GMS: POOR INFRASTRUCTURE, BORDER INEFFICIENCIES FORM ROAD

C O N F I D E N T I A L SECTION 01 OF 04 CHIANG MAI 000057

SIPDIS

STATE PASS TO DEPT OF COMMERCE, USTDA, AND CUSTOMS AND BORDER
PATROL

E.O. 12958: DECL: 4/17/2019
TAGS: ELTN ECON ECIN ETTC EWWT ETRD CH LA TH
SUBJECT: GMS: POOR INFRASTRUCTURE, BORDER INEFFICIENCIES FORM ROAD
BLOCKS ON NORTH-SOUTH CORRIDOR

REF: A. Chengdu 69 (Yunnan's Rocky Roads)

B. Vientiane 112 (China's Investment in Northern Laos)

C. Vientiane 88 (Flagship Road Deteriorates)

D. Chiang Mai 33 (French Links to Mekong Region)

E. 08 Chiang Mai 174 (East-West Corridor)

F. 08 Chiang Mai 169 (GMS Movement of People)

G. 08 Chiang Mai 52 (Logistics Development in GMS)

H. 07 Chiang Mai 166 (Northern Thailand, North-South Corridor)

I. 08 Vientiane 226 (GMS Summit)

J. 07 Vientiane 524 (New Transport Arteries)

K. 06 Vientiane 632 (Moving Laos into China)

L. 07 Chengdu 290 (China-Burma Border)

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M. 07 Chengdu 124 (Yunnan and Southeast Asia)

CLASSIFIED BY: Kevin Rosier, Economic Officer, Consulate
General, Chiang Mai.
REASON: 1.4 (b),(d)

1. (SBU) This is the first in a series of reports on the Greater
Mekong Subregion (GMS) issued by Consulate General Chiang Mai
and Embassy Vientiane. Econ staff of both posts traveled
together by road from the China-Lao border to the Lao-Thai
border to collect the information reported in these cables.
This cable addresses land transportation along the GMS's
North-South Economic Corridor that runs from southern China to
Bangkok and its nearby ports. Subsequent cables will address
cross-border investment and trade issues in the GMS. Consulate
General Chengdu also provided significant trip planning support
and reporting coordination and recently issued a report on road
links between Sichuan and Yunnan provinces (ref a).



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Summary and Comment

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2. (SBU) Non-tariff barriers, led by infrastructure shortcomings
and border-crossing inefficiencies, are the greatest obstacles
to enhancing trade links within the Greater Mekong Subregion
(GMS). Completed only about one year ago, parts of the R3A
highway of the GMS's North-South Economic Corridor are already
crumbling. Within Laos, Chinese-built sections of the road are
collapsing while the Thai-financed part is under major
reconstruction. In Thailand, road construction and expansion
projects are on hold due to economic woes. These challenges are
exacerbated by inefficiencies at customs and border crossings -
such as duplicate inspections and manual transfer of goods from
Chinese to Thai trucks.




3. (C) Comment: Efforts by the GOL and RTG to address
infrastructure problems and border-crossing inefficiencies seem
to be reactive at best. For example, while a nearly certain
date is known for construction of the Mekong River bridge to
connect Huay Sai, Laos to Chiang Khong, Thailand, there is a
lack of understanding about how customs will manage the change
and the presumed increase in cargo traffic that will follow. As
such, there is a significant need for infrastructure aid and
capacity building of customs and inspection procedures at the
border points, particularly in Laos. End summary and comment.



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A Wide China-Lao Border

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4. (C) Under the banner of the Asian Development Banks's Greater
Mekong Subregion (GMS) project, the southern China, northern
Laos, and northern Thailand region has slowly grown more
connected through the construction of the R3A highway. This
land route is expected to be the lifeline of the North-South
Economic Corridor, seen by many business leaders in the region
as a potential "golden gateway" linking southern China to
Bangkok and foreign markets further afield. The R3A begins its
journey southward from Kunming (in southern China's Yunnan
province),and crosses into Laos at Boten in Luang Namtha
province. Although the spirit of the GMS agreement is that
cross-border mobility should be more efficient, the reality is a
wide border with various unnecessary obstacles. At the border
crossing, Lao immigration oversees the movement of cargo trucks

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and people in and out of Laos. Officials there reported that
they do not yet see many cargo trucks on the R3A at the border,
but described the inefficient way in which cargo must pass from
Chinese to Thai trucks (or vice versa in the opposite
direction). Because Chinese cargo trucks may not carry goods
through Laos and Thailand (and Thai and Lao trucks cannot do the
same into China),trucks must back up to one another so that
laborers can manually move the goods from one truck's container
to the other's, an unnecessarily laborious process.




5. (C) Another oddity at the China-Laos border is the location
of the Lao customs office. Unlike at usual border crossings,
the Boten customs office is located about 12.5 miles deeper into
Laos on the R3A at Na Tuey. The reason for the unusual location
is the establishment of the three square-mile
Chinese-constructed "special economic zone," which local Lao
officials refer to as a Chinese concession (ref b). The zone
has effectively pushed the border into Laos by about four miles.
According to the Director of Provincial Customs at Luang
Namtha, which manages the Boten border crossing, the GOL is not
permitted to conduct customs operations in the zone, which is
designed to be a duty-free area. About one half mile from the
special economic zone's edge, however, provincial customs is
constructing a new customs and inspection center; the customs
director did not know when that project would be completed nor
how it would change customs procedures. At the current customs
location, the director said that the facility has one computer
and has had electricity only since last year. Boten Customs
does not offer traders any online options for filing customs
paperwork.




6. (C) According to the provincial customs office, use of the
R3A through the province remains low with only about 50 to 70
trucks passing through in either direction daily. The customs
director said that cargo traffic at Boten is about one-fourth of
the volume passing at Savannakhet, Laos, which is located on the
East-West Economic Corridor that runs from Burma across to
Vietnam. The director noted that since October 2008, about 375
trucks passed through Laos from China to Thailand and about the
same number passed in the reverse direction. He estimated that
cargo truck traffic between China and Thailand via Laos is
increasing at a rate of about 10% annually, and will only
continue to increase since the R3A has made travel from Kunming
to the Thai border a "one-day trip." (Note: It is possible to
journey by road from Kunming to the Thai-Lao border within 24
hours.)



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Please Watch Your Step

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7. (C) Though the stretch of the R3A from Boten to Huay Sai (the
full 142 miles of the highway within Laos) is less than two
years old, it suffers from several problems that slow down
transportation and make driving difficult and dangerous. It is
not uncommon along the northernmost Chinese-built part to see a
full lane of the road collapsed down the side of a mountain. In
the southernmost Thai-financed part of the road, there is major
construction which was actively under repair throughout the
journey. Often, a full lane would be blocked by an avalanche of
soil on the road. Despite this Thai-funded section being the
most challenging to use, Lao officials along the route are more
critical of the Chinese section that is in disrepair. According
to the ADB, the Yunnan Highway and Bridge Company constructed
the "Chinese section" of the road and, as of May 2008, is no
longer liable for its repairs. One ADB expert told Vientiane's
econoff that China has agreed to fund additional repairs on its
section of the road, but Lao officials on the ground said they
did not know who would fund the road's maintenance. Meanwhile,
the entire Thai section of the R3A is under repair by a Thai
construction firm with Thai financing. (Note: Ref c gives a
detailed description of the quality of the R3A within Laos.)



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At Thai-Lao Border, The Road Stops Here

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8. (C) The Lao-Thai border is the last remaining major choke
point along the R3A, given the lack of a bridge across the
Mekong River there. The border towns of Huay Sai, Laos and
adjacent Chiang Khong, Thailand have lines of cargo trucks
waiting to make their way across the Mekong River. Like at
Boten, traders do not have the option to file customs papers
online at Huay Sai. With no bridge yet built, traders have
three options to get their goods from one side of the Mekong to
the other. The first method is to unload the goods by hand from
the truck to a boat. After the boat crosses the river, goods
are reloaded back onto another truck manually. This is the most
common method used about 60% of the time, according to the Huay
Sai customs office, and marks the second time that goods must be
moved manually from one vessel to another (see para 4). A
second option is for the truck to unload the entire container of
goods onto a boat, which then crosses the Mekong. A new truck
and driver will pick up the container on the other side and
complete the journey. This occurs about 20% of the time. A
final option is for the entire truck, including the container
and the driver, to mount a boat and cross the river. This
method is also utilized about 20% of the time.




9. (C) The second two options, though more efficient, pose
significant risks including capsizing and accidents on the
ramps. On the Lao side, the "ramp" is a narrow and steep strip
with shops and private residences on either side. On the Thai
side, the currently used "dry season ramp" is unpaved and seems
unsuitable for large cargo trucks, especially when carrying gas,
a common Thai export to China via the R3A. During the rainy
season, when the Mekong River is sufficiently high, an
alternative and safer paved ramp may be used. While it seems
highly inefficient for 60% of cargo crossing at this border
point to be unloaded and reloaded by hand, the Director of Huay
Sai Customs says that there is an advantage to this process.
Without sophisticated inspection technology, the manual transfer
of goods allows customs officials to thoroughly inspect cargo in
a low-cost way. The customs director said he does not know how
the process will change once the new bridge over the Mekong
River will be built.



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Bridging the Gap

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10. (C) The future Mekong River bridge, which will connect Huay
Sai to Chiang Khong, is the last missing piece of the R3A route.
On the Thai side of the Mekong River, at the bridge site,
markers and a large sign prominently display the future location
of the bridge. The sign indicates that construction began last
month (though there is no sign of construction yet) and the
process should be completed in 30 months. Chiang Khong customs
officials said that construction should begin soon and will
likely finish on time. On the Thai side, an additional five
miles of road needs to be constructed to connect the future
bridge to the current R3A highway. Chiang Khong customs
officials said that because of the current economic crisis and
uncertainties about government budgets, they are unsure when
this missing link (and the expansion of the R3A elsewhere in
Thailand from two to four lanes) will be funded and built.




11. (C) On the opposite Lao side, there is no indication that
one is at the location of the future bridge; however,
development along the road indicates that some kind of change is
coming. A large construction site very near the bridge site
marks the location of a future casino-resort, a Korean
investment. Also, at the village which one must pass to get
from the R3A to the bridge, villagers are fully aware of the new
Mekong Bridge and are looking forward to its construction,
having been told by the GOL about the project since 1998.

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Villagers said that just three months ago Lao government
officials came to survey this bypass road which needs to be
widened and repaved. They said that the road will expand by
about 11 yards, but that they will not receive any compensation
as this land along the side of the road already belonged to the
government.



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The R3A's Ugly Step-Sister: The R3B

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12. (C) Despite all of its faults, the R3A is considered the
road of greatest potential along the North-South economic
corridor. As such, the parallel R3B which runs from southern
China to Thailand via Burma remains a mystery. Sources in Laos
and Thailand claim that the R3B, which enters Thailand at the
border town of Mae Sai in Chiang Rai province, is hardly used
because the PRC has ordered the Burma-China border crossing
closed to prevent Chinese citizens from crossing to gamble at
the casino on the Burma side. There is good reason to believe
that this is not true and that the road is used for some
commerce. One reason to doubt this explanation is that a
Chinese-owned casino at the special economic zone in Boten, Laos
is popular among middle class Yunnanese; yet the PRC has not
given any signs that it will close that border point. Second,
various Yunnanese, Burmese, and Thai merchants at the large
Chinese goods market in Mae Sai said that their goods are
produced in China and, usually, are shipped by land from
southern China through Burma to the adjacent town of Takilek
where the goods are then brought across into the Thai market.
Although all bets are on the R3A as the "true highway" of the
North-South economic corridor, there are signs that the R3B is a
backdoor channel already in use (see septel on GMS trade issues).



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Background: A Bumpy Start

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13. (C) In an effort to better understand the economic
consequences of the R3A highway, econ staff from Chengdu,
Vientiane, and Chiang Mai originally planned to travel the
entire route together. We hit our first bump in the road when
the Yunnan Foreign Affairs Office, after an initial approval,
subsequently declined Consulate General Chengdu's request to
travel via road into Yunnan province. With China obstructing
access, posts rearranged the trip to cover the route from the
China-Laos border at Boten, Laos through northern Thailand.
(Note: Ref a describes more about limited access to Yunnan
province.)




14. (C) Consequently, our journey began from Vientiane, which
ultimately highlighted the R3A highway's isolation of the
capital city and political-economic hub of Laos. Vehicles that
travel from Vientiane along local Lao roads to the R3A face a
bumpy start. The current 240-mile road that connects Vientiane
to Luang Prabang takes approximately eight hours to drive at an
average speed of 30 miles per hour because of the mountainous
terrain, lack of tunnels and bridges, and poor road conditions.
From Luang Prabang to Luang Namtha, where the local highway
system connects to the R3A, the drive is an additional eight
hours; and this stretch of Lao highway 13 is under dire need of
repair. In addition to the road being curvy and steep, roaming
villager-pedestrians and frequent potholes hinder easy movement.
The cumulative 16 hours of travel time from Vientiane to the
R3A at Luang Namtha underscores the isolation of this "economic
corridor" from the political and economic center of northern
Laos.
MORROW