotives,
garments, agro-industry and tradable services; and the differing competitive needs of
such value chains or industries. Constraints facing firms in the garment and textile value
chain or industry are likely to differ in important ways from those facing firms in
electronics or agro-industry. Similarly, although strengthening general transport
infrastructure will benefit all cross-border economic activities, specific types of logistics
services needed for cross-border linkages in electronics are likely to differ from those
required for agro-industry. Therefore SEZs that are able to loosen particular constraints
facing firms in specific value chains -- such as special purpose logistics, warehousing,
particular types of skills can gain the benefits of access to regional and global markets,
as well as facilitate enterprise clustering to strengthen competitive performance.
An SEZ may then be approached as a platform for participation in global value chains
aimed at extending the reach of domestic economies across national borders. In the
case of less developed economies such as Myanmar and Cambodia, this can provide an
important means for diversification of economic structure by linking to even sophisticated
value chains or industries, such as electronics and automotives, initially in labour
intensive, lower skill, lower technology, and lower value activities such as assembly; but
with the potential opportunity to upgrade or add value over time. In the case of more
developed economies such as Thailand, this can provide the basis for upgrading to
higher value activities and products. From a value chain perspective, providing a
generally supportive business environment in an SEZ is then not likely to be sufficient. It
is also necessary to facilitate cost efficient and effective cross-border production
linkages for firms to access key inputs and markets essential in particular value chains.
Approaching SEZs as nodes in specific value chains, and as the basis for related
enterprise clusters, potentially also changes the kinds of firms desired as core tenants.
It can shift the focus from well-known global brands, the traditional target of investment
promotion agencies, to less well-known contract manufacturers that organize global and
regional production and sourcing, such as Flextronics in electronics, and international
suppliers such as Li & Fung in garments. In many cases such firms will also attract their
suppliers, as in the case of Flextronics industrial park strategy for example in Chennai
(India) ; and may spur the development of local supplier capabilities and their clustering.
3.3

SEZ: The Greater Mekong Subregion (GMS) Experience

3.3.1

GMS SEZs in context

In GMS cooperation SEZs have been promoted to build on subregional initiatives in

hardware and software, and also to leverage locational advantages of border economic
areas, as for example in the case of Savannakhet (Lao PDR) next to the Thai border. In
this context, SEZs are seen as a potentially effective mechanism to deepen subregional
integration; and to strengthen linkages of the GMS to the wider region (e.g. ASEAN
Economic Community or AEC), and more broadly to the global economy, in order to
stimulate economic activity and employment, and promote exports and FDI.

14

In this context, GMS cooperation has also focused on the development of economic
corridors, which include the establishment of SEZs in border areas, e.g. Savannakhet
(Lao PDR) and Lao Bao (Vietnam) located along the East West Economic Corridor
(EWEC). Economic Corridors are intended to facilitate cross-border economic linkages
by leveraging subregional infrastructure investments. They also build on the GMS CrossBorder Transport Agreement (CBTA) and the Strategic Framework for Action on Trade
Facilitation and Investment (SFA TFI), which address non-physical barriers to the
movement of goods, services, and people. At this stage, significant gaps in infrastructure
still remain; and implementation of the CBTA has been hampered by the differing pace
of its adoption by participating countries, as well as by constraints on local institutional
capacity. Therefore Economic Corridors have resulted in limited development to date,
both in terms of strengthening GMS cross-border economic linkages, and in attracting
and leveraging FDI for local and subregional diversification and growth.
GMS countries have used SEZs as vehicles for domestic development by focusing on
population and economic centres, as well as border areas. For example, in Cambodia,
SEZs have located near the key economic centres of Phnom Penh and Sihanoukville; as
well as Bavet on the Viet Nam border, and Poipet and Koh Kong on the Thai border. In
the case of Lao PDR, SEZs have been established in Vientiane; as well as at
Savannakhet, Nong Khai and Huai Xai on the Thai border, and Denh Savanh on the Viet
Nam border. In the case of Myanmar, particularly in the context of the recent push for
reform and integration with the global economy, SEZ development has focused on the
key population and economic centres of Yangon/Thilawa port, Mandalay, as well as
Kyaukpyu near the PRC border; with interest in Myawaddy, Tachilek and Dawei on the
Thai border. Among the CLMV countries, Viet Nam has been most active in establishing
SEZs, often near large population centres and access to deep ports, conditions more
difficult to find in Cambodia, Lao PDR and Myanmar. In addition to areas such as Ho Chi
Minh City and Hanoi, there has also been development of SEZs in border areas,
including at Lao Bao on the Lao border; and Mochai on the Cambodian border.
3.3.2

Assessing the GMS SEZ experience

Building on the basic rationale for SEZs in the GMS, and consistent with experience
around the world, two criteria emerge for assessing their success and sustainability4: (1)
how effective is an SEZ in addressing key constraints faced by investors to improve their
competitive performance; and (2) to what extent enterprises in an SEZ establish
effective linkages with the rest of the domestic economy in order to improve overall
competitiveness, e.g. through expanded supplier relations, transfers of technology,
knowledge, and spurring wider policy reform. The first relates to SEZs as a business
proposition; and the second to their role as gateways for broader development and
international integration of the domestic economy. Applying these criteria to experience
in the GMS, the performance of SEZs has been uneven at best.5 Furthermore, they have
had limited impact on strengthening subregional economic linkages and integration.6

See Arenas, Guillermo and Thomas Farole, 2013. Coping with a Demanding Investment
Climate? Special Economic Zones in Cambodia. Investment Climate Assessment Background
Note (Draft), International Trade Department, June.
5 See for example Diaz Nicolas, Sophie Guerin, Allison Morris, and Sophia Sen, 2012.
Developing Dependency Special Economic Zones in the Greater Mekong Sub-Region: A
Comparative Perspective (no source); Yang Xianming, Zanxin Wang, Ying Chen, and Fan Yuan,

15

Analysis of the experience of three SEZs -- Phom Penh; Bavet, in Cambodia on the
Vietnam border; and Savannakhet in Lao PDR, near the Thai border7 has found similar
approaches and constraints, although these are at different levels of development:

They all benefit from strategic locations involving proximity to key urban areas
and economic centres, border regions, or along economic corridors.
Each has a government agency dedicated to assist in its development.
Incentives are not targeted at value chains, industries or sectors; nor link firm
practices or investments to broader domestic economic development.
They are located mostly in areas lacking infrastructure and supporting services,
requiring significant investment in site preparation.
They are focused to a large extent on low wage labour, which is marketed as a
(usually the) key locational comparative advantage of the SEZ.

These SEZs share other characteristics with each other, and also with SEZs elsewhere
in the GMS:

Production structure involves mainly assembly and low skill job creation. This is
responsive to the immediate employment and diversification needs of the CLMV
countries. However, it is not clear how these SEZs will facilitate upgrading over
time to higher skilled activities and technology. For example, there is limited
presence in, or linkages by businesses or production activities to research and
product-market innovation centres either within or outside the SEZs.

Investment incentives are generally not aimed at strengthening SMEs and

promoting entrepreneurship, but are focused on large investors with limited
consideration of local capabilities and potential domestic suppliers. This is
understandable, as larger enterprises are the primary source of FDI. However,
strengthening local SME supplier capability, while often an expressed objective,
are usually not supported in practice by effective SEZ-related initiatives

There is generally no clear strategy focusing on particular value chains or

industries, and related agglomeration of firms. This constrains any enterprise
clustering process that could strengthen the attractiveness of GMS SEZs as a
base for suppliers within the framework regional and global value chains. For
example, there is limited focus on facilitating the exchange of information or
interaction among firms within an SEZ; on support for the formation of value
chain or industry-specific business associations essential for effective clusters; or
on building linkages among different SEZs within the subregion.

Partly as a consequence of these characteristics, GMS SEZs have had limited success
to date either as business propositions, or as gateways to the domestic and/or
international economy. In addition to the above, key issues include the following:

2011. Factors Affecting Firm-Level Investment and Performance in Border Economic Zones and
Implications for Developing Cross-Border Economic Zones between the Peoples Republic of
China and its Neighboring GMS Countries. Asian Development Bank; and Arenas and Farole
(2013), op cit.
6
Two assessments of GMS SEZs are of particular relevance to border areas, Yang et al, 2011,
and and Arenas and Farole, 2013; and these are supplemented by interviews.
7

Arenas and Farole (2013), op cit

16

They are focused on FDI, which provides a key means of linking to the
international economy. However, they are highly dependent on foreign expertise,
capital, technology, and increasingly uncertain external markets; and there has
been limited success in developing local linkages to the domestic economy.
Although some SEZs have contributed to economic growth as reflected in
increased GDP and trade, they are generally not actively promoting or
contributing significantly to local development and upgrading. For example, SEZs
have limited links with domestic institutions and training centres for generating
the required labour supply and enhancing the skills of the labour force; and
limited involvement and strengthening of domestic suppliers, particularly SMEs.
Therefore the contribution of GMS SEZs to growth is primarily limited local labour
and some supplier development, with little effect on improving local economic
opportunities and strengthening the competitive capabilities of local firms.

GMS SEZs, including those on the border, have played a limited role in
strengthening subregional trade and cross-border production integration by
facilitating linkages in particular value chains. There has also been very limited
development of horizontal linkages among different GMS SEZs. Similarly, they
have contributed relatively little to regional market integration.

They have played little role in facilitating and accelerating efficient

implementation of the CBTA, (to standardize trade-related rules and regulations
to reduce cost, time and risk). More generally, they have made very limited
contributions toward harmonizing incentives, cross-border rules and regulations,
cross-border development objectives, and subregional governance structures.

There has been limited policy coherence between national government and local
community development within GMS economies8; and between national and
subregional objectives and initiatives.
3.3.3 GMS Cross-Border Economic Zones (CBEZ)

There have been some limited initiatives to develop CBEZs in the GMS. One program
underway since 2005 between PRC and Viet Nam along the North South Corridor,
involves Hekou in Yunnan Province, PRC and Lao Cai in Viet Nam. More recent efforts
include a focus on CBEZ between Mohan, PRC and Boten, Lao PDR; and Dehong, PRC
and Muse, Myanmar.9 The experience to date is instructive, since these initiatives have
implications for some of the border economic areas under consideration in this study.
Most firms are involved in the production of primary products, with limited
processing and production activities; and very narrow local linkages to the wider
domestic economies.
Most firms are relatively new local enterprises, with limited capacity for product
market innovation.
There has been very little success attracting FDI to these areas, primarily because
of limited business and economic potential of more general interest.

As reflected in the cases of Sa Kaeo Banteay Meanchey; and Trat Koh Kong, in Section III.
See Yang et al (2011); and Government of Peoples Republic of China and United Nations
Development Programme Project Document, 2007. Project Title: Enhancing China ASEAN
Economic Integration: Cross-Border Economic Cooperation at the China Vietnam Border
9

17

 High proportion of firms face financing difficulties, as local financial sector and
mechanisms (e.g. for currency clearance) have been slow to develop.
The availability of qualified labour is an important bottleneck to the local operations
of firms. There has been very limited development to date of training programs
and institutions, and related incentives.
In principle, key comparative advantage of a cross-border economic zone is more
efficient flow of inputs, including raw materials and labour, across borders.
However, constraints on trade facilitation including logistics and customs
procedures have impacted adversely on firms production and operations costs.
Furthermore, key customs issues and policies usually cannot be addressed
locally, but require national level decisions, which have been slow in coming.
Despite general similarities in incentive policies of participating countries, there are
also differences, contradictions and gaps. For example, in Yunnan Province
(PRC) investment policies offer no advantages for firms to locate in lagging
border areas. More generally, there are no mutually agreed differentiated policies
by the participating countries for developing border economic zones.
To sum up, the general performance of enterprises in GMS initiatives to develop
cross-border economic zones is not high; and it has been difficult, to date, to
attract competitive manufacturing firms to these border areas.
SEZ: lessons from international and GMS experience10

4.

Lessons from international and GMS experience suggest that SEZs must do more than
offer a business case that is marginally better than what is available in the rest of the
economy. In order to be successful, SEZs must be globally or regionally competitive.
Because of the fragmentation of production in global value chains, and the related
availability of potential suppliers almost anywhere in the world, firms have significant
scope in decisions on sourcing, investment and production location. Key lessons from
international experience for successful SEZs include the following:

1. Special economic zones must be special: Successful SEZs offer investors

something significantly different from and better than what is available in the rest
of the economy. The exact characteristics of particular SEZs in terms of what
they offer should depend on the goals of an SEZ programme aligned with
particular value chains, e.g. kinds of activities and firms they aim to attract,
markets intended to reach. For example, an SEZ in Myawaddy (Myanmar) is
likely to differ from an SEZ in Mae Sot (Thailand), given their very different
development roles and contexts. Similarly, a Mae Sot SEZ may differ in important

10

See in particular Special Economic Zones: Lessons for South Africa from international
evidence and local experience, Edited proceedings of a Round Table convened by the Centre for
Development and Enterprise, Johannesburg, 2012. See also: FIAS (2008), op cit; Zeng, Douglas
Zhihua, 2011. How Do Special Economic Zones and Industrial Clusters Drive Chinas Rapid
Development? Policy Research Working Paper 5583, The World Bank, Africa Region, Finance &
Private Sectors Development, Washington D.C., March; Rimmer and Dick (2010), op cit; and
Aggarval, Aradhna, 2010. Economic impacts of SEZs: Theoretical approaches and analysis of
newly notified SEZs in India. MPRA Paper 20902, Munich Personal RePEc Archive, Online at
http://mpra.ub.uni-muenchen.de/20902/

18

ways from an Ubon Ratchatani SEZ, if they are intended to attract mostly
different industries (e.g. garments in Mae Sot; agro-industry in Ubon).
International evidence indicates that SEZs are likely to be most successful both
as business propositions, and as gateways to the domestic economy, when they
are targeted at particular industries or value chains, and offer concrete and
efficient solutions to the competitive challenges faced by firms in those industries.

2. Global or regional competitiveness is what counts: Being better than the host
domestic economy is unlikely to be sufficient for viable SEZs over the long term.
Investors, particularly foreign investors, have a wide range of choices, and select
particular SEZs for different reasons. Most consider location, market access,
logistics, trade facilitation and stability of rules and regulations as key factors;
some consider wage levels and labour market practices; still others put an
emphasis on skilled labour, access to knowledge-institutions, or supportive
regulatory environment. Many SEZs offer investors financial incentives such as
tax concessions and subsidies. However, international experience suggests that
few investment decisions are made on the basis of financial incentives alone.
Although such incentives may help attract first movers who are particularly
concerned about the risks of a new SEZ or financially weaker firms -- it is the
overall contribution of an SEZ to competitiveness in particular value chains that is
critical. Access to regional and global suppliers and markets is particularly
important, requiring effective and appropriate trade facilitation, including logistics
services and import/export (e.g. customs) procedures. The relevance of this
issue is illustrated in the context of Banteay Meanchey (Cambodia), where
logistics costs and time are important constraints (see Section III.C).

3. SEZs are not the best instrument to solve the problems of poor regions: SEZs
are often established as a means for developing poorer regions of a country, as
reflected in the experience of the GMS. These are generally some of the least
successful SEZs. Regions are usually poor because they lack key factors for
development such as infrastructure, access to markets, or labour skills. It
requires extensive investment and/or subsidies to overcome such constraints. It
is generally very difficult to compensate for such shortcomings in a way that is
economically viable or sustainable, particularly if the costs are to be recovered.

4. The rest of the domestic economy also has to work: Although SEZs are
specific and bounded geographic areas, their contribution to national
development will be severely limited if they are isolated islands in an economy.
The more supportive or business friendly the surrounding environment, and the
more external (domestic) linkages are consistent with business performance, the
more likely is an SEZ to contribute to the wider domestic economy. The need for
workers with higher-level skills provides an example. As a required input to firms
in a specific SEZ, this may be addressed by locating it where the population is
better educated, for example near urban areas; or by linking it to educational and
training institutions. In terms of contribution to national development, there is
evidence to suggest that SEZs can contribute to the creation of skills in the wider
economy, for example through on-the-job training which can spread beyond a
specific SEZ through the movement of labour, leading to wider productivity gains.
This issue, and the more general relationship between an SEZ and the domestic
economy is discussed in the context of Cambodian SEZs in Section III.C.

19

5. SEZs should have clear, coherent and viable business and economic rationale
anchored in local conditions: An SEZ should offer tailored responses to business
constraints and opportunities, in order to facilitate the growth and performance of
particular value chains or industries in the domestic economy. In principle, SEZs
have a great deal of flexibility: they can be designed to respond to the specific
requirements of particular value chains, consistent with local conditions and
aspirations. For example, in a low income and low productivity and long isolated
economy such as Myanmar, an SEZ at Myawaddy can focus on addressing the
needs of labour-intensive industries, involving lower skill activities in value chains
such as garments and electronics. In a more developed economy such as
Thailand, an SEZ at Mae Sot, could focus on the needs of more knowledge
intensive activities in particular value chains (e.g. garments) that strengthen the
capacity for innovation, for example for regional (AEC) markets, while leveraging
lower cost labour through focused linkages with a Myawaddy SEZ.

6. For economies where labour is a key resource, the costs and flexibility of
employment matter: A number of GMS economies, in particular, the CLMV
countries, have labour as a key abundant factor. Employment generation, with
increasing levels of productivity, is therefore particularly important in their
development. In this context, firms in SEZs are most likely to create and sustain
needed jobs if their characteristics address particular needs of labour-intensive
industries. Factors such as wages, flexible labour markets, rules and laws
governing work, have to create conditions that allow firms to respond to changing
competitive pressures which are particularly intense in low skill, labour intensive
activities and industries. At the same time, it is essential to ensure appropriate
working conditions, both for local development, which ultimately involves
improving the quality of life; and in response to the increasing demands of global
markets for proper labour standards. Furthermore, labour intensive activities and
industries require more than unskilled workers. They also need cost-efficient and
reliable services and inputs, including skilled workers -- which may be supplied
initially from abroad, but should be provided domestically over time through
improved education and training. This is relevant, for example, in the cases of
Myawaddy (Myanmar) and Koh Kong (Cambodia). Although there is a general
perception that FDI in developing economies is attracted primarily by cheap local
labour, most FDI, including in SEZs, is in medium-skill activities and industries.

7. SEZs require clear, credible and consistent political commitment at the highest
levels of government: SEZs generally involve a number of government or
government-linked agencies and enterprises to provide services and enabling
conditions. For example, international experience suggests that most effective
governance arrangements involve administration by an autonomous governmentlinked agency with authority and capability to oversee implementation of
regulations, laws, policies, and practices in an SEZ; provide regulatory oversight
for SEZs developers, operators, and tenants; ensure efficiency of the delivery of
services; and act as the principal interface with private developers and operators.
This requires credible, consistent, and sustained commitment from the highest
levels of government to ensure that businesses feel assured that policies, rules
and supporting services will be sustained over the longer term. Development of
the border areas in Mae Sot, Sa Kaeo and Trat seem to have high level support.
Yet in all these cases, such expressed support is not seen by the local (business)
community as sufficiently clear, credibly, and consistent.

20

8. The most successful SEZs are public-private partnerships: Government owned

and operated SEZs have had generally limited success. International experience
suggests that the governance structure for successful SEZs requires effective
collaboration between the public and private sectors. Governments role is to
formulate policy and strategy, make and enforce laws and regulations, and
provide key public goods. The private sectors role is to develop and operate
SEZs, including master planning, invest in real estate and services, undertake
construction, manage operations, and market the zone to investors. This division
of roles reflects the comparative advantages of the respective partners. This is
generally the pattern followed in the GMS, though with mixed results.

9. Effective investment promotion agencies are a key part of a viable SEZ

strategy: SEZs are most successful when investment promotion agencies can
attract appropriate FDI. This includes delivering on promises such as one-stopshops that involve a variety of government-related agencies. It also includes not
imposing unrealistic performance requirements on investors as conditions of
entry. Such requirements may seem, in principle, desirable to support domestic
development. But in practice, they may significantly constrain the
competitiveness of businesses and therefore their likely interest and/or
performance; or may attract the wrong type of firms (adverse selection).
Furthermore, the nature of FDI is changing. Historically investment promotion
agencies focused on attracting investment from large, well-known multinational
brands from the US, Europe or Japan by offering incentives such as tax breaks.
In the fragmented world of global value chains and networks, less visible contract
manufacturers such as Flextronics, and international suppliers such as Li &
Fung, are key players organizing production and sourcing. Effective investment
promotion agencies are therefore playing a more focused and proactive role.
This starts with an understanding of the differing structures and competitive
dynamics of particular value chains and industries (e.g. garments vs.
electronics); then targeting firms with key roles in particular value chains for
specific SEZs that address their specific concerns.

10. SEZs should fit with local conditions, and the local communities visions of
development: For an SEZ to be more than an isolated island in the local
economy, and to have the communitys support -- essential for long term success
-- it must fit with local needs, constraints, and aspirations. For example, if the
local communitys vision of development is oriented more toward environmental
and social sustainability, an SEZ focusing on heavy industry may have significant
difficulties with local stakeholder support, increasing uncertainty, risks, and costs.
This requires either a different type of SEZ or mechanism for development of
border area, or a mutually acceptable and viable accommodation between SEZ
design and operations, and the local community. For example, local business
and community interests and aspirations in Trat are oriented toward developing
the area as a service centre (e.g. logistics and retail) and a tourism destination;
and are much less supportive of an industrial SEZ. Furthermore, as reflected in
the case study, an SEZ may not be the best mechanism for development of Trat
(and perhaps Sa Kaeo). The more flexible and informal approach of a border
economic zone (BEZ) may be more appropriate and effective. At the very least,
success in developing this border area requires mutual understanding and
alignment of the development visions of key stakeholders, and on that basis
selecting appropriate implementation mechanisms (e.g. type SEZ or BEZ).

21

II.

General Conclusions from the Case Studies

Revising the usual organization of such reports, this section briefly identifies the 4 border
area case studies; and summarizes relevant general conclusions that emerge with
respect to border area development. Detailed case analyses, the basis of these
conclusions, follow in Section III, including more specific case-related conclusions.
1.

Brief description of the border areas in case studies

1.1

Ubon Ratchathani (Thailand) - Champasak (Lao PDR)

The border area between Thailand and Laos at Ban Chongmek, Sirinthon District, Ubon
Ratchathani Province, Thailand, and Ban Vangtao, Phonthong District, Champasak
Province, Lao PDR, has developed rapidly since the mid-1990s. It is dominated by: (i)
agricultural exports from Laos to Thailand; and (ii) Thai tourism to southern Laos. Thai
and regional multinational, large, and medium agribusiness enterprises have
demonstrated the feasibility of cross-border commerce by operating profitably in the area
for ten years or longer. Investment has been facilitated by Thai Government incentives,
improved transport and communication infrastructure; and trade facilitation measures
(e.g. customs, immigration, quarantine and SPS procedures). It has also been
stimulated by economic and demographic growth and tourism in southern Laos.
A viable border economic zone (BEZ) has de facto emerged in this area, without the
presence of a formal SEZ on either side of the border. Value chain linkages for several
crops are functioning profitably for producers, traders, agro-processors, and investors;
including for premium coffee (organic and Fair Trade); vegetables (organic and nonorganic); and, field crops (for processing in Thailand). Cross-border tourism has also
grown. Therefore the challenge to development at this stage is to build on what is
already there -- to strengthen and expand the existing, relatively well-functioning BEZ.
1.2

Mae Sot (Thailand) - Myawaddy (Myanmar)

The border area at Mae Sot and Myawaddy has the potential for significant mutually
beneficial development, utilizing the complementary factor endowments of the two
countries. Thailand is increasingly concerned about the challenges of middle-income
trap: losing competitiveness in labour-intensive industries and activities because of rising
wages and more intense competition from lower wage economies in key export
industries such as garments. This has led to a strategy, in part, of focusing on outward
investment by Thai enterprises and the relocation of labour intensive activities,
particularly to neighbouring countries. In this context, there has been a renewed interest
in the development of an SEZ at Mae Sot; particularly with the clustering of garment and
textile factories there, until the increase to Baht 300 of the minimum wage.
In Myanmar, the democratically elected (in 2010) government of President U Thein Sein
has begun to chart comprehensive and bold new directions and reforms for the countrys
transformation and development, particularly since 2012. This includes an emphasis on
strengthening and diversifying external economic linkages, especially with neighbouring
countries and the emerging ASEAN Economic Community (AEC). The development of
border economic areas is therefore emerging as a priority both as gateways to the
region and the international economy; and as the basis for economic diversification, and

22

more balanced national development. There is a corresponding emphasis on attracting

FDI, particularly to link to labour intensive cross-border export-oriented value chains
such as garments and electronics, for employment and income generation. In this
context, the Union of Myanmar Government and the Kayin State Government have
decided to establish an Industrial Zone (IZ) at Myawaddy, taking advantage of proximity
to Thailand. This is intended to facilitate and accelerate development of the border area,
and to support the product market diversification of Myanmars economy.11
The planning and development of an SEZ at Mae Sot, and the IZ at Myawaddy are in the
relatively early stages. The case study suggests the rationale for, and potential benefits
of collaboratively establishing a Cross-border Special Economic Zone (CSEZ) at Mae
Sot Myawaddy, with particular focus on labour intensive manufacturing (garments and
textiles) that respond to the development challenges and priorities of both countries.
1.3 and 1.4.

Sa Kaeo (Thailand) - Banteay Meanchey (Cambodia); and

Trat (Thailand) - Koh Kong (Cambodia)

The border area of Thailand and Cambodia provides a range of opportunities for
developing cross-border economic and business linkages, building on complementary
comparative advantages, consistent with development priorities of the two economies,
and meeting the aspirations of local communities. The two countries established a Joint
Committee (Thailand-Cambodia) on Border Area Development and Connectivity (JCBD);
and agreed to set up SEZs in two adjacent border areas: Sa Kaeo Banteay Meanchey,
and Trat Koh Kong. The basic objective is to boost trade and investment and improve
the livelihood of the peoples along the border of the two countries.12
Cambodias interest is to establish viable and sustainable SEZs to attract investors in
labour intensive industries, to a large extent on the basis of low wages and available
land, and to leverage proximity to the more developed Thai economy, e.g. access to
more efficient infrastructure. Thailands interest is to develop the local border area
economies, and to use Cambodian SEZs to facilitate Thai firms upgrading of products
and processes (move up) in relevant value chains. The subregional context underlines
the potential utility of cross-border collaboration in economic development in this area,
as it is located on the GMS Southern Economic Corridor (SEC) that stretches from
Thailand, through Cambodia, to Viet Nam.
The case studies suggest that SEZs on the Thai side of this border area at both Trat
and Sa Kaeo -- may not be the most effective or even appropriate mechanism to take
advantage of potential cross-border linkages. Therefore the model of border area
development that may be most suitable on the Thai side is more informal border
economic zone (BEZ), with well-defined linkages that focus on development of services
and agro industry, complementary to Cambodias industrial SEZs.

11

An Industrial Zone (IZ) in Myanmar has the general characteristics of an industrial estate,
focusing on development of a geographic area, for example through the provision of supporting
infrastructure services. It differs from an SEZ in that an IZ does not have the range of privileges
usually associated with such zones. Myanmar is now revising the SEZ law.
12
From the statement following the first meeting of the Joint Committee (ThailandCambodia) on
Border Area Development and Connectivity (JCBD) on June 11, 2013.

23

2.

General Conclusions

As reflected in the detailed case studies that follow in Section III, there are significant
opportunities for cooperative border area development between Thailand and its
neighbouring countries. Specific observations and suggestions with respect to particular
border areas are presented in the discussions of the case studies. These include
relatively wellunderstood basic requirements such as strengthening local infrastructure,
and upgrading trade facilitation factors (e.g. customs facilities and procedures, and
logistics services). The history of GMS cooperation suggests that although such issues
are relatively well known, addressing them operationally can be challenging, and
success varies with local conditions and constraints.
Beyond case-specific, and also relatively well-understood basic factors that condition
border area development for cross-border economic linkages, a number of more
fundamental conclusions emerge from the case studies. These include the following:

Clear and coherent vision and related strategy of border area development,
anchored in local conditions, is essential: The starting point for the viable and
sustainable development of border areas, particularly in the context of crossborder economic linkages, is a clear and coherent vision and strategy for
development. This has to reflect both local and national interests; needs to be
anchored in local conditions (constraints and opportunities); and consider
potential spillovers to the wider domestic economy. The cases of Mae Sot
Myawaddy; Sa Kaeo Banteay Meanchey; and Trat Koh Kong, all illustrate the
importance of this issue for border area development and cross-border linkages.

Strategy focused on specific value chains: A viable and sustainable strategy of

border area development should focus on strengthening cross-border linkages in
specific value chains of joint interest, consistent with local conditions. It is not
clear that proposed the Mae Sot or Trat SEZ has such focus; and this may be
contributing to existing uncertainty, and could constrain future viability.
Furthermore, it is important to anchor a strategy in the structure and dynamics of
value chains. One perspective is that Thailands minimum wage law of Baht
300/day makes Mae Sot no longer viable for garment value chain-related
activities. However, the case analysis suggests a possible strategy for the joint
development of Mae Sot Myawaddy, based on cross-border linkages in the
garment value chain that leverage the comparative advantages of the adjacent
border areas, consistent with national economic development priorities.

Collaborative development of a shared vision and strategy: It is essential to align

the visions and strategies of key stakeholders with respect to border area
development. This vision and strategy should reflect the aspirations of local
stakeholders (e.g. business and wider community); and should also be consistent
with broader national development priorities. Otherwise it will be resisted, and
difficult to implement. This is reflected in the experience in Sa Kaeo and Trat,
(and perhaps Mae Sot), where developing a shared vision and strategy is a prerequisite for both local development and effective cross-border linkages.

There is a diversity of mechanisms for border area development and crossborder cooperation: An SEZ is not the only option for implementing a strategy of
border area development. In some settings a more informal but focused

24

approach, termed here as Border Economic Zone (BEZ), may be more effective.
This is reflected in the Ubon Ratchatani Champasak case; and may also be an
effective option for addressing constraints and opportunities in Trat and Sa Kaeo.
Alternatively, the Mae Sot Myawaddy case illustrates the possible application of
Cross-border Special Economic Zone (CSEZ), linking SEZs on both sides of the
border, focusing on cross-border linkages in the garment value chain.

Align selected strategy and related implementation mechanism with the

neighbouring countrys development strategy and local conditions: Since the
focus is on cross-border linkages for mutual benefit, which require collaboration
in various forms, strategies and mechanisms of participating countries must be
aligned from the outset. This is essential to guide more specific subsequent
decisions and ensure their complementarity (e.g. in investment, rules and
regulations). For successful development and linkages at Trat and Koh Kong, the
governments and business communities of Thailand and Cambodia, (and the
respective local communities), need to have a shared cooperative strategy that
will guide specific decisions addressing issues such as infrastructure investment
and trade facilitation measures. Similarly, for a Mae Sot Myawaddy CSEZ,
Thailand and Myanmar (and the local communities) have to align their strategies
and implementation mechanisms from the outset, to ensure successful and
sustainable cross-border development.

Approach cross-border economic development, where possible, in the context of

wider subregional (e.g. GMS) cooperation and integration: Developing border
areas and cross-border linkages within the wider context of subregional
cooperation can provide significant additional benefits. It can also facilitate and
reinforce wider subregional cooperation and development. For example, crossborder cooperation in logistics at Sa Kaeo Banteay Meanchey, and Trat Koh
Kong, could accelerate implementation of linkages, and economic integration,
along the GMS Southern Economic Corridor, with additional benefits to the
border areas and beyond. Similarly, a CSEZ at Mae Sot Myawaddy can link
such development to the GMS East West Economic Corridor (EWEC).

25

III.

Case Studies

A.

Border economic zone and agribusiness linkages at

Ubon Ratchatani (Thailand) and Champasak (Lao PDR)

1. Background
The border between Thailand and Laos at Ban Chongmek, Sirinthon District, Ubon
Ratchathani Province, Thailand, and Ban Vangtao, Phonthong District, Champasak
Province, Lao PDR has developed rapidly since the mid-1990s. From a small traditional
(informal) trading post in the 1990s, the crossing has expanded significantly, and is
dominated now by regional tourism and agricultural trade. Chongmeks expansion was
endorsed by a Thai Cabinet resolution in 2003,13 leading to extensive infrastructure
investment at the border by both the Thai and Lao governments. Thai authorities
currently plan to further modernize trade facilitation services in the area in response to
present high levels of trade and anticipated growth following inauguration of the
Association of Southeast Asian Nations (ASEAN) Economic Community (AEC) in 2015.
Modernization on the Lao side of the frontier is underway.

13

23 December 2003 (2546)

26

The Thai-Lao border at Chongmek is dominated by two growth factors: (i) Thai tourism
to southern Laos; and, (ii) agricultural exports from Laos to Thailand. Short visits by Thai
tourists to southern Laos focus on cultural- and eco-tourism (principally the Mekong
River waterfalls at Khonephapheng, and World Heritage Site at Vat Phou) and coffee
tourism on the Bolovens Plateaux. Lao agricultural exports to Thailand include mainly
fresh fruit and vegetables for Thai retail and wholesale markets and agro-processors.
This is a case study of key characteristics of the area around Ubon Ratchathani
Province, Thailand, and Champasak Province, Lao PDR, centered on the ChongmekVangtao border area; the economic and commercial rationale for strengthening what is
an already viable border economic zone (BEZ) at Chongmek; cross-border production
linkages and their implications for key stakeholders; key factors shaping and
constraining further development; and recommendations.
2. Key characteristics
Key characteristics of the Ubon Ratchathani (Thailand) and Champasak (Laos) area that
contribute to Chongmeks suitability as a BEZ include the growing volume and diversity
of trade with Laos, policy push and demand pull factors, and changes in production
factors on both sides of the border. These characteristics are discussed below.
2.1 Trade
Trade through the two border crossings14 between Ubon and Lao PDR in 2012 was
recorded as follows:15

Exports to Laos: 11,777.53 million baht

Imports from Laos: 1,515.15 million baht

Growth of trade through the two official Ubon Ratchathani border crossings with Lao
PDR increased significantly between 2007 and 2012, namely: a 219 percent increase
overall in Thai exports to Laos; 181percent increase in Lao exports to Thailand; and, 453
percent increase in Lao agricultural products exported to Thailand. Details of Thai-Lao
cross-border trade for this five-year period are presented in Table A1.

14

Ban Chongmek, Sirinthon District, an international crossing; and, Ban Pak Saeng, Khemmarat
District, a traditional crossing.
15
Provincial Commerce Office, Ubon Ratchathani

27

Table A1:

Thai-Lao cross-border trade data for Ubon Province: Chong Mek and Pak Saeng
checkpoints
Principal Exports
Principal Imports
2007
2012
2007
2012
Item
Value
Item
Value
Item
Value
Item
Value

Rank

(mil. baht)

Fuel

1,245.55

Construction
materials

Consumer
items
Other
Total

(mil. Baht)

Fuel

3,645.88

595.30

Construction
materials

2,460.00

537.53

Consumer
items
Other
Total

1,820.47

1,312.93
3,691.31

3,851.18
11,777.53

(mil. baht)

Logs,
lumber
Agriculture
products
Leather
goods
Other
Total

(mil. baht)

386.14

Agriculture
products

232.44

Logs, lumber,
wood products

216.25

Textiles

141.38

4.60
58.47
681.65

Other
Total

1,287.48

274.08
1,919.19

Source: Ubon Ratchathani Provincial Commerce Office, June 2013

Other Lao exports to Thailand through Ubon in 2012 included the following:16
Logs, lumber, wood products; value: 214.25 million baht
Textiles; value: 141.38 million baht
The principal Thai exports to Laos through Ubon in 2012 included consumer goods, fruit,
construction materials, and fuel. The significant increase in Thai exports to Laos reflects
the expanding Lao economy, with GDP growth of between 7 and 9 percent annually
between 2005 and 2013.
The export of Lao agricultural products to Thailand through Chongmek is governed by
an annual memorandum of understanding (MOU) between Ubon Ratchathani and
Champasak provinces. This process began in 2004 under the Ayerwaddi - Chao Phraya
- Mekong Economic Cooperation Strategy (ACMECS). Each MOU is negotiated annually
between interested Lao and Thai companies that have registered with their respective
provincial commerce offices as being interested in participating in cross-border trade.
The MOU serves as an umbrella agreement acknowledged by provincial government
authorities under which Lao and Thai companies record the results of their trade
negotiations, specifying the terms and conditions for trading a range of food and
agricultural products. In total, nine MOUs have been concluded between Champasak
and Ubon Ratchathani provinces between 2005 and 2012.

As explained by provincial authorities: A two-tiered meeting is held annually,

at which Lao and Thai provincial commerce officials conduct a policy level
dialogue to review and resolve trade issues between the two provinces.
Simultaneously, registered Lao and Thai trading companies negotiate trade
terms for a list of food and agricultural products for the next year. During both
meetings, problems that arose during the past year are reviewed; measures
for resolving problems are agreed; proposals for new initiatives are reviewed;
a list of agricultural products to be traded under the contract farming project
during the next calendar year is formulated; and, the terms and conditions for
importing those products into Thailand, including floor prices, are established.

16

Source: Ubon Ratchathani Provincial Commerce Office, June 2013

28

In Ubon Ratchathani Province, the Provincial Commerce Office coordinates

the program. In Champasak Province, the Provincial Industry and Commerce
Office (PICO) serves as the host organization.

The broad objective of the MOU is to promote production of and facilitate cross-border
trade in food and agricultural products between Lao PDR and Thailand. Simultaneously,
other less immediate objectives are realized, namely:

The objective of the Lao and Thai governments to implement the ASEAN
Integration System of Preference (AISP) initiative.17
Achieving Thai Government foreign agricultural policy goals that are not
specifically recognized in cross-border arrangements, related to the following:
o Systematic and continuous sourcing of large quantities of low cost raw
materials regionally for value-added processing in Thailand;
Expanding regional cross-border trade in agricultural commodities linked
to raw material needs of Thai agro-processors;
Sourcing of food and agricultural imports from neighboring countries
where commodities can be purchased in Thai baht, thus reducing the
need to utilize non-baht currencies to settle trade transactions;
Creating on-farm income generating opportunities in neighboring
countries as alternative livelihood options that contribute to poverty
alleviation and preclude poor farmers from migrating to seek economic
opportunities in Thailand; and,
Maximizing the use of trade and logistics infrastructure constructed
specifically to facilitate regional cross-border trade, namely Thai
Government investments in: (i) upgrading of highway route 217 to four
lanes from Ubon to the Thai-Lao border; (ii) modernization of the
Chongmek border post including expansion of truck parking facilities and
extended hours of operation; (iii) harmonizing transport procedures
conforming to the GMS Cross-border Transport Agreement (CBTA); (iv)
initiating a single stop customs inspection at border checkpoints; and, (v)
planning to upgrade the rail link from Bangkok to Ubon Ratchathanee.
Providing a formal framework for trade between Ubon and Champasak.
Registering cross-border trading companies with provincial commerce
authorities.
Keeping provincial commerce officials informed about cross-border trade
activities.
Specifying and limiting crops to be imported into Thailand at zero tariff.
Establishing floor prices for selected crops in advance, thus providing Lao
farmers and traders with benchmark prices for crops included in MOU.

Each MOU stipulates the number of agricultural products covered by the contract
farming project and the number of Thai and Lao companies with contracts for these
products; and, the approximate value of each contract. Table A2 presents the number of
contracts and products covered by the MOU in each year between 2005 and 2012.
Figure A1 shows the logistical arrangements for most agricultural commodities
produced in southern Laos for export to Thailand.

17

AISP aims at narrowing the development gap between ASEANs original member countries and
the newest members (Cambodia, Lao PDR, Myanmar, and Vietnam or CLMV).

29

Table A2:
Year
2005
2006
2007
2008
2009
2010
2011
2012

Coverage and value of the annual MOU between Ubon

Ratchathani and Champasak provinces, 2005-2012
Number of
agricultural
products
7
13
13
15
30
30*
45*
51*

No. of
contracts

Value of contracts
Million baht
Million US$

14
23
69
19
25
19
21
30

100
110
200
250
350
350
350
500

3.33
3.66
6.66
8.33
11.66
11.66
11.66
16.66

* Non-organic and organic vegetables

Source: Ubon Ratchathani Provincial Commerce Office, June 2013

30

To participate in the contract farming program, Thai firms are obligated to provide seeds
as credit in kind to Lao counterpart companies for on-lending to farmers for planting.
This arrangement fulfills the Lao Governments criteria for contract farming using the
2+3 approach; wherein farmers provide land and labor (2), while the investors provide
technology, credit, and market access (3). The seed supplied by the Thai firms is high
quality. Lao farmers already are familiar with the promoted crops and do not require
technical training. Some companies (Lao and Thai) also provide fertilizer to producers on
credit. The Lao firms facilitate the contract farming process in Laos: channeling inputs
(seed and fertilizer) to producers. The Thai companies provide credit financing, market
access, and an agreed floor price. Crops in the 2012 MOU are given in Table A3.
Table A3:

th

Crops Covered in the 8 MOU between Champasak and Ubon

Ratchathani Provinces, 2012
Non-organic
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Cabbage
Bananas
Tamarind
Chinese cabbage
Cotton
Jobs tears
Soybeans
Castor bean
Sweet potato
Ginger
Groundnuts (peanuts)
Tomatoes
Lime
Pumpkin
Ash gourd or wax gourd

16. Sweet corn (local variety)

17. Cassava (tubers only)
18. Cauliflower
19. Mustard greens
20. Head lettuce
21. Coffee (cherries)
22. Carrots
23. Sweet peas and yard-long beans
24. Asparagus
25. Chili peppers
26. Sweet bitter gourd
27. Mushrooms
28. Strawberries
29. Avocado
30. Cashews
31. Papaya

Organic
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

Cabbage
Red cabbage
Lettuces / salads
Avocado
Chinese cabbage
Mango
Tomatoes
Capsicum
Zucchini
Green beans

11. Sweet peas

12. Japanese cucumber
13. Marrow / squash
14. Carrot
15. Sweet potato
16. Pumpkin
17. Japanese onion
18. Coffee
19. Soybeans
20.Mungbeans

In this context and based on data from the Ubon Provincial Commerce Office, principal
agricultural products imported from Laos to Thailand through the Ubon crossings include
the following: cabbages, bananas, groundnuts, tamarind, peanuts, soybeans, and sweet
potato (Ipomoea batatas). In addition, traders at Ubons Charoensri wholesale market
report that chili peppers are imported from northern Cambodia.
2.2 Push and pull factors
Thai and Lao government policies are seen as push factors that promote and facilitate
cross-border trade and investment. Market forces act as important pull factors that
influence production decisions and trade flows.

31

2.2.1

Policy push factors

The following push factors are related to policy implementation by the Thai and Lao
governments:
Participation in ACMECS and AFTA initiatives that facilitate cross-border trade;
Application by Thailand of a zero percent import tax rate on agricultural products
produced in Lao PDR through contract farming applying ACMECS procedures;
Lao Government policies promoting crop diversification linked to export markets,
including diversification from rice monoculture and upgraded rice varieties to
increase productivity and produce a surplus for export;
Benefits to Lao producers and Thai traders and agro-processors participating in
the government supported ACMECS program including: rapid expansion of crops
targeted by Thai traders and agro-processors by Lao farmers; agreement of floor
prices for agricultural products that provide an incentive to Lao farmers to
produce targeted crops; and, agreement on quality standards for targeted
commodities between Lao and Thai officials and producers and agro-processors.
Benefits from ACMECS operations for Thai and Lao government organizations
including: registration of participating companies in cross-border trade;
systematization of contract farming arrangements between Thai entrepreneurs
and Lao producers; and, signing of an annual MOU that established a framework
for cross-border cooperation between key stakeholders at the provincial level.
Although Lao agricultural exports to Thailand likely would have increased without Thai
Government involvement between 2007 and 2012, the most important factor for the
significant increase likely was implementation of ACMECS.
2.2.2

Market pull factors

The following are considered pull factors related to the changing preferences of regional
consumers, increasing demand by consumers in domestic and nearby regional markets,
and growing demand from Thai agro-processors to meet expanded global market share:
Regional economic growth leading to an expanding middle class with changed
taste preferences and lifestyles, requiring wholesalers and retailers to seek local
sources of selected food and agricultural products at competitive prices;
Rural migration and population growth in urban areas leading to changes in
consumption patterns;
Increases in demand for Lao agricultural products for use as raw materials by
Thai agro-processors to meet growing domestic, regional, and global demand;
Significant expansion in tourism in southern Laos and the region, leading to
increased demand for higher quality, clean, and safe food and agricultural
products; and,
Modification of the consumer demand cycle, from seasonal peaks and troughs to
continuous demand throughout the year; related largely to increased tourism.
2.3 Production factors
The character of agriculture in the GMS also has changed and continues to evolve.
Some of this change is attributed to adaptation to wider temperature ranges and more
unpredictable rainfall patterns resulting from climate change. Other changes are linked
to greater market orientation of producers as well as to modernization of the agricultural

32

sector.18 Factors that influence production systems in Ubon and Champasak provinces,
with implications for cross-border trade include the following:
Agricultural traders report that crop production among Thai, Lao and
Cambodian farmers is sequential, thus ensuring that crops important to
traders and agro-processors are available on a nearly continuous basis.
The quality of Lao agricultural products continues to improve making them
competitive with Thai products.
For selected crops, Thai farmers are no longer competitive with Lao and
Cambodian farmers.
Thai farmers are shifting away from labor-intensive production (e.g.,
vegetables, fruit, livestock rearing, freshwater fisheries) toward crops for
which mechanization is available (e.g., cassava, sugar cane) or industrial tree
crops (e.g., rubber, Eucalyptus, palm oil).
Inability of Thai farmers to be cost and quality competitive with Lao and
Cambodian farmers for selected crops.
3.

Economic and commercial rationale

The economic and commercial rationale for a border economic zone at Chongmek,
Ubon Ratchathani derives from the fact that Thai and regional multinational, large, and
medium agribusiness enterprises have demonstrated the feasibility of cross-border
commerce by operating profitably in the area for ten years or longer. The investment has
been facilitated by Thai Government policy incentives implemented through ACMECS
and improved transport and communication infrastructure; and, stimulated by economic
and demographic growth and tourism in southern Laos. In addition the Thai Government
has adopted a policy of improving public sector logistics (i.e., customs, immigration,
quarantine, and SPS procedures) and traffic management at the Chongmek border
crossing. These characteristics are discussed below.
3.1 Investment
The largest agricultural export from southern Laos is coffee. Approximately 21,000 tons
of coffee was produced in 2012, of which about 95 percent was exported, with a value of
about US$65 million.19 Coffee is dominated by smallholder production: an estimated
15,000 households produce coffee on the Bolovens Plateaux, cultivating more than
40,000 ha. Only recently have Thai investors shown any significant interest in Lao
coffee, a commodity which Thailand protects with high import tariffs.20

18

Agricultural modernization can be defined as agricultural production that has adopted motorized
mechanization, agricultural chemistry and breeding, livestock and crop protection, specialization
of farms in specific crops or livestock, and adaption to ecological, demographic, and economic
changes. Source: The State of Food and Agriculture 2000. The socio-economic impact of
agricultural modernization. Rome: FAO.
19
Source: Coffee Exporters Association, October 2012.
20
Thailand under the WTO Agreement on Agriculture is currently only 23 kinds of agricultural
products subject to tariff quota management, namely, Woodcrest Hill, copra, milk and butter,
potatoes, onions, garlic, coconut, coffee, tea, dry pepper, corn, rice, soybeans, onion seeds, bean
oil, soybean, sugar cane, coconut oil, palm oil, instant coffee, tobacco soil, the original wire. In
addition, animal feed corn imports outside the quota MFN levy surcharge. But does not apply
tariff quotas for imports from the ASEAN member countries. Source: China-ASEAN Free Trade
Area, Import regulations and protective measures of Thailand. http://www.aseancn.org/Item/851.aspx. Accessed on 10 August 2013.

33

Working on the principle that agro-processors gain competitive advantage by locating

their processing facilities closest to dependable supplies of raw materials; and, in
anticipation that the AEC will lead to a more liberal regional trade regime, stimulating
increased crop production; leading Thai agribusiness firms have set up operations in
Ubon and Champasak provinces, and in some cases in both provinces. Specifically,
using raw materials from Ubon (mainly rice by-products and processed cassava) and
Champasak (mainly sweet potatoes, soybeans, and groundnuts) to produce livestock
feed locally, several major Thai agribusinesses with contract farming arrangements with
local producers, have established production clusters in Ubon, namely:
Charoen Pokphand (CP), Betagro, and Centago for poultry, pigs, and livestock
feed production;
Advanced Agro for high-value breeding cattle for export;
Kao-na Poultry (a subsidiary of Advance Agro) for poultry raising and processing,
with 80 percent of its chicken meat products being exported to Japan, the EU,
and Hong Kong among other countries; and,
Two cassava processing factories: one at Na Yia District that produces ethanol;
and, a second at Nam Yuen District that produces cassava flour; with byproducts sold to local livestock feed factories.
Several large Thai public companies also have crossed the border and set up operations
closer to sources of raw materials produced in southern Laos. Specifically:
Thai Beverage Public Company Limited (ThaiBev) and TCC Land, which
operates through The Plantheon Co., Ltd. (formery known as TCC AgroIndustrial Co., Ltd.) operates a 2,400 ha coffee plantation on the Bolovens
Plateaux at Pakxong District, Champasak Province.
Boon Rawd Brewery Co Ltd operates a coffee plantation (formerly Pakxong
Highlands) on the Bolovens Plateaux at Pakxong District, Champasak
Province.
Charoen Pokphand (CP) also is said to have taken over maize drying facilities
and silos in Phonthong District, Champasak Province; and negotiating
purchase of the large and modern freeze dried food factory in Pakxong
District, Champasak Province (constructed by the Dao Heuang Company).
Numerous other Thai and Lao companies have registered with Ubon and Champasak
provincial authorities under the contract farming and business matching program to take
advantage of tax incentives enacted to promote cross-border trade. In 2010, 15 Thai
companies and six Lao companies were registered; in 2011, 17 Thai companies and 18
Lao companies registered; and, in 2012, 24 Thai companies and 15 Lao companies
registered. Several of the Thai firms are sourcing raw materials from Laos, including:
Siam Castor: castor beans for processing in Thailand;
Adams International: organic vegetable seed;
Advance Agro Livestock Feed Industry: soybeans, groundnuts, maize;
and,
Taniyama Siam-Advance Agro Company: vegetables for export to Japan.
At least one regional company, Olam (Singapore), is producing coffee in southern Laos.
Olam International is a leading global integrated supply chain manager and processor of
agricultural products and food ingredients, supplying various products from 65 countries,
including cocoa, coffee, cashew, sesame, rice, and cotton, and wood products.
The company handled 10.7 million tons of products for sales revenues of
S$17.1 billion in FY 2012. Olam currently ranks among the top 40 largest

34

listed companies in Singapore in terms of market capitalization. Olams first

greenfield coffee venture, integrates into upstream plantations in Laos, and
aims to produce high quality estate-specific specialty coffee with Rainforest
Alliance, UTZ and 4C certifications for niche markets worldwide. The plan is
to develop 3,000 hectares of land of which 1,857 hectares having already
been planted. Olam participates in local coffee trading and has initiated an
Outgrower program for coffee farmers.21
3.1 Distribution centers
Two important fruit and vegetable distribution centers located near the ChongmekVangtao border crossing play critical roles in cross-border export of fruit, vegetables, and
raw materials from Champasak to Ubon, namely: (i) the Vangtao trans-shipment market;
and, (ii) the Ubon Charoensri market.
Ban Vangtao: Soon after the first MOU (between Ubon and Champasak) for contract
farming was signed in 2005, an ad hoc market for fruit and vegetables was established
by Thai buyers a few kilometers from the Lao-Thai border near the Lao village of Ban
Vang Tao, Phonthong District, Champasak Province. This facility has since been
operating as a logistical point of transfer of commodities from Lao to Thai transporters. In
addition, many farmers from Pakxong District travel (100 kilometers) to sell their produce
to Thai buyers at this trading point. It is estimated that some 40-50 tons of farm produce
are shipped through this market daily.
Initially trading took place at the Chongmek border crossing itself, but as a
result of increased volumes and space required to handle the commodities,
local Lao officials and Thai traders negotiated moving the sales and transshipment point to a more suitable location some 5-6 kilometers inside
Champasak province. This market operates from about 04.00 to 0.800 hours
each morning. Although the market is administered by Phonthong District
officials, the simple thatched roof pavilions were constructed by the three
principal traders that purchase at and ship from this trans-shipment point.
Produce (mostly cabbage and Chinese cabbage from Pakxong, and bananas
from Lao Ngam District, Saravan Province) are unloaded from Lao trucks and
trailers pulled by hand-tractors; weighed; recorded; sorted; peeled; and,
packaged (in plastic bags) for shipment using Thai trucks to Ubons
Charoensri market and other outlets in Thailand.22
A second more permanent market was constructed close-by in 2009 with
support from the ADB (Smallholder Development Project, ADB Loan No.1949
LAO (SF)). Although this new market is located closer to the border, it was
constructed in a location that is difficult for trucks to enter and exit, making it
unpopular among traders. Some of the banana trade has been transferred to
this market from the older ad hoc market.

21

Source: http://olamonline.com/locations/worldwide/asia/laos accessed on 10 August 2013.

Ministry of Industry and Commerce, Trade Development Facility. 2009. Scoping study on
Cross-border agribusiness in Lao PDR: Focus on Champasak Province, Final Report. Vientiane:
World Bank.
22

35

Ubon Charoensri market: This market is a major distribution center for fresh fruit and
vegetables produced mostly by farmers in the southwestern corner of Northeast
Thailand and southern Laos, and also from northern Cambodia. The Charoensri Market
is a distribution hub, wherein commodities are sorted, graded, cleaned, disinfected,
packaged, and shipped to wholesale and retail markets throughout Thailand. This
market plays an important economic and commercial role in cross-border trade
operations between Ubon and Champasak.
3.3 Infrastructure
Thai Cabinet resolution (2003) to develop the Chongmek area as a major cross-border
trading center in northeastern Thailand provides the essential policy framework required
to facilitate public sector investment in the area. Traders and investors see Chongmek
as a strategic link to expanding regional trade toward markets in Viet Nam; and, using
ports in Viet Nam, to East Asia.
In this context, both the Thai and Lao governments have made recent significant
investments in upgrading transport infrastructure in Ubon and Champasak provinces.
The current road infrastructure is adequate on both sides of the border, and both
governments are implementing plans to expand road and border check-point
infrastructure.
Road infrastructure throughout Thailand is good and is upgraded periodically.
Existing good Thai roads continue to facilitate access to the Lao and Cambodian
borders in Ubon Province.
Road infrastructure in Champasak Province (Lao PDR) is good and expanding.
Significant investments are being made to upgrade border facilities at Ban
Vangtao in anticipation of expanded trade, investment, and tourism following
implementation of the AEC. The Lao Government is receiving donor support to
improve links to the Central Highlands of Vietnam through southern Laos, with
links to ports in Viet Nam at Danang, Hue, Qui Nhon, Ho Chi Minh City.
The significant investment in road infrastructure portends what is referred to as a
parallel East-West Economic Corridor (Para-EWEC). According to representatives of
the chambers of commerce in Ubon and Mukdahan, the road network being upgraded
by both governments via Ubon, shortens the distance between Bangkok and the
Vietnamese coast by 450 km, when compared to EWEC through Khon Kaen and
Mukdahan. In this context, a new Mekong River bridge is planned for Ban Pakseng,
Khemmarat District, Ubon Ratchathani, crossing to Saravan Province in Laos, with new
road links to ports at Hue and Danag, Viet Nam. Representatives of the Mukdahan
Chamber of Commerce reported that trading companies in Bangkok, Lopburi, and
Chonburi transport products for sale in Viet Nam using this route, for export through
EWEC.
Both Ubon and Paks operate international standard airports. Flights in and out of Ubon
Ratchathani International Airport are all domestic. The Paks Airport is served by
international flights to and from Bangkok, Ho Chi Minh City, Phnom Penh, and Siem
Reap. Ubon also has train services to Bangkok and other locations in Thailand.

36

3.4

Economic expansion

As noted above, economic expansion in Laos averaged 8 percent annually between

2005 and 2013. Specifically related to southern Laos and the Ubon-Champasak area,
tourism has been a major contributor to economic growth that has provided the basis for
increased cross-border trade in fresh and processed food and consumer goods, as well
as trade and travel services (facilitation of trade procedures, travel companies, transport
services, hotels, and restaurants).
Economic growth has resulted in an expanding middle class in southern Laos,
accompanied by modern attitudes and changing consumer taste preferences. This new
middle class also has expectations of accelerated modernization from AEC in 2015,
drawing on the demonstrated success of ACMECS.
Economic expansion and raised expectations also has resulted in increased demand for
skilled and professional people. In response, Ubon Ratchathani University (UBU) has
emerged as a leading academic institution in the Ubon-Champasak region as a source
of talented and innovative human resources. In response to the increased demand for
research and development services from private industry, UBU has established a
Science Park that partners with the Ubon Chamber of Commerce and the Federation of
Industries to promote cross-border trade links, concentrating on small- and medium
enterprises. The university has received support for research on export promotion
policies for SMEs, developing new products for processing and export, seed
improvement, logistics, and quality control standards for locally manufactured products.
It has partnership agreements with the ethanol factory in Na Yia District, Ubon; the Thai
Bev company for research on coffee production on the Bolovens Plateaux in
Champasak; and, the CP Group on farming systems. UBU has previously worked with
K-Line (Japan) on packing and packaging; and, Adams International on seed
multiplication for organic vegetables.
4. Cross-border production linkages and implications
Crops imported from Laos for processing in Thailand in significant quantities include:
groundnuts
(peanuts),
bananas,
tamarind,
Sweet potato (Ipomoea batatas L. (Lam))
soybeans, castor beans, and sweet potato.23
is a common crop in Laos after rice and
Groundnuts are imported and processed
maize, and has high biomass yields of both
tubers and vines. Traditionally, sweet
into snack foods, oil, paste, and peanut
potato is used as human food when rice is
butter by Thai agro-processors.
not sufficient, although at present it is
Bananas are imported for fresh
commonly used as feed for farm livestock,
consumption and processed into snack
especially pigs. The tubers have high
carbohydrate content while the leaves are
foods for domestic and export markets.
rich in protein, and both tubers and vines
Tamarind is imported for consumption
can be used as animal feed.
as a fruit as well as being processed
into concentrate, powder, sticks, drinks,
Source: Chittavong Malavanh and Preston T R 2006:
Intake and digestibility by pigs fed different levels of
and paste for export.
sweet potato leaves and water spinach as supplements
to a mixture of rice bran and cassava root meal.
Livestock Research for Rural Development. Volume 18,
Two large agro-processing factories in Ubon Ratchathani
Province
are
in Na Yia
Article
#86. Retrieved
Julylocated
31, 2013, from
http://www.lrrd.org/lrrd18/6/mala18086.htm
and Nam Yun districts, south of the principal east-west
highway (route 217) between

23

Personal communication with Mr. Rungsarith Phathanathong, Director, Chongmek Customs

House, Sirinthon District, Ubon Ratchathani Province, Thailand on 31 July 2013.

37

Ubon city and the Lao border at Chongmek. The factories process cassava using raw
materials sourced from Ubon and neighboring Thai provinces, but not from Laos. The
cassava is processed into starch, flour, ethanol, and livestock feed. Thai Customs
Department officials at the Chongmek border report that no cassava roots are imported
into Thailand from Laos for processing at these facilities. This is because cassava is an
agricultural product subject to control by the Thai Ministry of Commerce through a quota
system. Soybeans also are an ingredient in livestock feed controlled by an import quota,
but still are imported from Laos at Chongmek. Sweet potato (Ipomoea batatas L. (Lam)),
another livestock feed ingredient is imported from Laos through Chongmek.
The livestock feed is produced by the Kao Na Feedmill Industrial Co., Ltd., in Warin
Chumrab District, Ubon Ratchathani Province, using processed cassava from Thailand,
as well as soybeans and sweet potato imported from Laos. The feed is used by farmers
in Ubon who raise pigs and poultry under contract to Thai firms who are authorized to
slaughter livestock for domestic and export markets.
Thai Castor Oil Industries initiated contract production of castor beans by Lao producers
through a Lao management company under the ACMECS program in 2006-7.
Production of beans was popular among Lao farmers and, were high quality; with Thai
imports of castor beans from Laos reaching 3,000 tons during one season. Imports from
Laos were discontinued in 2011 due to high levels of rent seeking by border officials.24
4.1 Domestic and cross-border implications for governments
Issue 1: Quotas: The cassava processing factories in Ubon will require increasing
volumes of cassava roots and other raw materials as demand increases for both
cassava-based processed products, namely starch, flour, and ethanol, and livestock
feed. Soybean is another crop that is subject to Thai Government control and quotas,
with seven Thai firms holding monopsonies for importing fixed volumes of soybeans.
With the launching of the AEC (originally scheduled for 2015), and the gradual expiration
of AFTA protection clauses on selected strategic commodities, the Thai Government
will be obligated to review its antiquated system of granting import quotas for those
commodities, thus ending decades of trade distorting policies.
Issue 2: Governance: Rent-seeking by border officials will need to be addressed as a
governance issue. A major Thai firm for example, moved its operations from southern
Laos to agricultural areas around Mandalay, Myanmar, and was shipping castor beans
for processing in Thailand via ship, down the Irrawaddy River and along the Myanmar
coast, for import to Thailand through Ranong Province. Rent-seeking by border officials
resulted in termination of this supply chain for castor beans. Currently the company is
importing castor beans and castor bean cake from India for processing at its factory in
Saraburi, Thailand, at competitive but still higher prices than if the commodity was
sourced in neighboring Laos and Myanmar.
4.2 Implications for the private sector
Thai agribusiness has thrived for several decades under the protection of Thai
Government measures that distort trade flows; and, consumer-financed subsidies that
lead to exorbitantly high consumer prices for selected food products such as sugar. High

24

Personal communication with a consultant to the Thai firm on 31 July 2013.

38

import taxes on grains not produced in Thailand and processed food products result in
high prices for cereals and canned food. The burden of the Thai Governments
protection of uncompetitive, low quality, and toxic Thai fruit, vegetables, and pulses,
including soybeans and groundnuts, is borne by the public, since the private sector
passes on costs related to protection and subsidies to consumers.
ACMECS was a program implemented to (i) promote contract farming in neighboring
countries; (ii) systematize cross-border trade in agricultural products; (iii) reduce import
taxes on selected agricultural commodities in the run-up to AFTA; and, (iv) encourage
Thai producers to either become competitive with producers in ACMECS member
countries or shift to other commodities. AFTA has since replaced ACMECS, and all but a
few agricultural commodities are traded freely, albeit subject to rent-seeking and poor
governance at borders.
4.3 Implications for government and business collaboration
Joint public-private sector consultation: The system of Joint Public-Private Sector
Consultative Committees (JPPSCCs) established at the national and provincial levels in
the 1980s continue to be an effective mechanism for dialogue between government and
industry. Provincial JPPSCCs have been innovative in working with local government to
address constraints to cross-border trade and investment. One example is cross-border
meetings with government and private sector counterparts. Another example is crossborder industry focus groups that lead to joint ventures between private firms in each
country. Ubon has pursued this successfully with its MOUs that promote contract
farming and business matching with companies in Champasak.
Cross-border MOU: The memorandums of understanding between border provinces in
Thailand, Cambodia, Laos, and Myanmar were a common feature of the ACMECS
program that significantly facilitated cross-border commercial relations. They were
formulated by provincial level officials working in consultation with private sector
representatives who were trade practitioners; those who understood the problems
encountered in cross-border trade and who benefited most from effective
implementation.
GMS Governors Council: The ADB initiated Governors Council of border governors
through its GMS program in 2008 and 2009. This forum was an effective mechanism
that brought together governors of border provinces to discuss trade, investment, and
immigration issues, in the context of the GMS and ASEAN trade liberalization initiatives.
Such a council could contribute to more effective implementation of GMS agreements for
facilitating cross-border trade and investment (including the Cross-border Transport
Agreement or CBTA).
Public-private partnerships: Thailands Neighboring Countries Economic Development
Cooperation Agency (Public Organization) and Lao PDRs Lao Holding Company have
been created to provide both governments with flexibility in collaborating in private sector
projects. More innovative roles for these agencies could be defined that would facilitate
and expand cross-border trade.

39

5. Key factors shaping and constraining development

5.1 Factors supporting the Ubon-Champasak Border Economic Zone
The high level of interest and activity among traders, investors, researchers, and officials
in the vicinity of Ubon and Champasak provinces are indicative that a viable linked BEZ
has de facto emerged in the border areas of the two countries. The intensity of attention
and engagement by the private sector, in particular, provides the dynamic for economic
growth in this productive area of the GMS. Value chains for several crops are functioning
profitably for producers, traders, agro-processors, and investors; including value chains
for premium coffee (organic and FairTrade); vegetables (organic and non-organic); and,
field crops (for processing in Thailand).
Several key factors have emerged in the Ubon-Champasak area that contribute to its
success as an agro-industrial cluster. Some of these factors relate to what firms have
done; while others to what central and provincial governments have done: domestically,
jointly (cross-border), and related to the institutional framework. These key factors are
discussed below.
Investment in infrastructure: A 2003 Thai Cabinet resolution to upgrade the
Chongmek border crossing is indicative of the Thai Governments commitment to
facilitating cross-border trade through upgrading and modernization of border services.
Institutional mechanisms: ACMECS was designed as a mechanism for aligning
business interests across borders. It operated through cross-border province-to-province
memorandums of understanding (MOUs), endorsed by provincial governors. In addition,
ACMECS and later AFTA provide an important cross-border institutional framework for
bilateral arrangements governed by the MOUs.
Domestic policies: Since 2005, the Lao Governments agricultural policy has been to
promote crop diversification linked to export markets. The policy continues to play a
critical role in reorienting farmers: from producing traditional crops to producing crops in
demand by consumers in neighboring country markets.
Operational mechanisms: The annual Ubon-Champasak MOU systematized crossborder contract farming and established a practical and functional framework for crossborder trade. Enterprises on both sides of the border had confidence in the cross-border
arrangements and provincial governments served as facilitators and arbiters. The crossborder MOU also set quality standards that aligned producers with traders and
consumers in effective cross-border value chain linkages.
Market pull: Regional economic growth has led to rural migration and population growth
in urban areas resulting in changes in consumption patterns and changing market
demand. These changes on the demand side are linked to clear responses on the
supply side for mutual benefit.
Changing comparative advantages: A dynamic comparative advantage has made
cross-border production attractive to traders and investors on both sides of the border.
To a large extent Thai farmers have lost their competitive advantage to Lao and
Cambodian producers for many of the crops produced in Laos and Cambodia. Since
they are not cost and quality competitive, Thai farmers are shifting away from labor

40

intensive agricultural production to more capital intensive activities. This is due partly to
the higher cost of labor in Thailand and the availability of mechanization that is more
suitable to field crops.
Building on demonstrated economic and commercial rationale by firms behavior
(i.e., investment, production): Thai and regional agro-enterprises have demonstrated
the feasibility of cross-border commerce by operating profitably in the Ubon-Champasak
area for ten or more years. The investment has been facilitated by Thai Government
policy incentives implemented through ACMECS, and improved logistics.
Distribution centers: The Vangtao trans-shipment center (Champasak Province, Laos)
and Ubon Charoensri market (Ubon Ratchathani, Thailand) are key parts of the
extended value chain. They supply production inputs; operate as a logistics node;
provide space for preliminary processing (sorting, grading, packaging); and, storage.
Research and development facilities: Ubon Ratchathani University (UBU) has
emerged as a leading academic institution in the Ubon-Champasak area, with talented,
skilled, and innovative human resources. A Science Park has been established at UBU
in response to increased demand from private industry for research and development
services. UBU collaborates with the Ubon Chamber of Commerce and the Federation of
Industries to promote cross-border trade links, concentrating on small- and medium
enterprises. In this way UBU has contributes to the agribusiness cluster, and
complements the different size enterprises, government assistance, and other
institutional support (i.e., university resources, research and training facilities) that caters
to the cluster.
Although the Ubon-Champasak vicinity displays many characteristics of a successful
agro-industrial cluster and BEZ, several domestic and cross-border challenges remain
for government and business. These factors are discussed below.
5.2 Domestic factors
Trade-distorting mechanisms: The Thai Government continues to operate commodity
price control mechanisms that impede free trade. Both the Farm Price Stabilization
Committee and National Food Policy Committee, operated by the Ministry of Commerce,
impose price controls and quotas on the import of selected commodities. This
intervention results in monopsony trading systems, authorized by government, that
distort markets and lead to higher prices for consumers. Such mechanisms diminish the
viability of border economic zones.
Land issues in Ubon: Establishment of a border economic zone to take advantage of
the comparative and competitive advantages of both Thailand and Laos in the UbonChampasak area is made more difficult because of the lack of available land in the
border area of Ubon. Public land in several potential areas is occupied by villagers that
the government cannot relocate.
Reduced supply of raw materials from Thai sources: Thai farmers are changing their
production patterns from labor-intensive crops (fruit and vegetables) to crops for which
mechanization is available (cassava, sugar cane) and tree crops (rubber, Eucalyptus, oil
palm). The diminishing supply of raw materials from Thai farmers to Thai agroprocessors for which Thai exporters have significant global market share require that

41

agro-industries turn to neighbour country producers for a dependable supply of high

quality raw materials.
5.3

Cross-border (Subregional) factors

Guarantee mechanism for vehicles and containers: Prior to formulation of the ADB
supported GMS CBTA, Thailand had concluded bilateral agreements for the movement
of vehicles between Thailand and neighboring GMS countries. However, the bilateral
agreements are not consistent with the CBTA. Specifically, the bilateral agreements lack
credible cross-border mechanisms that guarantee vehicles and containers. While the
CBTA provides for such a guarantee mechanism, Cambodia, Laos, and Myanmar lack
sufficient funds to advance to pay for insurance premiums. The Thai Chamber of
Commerce GMS Trade Committee has proposed a formula that imposes a small
surcharge on Thai freight forwarders and transportation companies that are members of
the regional federation of freight forwarders, that will be used to off-set the cost of the
insurance premium to be paid by the less-developed participating GMS countries (i.e.,
Cambodia, Lao PDR, and Myanmar).
Positive experience with AFTA and ACMECS within the ASEAN framework:
Participation in ACMECS by Thailand and its GMS neighbors (including Vietnam) was a
positive experience in cross-border trade. The ACMECS and later AFTA frameworks
provided regional traders and trade service enterprises with valuable experience in
implementing regional trade procedures and the use of trade documentation. ACMECS
was a positive step in systematizing cross-border contract farming and pricing
arrangements; while AFTA later introduced and harmonized trade procedures,
specifically the general acceptance and use of ASEAN Form D for all cross-border trade.
6. Recommendations
Innovative thinking and approaches: The ministries of commerce of the Thai, Lao,
and Cambodian governments should work with their respective chambers of commerce,
the GMS Business Forum, and the ASEAN Business Council to apply innovative thinking
to promote cross-border trade that supports economic development.
One such mechanism is the promotion of tourism development in Ubon, southern
Laos, and northern Cambodia as a platform for harmonizing standards that will
lead to an expansion of trade and investment; specifically agro-tourism, cultural
tourism, nature-based tourism, coffee tourism, and incentives for tourist services.
Investments to build connectivity: The ministries of transport of the Thai, Lao, and
Cambodian governments should meet periodically to coordinate strategies that improve
links between Thai roads in Ubon and lead to expanded road infrastructure in southern
Laos connecting to the Central Highlands and Ho Chi Minh City in Vietnam; and, in
northern Cambodia.
Greater emphasis should be placed on building a Para-EWEC -- parallel EastWest Economic Corridor.
Capitalize on existing trade to expand commerce to promote economic growth:
Build on Ubons Charoensri Market as a commodity distribution hub.
Build on the experience of Ubon Ratchathani Universitys Science Park to
expand research and development services to private investors.

42

Build on the 2003 Thai Cabinet resolution to develop the Chong Mek border area
as a border economic zone; begin with a tax free agro-trading zone on land
managed by the Thai Customs Department that can evolve into a border
economic zone over time.
Alternatively, establish a border economic zone on unencroached RTG land in
Ubon Province; for example at a commodity research center operated by the
Thai Ministry of Agriculture and Cooperatives; or, on land administered by the
Ministry of Defense; or, on land administered by the Treasury Department; or,
establish a Thai-Lao enterprise as a joint venture with the Government of Lao
PDR to develop a tax free border economic zone on the Lao side of the border
where land issues are less problematic.

Involve key stakeholders: Asses options for a public-private partnership (PPP) that
includes existing Thai investors in southern Laos; to establish a border economic zone
that facilitates trade logistics. Such a PPP could be handled by the Thai Neighboring
Countries Economic Development Cooperation Agency (Public Organization).
The GMS Governors Council is a key stakeholder that could be given greater authority
to consider and endorse PPPs and other border economic zone initiatives; with the
objective of fostering increased local participation and ownership of investments and
benefits linked to strengthening GMS cross-border trade mechanisms.

B.

Toward cross-border economic zones and value chain linkages at Mae Sot
(Thailand) and Myawaddy (Myanmar): case study25

1.

Background

The border area at Mae Sot (Thailand) and Myawaddy (Myanmar) has the potential for
significant development utilizing the complementary factor endowments of the two
countries, and consistent with their overall development objectives. The Thai Cabinet
originally approved the preparation of a Special Economic Zone in Mae Sot in March
2002. Although there has been strong sustained interest on the Thai side by the central
and local governments and the business community, as well as by foreign investors,
development of the Mae Sot SEZ has stalled, in part because of complications in the
planning of the SEZ, and because of the complex political situation in Myanmar,
particularly in Kayin State.
Thailand has become increasingly concerned about a middle-income trap: losing
competitiveness in labour-intensive industries and activities because of rising wages and
more intense competition from lower wage economies such as Viet Nam and
Bangladesh in key export industries such as garments. This has led to a strategy that
includes a focus on outward investment by Thai enterprises and relocation of labour
intensive activities, particularly to neighbouring countries. These developments have
renewed interest in development of an SEZ at Mae Sot, particularly with the clustering of
garment and textile factories there, until the increase to Baht 300 of the minimum wage.
The mandated wage increase, in turn, has provided a further incentive for the relocation
of labour-intensive activities outside of Thailand.

25

The study team visited Mae Sot, but did not have the opportunity to visit Myawaddy.

43

In Myanmar the democratically elected (in 2010) government of President U Thein Sein
began to chart comprehensive and bold new directions and reforms for the countrys
transformation and development, particularly since 2012. This includes an emphasis on
strengthening and diversifying external economic linkages, particularly with neighbouring
countries and ASEAN. The development of border economic areas is emerging as a
priority both as gateways to the region and the international economy, and as the basis
for a more balanced national development. There is an emphasis on attracting FDI,
particularly to link to labour intensive cross-border export-oriented value chains, such as
garments and electronics, for employment and income generation. In this context, the
Union of Myanmar Government and the Kayin State Government has decided to take
advantage of proximity to Thailand by establishing an Industrial Zone (IZ) at Myawaddy
in order to facilitate and accelerate development of the border area, and to support the
product market diversification of Myanmars economy.26
This case study looks briefly at key characteristics of Mae Sot; the economic and
commercial rationale for developing an SEZ at Mae Sot from the perspective of potential
linkages to Myawaddy; key factors facilitating and constraining further development of an
SEZ; and suggests preliminary recommendations for possible follow up through more
extensive feasibility studies. In addition to an assessment of issues with respect to an
SEZ in Mae Sot, a scenario is presented involving collaborative development of a Crossborder Special Economic Zone (CSEZ) at Mae Sot Myawaddy that builds on potential
developments in Myawaddy (and more broadly in Myanmar), with particular focus on
labour intensive manufacturing (garments and textiles, hereafter as garments) that
respond to the development challenges and priorities of both countries.
2.

Mae Sot
2.1 Key Characteristics

The city of Mae Sot is in Tak Province, on the Myanmar border, approximately 490 km
northwest of Bangkok. It sits on the Moei River across from Myawaddy (Myanmar). The
two are connected by the Thai-Burma Friendship bridge, completed in 1997, and funded
by the Thai government (Fig. B1). Mae Sot and Mywaddy lie on the East-West
Economic Corridor or EWEC (Fig. B2). EWEC is a flagship initiative of the GMS
Program, which has attracted significant attention and investment in infrastructure by
participating countries (e.g. the East-West Transport Corridor).
Given its location, the Mae Sot Myawaddy border area is one of the most important
locations for cross-border economic linkages in the GMS. Last year total trade at the
Mae Sot crossing point was close to Baht 40,000 million, a significant increase from Baht
25,000 million in 2009. With expected acceleration of the growth and international
economic integration of Myanmar, and with planned upgrading of trade facilities at the
border, the value of the trade is projected to double by 2015, with benefits spreading to
the nearby provinces of Phitsanoulok in Thailand, and Pha-an and Malamang in
Myanmar, and beyond.

26

An Industrial Zone has general characteristics of an industrial estate, focusing on development

of a specific geographic area, particularly involving the provision of supporting infrastructure
services. It differs from an SEZ in that it does not have the range of privileges usually associated
with such zones. Myanmar is presently revising the SEZ law.

44

10

Fig. B1 Mae Sot Myawaddy

Antipode

Figure 2: Mae Sot and its surrounding areas (source: Pongsawat 2007)

maintain competitiveness Thai manufacturers have adopted a series of

downgrading strategies (Mounier and Charoenloet 2007). They have:
downsized operations by laying off workers regularly without

compensation,

informalized labor relations by employing workers on contracts

through labor agencies, or by outsourcing production to

2011 The Authors

C 2011 Editorial Board of Antipode.
Antipode !

!
C

45

Fig. B2 Mae Sot Myawaddy on the GMS East West Economic Corridor

Source: Asian Development Bank

Thailands major exports to Myanmar at Mae Sot include consumer goods and
construction materials. The principal official import from Myanmar is seafood. In addition,
Thailand also imports maize, soybeans, mungbeans, sugar cane and peanuts. However,
much of the crop imports are not recorded, but are imported informally because the
border at Mae Sot along the Moei River is not regulated. These crops are brought in
small quantities by collectors who sell to aggregators, who then sell the larger amounts
to middleman traders, who, in turn, sell them to Thai agro-processors downstream and
mostly inland, away from the border.
Mae Sot also emerged as a significant production base for labour-intensive industries, in
particular, garments. At its peak, approximately 470 garment factories were located
there, mostly from Bangkok, employing more than 20,000 migrant workers from
Myanmar. However, the introduction of the Baht 300/day minimum wage in January
2013, has led to a significant movement away from Mae Sot by garment producers.
In contrast to the mostly central government-led SEZs in the GMS (e.g. Cambodia), the
interest in a Mae Sot SEZ has emerged from locally led initiatives generated by business
and local government lobbying the central government for SEZ status. The Tak
Chamber of Commerce, located at Mae Sot, is a strong supporter of the development of
the SEZ and linkages to Myanmar, and includes the following business groups: shipping
services (logistics); garment and food processing industries; trade (import-export);
agriculture (importers and suppliers); tourism (in Thailand and adventure tours to

46

Myanmar); and investment consultants (for Thai firms wanting to invest in Myanmar, and
for Myanmar investors with an interest in Thailand).
2.2

Economic and Commercial Rationale

Mae Sot has three important areas that provide economic and commercial rationale for
significant development: garments, agro-industry (broadly defined), and tourism. Of
these the first two garments and agro-industry provide potentially strong rationale for
the development of an SEZ.
Garments: Mae Sot emerged in recent years as a production base for labour-intensive
industries, in particular, garments, driven by global and domestic factors. From early to
mid-1990s profit rates for garment and textile firms fell, as for many other labour
intensive industries and activities in Thailand. Manufacturers efforts to upgrade into
original design (ODM) or original brand manufacturing (OBM) have generally not
succeeded; and Thai-based regional trading companies managing supply chains for
global brands and retailers did not materialize as they have in Taiwan and Hong Kong,
(e.g. Li & Fung). This led to the relocation of many Bangkok garment producers to Mae
Sot seeking lower costs. The key attraction was low wage labour from Myanmar,
including Karen workers who crossed over daily from Kayin State, and workers from
nearby (Burmese) refugee camps. As noted, at its peak, approximately 470 garment
factories were located in Mae Sot, mostly from Bangkok, employing more than 20,000
(daily) migrant workers from Myanmar. An important factor for the relocation decisions of
these firms was very good road connecting Mae Sot to Bangkok, providing easy access
to the domestic Thai market, and through Bangkok Port and Laem Chabang Port to
export markets. The garment factories are small- and medium-scale enterprises (SMEs),
with 20 200 employees. The bigger factories (50 200 workers) are mostly from Hong
Kong and Taiwan. The smaller factories (20 50 workers) are generally Thai owned.
Agro industry (including bioenergy): There is strong interest by leading Thai
corporations in agro-industry at Mae Sot, including (particularly) in bioenergy. For
example, Maesod Clean Energy Company, a joint venture undertaken by Thai Oil,
Padaeng Industry, and Petrogreen, (a subsidiary of Mitr Phol Sugar Group), has
established an ethanol plant in Mae Sot district, with a production capacity of 200,000
liters a day from sugarcane juice. There are indications that the Mitr Phol Sugar Group is
expanding its Mae Sot business to biomass power plants attached to the sugar mills. In
addition, there is strong indication that CP Public Company Limited together with
Sahapat is exploring investing in Mae Sot. The Amata Group, a leading developer of
industrial estates in Thailand, has shown interest in land development, completing area
surveys. Furthermore, there are indications of large Thai enterprises (e.g. sugar
producer) interested in contract farming in Myanmar for processing in Mae Sot.
2.3 Key Factors Shaping/Constraining Development
There is very strong support, as noted, for the development of a Mae Sot SEZ at all
levels of government and by local stakeholders; and there is sound economic and
business rationale. However, preparation and approval of various plans for Mae Sot
related directly and indirectly to the establishment of an SEZ, have faced continuing
difficulties since the initial approval of the concept by Cabinet in 2002. Planning for a
Mae Sot SEZ has been on-going since 2004, but approval and implementation have
been complicated by a number of issues:

47

Status of Mae Sot: There has been strong push from local interests to upgrade
the district to Mae Sot province, or to upgrade the municipal government of Mae
Sot to become a special administrative area like Bangkok, Phuket, and Pattaya.
Government legislation seems to have been drafted to create an independent
municipality, but development of an SEZ appears linked to becoming an
independent municipality.

SEZ plans: Although the local business community is strongly supportive of a

Mae Sot SEZ, there are key differences in perspective. The provinces Chamber
of Commerce would like the government to allocate only 5,603 Rai of land in Mae
Sot for the SEZ. However, Taks Federation of Thai Industries supports the
government proposal to develop three districts in Tak Province (Mae Sot, Pob
Pra, and Mae Ramad) into a Special Economic Zone (SEZ). One approach
involves development of the SEZ on the 5.603 rai site near Mae Sot as the first
stage; with possibility of further industrial estates and other border economic
development to take place throughout the three districts at later stages, with the
entire SEZ to cover 14,000 rai. One complication is that the designated land
(5,603 rai) is classified by the Royal Forest Department and the Department of
Land Development as permanent forest-land (National Forest Reserve).
Although there is very little forest left, and the land is used primarily by local
villagers for crop cultivation, there may be difficulties extracting the SEZdesignated land from its current forestry classification.

SEZ strategy: It was suggested that the first step in the preparation of the SEZs
should be the formulation of a national SEZ strategy that would also include a
strategy for Mae Sot. The preparation of a master plan on the technical details of
the SEZ only then should follow as a second step. In this context, it was
suggested that a cross-border development strategy linking Myawaddy (e.g. for
labour-intensive activities) and Mae Sot (e.g. technical know-how and higher
level skills), would be part of such a wider development strategy. However, there
is concern by some local stakeholders with pollution and other negative effects of
industrial development from a local SEZ. They would prefer to develop the area
for trade-related services, including a free trade zone; and only selective
industrial development. It is useful to consider garments and agro-industry, as
well as services, briefly from this perspective:
o Labour-intensive industries (garments): The Baht 300/day minimum wage
has reduced significantly the presence of garment manufacturers in Mae
Sot. This has led to a view that such industries are not likely to be
attracted to Mae Sot in the future, and that higher value added activities
should be targeted such as agro industry (processing) and tourism.
However, it was also noted that if a Mae Sot SEZ is considered in
relationship to linked developments in Myawaddy, a different scenario can
emerge for a Mae Sot SEZ that builds on the presence of garment
manufactures involving higher value added activities, linked to labourintensive production in Myawaddy across the border.
o Agro-industry - contract farming: As noted, there is existing and planned
investment in agro-processing in Mae Sot, including in bioenergy. In this
context, there is strong interest in sourcing from Myanmar, particularly
through contract farming. The MOU on contract farming between
Thailand and Myanmar was signed in 2005 as part of the ACMECS's
scheme for regional agricultural cooperation. However, it has not been as

48

effective as expected, in part since the Myawaddy local government has

no power to directly initiate or cooperate with its Mae Sot counterpart.
Services: The Mae Sot business community (e.g. Chamber of
Commerce) sees positioning Mae Sot as a service center for investors
interested in Myanmar. The local business community has extensive
networks among Burmese and Karen throughout the eastern Myanmar
region. Many Thais in Mae Sot serve as nominees for Myanmar citizens
investing in Thailand; registering companies in Mae Sot.

Administration: It is suggested that land benefits, authorization power within the

SEZ, and legal complexities may be key issues that have delayed the SEZ
development. In general, SEZs are administered by the central government using
regulations (not law) of the Office of the Prime Minister. Municipalities are
administered by locally elected officials. Therefore there is the possibility of legal
conflict, inconsistencies, and complexities over administrative decisions and
procedures with respect to a Mae Sot SEZ.

Infrastructure: Public services and facilities such as electricity, water, and roads,
are available to some extent at the designated site. More generally, the city of
Mae Sot has adequate public utilities, a hospitable urban environment, and plans
to upgrade the airport. There are constraints, however, particularly with respect
to water supply and power. The Moei River is small, and shallow during the dry
season, limiting available water for both municipal and industrial uses. Adequate
and reliable supply of electricity all year around is also in question. The Mae Sot
airport has several daily flights to Bangkok and Chiangmai and international
flights to Mawlamyine, with budget allocated to expand the airport. Significant
investment is required to upgrade the road links between Mae Sot and Tak, as
well as to Myawaddy, to reduce logistics costs and increase safety. In this
context, a budget of 1,400 million baht was allocated earlier by the government to
expand the road from Mae Sot to Myawaddy, toward Yangon. To ease access
between Mae Sot and Mywaddy, a new Friendship 2 Bridge will be constructed
across the Moei River at Ban Wang Takien, 10 km upstream from the existing
Friendship 1 Bridge. It should be noted that price of land in the area has
increased significantly.

Present status and approval process: The latest development is the engagement
of Thammasat University and a private company by the Government to prepare a
draft master plan for developing the SEZ site. According to the Regulation of the
Office of the Prime Minister on Special Economic Development Zone B.E. 2556,
the Municipality will submit the plan to a Policy Committee for consideration for
the establishment and implementation of SEZ. If satisfied, the Policy Committee
will then propose the Plan to the Cabinet for approval. Upon the Cabinets
approval for the Master Plan, the Policy Committee will make an announcement
and prescribe the area specified in the Master Plan to be Special Economic
Zone. However, the process has been delayed at the Department of Public
Works and Town and Country Planning by a (mostly external) committee who
reviews these plans, comprised of experts from a diversity of sectors
(environment, water resources, land development, etc.). As a number of these
experts are objecting to various aspects of the SEZ plan, it has not been
authorized by the committee, as of this writing, and therefore cannot be sent for
further consideration and approval.

49

Political and security considerations: There are complex political and security
considerations in linking developments in Mae Sot with Myawaddy. Martial law is
in place along the Thai Myanmar border, 15 km. into Thailand. Officials at the
border are also faced with complex daily situations. For example, customs
officials must conduct regular negotiations with three groups: the Christian Karen
who occupy one bank of the Moei River; the Buddhist Karen who occupy another
bank of the Moei River; and, representatives of the central Myanmar government
(military) who control the Friendship Bridge, but have limited overall control of the
border. Products sourced from Thailand are sold to these groups. Furthermore,
meetings between Mae Sot District and Myawaddy officials are rare because
they require approval from the central government in Myanmar. To address
these issues The Thai Ministry of Interior has authorized local authorities to meet
with local Myanmar officials to discuss and agree on issues related to the
opening hours of the bridges and other limited local logistical issues. To facilitate
this, a local cross-border committee has been created recently. Beyond this, it is
suggested that clear and credible political commitment at the highest levels of the
Thai government is needed to accelerate border area-related development.

Trade facilitation27: As noted, the trade between Thailand and Myanmar at Mae
Sot Myawaddy is expanding rapidly, with the pace expected to accelerate.
Strengthening cross-border trade is part of Tak provinces development plan,
based on a 2013 resolution of the Thai Mobile Cabinet meeting in Uttradit
Province. To support this, there are plans to construct a border facility in time for
the inauguration of the AEC. It would include a modern customs-controlled area
(CCA)28, and include a customs, immigration and quarantine (CCQ) complex.
This would help respond to some of the following constraints on trade:

Thai side:
o Insufficient customs officers and no one stop service (OSS) at Mae Sot;
o Constraints on customs efficiency because of multiple agencies involved,
for example, in the inspection of goods;
o Changes in operational practices of customs officials, creating uncertainty
for traders;
o Lack of central place for goods inspection, with inspecting authorities
located far from the customs house, increasing time and cost of
inspection;
o Limited working hours of customs house and government agencies.

Myanmar side (Myawaddy)

o Frequent changes of regulations and officers, resulting in delay,
uncertainty, and inflexibility;
o Limited understanding by Myanmar officials of international trade and
customs protocols;

27

Based in part on study prepared by the University of the Thai Chamber of Commerce team, led
by Dr. Pussadee Polsaram and related discussions.
28
A customs controlled area (CCA) is a secure and controlled environment where activities are
monitored and/or conducted by Customs officials, including the inspection of good and personal
effects; and where people crossing borders are processed.

50

o
o

3.

Internal problems between the Myanmar government and local minorities

resulting in uncertain and stricter inspection and transport; and
Generally underdeveloped customs system.

In summary: Selected supporting and constraining factor for developing an SEZ

at Mae Sot, linked to Myawaddy, include the following:
o Supporting:
Strong interest and support by the local government, central
government, and the local business community;
Geographic location, including connectivity with the GMS (EWEC)
and potential gateway to South Asia (e.g. BIMSTEC);
Strong local linkages among traders on both sides of the border
Available land and some existing or planned infrastructure;
Available low-cost labour;
Strong investor interest from outside the area; and
Access to markets - domestic Thai market, in particular Bangkok;
and Bangkok and Laem Chabang as international ports for
exports.
o Constraints:
Uncertain planning and approval process for SEZ;
Unclear overall strategy for border area development;
Significant infrastructure gaps and uncertainties;
Lack of administrative coordination among agencies;
Lack of, and uncertain supportive international cooperation;
Uncertain border-area policies and regulations;
Restrictions on trade;
Environmental concerns about industrial development; and
Perceived insufficient clear and credible high-level commitment
and support.
Myawaddy
3.1

Kayin State: Overview

Myawaddy is located in Kayin State, in the eastern part of Myanmar, bordering to the
west Mon State, which faces the Andaman Sea; and to the east Thailand. Kayin State
consists of four districts: Hpa-an (which houses the Hpa-an, the state capital),
Kawkareik, Myawaddy, and Phapon. The population of the state is estimated at close to
2 million; with approximately 60,000 in Myawaddy, near the Thai border. The economic
base of Kayin State is mostly commodity-based production, with agriculture representing
approximately 30% of that total.
A key constraint, in the past, on the development of Myawaddy and the Thai border area
has been extended military conflict in Kayin State since Myanmars independence in
1948, between the central (Union) government and armed groups of the local ethnic
minority, particularly the Karen National Union or KNU, seeking sovereignty. This has
constrained the entry of foreigners into the area because of restricting regulations and
the dangers arising from armed conflict. In January 2012 a ceasefire agreement was
reached between the KNU and the Myanmar Union government, opening the region to
foreigners as of April 2013.

51

3.2

Myawaddy Industrial Zone (IZ)

Myawaddy is well located with respect to Yangon and Bangkok, approximately 450 km
from both (Fig. B3). This provides potential access to large consumer markets in those
economic centres; and access to international markets. On the way to Yangon is the
Hpa-an IZ, with potentially beneficial linkages to economic activities in Myawaddy. As
(7) Local
area maps
project
implementation
noted,
Myawaddy
(along of
with
Mae Sot)
is also located on the GMS East-West Economic
Corridor, connecting to Da Nang (Viet Nam) in the East, and Mawlamyain (Myanmar) in
the West; potentially well positioned to play a key role in GMS trade and beyond.
Map Fig.
1 Local
zone, Hpa-an
industrial zone)
B3area map (Myawaddy
Access industrial
to Bangkok
and Yangon
'(")"**(+45

67"&"#+45

!"#$%#&'(")"**(+,+-../0

'(")"**(+ 1"#$/%/+, -23/0

Source: Study Team

A decision was taken to Map

develop
a Myawaddy
Industrial
2 local area
map (Myawaddy
industrial Zone
zone) (IZ) primarily to benefit
from economic linkages to Thailand. A Myanmar industrial zone (IZ) involves a
designated geographic
area earmarked, for example,
?@"<="#*for production activities; intended
'("#0";
to attract investors, particularly FDI; primarily by providing key infrastructure services.
The Kayin State Government initiated IZ construction, with Phase 1 to be completed in
April 2015. A preliminary assessment of the Myawaddy IZ suggests that it is unlikely to
have attributes attractive to foreign investors. It is seen as likely to lack the needed level
of infrastructure,
e.g. power and water supplies, sewage treatment facilities, solid waste
'(")"**(+4#*89:;<"=+5%#>
disposal system. For example, much of the needed power is expected
!"#$%&' to be imported
from Thailand, at least in the initial stages of development and operations of the IZ. To
supplement this, there are plans for an Independent Power Producer (IPP) to build a
power plant in Mawlamyain in Mon State, to supply power to both the Myawaddy and
Hap-an IZs. There are questions, however, about the sufficiency
of reliable power from
A9<"#+6<$@)"(+
these
sources.
67"&"#
'(")"**(+

Furthermore, an IZ does not have the kind

of privileges associated with SEZs. It lacks
B<9:;<C:+
the trade- and investment-facilitating rules, for example related to customs procedures
and import duties, seen as necessary to attract manufacturing-related foreign investor
interest to Myanmar, at this stage. To upgrade the IZ to the status of an SEZ, the Kayin
Source: Study Team

52
S-18
!

State Government requires general approval from the Myanmar Investment Committee
(MIC) at the Union Government level, as well as approvals from the Ministry of Industry.
As noted, the revision of the Myanmar SEZ law is still in progress. In order take full
advantage of the locational potential of Myawaddy, linked to Mae Sot, particularly in the
context of developing production linkages in the garment (and agro-industry) value
chain, significant investment that meets international standard is required. In addition, an
upgrading to the status of SEZ is likely to be necessary. (See discussion of a Mae Sot
Myawaddy Cross-border Special Economic Zone (CSEZ) below.)
4.

Recommendations

Based on the above, general recommendations are provided for strengthening and
accelerating development of the Mae Sot SEZ, and more generally the Mae Sot
Myawaddy border area. In addition, more specific recommendations are provided for
developing a cross-border economic zone focusing on labour-intensive industry
(garments).
4.1

General recommendations

Clear and credible high-level commitment to, and support for the Mae Sot border area in
general, and the SEZ in particular: There is a perceived lack of sufficient high-level
support to a Mae Sot SEZ and related linkages to Myawaddy. This is seen as
contributing to lack of administrative coordination related to the SEZ and to border trade.
Creation of a high-level bilateral mechanism to facilitate border area economic
partnership between Thailand and Myanmar: There are a wide range of issues
constraining the expansion and diversification of crossborder economic linkages that
cannot be addressed locally, and require high-level guidance. It is important that such a
mechanism have a clear and coherent shared strategy for local development within the
framework of the respective national development strategies. An important role of this
type of mechanism is to link closely to local agencies to ensure there is a common
information and knowledge base, and shared understanding of issues.
Consultative preparation and monitoring of an overall strategy for border area
development, including SEZ as the appropriate implementing mechanism: It is not clear
what the master plan being prepared will contain, but there are indications of potential
lack of clarity with respect to overall strategy for border area development. For example,
there is a business case for border area development to include agro-industry, labourintensive manufacturing, and services (including tourism). Each has potentially different
constraints and requirements. At the same time, there are also concerns about the
potential negative (e.g. environmental) effects of industries locating in the area.
Therefore clarification of the vision and strategy of border area development would
provide important guidance for related SEZ investments, rules and regulations, linked to
needs of specific value chains. It is essential that preparation and monitoring of a border
area strategy be undertaken in close cooperation of government and business.
Develop the strategy and master plan for Mae Sot with explicit consideration of potential
longer-term cross-border linkages to Myawaddy: Development of the Mae Sot SEZ, and
more broadly, of the border area, is being planned in the general context of its location
on the border, across from Myawaddy. However, it is not clear to what extent
consideration of potential specific cross-border linkages (e.g. in particular value chains)

53

are building blocks of such development. A clear and credible strategy that explicitly
addresses the nature of a Mae Sot Myawaddy cross-border economic zone could
provide important guidance for the long-term mutually beneficial development of the
area. (Business case for, and elements of such a strategy are presented in section 4.2.)
Clarify administrative issues with respect to Mae Sot SEZ: There is a perceived lack of
clarity about administrative roles and authority with respect to planning and
administration of a Mae Sot SEZ. This is seen as hindering progress toward its
implementation. In this context, it may be useful to ensure that governors of Tak
Province have the background, mandate and sufficient term (e.g. minimum 3 years) to
address issues related to border area development, particularly in the context of longterm changes and development underway in Myanmar.
Clarify and strengthen trade rules and regulations, their implementation, and tradefacilitation: Border area policies, regulations and their implementation are uncertain,
imposing costs and risks on local business, and constraining growth.
Private sector capacity building: There are a number of areas where providing
information for, and facilitating knowledge of local business and investors could
contribute to expansion and diversification of border economic activities and
development. These include: information on trading rules, regulations and procedures;
and providing market-related information (e.g. research related to both existing and likely
future end markets and business buyers).
Innovative mechanisms for addressing infrastructure gaps and constraints: There are
significant infrastructure and logistical gaps and constraints on border area economic
development in general, and SEZ in particular. Some will require public investment; but
some may be undertaken as public-private partnerships (e.g. logistics, power). A
mechanism should be set up that brings together potential infrastructure investors and
related government agencies to develop a comprehensive border area infrastructure and
logistics strategy, that also identifies potential role for the private sector and PPP.
Cross-border payment mechanisms: With expanding and diversifying border trade, it is
important to have in place appropriate and sufficient mechanisms to handle cross-border
payments, supporting trade and investment.
4.2

Mae Sot Myawaddy cross-border special economic zone (CSEZ)

Recommendation: Explore the feasibility of establishing a cross-border special

economic zone that links SEZs in Mae Sot and Myawaddy, focusing on labour-intensive
production, particularly the garment and textiles value chain, with a shared strategy and
mechanisms. Including agro-processing industry should also be considered, with the
recognition that firms in the two value chains have differing constraints and requirements
that need to be explicitly addressed in planning, management, and operations of SEZs.
A focus on the garment value chain or industry will be developed in what follows.
Rationale:
Thailand: Thailand is losing comparative advantage in labour-intensive
industries. At the macro level, policies are focusing on facilitating the upgrading
of Thai firms in key value chains (e.g. garments, electronics, automotives), and
facilitating outward investment by Thai enterprises (e.g. the new BOI strategy) to

54

relocate labour intensive activities, with particular focus on neighbouring

countries. At the industry level, this has led to relocation and clustering of
garment manufacturers to Mae Sot, given the proximity to low cost labour from
Myanmar. However, the 300 baht/day minimum wage law (January 2013) has led
to the loss of advantage of low wages and pressure to upgrade or relocate.

Myanmar: The democratically elected government of President U Thein Sein is

pursuing far-reaching economic reforms, including an emphasis on strengthening
and diversifying external economic linkages, particularly with neighbouring
countries and the ASEAN Economic Community (AEC). There is a general
emphasis on attracting FDI for product market diversification, linking to regional
and global production networks, particularly in labour-intensive industries such as
garments. The development of border economic areas is therefore emerging as a
priority both as gateways to the region and the international economy, and as the
basis for a more balanced national development.

Cooperative solution: Given the above, an effective joint strategic response can
allow for the relocation of labour-intensive activities from Thailand (Mae Sot) to
Myanmar (Myawaddy, with possible extension inland to Hpa-an), linked to higher
level activities in the garment value chain in Mae Sot. This would also support
Myanmar in developing a key labour-intensive industry for employment and
income generation. Firms located in Myawaddy could have access to the more
developed infrastructure (e.g. power, transport) on the Thai side. This, in turn,
would allow Thai firms in Mae Sot to upgrade to higher value-added activities.
Mae Sot also provides access to sourcing domestic (from Thailand) and imported
raw materials; access to Thailands domestic market, particularly Bangkok, and
to export markets via the ports of Bangkok and Laem Chabang.

The rationale for developing complementary cross-border linkages is consistent with the
general stage of development of the garment industry in the Thailand and Myanmar,
summarized in Figures B4a and B4b.

55

!"#$%&'(&)*&)(#'+&',
Figure B4a. Myanmar garment industry: overview
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Textile
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= ,+3+&*/&'4#
- - 50 6 + - ? @;
.<=,+2&-(3-4502367+2-8>?9@;

2<Q'878*&G%;+#'.9#'!=>M'#..R#'6)'O'#6:;+8#*8*+/)!JK>);+#'

=$9#>0#-#3*#+?'#-%(%)$'19%)+%)60@AB

56

[0(S2-3--45+(6'0(5/+(6J20&
5
5

Existing constraints

At this stage, the business environment in Myanmar is evolving, with relevant

policies, rules and regulations as yet unclear; and their likely enforcement in
border areas uncertain. There are also significant infrastructure constraints on
the Myanmar side of the border, and linking Mae Sot and Myawaddy (as
discussed). In addition, the cross-border rules, regulations, procedures and
policies are unclear and uncertain. Therefore investors are reluctant to invest in
Myawaddy at this time.

Firms in Mae Sot do not have a strong incentive at this time to invest in activities
involving higher-level technology and skills, since it is not clear where the labourintensive cutting, making, and packing (CMP) will be undertaken. Upgrading
requires significant investment in higher technology and skills, and would be
dependent on ready access to labour intensive inputs for further processing.

Strategy for developing complementary comparative advantages

General framework: SEZ in both Mae Sot and Myawaddy

The key general requirement is establishing viable SEZs in both Mae Sot and
Myawaddy. In Myawaddy the focus would be on labour intensive production in
the garment value chain. An SEZ would address the key constraint of an
uncertain Myanmar business environment, and significant infrastructure gaps. In
Mae Sot an SEZ focused on the specific needs of upgrading in the garment value
chain, using inputs from Myawaddy SEZ, would facilitate the clustering of
enterprises following a shared strategy of upgrading in this value chain.
o

The SEZs should be established consistent with general principles identified

earlier for viable and sustainable zones. This could include:
Minimum capital requirements and selected incentives focusing on
particular value chains of interest (i.e. garments);
Special purpose import and export licenses;
Investment in appropriate infrastructure and supporting services, with
particular focus on addressing the constraints of selected value
chains, in particular garments;
Efficient administrative procedures, customs, and logistics -appropriate to the value chains/industries in the SEZ e.g. single-stop,
single window export-import services; one-stop business services,
including cross border payment mechanisms, logistics to support
garment value chain activities (e.g. cutting, making, and packing or
CMP trade); and
Government and public-private investment in human resource
development and technology transfer.

57

Linking SEZs in cross-border economic zone: in-bond processing system29

A potentially effective mechanism for cross-border value chain linkages between

SEZs in Mae Sot and Myawaddy is the in-bond processing system, based on
the Maquila program between the US and Mexico (summarized in Figure B5)
This would allow Thai firms in Mae Sot to set up branch plants in Myawaddy, and
concentrate on higher-value activities. Labour-intensive activities such as cutting,
making, and packing (CMP) can be left to their branch factories, for example on a
commission basis.

The required machinery, equipment, parts and materials would be allowed to be

imported to Myawaddy without any import-customs duties. Products processed
and assembled in Myawaddy would then be re-exported to Thailand or exported
to other countries with preferential customs duties under such frameworks as
free trade agreements (FTAs) and Generalized System of Preferences (GSPs).

In-bond Processing

Figure B5. In-bond processing: Facilitating Mae Sot Myawaddy

Cross-Border Garment Value Chain Linkages

Linking Mae Sot Myanmar Garment Production

Sell to Thai domestic &

foreign
markets
via
Bangkok, Laem Chabang

Thai-based
Mother
factories in
Mae Sot SEZ

Border
Materials, parts, etc.

Processing on commission

Myanmar
Blanch factories
Twin plants in
Myaawaddy SEZ

Processed goods

In-bond processing
! Allows foreign investment participation in equity and in management, up to 100%
! Entitles the firm to special customs treatment, including duty free temporary import of
machinery, equipment, parts and materials, administrative equipment; subject only to
posting a bond guaranteeing that such goods will not remain in Myanmar permanently
! Permits firm to bring professional personnel on special non-immigrant visas to serve as
managers, technicians, and in other fields requiring specialized skills and knowlege

Source: Largely based on Taguchi (2013)

!"#

29

Based on JICA Job Creation by Border Area Development between Thailand and Myanmar
(2013); and Taguchi, Hiroyuki, 2013. Emerging Production Networks in the GMS, July.

58

Additional considerations for an effective in-bond processing system30

Infrastructure and border procedures

As noted, infrastructure needs to be strengthened both inward and outward.

Inward linkages involve strengthening connectivity between Mae Sot and
Myawaddy SEZs. Outward linkages involve improvements in infrastructure and
logistics from Mae Sot in Thailand, as discussed; and from Myawaddy toward
Yangon. This would also support the Industrial Zone in Hpa-an, located
approximately 95 km. from Myawaddy toward Yangon.

In this context, it should be noted that the Mae Sot-Bangkok route has and would
continue to have significant time and cost advantages over a Myawaddy-Yangon
routing.31 However, improving infrastructure on the Myanmar side as well as
border procedures, could allow for much more efficient linkages between Yangon
and Ayutthaya (key location for industrial estates in Thailand).

Improving infrastructure and logistics, and border procedures from Mae Sot to
Yangon will also extend the East-West Economic Corridor (EWEC) to Yangon,
for example for shipping manufactures and processed agriculture products. This
could enhance the attractiveness of EWEC as a location for a range of
businesses. Figure B6 provides the broader context for a Mae Sot-Myawaddy
CSEZ in the garment value chain. Furthermore, upgrading EWEC in this way
could also be a catalyst for community economic development along the route
using local resource for manufacturing, processing, and services (e.g. tourism).

30

Based on Taguchi (2013), op cit; and ERIA JETRO, 2013. Chapter 3. Globally linked and
private sector-led industrial development, Myanmar Comprehensive Development Vision (draft),
May.
31
JETRO has undertaken tests comparing Myawaddy-Yangon and Mae Sot-Bangkok, and
Ayutthaya-Yangon. See ERIA JETRO (2013), op cit.

59

Figure B6. The Garment and Textile Value Chain

&*

"+)$,(-)./,.0")1/23)4$5"67,38)9+,2.,/,$3,.:)

!"#$%&'()
'(;08:/2;.
<./,.=2>3)#:/2?2/@

!"#$%JK",.=2>3)'(;08:/2;.#:/2?2/@4"'#6

H5I

H,FC,/)(2,3B

CE9 A),0
CE9A),0

E;/ $C!A)0
E;/$C!
A)0

7,38)#002/2;.K
?)(@+2=+

7,38)#002/2;.K
-)028-

!"#$%LK"'#

9;-G;.)./E)/F;(D

'(;08:/2;.E)/F;(D

A),0>@9;8./(2)B2./+)$(),/)(C)D;.=!8>()=2;.
@
=
=
7,38)#002/2;.K3;F

7,38)#002/2;.K?)(@3;F

!"#$%MK';B/'(;08:/2;.<./,.=2>3)#:/2?2/@

%1G;(/E)/F;(D

C,(D)/2.=E)/F;(D

CE9 A),0
CE9A),0
7,38)#002/2;.K
-)028-

CE9 A),0
CE9A),0
7,38)#002/2;.K
?)(@+2=+

E,/8(,3N2>)(B
!"# $%&&%'
!"#$%&&%'4
#%%+4<17=41&$>

() ) *)++,
()'')'?
@1=".&71'&
A&%.1,

23&4*"5146.)7
8)'9".)%3,:%.7,;
C".'A=)'')'?
*)++,

G1"9)'?"'/
H')&&)'?F')&,
?

!E@"'/
@1,)?'

C,.C,0)
C,.
C,0)N2>)(B
N2>)(B

0)+4'"&3."+?",

D.%/3$&)%'%:
7"'7"/1
:)L1.,8$1++3+%,)$
"'/ ,B'&<1&)$,;
"'/,B'&<1&)$,;

2<17)$"+D+"'&
ED1&.%$<17)$"+
!1:)'1.)1,

23&&)'?F')&

-."'/ 0#'1.,
-."'/0#'1.,
:.%7091.,1",

A=1$)"+&B A&%.1,
A=1$)"+&BA&%.1,

A1#)'?F')&

091.,1",
D3.$<",)'?
0::)$1

@),$%3'&2<")',

-3&&%'J%+)'?
"'/K"L1+)'?

-+1"$<)'?4
@B1)'?4D.)'&)'?
"'/M)'),<)'?
F')&,

I?1'&,"'/
6."/1.,

*",,
*1.$<"'/),1
0::D.)$1
0::D.)$14
M"$&%.B03&+1&4
*")+0./1.4
0&<1.,

N.%')'?"'/
D"$5)'?

6<.1"/,4
K"L1+,4
-3&&%',4K"$1,

Source: Suwanprateep, Fabian, 2013. Cross-Border Value Chains in the Garment and
Textile Sector in the Greater Mekong Subregion (GMS). UNESCAP, July.

Human resource development strategy32

OF+)()2B/+)?,38)P

A necessary requirement for a successful Mae Sot Myawaddy CSEZ is an

effective human resource development strategy. This could include:
o Training in managerial and higher-level skills, both managers and workers
in Mae Sot: This training could include basic management skills such as
business strategy and planning, accounting, financing, basic supply chain
management. It could also include higher-level value chain-related skills,
such as more advanced supply chain management, quality control,
fashion design, product and process innovation.
o Vocational and technical skills for Myanmar workers, including migrant
labour: This could include basic technical and operational skills related to
work in factories, in particular garments. Depending on the scope of the
labour-intensive activities in the SEZs, it could include other such
activities, e.g. food processing. Initially such training would need to be
given primarily in Mae Sot, but could shift over time to Myawaddy.
o Community development for local administrators, businesses and workers
in Myanmar: As noted, the possible extension of EWEC could facilitate
community economic development on the Myanmar side. This could
benefit from the Thai village-based development experiences, in

32

Based on JICA (2013) and ERIA-JETRO (2013), op cit

Q>

6<1(".71'&"'/61R&)+18(E6;S"+312<")'"&"(+"'$1

A%3.$1PM3'?(+%L"+N',&)&3&1

60

particular, the OTOP scheme. Training therefore would focus on the

OTOP experience, providing related information and knowledge to
Myanmar communities, including marketing of OTOP products through
exhibitions, trade fairs and road shows.

C.

Border economic zones at Sa Kaeo (Thailand) - Banteay Meanchey

(Cambodia); Trat (Thailand) - Koh Kong (Cambodia)33

1. Introduction
The border area of Thailand and Cambodia provides a range of opportunities for
developing cross-border economic and business linkages, building on complementary
comparative advantages and development priorities of the two economies, and meeting
the aspirations of local communities. Cambodia, similar to Myanmar though at a more
advanced stage, is focusing on diversifying its manufacturing base for employment and
income generation, with particular emphasis on strengthening linkages to labour
intensive activities in global value chains beyond garments. This is also linked to the
objective of spreading growth away from the Greater Phnom Penh area.
Thailands development strategy, as discussed, includes a focus on moving up the value
chain in key manufacturing industries, and relocating labour intensive activities,
particularly to neighbouring countries in the GMS. To this end, the Royal Thai
Government is considering development of SEZs in Sa Kaeo and Trat to take advantage
of proximity to Cambodia.
The Joint Committee (ThailandCambodia) on Border Area Development and
Connectivity (JCBD) was established, and held its first meeting on June 11, 2013. The
two countries agreed to set up SEZs in two adjacent border areas: Sa Kaeo Banteay
Meanchey, and Trat Koh Kong. The basic objective is to boost trade and investment
and improve the livelihood of the peoples along the border of the two countries. The
meeting also included an agreement on extending contract farming; development and
upgrading of Cambodias roads numbers 5, 6, and 48 to improve connectivity with
Thailand; construction of missing railway tracks from Aranyaprathet to Klong Luk and
from Poi Pet to Sisophon; and a plan to have a 1800 MW clean coal power plant in Koh
Kong to provide needed power.
Cambodias interest is to establish viable and sustainable SEZs to attract investors in
labour intensive industries, to a large extent on the basis of low wages and available
land, and to leverage proximity to the more developed Thai economy. However, in the
case of Thailand, unlike in Mae Sot, there are strong indications that SEZs in this border
area may not be the most effective or even appropriate mechanism to take advantage of
potential cross-border linkages. In Trat, SEZs for industry may be neither feasible nor
consistent with the aspirations of the local businesses and communities. In Sa Kaeo
there is interest by some stakeholders in an SEZ, but there are important constraints and
considerations on the type of SEZ. Therefore the model of border area development that
may be most suitable on the Thai side, particularly in Trat, is more informal border

33

The team did not have the opportunity to visit Cambodia for this scoping study. Therefore the
focus is largely on the Thai side of the border.

61

economic zone (BEZ), with well-defined linkages that focus on development of services
(and agro industry) complementary to Cambodias industrial SEZs.
2.

Context

2.1

Subregional context: GMS Southern Economic Corridor (SEC)

The GMS cooperation program underlines the potential utility of cross-border

collaboration in economic development in this area. This section therefore focuses on
the subregional context. There is particular attention here also to issues on the
Cambodian side, including a focus on experience with SEZs (section 2.2), since the
relocation of (labour intensive) industries to Cambodian SEZs are key building blocks of
border area development for both economies in the context of these two cases.
The planned SEZ areas along the Thai-Cambodia border are located on the GMS
Southern Economic Corridor (SEC) that stretches from Thailand, through Cambodia, to
Vietnam. A general constraint on the development of the SEC provinces in Cambodia is
the lack and/or poor state of physical infrastructure and facilities, including unreliable
power supply, limited storage and warehousing facilities, and inadequate
communications and information technology. Much of the labour along the SEC,
although commanding low wages, have low levels of skills and knowledge, and are
therefore limited in their ability to utilize more advanced technology and management
practices, constraining their productivity.
Power is a particularly important constraint on the Cambodian portion of the SEC. There
is no high-voltage transmission system outside Phnom Penh, so electricity mostly comes
from small, isolated, and unreliable, power sources. Generation capacity is well below
demand, and therefore most users must install and operate individual diesel-fueled and
automotive-battery generators. Along the borders on the SEC sub-corridors, power in
Cambodia is provided by access to the infrastructure of the neighboring countries of
Thailand and Vietnam. This underlines the business case for cooperative border area
development with Thailand.
The Southern Economic Corridor (SEC) splits into a number of sub-corridors (Fig. C1).
The Sa Kaeo Banteay Meanchey border area is on the Central Sub-corridor that links
three major population and commercial centers: Bangkok, Phnom Penh, and Ho Chi
Minh City, crossing from Thailand into Cambodia at the Aranyaprathet Poipet border
gate. In principle, development of this sub-corridor can help integrate the social,
commercial, and economic resources of these centers. On the Cambodian side, this
sub-corridor is served by road (Route 5) and rail (connecting Banteay Meanchey to
Phnom Penh). Most of the provinces along this sub-corridor have abundant resources
for diversifying agriculture, especially for cassava, rice, rubber, sugarcane, and beans.
Both Bangkok and Ho Chi Minh City have ports that connect to global trading hubs.

62

!"#$%&'()*(+#,-.-%#%-/0(1'#2&(#.3/0(%"&(435%"&'/(6,3/37-,(!3''-23'

Figure C1.

GMS Southern Economic Corridor (SEC), including the Central subcorridor

and1"&(:;4(435%"&'/(6,3/37-,(!3''-23'
the Southern Coastal sub-corridor
+-05'&()89*(

Source: Asian
Development Bank
NT?$U$N&#/2#&$T#>'18$?06&#8+'1G
?'0&,#V$FOJG

The Trat Koh Kong border area is on the Southern Coastal Sub-corridor (Fig. C1) that
links the !"#$%&'%'(#)$%'*+,-$.#/(0&#($/&#$+12#1)#)$2'$3+4$+1,&#/(#$2"#$/5/+*/6+*+2-$'7$
commercial, industrial, and tourism complex of the Eastern Seaboard in
Thailand, +17'&./2+'1$/6'02$/8&##.#12(9$*/:(9$&0*#($/1)$&#80*/2+'1(;$3++4$"/&.'1+<#$
with the coastal region of Cambodia. It starts from Bangkok, runs southward
/=*#$ &'/)$Rayong,
&#80*/2+'1(9$
+1,*0)+18$and
2"#+&$Trat;
(2&+,2$
#17'&,#.#12;$
3+++4$ #&/)+,/2#$
through Chonburi,
Chanthaburi
crosses
into Cambodia
at the Hat Lek
,"#,>%'+12($
3+54$ #=2#1)$
2"#$ '%#1+18$
"'0&($ '7$ 6'&)#&$
Cham Yeam
border /*'18$
gate, 2"#$
then?@A;$
traverses
Koh Kong
and Sihanoukville,
continuing into
Vietnams %'+12($/1)$*'8+(2+,($(#&5+,#(;$354$(2&#182"#1$,''%#&/2+'1$/1)$,''&)+1/2+'1$
southern Mekong Delta. Development in this area can build on fisheries,
6#2:##1$2"#$%06*+,$/1)$%&+5/2#$(#,2'&(;$35+4$#=%#)+2#$6'&)#&$%&',#)0&#($
energy resources
(in Koh Kong), light industry, trade, as well as tourism. The
6-$ #1"/1,+18$ &+(>$ /((#((.#12;$ 35++4$ #(2/6*+("$ B(#&5+,#C*#5#*$ /8&##.#12(D$
Cambodian side of the border has a large agricultural labour force; and is served by a
3?EF(4$2'$)#,&#/(#$01,#&2/+12-$+1$)',0.#12/2+'1$%&',#((#(;$35+++4$#=%#)+2#$
new sealed road (from Koh Kong to Sre Ambel) and four new bridges. This coastal sub2"#$+((0/1,#$'7$,#&2+7+,/2#($'7$'&+8+1;$/1)$3+=4$/**':$2"#$0(#$'7$#C./+*$/1)$
corridor has
significant potential for tourism development along the coast, and large
7/,(+.+*#($+1$2&/)#$%&',#)0&#($/1)$&#.'5#$2"#$1##)$7'&$/%%&'5/*$6-$2"#$
potential for
hydropower
development,
in particular in Koh Kong province. A number of
H
*',/*$,0(2'.($'77+,#G
existing and potential industrial zones and SEZs along this sub-corridor (e.g. in Koh
Kong and Preah Sihanouk) could form the basis for manufacturing value chain linkages,
H
with potential
connection to Thailands Eastern Seaboard.
$ I/&2*-$'1$2"#$6/(+($'7$2"#$+1+2+/*$7+1)+18($'7$2"#$J*0#$J''>$+1$#/&*-$KLMM9$2"#$N#1#&/*$O#%/&2.#12$
'7$A0(2'.($/1)$@=,+(#$3NOA@4$'7$A/.6')+/$+((0#)$/$)+&#,2+5#$'1$PL$Q01#$KLMM$/%%&'5+18$2"#$
/,,#%2/1,#$'7$/$7/=$'&$/1$#C./+*$.#((/8#$:+2"$(,/1($'7$&#R0+&#)$)',0.#12($/1)$#*+.+1/2+18$
These factors
suggest that cross-border linkages and subregional integration through
2"#$&#R0+&#.#12$2'$"/5#$2"#$*',/*$,0(2'.($6&/1,"$'77+,#$/%%&'5#$)',0.#12($2"/2$"/)$/*&#/)-$
these sub-corridors
can provide opportunities for the relocation of production facilities
6##1$/%%&'5#)$6-$2"#$NOA@$"#/)$'77+,#$+1$I"1'.$I#1"$3SNA$KLMM4G$
from Thailand. This could also include supporting industries from the Eastern Seaboard.
Cambodia could host such industries, particularly along the Southern Coastal Subcorridor, including leveraging preferential treatments under various GSP schemes that
the country currently enjoys. However, environmental considerations in such
!"#$%&#'$&(#)*+*,#,*-'&*'&./012345&6178,&9"--:;*'$$&&&6
<=6=>?7>&&&>@>A@BA&5/
development
are particularly important for industries along the southern coast,
since this
area has abundant natural resources, and significant tourism potential.

63

2.2

Cambodian context

Economic geography of Cambodia and the role of border areas

Industrialization in Cambodia is concentrated primarily in the Greater Phnom Penh area,
and Sihanoukville. In addition, there has been development along border areas,
particularly SEZs at Poi Pet on the Thai border, and at Bavet on the Viet Nam border.

Greater Phnom Penh: The capital is the political and economic centre of
Cambodia. It offers the best business environment for investors in market size,
labour force, infrastructure, and supporting industries. Therefore many largescale export-oriented factories, particularly in the garment and textile industry,
have located in this area since the early 1990s, although it is not close to
seaports or international borders. As a result, manufacturing employment has
increased significantly since the late 1990s; and manufacturing activities have
spread out to the surrounding suburbs, as economic activities in Phnom Penh
diversified, including services (Hatsukano, Kuroiwa and Tsubota, 2012).

Sihanoukville: The primary attraction of this area is its international port. This
allows access for exports to the US and EU markets via Singapore. As a result, it
has been a favoured location for export-oriented industries, in particular
garments and footwear.

Border areas: Increasing regional integration, in particular in the GMS, and

improvement in transport infrastructure, have increased the locational
attractiveness of border areas. This is reflected in the development of Poipet in
Banteay Meanchey province on the Thai border, and Bavet in Svay Rieng
province on the Viet Nam border. Both these areas contain SEZs, and have
grown significantly in recent years. The Koh Kong SEZ (KKESZ) next to Trat
province (Thailand) follows this pattern. Investors in border areas also have
potential access to infrastructure services such as power, transportation and
logistics, of more advanced bordering economies such as Thailand; and from
there to international markets.

Trade linkages and border area development: Cambodia is dependent on exports

to developed countries (US, EU, Japan), particularly for the garment and textile
industry. It is also dependent on imports from the rest of Asia, including bordering
countries, especially Thailand and Viet Nam. This reflects, in part, Cambodias
participation in regional production networks particularly in garments and textiles,
and more recently electronics and electrical (E&E), that have been a driving force
in regional integration in East Asia, producing a wide range of goods for
developed markets outside the region. Such trade linkages have increased the
potential importance of border areas. This is reflected in the significant increase
in manufacturing investment and employment in selected border areas, though
still far behind Greater Phnom Penh.34

34

See Sau, Sisovanna, 2012. A Study on Cross-Border Trade Facilitation and Regional
Development along Economic Corridors in Cambodia in Emerging Economic Corridors in the
Mekong Region, edited by Masami Ishida, BRC Research Report No.8, Bangkok Research

64

Cambodian SEZs: Role and performance

Cambodia launched its Special Economic Zones program in December 2005, with the
establishment of the Cambodian Special Economic Zone Board (CSEZB). The aims are
to create off-farm employment, particularly in rural areas outside Phnom Penh, including
a focus on border areas, and to diversify manufactured exports, largely reliant to date on
garments and footwear. The SEZ program is intended to attract FDI by streamlining
administrative procedures, with the private sector providing infrastructure and businessrelated services. All SEZs in Cambodia are private sector developed and operated.
In general, fiscal incentives offered for locating in SEZs give limited advantages over
similar incentives available to qualifying investment projects outside such zones.
Therefore the main advantages for investors in the SEZs include:
Ready access to land and infrastructure: The SEZs offer access to land and
facilities with the security of long-term tenure. Infrastructure varies greatly, with
zones in border areas offering access to neighboring countries services (e.g.
electricity imported from Viet Nam in the Bavet SEZ, and access in Koh Kong to
power from Trat.).
One-stop facilitation: The SEZs offer on-site facilitation of trade and
administrative activities, with government officials stationed on site.
Expedited customs: Special procedures are available to facilitate importing and
exporting for zones located within 20 km of borders; in all SEZs outbound
customs clearance takes place within the SEZ.
Performance of SEZ firms35
Productivity and wages: In general, SEZ firms do not seem to outperform those outside
such zones, despite their larger size and export orientation. However, labour productivity
of SEZ firms is significantly higher, by about 20%, seemingly reflecting their higher level
of investment, and generally more capital-intensive nature of FDI firms. Wages (labour
costs) are slightly higher in SEZs, which may reflect, in part, higher skills of workers.
Skill levels: Skills needed by SEZ firms appear to be significantly higher than for firms
outside of the zones. More than two thirds of the permanent employees have secondary
or tertiary education, as compared with just over half in non-SEZ firms. This suggests
the potential for using higher-level technology and production processes, and related
opportunity for task-related learning. In this context, firms in SEZs invest significantly
more in worker training than firms outside such zones (e.g. 79% vs. 56%). However,
shortage of labour skills is identified as one of the key constraints facing firms in SEZs.

Center, IDE-JETRO, Bangkok, Thailand; and Kuroiw, Ikuo and Kenmei Tsubota, 2013. Economic
Integration, Location of Industries, and Frontier Regions: Evidence from Cambodia. IDE
Discussion Paper No. 339, March.
35
This section draws on a study of Cambodian SEZ, with particular focus on Phnom Penh,
Sihanoukville, and Manhattan SEZ on the Vietnam border, by Arenas, Guillermo and Thomas
Farole, 2013. Coping with a Demanding Investment Climate? Special Economic Zones in
Cambodia Investment Climate Assessment Background Note (Draft), International Trade
Department, June.

65

SEZ firms, local economy, and linkages: A key desired contribution of FDI to an
economys long-term development and structural transformation, is spillovers into the
wider domestic economy, including knowledge, technology, and know-how. These are
transferred through value chain (or supply chain) linkages, for example through supplier
relations with local firms; through labour market dynamics, when trained workers join
local firms; and diffusion through collaboration or demonstration effects with local
suppliers and partners.
Technology: Activities of SEZ firms in Cambodia seem to have resulted in limited
spillover effects to date. For example, with respect to technology and standards,
although there is a great variety across zones, there has been relatively limited
investment in international quality certification and foreign technology licensing.
Domestic sourcing: The most important channel for SEZ firms to contribute to the
wider domestic economy is sourcing from local firms. This has been very limited
to date, with SEZ firms sourcing, on average, only 12% of inputs domestically, as
compared with 59% of non-SEZ firms. This is in line with general experience in
global value chains where export-oriented manufacturing in apparel and footwear
(and electronics) import the large majority of their inputs, particularly in small
economies with limited domestic supplier capacity.
Forward linkages: There is a similar but less dramatic gap with SEZ sales to
domestic firms, but with significant differences among zones. About one third of
the output of SEZ firms is sold on the domestic market, as compared with over
half of non-SEZ firms. The border SEZ included in the survey (Manhattan, on the
Viet Nam border) is overwhelmingly export oriented; as compared with the
Sihanoukville SEZ which seems to be primarily importing for the domestic
market, with limited exporting.
SEZ and investment climate: One of the principle objectives of SEZs is to help overcome
constraints faced by firms in the wider domestic economy. From this perspective, the
zones in Cambodia seem to have had limited success to date. Firms inside and outside
SEZs rank the same four issues as their most important constraints: electricity;
corruption; macroeconomic instability; and skills and education of available workers. This
is followed, for a significant proportion of SEZ firms (between a quarter and a third), by
customs and trade regulations, and transportation, which are of particular importance to
exporting firms. The identification of the same set of issues by firms inside and outside
the zones suggests that SEZs are not yet able to compensate for economy-wide
constraints on business, including in those areas that are normally expected to be
addressed within an SEZ, such as infrastructure (electricity and transportation),
corruption, and customs and trade regulations. In addition, a significant proportion of
firms in the SEZ on the border surveyed (Manhattan), identify corruption as a severe
constraint, potentially reflecting issues with customs procedures. Furthermore, 71% of
the firms there identify electricity as a major constraint (though rates are significantly
lower), even though border location is usually seen as an asset in terms of providing
access to cross-border power sources (e.g. Viet Nam).
General implications
The SEZs have played an important role in attracting export-oriented investment by
reducing the perceived risk for foreign investors, and addressing issues of access to
secure land and facilities. This has contributed to important changes in Cambodias
export composition, starting diversification beyond garments and apparel into vehicle
assembly and electronics. However, there are a number of potential implications for

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planned SEZs in terms of delivering value added, including to Thai-based investors, and
to promoting domestic and cross-border linkages. These are of particular relevance to
the cases considered in this report.
From a Cambodian development perspective, it is not clear to what extent SEZ firms
have created significant spillovers for the wider domestic economy. They are sourcing
and selling mainly on international markets, with only a small degree of linkages
domestically. Similarly, there is very limited exposure of workers to higher-level
technologies and practices, with the exception of so far of a relatively small number of
firms in electronics and auto-assembly; and a general lack of innovation by SEZ firms.
However, it should be noted that firms in the zones are employing higher skilled workers
at higher wages, and are investing in more training.
From the perspective of investors, of particular relevance to Thai interests, there are
indications that SEZs are not making a significant difference in improving the investment
climate for business. This is reflected in the main constraints identified, which are the
same for both SEZ and non-SEZ firms. In fact it seems that SEZ firms have a more
negative view of the investment climate than non-SEZ firms. This is in part because one
of the key constraints, macroeconomic instability, cannot be addressed by SEZs; and a
second, workforce skills, can only be partially addressed (e.g. through linkages to
education and training institutions). But other issues not sufficiently addressed fall
squarely within the rationale for SEZs, including infrastructure (e.g. power), customs,
regulatory environment, and corruption. Some factors, such as infrastructure, may reflect
the selection of particular private developers for the SEZs. These shortcomings may also
help explain why SEZ firms do not appear to substantially outperform non-SEZ firms,
even though they have characteristics that tend to be associated with high productivity,
such as large size, export orientation, and foreign ownership.
3. Sa Kaeo (Thailand) Banteay Meanchey (Cambodia)
3.1 Selected Characteristics
Trade: Border trade has been growing at the Khlong Luek crossing point in the
Aranyaprathet district of Sa Kaeo (Figure C2) by close to 15% over ten years. From
30,000 million baht in 2010, total trade has increased in just the first 10 months of 2013
to more than 50,000 million baht (Figure C3), of which 40,000 million baht comprised
exports from Thailand to Cambodia. The majority of Thai exports originate elsewhere in
Thailand, but are exported to Cambodia at this crossing point. The most important export
products include: engines and spare parts for motorcycles; vehicles; livestock feed; and
palm oil. Key products imported from Cambodia include: cassava, aluminium waste,
camera parts, and copper waste. Some preliminary processing of agricultural products
occurs in Cambodia, but final processing and production is primarily in Thailand. There
has been little change in imported and exported products the past five years.

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Figure C2. Khulong Luek Crossing Point at Sa Kaeo

Source: Thailands Aranyaprathet Customs House

Figure C3. Trade at Aranyaprathet

Source: Thailands Aranyaprathet Customs House

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Production: There are 520 factories located in Sa Kaeo Province. Most are rice mills and
cassava-processing factories, with cassava processed into starch and ethanol. There is
one sugar cane processing factory in the province, which is expanding at a rate of 6
percent annually. Under ACMECS there were companies registered with the province
that had contract farming operations in Cambodia, sourcing cassava as well as maize.
The provincial (and local) governments have no plans to attract any specific
manufacturing industries. There are approximately 5 6,000 Cambodian labourers
crossing the border daily to work in Thailand.
3.2 Economic and Commercial Rationale
In general, there is significant potential economic complementarity between Banteay
Meanchey in Cambodia, and Sa Kaeo in Thailand. Banteay Meanchey has low cost
labour and available land; while Sa Kaeo has reliable infrastructure, and access to
skilled labour and markets (Bangkok and international markets). Therefore strengthening
cross-border linkages can generate mutual benefits.
Banteay Meanchey (Cambodia)
The province of Banteay Meanchey is seen by Cambodia as a potentially important
border area contributing to economic diversification and development, and gateway to
international markets. The first SEZ established there in 2005, is the ONeang Special
Economic Zone (POSEZ), adjacent to Ban Pa Ria in the Aranyaprathet district, Sa Kaeo
province. The business case for potential investors in POSEZ, and more generally in
Banteay Meanchey province, is access to low cost labour, and the availability of land -key constraints on the Thai side. Incentives in POSEZ are generally consistent with
usual SEZ practice, and include long-term land leases of up to 70 years; a 9-year tax
holiday; One Stop Service (OSS) to facilitate approval of investment, registration, and
licensing; duty exemption for equipment and raw materials; permanent visa for families
of investors; and unrestricted repatriation of profits. Poipet is also serviced by an airport.
There has been investor interest in POSEZ, particularly by garment and jewelry
manufacturers, including Thai investors. For example, there is a Thai paper recycle
company in POSEZ.
More generally, as noted, Thai and international investors in Thailand, are interested in
relocating labour intensive activities to Cambodia, including near the Thai border. Given
this interest, Cambodia is planning to establish another SEZ in Banteay Meanchey.
The example of a global motor manufacturer illustrates both the opportunity and
challenges. It located manufacturing of components for precision motors in Banteay
Meanchey (but not in POSEZ), with production linkages back to Thailand. Transportation
is adequate in the province; for example, it takes 7 hours for this firm to ship components
between its Thai and Cambodian locations. This is sufficient, since unlike in the car
industry, there is no requirement for lead-time minimization. However, as an illustration
of the infrastructure challenge and opportunity provided by border location (including in
POSEZ), this company bought electricity from Thailand to ensure stable supply; and
relocated to Cambodia more skilled staff, in particular engineers, to address the skilled
labour shortage.

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Sa Kaeo (Thailand)
On the Thai side, particularly around Aranyaprathet, there are food processing factories
and biomass plants. Initial interest was expressed by investors from countries such as
Taiwan, Singapore, and South Korea, who came to the area at the invitation of the local
Chamber of Commerce to explore possibilities in electronics and auto parts. But most
firms chose to invest elsewhere (e.g. Prachinburi), primarily because of constraints on
the availability of land. The Amata Corp. PCL, Thailands leading developer of industrial
estates, has surveyed the area, but has not followed up as yet, in part because of
concerns about land availability and security.
3.3 Key Factors Shaping/Constraining Development at Sa Kaeo
Potential opportunity on GMS Southern Economic Corridor: Sa Kaeo is in Zone 3, the
highest priority investment promotion area by Thailands Board of Investment. As noted,
the province is part of the GMS Southern Economic Corridor, linking Bangkok, Phnom
Penh, and Ho Chi Minh City (Viet Nam). However, Sa Kaeo has received little benefit
from either. No investors applied for BOI privileges; and there seems to have been little
tangible benefits to date from being on a GMS economic corridor.
Land constraint: Land is a key constraint in Sa Kaeo on investment in general, and on
establishing SEZs in particular. This is in part linked to the security situation. Unused
land is controlled by the Thai military, located in no-mans-land along the border; and
also under the control of state agencies including the State Railway, Treasury
Department, Royal Forestry Department, and the Agricultural Land Reform Office.
Political/administrative constraint: There are constraints on local authorities even at the
provincial level in addressing border area-related issues. Cambodian provincial
governors meet periodically, but Thai governors seem to lack the authority of their
Cambodian counterparts to make cross-border agreements.
SEZ options considered: There is interest in establishing an SEZ in Sa Kaeo, with an
estimated 2000 rai needed for such a zone. There are two areas under consideration, at
different border crossing. One site is at Ban Laem Nong I-an village, located 10 km from
Aranyaprathet town. This is the site preferred by the Government, and a feasibility study
has been undertaken by Burapha University (Chonburi). The second site, at Ban Pa Rai,
is preferred by the Sa Kaeo Chamber of Commerce. It is located adjacent to the Rong
Klua market, closer to the town of Aranyaprathet, and across from POSEZ.

Ban Laem Nong I-an SEZ option: The Thai government favours this site and has
already approved the development of a new and modernized Aranyaprathet
crossing point there in order to support the Southern Economic Corridor. The
Customs department has been allocated a development budget of about 1,065
million baht for this purpose. The modernized and CCA-standard (customs
controlled area) border crossing will include a one-stop service where all
agencies clear customs at the same time. Such single-window services have
been developed through programs for a National Single Window, ASEAN Single
Window, and the Thai Customs Electronic System. The CCA standards also
include CCTV monitoring; bar codes on all products traded; 60 second clearance
procedures; and, additional staff (158 expected by 2015).

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Ban Pa Rai SEZ option: This is the Sakaeo Chamber of Commerces preferred
and proposed site, across from POSEZ in Cambodia. It issued an open letter to
this effect to Prime Minister Yingluck at the time of her visit to Sa Kaeo in March
2013. The Chambers concept is Ban Pa Rai primarily as a border logistics
terminal. This is seen as more consistent with a desired overall provincial
development strategy. In this context, the province has a 100 million baht
investment budget it is planning to use for infrastructure and social development,
to reduce the income gap between the rich and the poor. By investing in this way,
the provinces plan is to provide an enabling and regulatory environment for
investment, rather than designate and undertake specific industrial development
(SEZ). Investment in infrastructure and logistics is intended to facilitate trade,
including the provision of key services to investors on the Cambodian side, e.g.
in POSEZ. This, in turn, is seen as requiring a larger investment budget,
particularly along the Cambodian border. Consistent with this general approach,
the Industrial Estate Authority of Thailand (IEAT) has investigated development
of a logistics centre in Wattanakhon District.

SEZ feasibility: There are a number of constraints to consider with respect to a potential
Sa Kaeo SEZ. In addition to the lack of available land, Amata on its visit (noted earlier)
identified as additional concerns: state of martial law in parts of the province; undemarcated border; and continuing unresolved issues and lack of shared understanding
border area development issues between the Thai and Cambodian central governments.
Production investment: The preferred production strategy of the province and the local
business community is to focus on bioenergy from processing agricultural raw materials,
including waste from sugarcane and livestock. The provincial government is looking to
position Sa Kaeo as a hub for bioenergy production, with a plan to establish biomass
plants in the province. This is consistent with present development patterns, given that
agro-processing plays a key production role in the provincial economy. The broader
context for cross-border linkages with respect to the processing of cassava is given in
Figure C4. Approximately 52% of the land is dedicated to agriculture, with related
investment of around 12,356 million baht36. This includes a large number of rice milling
and cassava processing factories. There is at this time only one sugar-refining factory in
the province, operating on a 30-year concession that is seen as having prevented other
sugar refining facilities from being established.

36As of 31 August 2013.

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Figure C4. Cassava (GMS) value chain

Source: from Theerawit Chainarongsophon, FPRI, prepared for UNESCAP

Political commitment: There is strong commitment by the Thai and Cambodian central
and local governments, as well as the Sa Kaeo business community, to develop their
respective border areas, utilizing strengthened cross-border linkages. Planned
significant investment to upgrade customs facilities is clear evidence of this commitment,
and will strengthen cross-border economic linkages in important ways. Also, in
preparation for the ASEAN Economic Community (AEC), the Thai Customs Department
will be revising rules and regulations for certificates of origin and for implementing free
trade agreements. However, customs procedures on the Cambodian side of the border
are seen, at this stage, as important constraints that need reform and upgrading.
Investor interest: There is demonstrated investor interest locating on the Cambodian
side of the border both in the Poipet SEZ and elsewhere, with linkages to Thailand. At
the same time, there is strong interest in Sa Kaeo to leverage proximity to Banteay
Meanchey to develop as a viable logistics hub and agro processing centre.
Key issues/constraints:
There is strong commitment by all the key stakeholders to border area development.
However, there are significant differences in perspective between the central Thai
Government on the one hand, and the local business community and local government
on the other, with respect to Sa Kaeos overall development strategy, and therefore the
nature and location of a border SEZ.
Development of an SEZ in Sa Kaeo Province has been under consideration for ten
years, with no tangible progress in implementation to date. This is in part a reflection of
differing stakeholder interests, as noted; but also of a slow and cumbersome planning

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process related to border area development, complicated by the number and nature of
agencies involved.
The local business community feels that Thai Government procedures with respect trade
are out of date, and require urgent revision of rules and regulations for trade to grow. For
example, the Thai Constitution (Section 190) requires that all cross-border agreements
be approved by Parliament; and addressing key border issues can involve as many as
nine border (security) committees.
Cross-border trade has generated little in earnings for Sa Kaeo Province, as most Thai
exports to Cambodia originate elsewhere in Thailand. This is in part the motivation for
developing the area as a logistics centre that would allow gaining added value from
expanding trade. In addition, Thai transporters are experiencing a variety of problems
working with Cambodian transporters. In this context, as part of investment in logistics,
additional storage silos at the border would help address existing constraints and
expand cross-border trade.
4.

Trat (Thailand) Koh Kong (Cambodia)

4.1

Key Characteristics

Trade
The value of trade at the Khlong Yai border crossing in Trat (Figure C5) has grown each
year, from about 16,000 million baht in fiscal year 2008, to more than 27,000 million baht
in fiscal year 2013, an 8.8% increase over fiscal year 2012. Together with the growth of
trade at Sa Kaeo, this reflects the general increase in trade between Thailand and
Cambodia.
Figure C5. Khlong Yai crossing point in Trat

Source: Adapted
crossing-points.html

from

http://teakdoor.com/thai-visas-and-visa-runs/4060-thailands-border-

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Prior to 2012 the main imports from Cambodia included lumber, molasses, and fish; as
well as some rubber and palm oil. Since the establishment of Yazaki (Cambodia)
Products Co. Ltd. in Koh Kong SEZ, linked back to Thailands automotive suppliers, invehicle wires have been the leading import at Khlong Yai in fiscal years 2012 and 2013.
Main export commodities at Khlong Yai have included refined sugar, milk, food and
beverage, construction materials, and consumer items. Major Thai sugar producers
prefer this sea transport gateway to export refined sugar produced in Northeastern and
Central Thailand, to Cambodia and Viet Nam, avoiding hidden fees associated with land
transport. Approximately 80% - 90% of exports is via sea transport to Sihanoukville; and
only 10 - 20% using land transport; with four Thai companies operating ships out of five
piers at Khlong Yai, and a new pier slated to be developed by the Thai Harbour
Department by 2015.
The geographic origins of the sugar exports indicate the nature of the border trade from
Thailand. Products processed and exported from Trat Province are primarily fruit (e.g.
pineapple, mangosteen), other crops such as sweet corn, aquaculture products,
livestock, rubber, and palm oil, as well as handicrafts (one-tambon one-product or OTOP
products). All other products, much like in Sa Kaeo, are sourced elsewhere in Thailand
for onward export. Therefore Trat acts as a trade centre for Thai products exported to,
and imported from Koh Kong Province of Cambodia. In addition, an increasing volume of
trade between Thailand and Cambodia is transit trade. For example, Cambodian traders
are buying goods in Thailand, selling to Viet Nam, and also to the European Union.
Local businesses are grouped into agriculture, shipping, tourism, and diversified SMEs.
Outside investors include Thais from Bangkok; and foreigners (e.g. Russians), investing
mostly in tourism facilities and establishing foreign residential communities.
To leverage its trading role, the Trat provincial government and business community
have attempted to promote the province as a trade service centre for Koh Kong.
However, this has not been successful because of transport and logistics constraints.
Industry
In general, the potential for industrial development in Trat is seen as limited, and also
generally not consistent with provincial vision and aspirations. Provincial priorities are
agriculture/agro-processing and tourism development. The agri-business model
envisions linking small- and medium-size farmers to large multinational corporations
such as CP, in the production of crops for processing and exports.
4.2

Economic and Commercial Rationale

Koh Kong SEZ (KKSEZ) (Thai perspective)

The types of firms, located in KKSEZ, indicates the general confirmation of a business
case based on low cost labour, and value chain linkages to Thailand in labour intensive
industries. They include: 1) Yazaki exporting electrical wires for auto wire harnesses back
to Thailand, and for export to other markets through Laem Chabang Port; 2) Hyundai who
invested in 2011 in a joint venture called Camko Motor Company, together with distributor
KH Motors and Cambodias Ly Yong Phat Group, to assemble Hyundai vehicles for the
domestic market; and 3) KKN Apparel Company Limited, a Thai garment original

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equipment manufacturer (OEM), to serve export markets. Two other large corporations
that have signed contracts with KKSEZ and expected to start operations soon, include:
MIKASA Corporation, a Japanese sports goods manufacturing company, who
announced a plan to invest more than $5 million in building a ball production facility in
the area under the name of Mikasa Sports (Cambodia) Co., Ltd.; and Hana
Microelectronics Plc, with plans to relocate labour intensive production from Thailand to
Cambodia, if it cannot cope with rising wages over the next 3-5 years. The Cambodian
and Thai press also reported that Delta Electronics (Thailand), one of the worlds leading
producers of power supplies and electronic components, plans to expand its operations
to Cambodia and Myanmar. There are indications (unconfirmed) of other possible
investments including Khon Kaen Sugar and Thai-Isaki.
Trat
Given the existence of Koh Kong SEZ, industrial development is not a priority of either the
provincial government or the Trat business community (Chamber of Commerce). Although
the Koh Kong SEZ is estimated to be only about 20% occupied at this time, it is seen as
attracting serious investor interest, including promotion by the Royal Thai Government. In
contrast with Koh Kongs low cost labour (Baht 100/day), Trat is short of labour, which is
priced at the legal minimum wage of Baht 300/day. Most of the workers in Trat are coming
from Cambodia (much of it illegally). In addition, in contrast with Koh Kongs available land
for industrial development, Trat is seen as small with insufficient land for such
development, given that estimated land requirements for an SEZ are around 3 5,000 rai.
Therefore the province has not designated areas for industrial development.
Provincial development priorities are built around a vision of Trat as the lung of (Eastern)
Thailand, focusing on trade-related services (e.g. logistics, retail); agri-business -including value added processing of crops, particularly fruit for export; and tourism. These
are seen as building on the comparative advantages of the province, including its location
next to Koh Kongs industrial SEZ. However, this concept of development would need to
be included in the Trat provincial development plan, which at this stage is emphasizing
improved road infrastructure and upgraded port facilities (at Khlong Yai District).
4.3

Key Factors Shaping/Constraining Development

Political will and local relationships: Political will exists in both Thailand and Cambodia to
cooperatively develop their respective border areas. Furthermore, despite periodic
complications in the relationship between the two countries, the local links and
relationships between the Trat and Koh Kong businesses and communities have
continued to be amicable and cooperative. For example the Trat Agriculture Cooperative
has strong business linkages with Cambodian buyers. However, an emergency decree
continues to remain in place throughout Trat Province, with martial law along the border;
and approximately 27 km of the border remains undemarcated at this time.
Koh Kong SEZ: The Koh Kong SEZ is still relatively sparsely occupied, and according to
Thai investors has noticeable infrastructure constraints. Electricity is expensive;
transport linkages to Trat require improvement; and water is available only from deepwater wells although four new dams are planned to ease the water shortage. However,
more fundamentally, the KKSEZ is seen as generally off to a good start, given serious
investor interest in labour-intensive activities and related cross-border value chain
linkages to Thailand in export-oriented industries.

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There are a number of initiatives underway to develop the Trat - Koh Kong border area
to support stronger cross-border economic linkages:

The Klong Yai (Trat) crossing point is being developed to international standards,
including one-stop inspection system in a Common Control Area (CCA).
However, the Khlong Yai Customs Office is located 14 km from the port,
complicating clearances. Also, because of martial law along the border and the
narrowness of the land at this point, land is a constraint on building CCA
facilities.

The first public medium-sized pier in Khlong Yai will be developed by the Thai
Marine Department by mid-2015, along with facilities to support international port
operations, in order to ease congestion at the existing five private piers. This is
essential, given the high volume of water-based transport (as noted, 80% of the
trade). In addition to physical expansion, it is suggested that in order to facilitate
growth of trade through Khong Yai District, port facilities need to operate 24
hours a day, seven days a week.

The Joint (Thai-Cambodia) Committee on Border Area Development (JCBD), cochaired by the Foreign Ministers of the two countries, has endorsed plans for
upgrading the Tha Sen (Trat)-Thmor Da (Pursat) temporary checkpoint into a
permanent checkpoint. However, there are some questions with respect to the
(physical) capacity of this border crossing to handle larger volumes of trade.

The road from Trat City to Khlong Yai District will be expanded to four lanes
using budget allocated for fiscal year 2016.

There are plans to develop two additional border crossings: Ban Ma-mouang,
with links to Battambang Province (Cambodia,) where present trade is valued at
approximately Baht 2,000 million/month; and Ban Thasen, with links to Pursat
Province (Cambodia), based on a decision by the Joint Committee for (ThailandCambodia) Border Development.

Additional concerns at this stage include the following:

Customs regulations are seen as needing further improvement in terms of

flexibility to accommodate local conditions.

Additional storage and warehousing facilities are needed, particularly to

accommodate expected growth in cross-border trade.

There are concerns that an SEZ would focus on industrial development, and
could also include a casino neither fitting local aspirations for Trats role.

5.

Next steps: recommendations for Sa Kaeo and Trat

5.1

Reconciling development visions and strategies

Sections 3 and 4 discussed selected factors shaping and/or constraining the

development of Sa Kaeo and Trat in the context of strengthening cross-border linkages,
in particular, as related to SEZs in Cambodia in Banteay Meanchey and Koh Kong,

76

respectively. Addressing these constraints, for example, on customs and trade

facilitation, and infrastructure, is likely to strengthen local development, particularly in the
context of cross-border linkages.
More fundamentally, both provinces and local communities share a similar perspective
on development, but one that differs fundamentally from what is perceived to be the
strategy put forward by Thailands central government. The perceived strategy of the
central government is one that has at its centre establishing SEZs intended to attract
investment for industrial development, potentially linked to existing and/or planned SEZs
on the Cambodian side of the border which house labour intensive activities or
industries. The perceived intent is to relocate the labour intensive and lower value added
segments of particular value chains, e.g. garments, electronics, automotives, to
Cambodian SEZs; and use industrial SEZs on the Thai side to house higher value added
segments of those value chains. While the logic is sound in the context of the overall
comparative advantages and levels of development of the two economies, as discussed
earlier, this is seen in Sa Kaeo and Trat as a model of development that is neither viable
nor desirable in the context of local conditions and aspirations.
The vision of development shared by Sa Kaeo and Trat is one anchored in agri-business
and services, broadly defined, in harmony with the environment and the desired quality
of life in local communities. It is seen as more appropriate given constraints on available
land for industry, constraints on labour, and concerns about environmental sustainability.
At the same time, it is also seen as leveraging effectively local resources and
developments on the Cambodian side of the border, including industrial SEZs, but in a
very different way. It has potentially three building blocks:

Develop value added agro-processing, using inputs from both sides of the
border, e.g. commodities such as cassava, as well as Cambodian labour;
producing products (e.g. processed fruit) for the domestic (in Thailand) and for
export markets through Bangkok and Laem Chabang, and to produce bioenergy;

Establish Sa Kaeo and Trat as value added service centres, including logistics
and other services (e.g. retail, tourism), that would serve the border area,
including supporting services to Cambodian industrial SEZs, (e.g. retail, tourism)
and strengthen linkages beyond the immediate border area, (e.g. logistics
services linking both domestic and cross-border production to the domestic Thai
market and export through Bangkok and Laem Chabang);

Develop tourism -- including agro- and nature-based tourism -- both as part of

supporting services to Cambodian SEZs, and as a major local industry for a
wider regional and international market.

Recommendation -- shared strategy development: Given basic differences in

perspective, it is fundamental to the sustainable development of both Sa Kaeo and Trat
that there is agreement among the key stakeholders on a shared strategic vision for the
region. This, in turn, can guide more specific programmatic approaches and investments
by the public and private sectors, and through public-private collaboration. It requires the
relevant central government agencies, provincial government, and local business
communities (e.g. Chambers of Commerce) to come together and explicitly identify key
assumptions, needs, and expectations with respect to border area development, in order
to agree on a shared vision and related strategy that best utilizes local resources,

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including cross-border linkages. This is essential in order to ensure local community

support, as well as consistency with overall national development priorities.
5.2

Appropriate mechanisms for implementing a shared strategy

The alternative vision of development of the province and local business communities in
Sa Kaeo and Trat also suggests considering alternative implementation mechanisms,
beyond traditional SEZs as the primary instrument. That is, it may be that an SEZ is an
appropriate mechanism for clustering agro-processing and/or logistics services; though
with different characteristics than required for industrial activities. However, it may also
be the case that SEZ is not the most efficient or even a viable mechanism, given
constraints on land, geographic location (e.g. for agro-processing facilities), or
investment requirements. It may be possible to respond to constraints on the
development of these types of activities by providing special purpose incentives,
regulations, and support, without the establishment of an SEZ, creating a Border
Economic Zone (BEZ) that still allows for clustering and cross-border linkages, along the
lines discussed with respect to Ubon Ratchatani Champasak (Section III.A).
Recommendation - Identify appropriate mechanisms for implementing a shared strategy:
As noted, the assumption of SEZ as the most appropriate or even viable mechanism for
facilitating border development in either Sa Kaeo or Trat is not clear. The appropriate
mechanism will depend to a large extent on the selected strategy, and existing
constraints on a sustainable SEZ. For example, if the core strategy selected for either
area (or both) includes a primary focus on value added agro-processing, it may be the
case that a special purpose SEZ is likely to be effective for facilitating the clustering such
activities. However, it may be the case that while such a SEZ is feasible in Sa Kaeo, it is
not in Trat (e.g. because of land constraints). In that case design of an appropriate SEZ
in Sa Kaeo would need to consider how best to address the specific constraints of
enterprises in this particular value chain. However, in Trat, the challenge would be to
identify how such constraints could be addressed without an explicit SEZ, but through
effective support in a more informal Trat border economic zone (BEZ).
5.3

Logistics investment to build connectivity in a subregional context

Efficient logistics will have to play a key role in strengthening cross-border economic
integration in shaping the investment attractiveness of Banteay Meanchey and Koh
Kong as production centres, integrated into regional production networks and supply
chains, whatever the selected strategy. In principle, raw materials and unfinished goods
can be imported, processed, and modified in Cambodia, and exported to Thailand or
Viet Nam as new products; from there shipped to international markets through Bangkok
and Ho Chi Minh City. Local investment in infrastructure and logistics were touched on in
sections 3 and 4. However, for effective development of the border region, it is important
to approach such investment more broadly in a subregional framework.
A recent ADB study (Ksoll and Brimble, 2013) of shipping along the Southern Economic
Corridors (SEC) Central Sub-corridor that includes Sa Kaeo and Banteay Meanchey
suggests that Cambodian logistics costs remain high as compared with other countries
in the region, in particular Thailand. This Sub-corridor starts in Bangkok, passes through
the ThaiCambodian border at AranyaprathetPoipet and takes Cambodias National
Road No. 5 to Phnom Penh. Cargo is shipped in transit from Poipet to inland clearance
depot (ICD) in Phnom Penh. Final production would take place in Phnom Penh and the

78

!"#$%&'()*(+#,-.-%#%-/0(1'#2&(#.3/0(%"&(435%"&'/(6,3/37-,(!3''-23'

finished goods exported out of Cambodia to Bangkok (and/or Ho Chi Minh City). It
should be noted that every time the cargo crosses borders, it has to be transshipped.
)9:9;( +-/2-/0<(3=(%"&(1-7&>!3<%(45'?&@
Key findings
of the time-cost survey from Bangkok to Phnom Penh are summarized in
Figure C6!"#$
and%&'(&')*$
Figure+%$
C7,
and Table C1 and Table C2. It costs $2,064.22 and takes 23
,-"$ ,&."/0+*,$ *123"#$ 42"$ *-+5'$ &'$ 6&)12"*$ 789$ 4'($ 7878$$
hours and:-"$)24;-*$(";&0,$,-"$,&."$,4<"'$4'($0+*,$&'0122"($&'$,24'*;+2,&')$='+2.4>?$
54 minutes to ship a container from Bangkok to Phnom Penh. Logistics costs
in Cambodia
are $0.20 per ton-km from Bangkok to Phnom Penh almost double those
)++(*$%2+.$@4')<+<$,+$A-'+.$A"'-$B4*$&.;+2,*$&',+$C4.D+(&4E$4'($,-"'$
for the Thailand
section ($0.09 per ton-km). The transportation cost component for the
4*$4$'"5$*-&;."',$%2+.$A-'+.$A"'-$,+$F+$C-&$G&'-$C&,#$B"H;+2,*$%2+.$
Cambodian
sections
is $0.09 per ton-km from Bangkok to Phnom Penh, as compared
C4.D+(&4E8$:-"$2"*1>,*$%+2$,-"$5-+>"$0+22&(+2$42"$*1..42&I"($&'$:4D>"$78JK$
JJ
with $0.065-&0-$*-+5*$,-4,$&,$0+*,*$L9KMNO899$4'($,4<"*$97$-+12*$4'($PO$.&'1,"*
for Thailand, reflecting in part the quality of infrastructure. Therefore
$ the nontrucking logistics
costs in ,+$
Cambodia
at $0.11 are
than,+$three
times
the costs in
BJKO7O$ .&'1,"*E$
&.;+2,$ 4$ 0+',4&'"2$
%2+.$more
@4')<+<$
A-'+.$
A"'-8$
Thailand at
$0.3 (logistics minus transport in Table 2). The largest import and export
QH;+2,&')$4$*-&;."',$%2+.$A-'+.$A"'-$,+$F+$C-&$G&'-$C&,#$0+*,*$LR7S87N$
J9
cost items,
and biggest delay in time (Fig. C7) are cargo-clearance
procedures and
4'($,4<"*$J7$-+12*$4'($PS$.&'1,"*$BT7S$.&'1,"*E8
$:-"$4'4>#*&*$2"3"4>*$
document ,-4,$,210<&')$0+*,*K$4*$*-+5'$&'$:4D>"$78JK$400+1',$%+2$2+1)->#$OMU/OPU$
processing. This suggests significant need and potential for improvements in
+%$,-"$,+,4>$>+)&*,&0*$0+*,*$B+'$D+,-$>")*$+%$,-"$0+22&(+2E8
customs-related
procedures.

+-05'&()9:#*( !3<%(A32&.B(C#/0D3D>E"/37(E&/"

Figure C6. Cost model: Bangkok Phnom Penh

76322
)*+,-+./

!+01"/,+

)"$+-%="#$H%'76283I77
J,.+-%=->+A+.=>%DA"=>##%+$%K!<%%%%722

!"#$%&'(

76222
E"=+-%=F#$"0#%+DDA"G+&,.%#"0>%=+#>#(

56822

52

52
52

52
:2

56722

BA"G,.=,+-%=*>=?D",.$#
@"A/>A%=->+A+.=>%,.%!+01"/,+
92:

422

@"A/>A%=->+A+.=>%,.%)*+,-+./%%%%572

322
BA>C#*,D0>.$%="#$#
322

522

722

922

322

:22

822

;22

<,#$+.=>%&?0(

Source: Ksoll and Brimble (2013) ICD = inland clearance depot, km = kilometer.
VCX$Y$&'>4'($0>"424'0"$(";+,K$<.$Y$<&>+.","28
Z+,"[$\>>$0+*,*$'+,"($42"$&'$]^$(+>>42*8
^+120"[$\1,-+2*_$"*,&.4,"*8

JJ
J9

$ V)'+2&')$;2"W*-&;."',$;2+0"**"*$4'($'")>"0,&')$+;"24,&')$-+12*8
$ V)'+2&')$;2"W*-&;."',$;2+0"**"*$4'($'")>"0,&')$+;"24,&')$-+12*8

!"#$%&#'$&(#)*+*,#,*-'&*'&./012345&6178,&9"--:;*'$$&&&<

=>6>?@7?&&&?A?BACB&5/

79

67

!"#$%&#'$&!"#$%&(#)*+*,#,*-'&*'&,.%&/"%#,%"&0%1-'2&345"%2*-'

!"#$%&'()*(+#,-.-%#%-/0(1'#2&(#.3/0(%"&(435%"&'/(6,3/37-,(!3''-23'

88

(*24"%&89:5;& !*<%&0-$%+=&>#'21-1?@.'-<&@%'.
Figure C8. Time model: Bangkok Phnom Penh
,5

!"#$%#&'
+-05'&()9):*(

,4

1$(2"3'$

4')#&5$(
!"#$%&#'()*&+,&-&./&('0

+=

13

D+?#%7?9;>+);7#CC:+E#%
8$&7;+)67?#;6;<7

.-

12

+<

1,

!'()&B-"C79D

!$)678"+9:;<

H$&#%7?%6#:#&?67C:+?6;;7#>7I(=777777/-

+A

,1

(#)*+'$#
1-7&(;32&.<(="/37(=&/">?3(!"-(;-/"(!-%@
!+>#%7>$)6A7,.7"7247)$&

0
/
.

F6$G"7*:$'G6;

!:#&;;"$C)6&>77777/-

+>

+@>&&&&J)#&0)K&;C9#"(9&9)$%&
&&&&&&&&&&'0&4')#&5$(

./-77777B+:'6:7?%6#:#&?67$&7(#)*+'$#
?'0$%&2"73)7&;%)$7$0;)&'0&1$(2"3'$&&&&,>
!7$099-':()0#&&&&@>
I)'H-&27'3H)
13-77777B+:'6:7?%6#:#&?67$&7!"#$%#&'

+>

?)77G&;7"99'0H

A>

1-<

,--

67)89-':()0#&:7";)99
<=>

.--

4--

2--

/--

=$;>#&?678@)<
>
!"#"!$%&'"()*"#"+,-.,/"0-1.&.,01"/12$3'"45"#"4+-$5131&6"5+,"#"5+,%317
>
.>
+>>
+.>
Source: Ksoll and Brimble (2013)

8$319":+51",$31/"+,"3!1"0!.&3"+;"+,"5+,%31;7

5--

<>>

<.>

E'9#$0;)&BF(D
h = hour, ICD = inland clearance depot, km = kilometer; min
= minute.
<$%&019"=%3!$&;>"1;3+5.31;7
Note: Time noted in the chart is in minutes.

!"#"!$%&'"()"#"(*+$),-,&'")*."#")*.%-,/

0$-,1"2*),".$-,3"4*-!*."-!,"5!6&-"*7"*.")*.%-,7/
8$%&5,1"9%-!$&7:",7-*)6-,7/
(*24"%&898#;&
A-B,&0-$%+=&@.'-<&@%'.?C-&A.*&0*'.&A*,D

Table C1. Detailed Overview of Time and Costs along the

1#:.&()98*(
A&%#-.&2(BC&'C-&D(3E(1-7&(#/2(!3F%F(
Southern Economic
Corridor
6$>E"F:$
G:<#&H$> !"#$%&'"(#)&*+,-.-/
#.3/0(%"&(435%"&'/(6,3/37-,(!3''-23'

,00
500
+00
/00

?@"D:;':$%&'B<'=C":;#(

G#/0H3H(%3((
="/37(=&/"(%3(?3(
40&M<#&G:<#;$><(<&(<$%
="/37(=&/"
!"-(;-/"(!-%@
1-7&(
!3F%((
1-7&(
!3F%((
;)*.%-,7<
;=<
;)*.%-,7<
;=<

L"@F<@&'%<$@$;'<&$;F
(<$%&:;(C<'#:";&&&&&&&&&&-0&
!@$;((B:C><;#&&&&&&&&&&50

6"(#&7*8

='3,&FF
10
>&,?7!*@),.-"@&$5,77
300
10
14
" A,+*B,&"$&*C*.6+"3$5%),.-7
DE/EE
-00 10
" FG-6*."3$5%),.-7
HIJ"36K7
JLE/EE
MIH"36K7
I<@@J&'@"((:;K
10
200
" >&$5,77"3$5%),.-7
HE/EE
HDE
?@<A(B:C><;#&C@"'<((
2&%5(*.C
OHD
PQN/HH
HPN
100
200
R*B,&"5&$77*.C
JE
0
>$+*5,"5!,5(@$*.-7
E
DE/EE
0
40
100
140
200
240E
S,*C!"G&*3C,7
HE
E
ME
9:(#$;'<&7=>8
2&6.77!*@),.-";2TU<
QE
PE/EE
QE
45"#"4+-$5131&7
V$&3,&"@&$5,77'"*.5+/"+$56+"5%7-$)7
LOE
DQL/EE
HME
8$319"=--"0$;3;",$31/".&1"+,"?<"/$--.&;7
W*.6+"5+,6&6.5,
QE
HEE/EE
<$%&019"=%3!$&;>"1;3+5.31;7
13%#.
8<I)I9JJ KL<JMI9LL N)O9JJ
400

E
MME/EE
NE/EE
JJP/JQ
ML/EE
PE/EE
E
PE/EE
PE/EE
KPO)9)M

2TU"#"-4,.-K?X$$-",Y%*B6+,.-"%.*-/

Source: Ksoll and Brimble

(2013)
0$-,1" 9++" .%)G,&7" @&$B*3,3" 6&," X$&" G$-!" 5$%.-&*,7" 6+$.C" -!," 7,5-*$." $X" -!," 5$&&*3$&/""
TEU = twenty-foot equivalent
unit.
Z$&,"3,-6*+7"X$&",65!"5$%.-&K"56."G,"X$%.3"*."26G+,7"J/H"6.3"J/J/
Note: All numbers provided are for both countries along the section of the corridor.
8$%&5,1"9%-!$&7:",7-*)6-,7/

!"#$%&#'$&(#)*+*,#,*-'&*'&./012345&6178,&9"--:;*'$$&&&7<

!"#$%&#'$&(#)*+*,#,*-'&*'&./012345&6178,&9"--:;*'$$&&&77

=>6>?<7?&&&?@?A@B=&5/

<=6=>?7>&&&>@>A@B<&5/

80

)8":#,:& '()#$*+,& #:$D,%,'& (*& P$/O"'($& "*& #8,& M8*"/& M,*8\Y"& P8(& Z(*8&
P(#N& :"9#,& +"/F$:,'& J(#8& #8,& L$*>.".\M8*"/& M,*8& :"9#,& $)& #8,& +$:>"&
J,(>8#& ()& #8,& )$/,3& ^#8,:& (*#,:*$#("*$%& )#9'(,)& 8$D,& K"9*'& #8$#& (*#,:+(#N&
#:$*)F":#& +")#)& (*& /(''%,G(*+"/,& +"9*#:(,)& $:,& F:,'"/(*$*#%N& $:"9*'&
Table C2. Performance: Bangkok to Phnom Penh
!#5+%&897:& ;%"<-"=#')%&5>&?-""*$-"@&A#'21-1&,-&;.'-=&;%'.
B,%=

!-,#+

?#=5-$*#

!.#*+#'$

!"#$%&'()#$*+,&-./0

11234

56234

71636

!"#$%&#(/,&-8"9:)0

7;3<

=23<

436

!"#$%&%">()#(+)&+")#&-?0@

7A615377

=A16B364

52B3=5

CD,:$>,&#(/,&-/(*E./0

737

73;

=34

CD,:$>,&)F,,'&-./E80

7B3<

7231

;732

CD,:$>,&+")#&-?E./0

;3=6

;3<1

=3B5

!:$*)F":#&+")#&F,:&#"*G./@

636B

636<

6361

H">()#(+)&+")#&F,:&#"*G./@

63=1

6376

636<

8&I&8"9:A&./&I&.(%"/,#,:A&/(*&I&/(*9#,3

Source: Ksoll and Brimble (2013)

@&&C))9/(*>&$*&$D,:$>,&+$:>"&J,(>8#&"K&76&#"*)&-),,&$))9/F#("*)0A&%">()#(+)&+")#)&#$.,&(*#"&
h = hour, km = kilometer, min = minute.

$++"9*#&#8,&#"#$%&+")#)&#"&#:$*)F":#&*":/$%&>""')&K:"/&L$*>.".&#"&M8*"/&M,*8A&(*+%9'(*>&
$%%& '"+9/,*#$#("*& $*'& "#8,:& +")#)3& !:$*)F":#& +")#)& #$.,& (*#"& $++"9*#& "*%N& #8,& #:$*)F":#G
:,%$#,'&+")#)&K":&)8(FF(*>&*":/$%&>""')&K:"/&L$*>.".&#"&M8*"/&M,*8&-(*+%9'(*>&#:9+.(*>&
+")#)A&+8,+.F"(*#)A&J,(>8&O:('>,)A&#:$*))8(F/,*#A&$*'&:(D,:&+:"))(*>A&(K&$FF%(+$O%,03&!8,&#"#$%&
Recommendation
consider border area investment within an explicit subregional
%">()#(+)&+")#&"K&)8(FF(*>&>""')&K:"/&L$*>.".&#"&M8*"/&M,*8&D($&#8,&P,*#:$%&Q9OG+"::('":&"K&
framework: Improving logistics is essential in order for the planned SEZs in Cambodia to
#8,&Q"9#8,:*&R+"*"/(+&P"::('":&()&+$%+9%$#,'&),F$:$#,%N&K":&#8,&!8$(&$*'&P$/O"'($*&),+#("*)3&
attract businesses,
including Thai-based firms; and for investments in logistics and
S":&#8,&!8$(&),+#("*A&#"#$%&%">()#(+)&+")#&()&+$%+9%$#,'&$)T&F:,G)8(F/,*#&+")#)&(*&!8$(%$*'&-?760&
trade-related
services on the Thai side to be especially effective in the context of exports
U&'()#$*+,&V&#"#$%&D,8(+%,&"F,:$#(*>&+")#E./&K":&#8,&!8$(&),+#("*&-717&./&V&?=37=0&U&!8$(&
and global
value chains and related regional production networks. Therefore it is
O":',:&+:"))(*>&+")#)&-?=760&I&?52B3673&S":&#8,&P$/O"'($*&),+#("*A&#"#$%&%">()#(+)&+")#&()&
suggested
that
and local
authorities,
and U&the
localV& business
in
+$%+9%$#,'&central
$)T& P$/O"'($&
F:,G)8(F/,*#&
+")#)& -?;460&
'()#$*+,&
#"#$%& D,8(+%,&communities
"F,:$#(*>&
Thailand +")#E./&K":&#8,&P$/O"'($*&),+#("*&-562A4&./&V&?=3;10&U&P$/O"'($*&O":',:&+:"))(*>&+")#)&
and Cambodia, form a joint consultative mechanism that considers investment
-?;620&U&+8,+.F"(*#&+")#)&-?560&U&K(*$%&+%,$:$*+,&+")#)&$#&#8,&(*%$*'&+%,$:$*+,&',F"#&-?7660&
in Sa Kaeo
Banteay Meanchey and Trat - Koh Kong from an explicitly subregional
U&#:$*))8(F/,*#&-?460&U&K(*$%&$FF:"D$%&$#&#8,&+9)#"/)&"KK(+,&-?260&I&?=A16134<3
perspective.
The newly established Joint Committee (Thailand Cambodia) on Border
Q"9:+,T&C9#8":)W&,)#(/$#,)3&
Area Development
(JCBD) could serve as an effective higher-level umbrella for such a
mechanism.

!"#$%&#'$&(#)*+*,#,*-'&*'&./012345&6178,&9"--:;*'$$&&&7<

=>6><?7<&&&<@<A@B=&5/

81

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83