Rajnish Shankhdhar, Amity Lucknow: The Imbroglio of International Business in Land Locked Nations

Abstract.

International Business in land locked nations is not as smooth as it seems, it can suffer from the pressure of a higher rate logistics as compared to other non landlocked nations, The article explores the plight of complexities involve in International business with the land locked nations because these nations have to depend on the neighboring nations for international trade and tariff. As per the study of the international institutions like WTO and the World bank such nations loose their sovereign control on the cross border transportation of goods and hence have to undergo higher transport rates imposed or bargained by adjoining nations who have greater access to sea ports and international air flights. In recent years these countries had to submissively comply with the border charges and transit regulations of the adjoining bigger nations to maintain a regular cross border supply of basic necessities.

Introduction:

The concept of land lock nations refer to countries which have neighboring nations bordering on all sides of their national border providing no access to sea that is the national borders being substantially covered by the geographical parameters of the adjoining neighboring nation.

According to the CIA World Factbook, there are 44 countries that are landlocked. In simplest terms, this means that these countries are devoid of coastline. This status is critical for many nations because it prevents unfettered access to the open ocean which, in turn, allows for trade with most of the countries in the world. Goods produced in a country without access to open water, for example, must always be transported through another country before traveling to their destination and this still to date remains the most critical issue for their economic development in global trade 

Few countries in the world are also double land locked, which means that they are surrounded only by other landlocked countries for example Lichtenstein and Uzbekistan. The largest landlocked country is Kazakhstan.

“The United Nation has an Office of the High Representative for the Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS). It mainly holds the view that high transport costs due to distance and terrain result in the erosion of competitive edge for exports for landlocked countries. In addition, it recognizes the constraints on landlocked countries to be mainly physical, as lack of direct access to the sea, isolation from world markets and high transit costs remain substantially high due to physical distance.” 

An Inside look.

The question that comes into consideration is how possibly the rates are impacted upon? what are the WTO considerations to avoid such nations tariff volatility ? .and that whether these countries can actually use their landlocked location to their own favor ?

If we consider the case of land locked nations and their keenness to actively participate in international trade, the most important issue that comes is the degree of dependency of a country on the bordering nations for mutual trade, this dependency is not only in trading issues it can also decisively connect the overall national alliance and may result into an economic integration to benefit collectively towards the whole region, a slight uncertainty can cause severe gridlock, for example a change in the Indian democracy can also more or less effect Nepalese trade decision making prospects

“Landlocked Developing Countries (LLDCs) face many common challenges in relation to trade. Lacking territorial access to the sea and often contending with a difficult topography and harsh climate, resulting into a high trade costs is the most common. The geographic challenges to trade are often heightened by poor infrastructure, inefficient logistics system and weak institutions, driving up transaction costs.

 Low product diversification, a greater concentration of commodity-based exports and complex procedural obstacles to trade add further layers of difficulty for LLDCs to integrate into the world trade system.” Surprisingly today none of the land locked nations have a sound financial system or a global stock exchange inviting international institutional investors.

 Discussing the plight of border tariff rates of LLDCs they are not only subjected to their own national internal factors but also the Unique exogenous factor of adjoining nations transit duties. Countries lacking access to territorial access to the sea can only obtain smooth facilitation of international logistics leading towards all exports or imports only through the payment of neighboring  transit charges which subsequently impacts upon their own tariff structure. 

As mentioned earlier these countries continue to face considerable challenges inherently linked to their severe geographical handicap. ” Over the past decade, the share of landlocked developing countries in world exports remained unacceptably dismal — well below 0.6 per cent, with commodities accounting for the bulk of exports. ( UN Gen Assembly ) GA/10760, Oct 2008 edn.” In the case of Mongolia, for instance, transit transport costs through Russia and China amounted up to 8 per cent of Mongolia’s gross domestic product (GDP), 

All this points towards a higher goods price that the LLDCs natives have to bear  Hence, with a view to promote a comprehensive sub regional agreement designed to harmonize transit regulations and reduce transit transport costs for LLDCs, Mongolia has initiated a Tripartite Framework Agreement on Transit Transportation with its two neighbors” UN Almaty report “sounding Alarm bells. 2003

 Analyzing the bone of contention, for such nations the need of the hour is an adjustable transit system consisting of discounts by their adjoining nations which should work as a regular platform in boosting LLDCs   international trade with a good capacity building of transit corridors just to conduct a sizeable regional trade. 

 Shockingly 31 landlocked countries had a mere 0.61 per cent share of world exports, and 0.57 share of imports. Given that, they were entitled to special and adequate measures, including preferential treatment in the multilateral trading system of WTO, but despite  exclusive UN legislations, world bank funding and WTO initiatives land locked nations continue  to face economic decline

Opportunities and Constraints:

The over dependency on its neighboring nations has its own pros and cons for land locked economies, the astounding success of Swiss economy has surprised many. Switzerland being a landlocked nation has maintained a lead and has made a place among the top rich economies of the world, the country with its unique banking services and specialized brands has build up a commendable performance in global trade, also to be considered is the enormous support by the rich neighboring European nations who have provided a refined business infra support to help Switzerland maintain its lead.  

  The World Bank study looks at the opportunities and constraints for trade integration and export development in developing countries, One of the principal factors  limiting the volume of airfreight in landlock countries is the lack of significant volumes of two-way activity to facilitate air freight, landlocked countries need to improve operations at their airports and provide liberalize access for foreign airlines. The airports with surrounding other neighboring air ports can deter major airlines but strategic transport airstrips at strategic locations can be planned on bordering ports which can be outsourced too.

This is where the land locked nations have to develop and focus their resources, if air transport is good and quick with less transit times the cost factor can be still a major deterrent, the world bank report states that ” The demand for air freight is limited by cost, typically priced 4-5 times that of road transport and 12-16 times that of sea transport. Air freight rates generally range from $1.50-$4.50 per kilogram, while the value of air cargo typically exceeds $4.00 per kilogram.   

(world bank.org/air freight potential roles in land locked countries)”

The development of rapid transit corridor to facilitate goods to neighboring nations can be one suggestion to countries like India to harmonize world trade attempt and make SAARC strong, surprisingly transport is still the major issue than tariff that causes considerable impediment to LLDCs

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