Cross-border controls impeding supply chains in Southeast Asia - Hindustan Times
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Cross-border controls impeding supply chains in Southeast Asia

ByHindustan Times
Jan 22, 2022 05:50 PM IST

The study is authored by Mehdi Hussain. He is an assistant professor, department of political science, Kirori Mal College and a research scholar at Jawaharlal Nehru University

Just as the world had started moving towards greater openness away from the closure of borders since the outbreak of the Covid-19 pandemic almost two years ago, the recent global upsurge of the Omicron variant again has affected supply chain networks, as at least 56 countries have re-imposed certain forms of travel restrictions. Southeast Asia’s position in global trade comes from its enhanced integration into global supply chains. However, border restrictions at domestic and international levels have been a challenge in harnessing benefits of this integration to its fullest. Global transport bodies such as IATA, ICS, IRU and ITF have urged governments to refrain from adopting a ‘rushed’ and ‘fragmented’ approach to travel rules. According to the International Chamber of Shipping, these bodies together represent $20 trillion of global trade per annum and 65 million global transport workers across supply chain networks.

Southeast Asia’s position in global trade comes from its enhanced integration into global supply chains.. (AFP/ Representational image) PREMIUM
Southeast Asia’s position in global trade comes from its enhanced integration into global supply chains.. (AFP/ Representational image)

 

The outbreak of the Omicron variant has caused supply chain disruptions halting supply chain workers ranging from seafarers to truck drivers for fear of getting contracted the virus and quarantined. Southeast Asia has comparative advantage in terms of labour as Vietnam, Thailand, and the Philippines offer a “sizable and relatively affordable pool of labour”, reported in VN Express news. In Asia, Vietnam and Cambodia offer one of the lowest monthly minimum operating costs at $79,289 and $65,313 respectively as compared to Singapore’s $366,561 and Thailand’s $142,344. The Covid-19 restrictions on movement of migrant labour continues to pose a challenge to the economic growth of the region. 

Singapore’s ministry of trade and industry data shows that construction sector is yet to complete its recovery in absolute terms as its value-added remained 26% below its pre-Covid, i.e., 4th quarter of 2019 level, caused by labour shortages arising from border restrictions. Within the service sector, accommodation and food services show a weak performance due to continuous travel restrictions and tough domestic containment measures such as limiting social gathering for dining-in. More safety measures and enhanced health protocols have also been in place. 

In Malaysia, labour force participation rate at about 69% in November 2021 is a marginally improvement compared to the same month of the previous year. Singaporehas banned new entries to the country for Construction, Marine Shipyard and Process (CMP) pass and work permit holders as well as dormitory-bound work pass holders via Vaccinated Travel Lanes (VTLs) from December 4 2021. From February 1 2022, full vaccination will be a condition for long-term passes, work passes and permanent residence. 

Thailand has suspended entries for all new Test & Go applications from December 22 until further notice, while entry is open only for selected sandbox areas such as Phuket, Surat Thani, Phang-Nga and Krabi with a seven-day quarantine in the sandbox area. Since late March 2020, Myanmar has suspended all international flights until January 31. Besides, its borders with China and Bangladesh are closed to foreign tourists.

 

Lockdowns and social distancing measures drastically reduced domestic transport and mobility in the region in early 2020. Therefore, these measures incurred extra costs and time of production. For example, food supply chain was weakened in Indonesia which failed to meet the rising demand for foods. Whereas, the Philippines government continues to ban export of rice to ensure food security during its lockdown period in Bukidnon. In order to generate revenue to meet Covid-19 challenges, it has also imposed 10% import tariff on crude petroleum oil and refined petroleum products. And, to address the growing domestic medical supplies, Malaysia imposes a temporary export ban on face masks, and Cambodia puts a similar temporary ban on export of Covid-19 test kits.

Last year, industrial supply chain in Vietnam’sindustrial areas like Bac Giang, ho Chi Minh City and Binh Duong faced immense pressure due to Covid-19 restrictions resulting in delays in delivery of Apple’s new iPhone 13 which was created by a supply gap due to low inventories of camera modules, as Nikkei Asia reported. Suppliers for Apple, Netflix, Nike and Ikea had to temporarily suspend production in mid-July last year due to stringent containment measures. It is reported that the US, Europe and South Korea have all raised concerns that such strict measures would only discourage investors’ confidence to invest in the country as 20% of companies have shifted their production out of the country.

 

China’s ‘zero-Covid’ policy has affected its supply chain networks with Southeast Asia. Several Chinese ports and roads for transportation were shut in order to control the surge of Covid-19 cases. China is worried about Covid coming in across land borders with Myanmar, Vietnam and Laos. Vietnam had felt the impact to its agricultural trade with China most, especially exports of fresh fruits and vegetables because of the latter’s restrictive measures at border crossings. In December last year, container trucks were stopped for weeks at the borders, specially Dongxing and Pingxiang in Guangxi province (China) connecting Quang Ninh province (Vietnam), and Hekou in Yunnan (China) connecting Lao Cai (Vietnam) stretching their clearance capacity. Also, additional checkpoints were also installed at the Guangxi border to check illegal border crossings. It is reported that China banned import of dragon fruit from Vietnam through the Friendship Pass at Pingxiang border after the detection of the coronavirus on packaging. Vietnam’s ministry of agriculture and rural development stated that bilateral agricultural trade reached $11.3 billion in the first 11 months of 2021. Thus, Vietnam’s ministry of industry and trade urged China to reopen the borders as their closure has negatively impacted bilateral trade and caused ‘great loses’ to businesses and people of both sides. Then, border trade with Myanmar at Ruili in Yunnan is suspended until further notice to curb Covid-19. Myanmar has also been imposing very strict Covid-19 border controls, for example, travel restriction at Muse border, which will likely be relaxed by the end of January 2022. 

 

Southeast Asia has learnt to ‘live with Covid-19’. Southeast Asian governments have been prioritising containment of the pandemic, while at the same time exploring ways to revive their economies through economic recovery programmes to assist cash flow in businesses. For instance, Malaysia has rolled out stimulus packages like amounting up to RM225 billion or 14.8% of Malaysia’s Gross Domestic Product. Its Economic Outlook 2022 has prepared the Distributive Trade Master Plan 2021-2025 aimed at improving domestic supply chains. 

Singapore, on the other hand, could taper its budget for business and social assistance. It has been able to develop a sustained global demand for semiconductors and semiconductor equipment in the 2nd and 3rd quarters of 2021. This is an example of the resilience of Southeast Asian economies to shocks.

UNESCAP’s Fourth Ministerial Conference on Transport, which is a global conference held virtually in Bangkok from 14-17 December 2021, established a six-point plan to resolve issues in regional and global road transport. Participating countries have to address pandemic-induced factors such as politically motivated and misguided Covid restrictions, increase in driver shortages, and rising fuel prices & taxes that hinder supply chain operations. The Conference appealed for inter-regional cooperation in areas of infrastructure development and strengthening operational connectivity along the Asian Highway network, the Trans-Asian Railway network and the network of dry ports of international importance.

 

(The study is authored by Mehdi Hussain. He is an assistant professor, department of political science, Kirori Mal College and a research scholar at Jawaharlal Nehru University)

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