Description:
Executive Summary:
"In a country where there are constraints in formal practices, informal activities
normally arise. Informal practices are not necessarily illegal and bad,
however some of them tend to occupy a grey area and/or are illegal in accordance
with local regulations. There are costs and benefits in minimizing
these informal practices in a country. While constraints and restrictions still
exist in the formal economy, any attempt to crush informal practices may
realize more costs than benefits. Reduction of these constraints and restrictions
in the formal economy may gradually erase informal practices in most
cases.
In Myanmar, informal practices in trade have been in existence for quite
some time. The main purpose is not necessarily tax evasion, although the
tax levied on exports (i.e. 10 per cent on the total export value) is considerably
high. There are a number of reasons for involvement in informal practices
and these include, among others:
to avoid the lengthy licensing process
to import products without having earnings from exports
to import/export products that are restricted on a temporary or
permanent basis
to evade tax
Since economic sanctions were first imposed by the West in 1997, and
further stiffened in 2003 and 2007, cross-border trade has become more significant
due to the fact that direct imports from and direct exports to the
West have become much more difficult. As a result, Myanmar has relied
more on its neighboring countries of China, Thailand, and India, to where
most products are exported for consumption and also for re-export to the
West.
It is noted that the value of Myanmar?s exports to China, Thailand, and
India accounts for 66 per cent of its total value of exports in 2007?08. In6
Winston Set Aung
come generated from cross-border trade has also become one of the major
sources of income for Myanmar, while income from other economic sectors
such as foreign direct investment and tourism has diminished due to various
factors that include economic sanctions. Since cross-border trade has
become significant, trade through the border points with neighboring countries,
especially China and Thailand, has become more active.
While natural gas, timber, and agricultural products are the major commodities
for cross-border trade with China, Thailand, and India, the most
common commodities flowing both formally and informally through border
points (especially with China and Thailand) are timber, gemstones, fishery
products, electronics, agro-industrial products, and clothing. Some
timber, gemstone, and fossil products are not authorized for export yet still
flow through various unofficial border channels. These products are also
exported through formal channels by sea or by air freight with licenses issued
by the Ministry of Commerce following approval by ministries such as
the Ministry of Forestry and the Ministry of Mines. Hence commodities fall
into both formal and informal categories of cross-border trade.
Although the value of border trade (according to official statistics) accounts
for only 7 per cent of Myanmar?s total trade value, the actual value
of border trade is likely to be much higher due to the value of undocumented
trade that flows through borders, which reached over US$1 billion
in 2006. If this undocumented trade were to be included in official statistics,
the value of border trade would have accounted for around 25 per cent of
Myanmar?s total value of trade in 2006.
Although cross-border trade plays an important role in Myanmar?s
economy, there are still various constraints such as an export-first policy,
licensing system, and high tax related to exports in conducting formal
trade. This has led to a situation where informal practices have expanded
drastically, especially in border areas. Brokers have become more systematic
by incorporating trading companies and specializing in several sets of
products. Licenses for exports and imports are issued by the border trade
authorities under the Ministry of Commerce, whereas broker trading companies
apply for such licenses in advance for imports/exports of their specialized
products. As a result, individuals or companies wanting to imThe
Role of Informal Cross-border Trade in Myanmar 7
port/export can do so by purchasing the license acquired in advance by
broker trading companies, or on their behalf at a fee (that includes a documentation
fee) that varies depending on the market situation and seasonality.
Through these practices, trade turnovers have increased, trade facilitation
has improved tremendously, and job opportunities have opened up for
more locals in border areas.
In addition to broker trading companies, there is another type of informal
player that is normally called a ?carrier.” These carriers are individuals
who carry undocumented products, both legal and illegal, across borders
and bypass all customs check-points within Myanmar until they reach their
destinations. Although this type of activity seems to be a petty trade, the
value and volume of such trade carried out by a considerable number of
carriers could be high. These carriers mostly work under or together with
broker trading companies.
These informal players are local people from around the border areas
(especially in the case of Kawthaung, which borders Ranong, Thailand) although
a majority of them have migrated internally from city areas such as
Yangon or Mandalay (especially in the case of Muse bordering Ruili, China,
and in the case of Myawaddy bordering Maesod, Thailand). In the case of
Muse, some operators of broker trading companies are related to those in
Jiegao across the border, whereas the relationship of a majority of operators
in Ranong (in the case of Kawthaung) is just that of a business partnership
without having a formal contractual relationship.
The increased flow of border trade both through formal and informal
channels tends to have a positive effect on people around the border points.
Interviews conducted in 2007 revealed that income levels amongst young
men (under 21) have increased in line with improved formal and informal
border trading operations. The chances of male respondents in the younger
age category possessing increased incomes due to improved formal and
informal border trade are high. Surveys and focus group discussions also
highlighted that people around the borders have a positive view of increased
border trade both through formal and informal channels and disagree
with constraints, restrictions, and trade related policies that can be
changed abruptly at any time.
8 Winston Set Aung
The facilitating role of informal players is quite important in border
areas, and any attempt to eliminate them could have an adverse effect on
cross-border trade and people living around the borders. Existing trade policies
should be tilted to incorporate measures favorable to the poor, so that
border trade can not only contribute to economic development but also to
poverty alleviation, opening up more opportunities for the ethnic minorities
and disadvantaged in the border areas."
Source/publisher:
Institute for Security and Development Policy (Sweden)
Date of Publication:
2009-09-00
Date of entry:
2010-02-19
Grouping:
- Individual Documents
Category:
Language:
English