2010-02-03 tralac Newsletter
2010-02-03 tralac
Hotseat Comment
Sean Woolfrey, a tralac Researcher, discusses the importance of trade facilitation in sub-Saharan Africa.
It is now commonly accepted that international trade is an important contributor to economic growth. The success of countries such as the East Asian Tigers in engaging with the global economy has provided a vivid illustration of how developing countries can use international trade to stimulate economic growth. The benefits that accrue from increased trade are well known, and include higher incomes due to specialization, increased competition and greater economies of scale. In addition, trade brings greater choice for consumers, promotes innovation and is generally associated with better governance and economic policies. It is therefore crucially important that the developing countries of sub-Saharan Africa (SSA) do their utmost to facilitate cross border flows of goods and services in order to increase their trade with each other and with the rest of the world.
As a result of successive rounds of multilateral trade negotiations, prohibitive tariffs and quotas have mostly been eradicated or significantly reduced. This liberalisation has resulted in large increases in international trade volumes, but has also exposed a number of other impediments to cross border trade. Some of these non-tariff barriers are overtly protectionist measures instituted by governments to assist local producers, but many others are less obvious obstacles to cross border trade, such as complex domestic regulations, inefficient customs procedures, corruption, poor infrastructure and insufficient transparency in entry requirements.
These obstacles to trade have been shown to be highly prevalent in SSA and have inhibited the region’s ability to benefit from the increasingly liberalised international trading environment. Unlike certain other regions of the developing world, SSA has not been able to take full advantage of increased global trade flows. Some of the reasons for this, such as distance from major markets, a reliance on commodity exports and the prevalence of protective barriers in the developed world, are largely beyond the control of regional policymakers, but other issues, such as poor infrastructure, high transportation costs and a lack of competition in certain sectors, are open to domestic or regional solutions.
These factors impose additional costs on firms in SSA and make trading to or from SSA less predictable and more time consuming. This reduces the ability of firms in the region to compete with foreign firms in terms of price, turnaround time and reliability. Trade facilitation, broadly defined as the process of identifying and addressing impediments to the timely and cost-effective movement of goods across borders, therefore has an important role to play in assisting firms in the region to be able to compete more effectively on global markets.
Increased emphasis on trade facilitation – for example its inclusion in a number of regional and bilateral agreements – has resulted from a growing literature on the topic which has highlighted the economic benefits that result from trade facilitation, including the positive returns that accrue from investments and reforms aimed at facilitating trade. In addition comparable cross country data and indices have served as a wake up call to those countries which lag in this area.
This increased emphasis has also seen trade facilitation included in the multilateral negotiations at the Doha Round of the World Trade Organisation. In particular, three explicit trade facilitation objectives have been highlighted. The first is to clarify and improve rules pertaining to: i) the transit of goods, ii) the fees involved in importing and exporting and iii) the publication and administration of trade regulations. The second objective is to offer technical and capacity building assistance to developing countries in order for them to implement trade facilitation measures. The final objective is to promote effective communication and cooperation between customs authorities.
The trade facilitation negotiations have been one of the few areas of the Doha Round that have made significant progress, largely due to the fact that there is widespread consensus regarding the importance of these objectives. Delays in the completion of the Round however, mean that the benefits of a trade facilitation package are not likely to be felt anytime soon. Nevertheless, unlike multilateral trade liberalisation, which requires significant coordination at the international level, trade facilitation measures are generally implemented at the domestic or regional level. There is therefore much that governments in SSA can and must do even in the absence of a WTO agreement.
A number of recent publications have highlighted the need for further trade facilitation measures in SSA and identified specific measures which would be of great benefit to firms in the region. These studies include the World Economic Forum’s Enabling Trade Index (ETI) 2009, published in the organisation’s Global Enabling Trade Report 2009 [http://www.weforum.org/pdf/getr09_dev/GETR09_Fullreport.pdf], the World Bank’s Doing Business 2010 [http://www.doingbusiness.org/documents/fullreport/2010/DB10-full-report.pdf] and the Logistics Performance Index (LPI) 2010, also by the World Bank, and published in Connecting to Compete 2010: Trade Logistics in the Global Economy [http://siteresources.worldbank.org/INTTLF/Resources/LPI2010_for_web.pdf)]. These studies show that sub-Saharan Africa’s performance with regard to ease of trading across borders lags significantly behind world standards.
The ETI, for example, measures factors, policies and services that facilitate the free flow of goods across borders. The 2009 edition covered 121 countries, of which 25 were from SSA. Only two countries from the region – Mauritius and Namibia – ranked in the top half of the sample, with the majority being ranked in the bottom quartile. The region’s most common weaknesses identified by the study were inefficient border and customs administration, burdensome import and export procedures, low information and communication technology (ICT) penetration, poor transport and communications infrastructure, insufficient or inadequate transport services and a lack of transparency in clearance and licensing procedures. The 2010 edition of the LPI, which measures customs clearance efficiency, the quality and prevalence of trade related infrastructure and the quality of logistics services among other factors, also ranked the majority of the SSA economies in the bottom half of its sample of 155 countries.
In addition, according to Doing Business 2010, a number of SSA countries are among those requiring the highest number of documents for importing or exporting, or are among those countries in which importing and exporting is extremely costly and/or time-consuming in comparison to global standards. While the report shows that firms in sub-Saharan Africa have difficulty exporting due to inefficient customs administration, poor levels of transport and communications infrastructure, and restrictive trade and customs regulations, it does note that the region is making some progress with trade facilitation. Despite such progress however, there is general consensus that further trade facilitation is required in SSA. In this light a number of specific proposals have been identified in the aforementioned studies. These include:
1. Improving the efficiency of border and customs procedures by:
- reducing the number of documents required for importing and exporting
- allowing documents to be submitted electronically
- limiting physical inspections to only the riskiest cargo
- fast-tracking certain shipments for post-clearance auditing
- instituting a single window for all trade transactions
- improving coordination among various border agencies (e.g. through the better use of automation processes)
2. Investing in trade related infrastructure, notably port facilities and transport and communications infrastructure
3. Liberalising trade-related services sectors so as to stimulate increased competition
These measures would not only increase the competitiveness of SSA firms, they would also benefit domestic economies in other ways. For example, improving customs efficiency and combating customs fraud would almost certainly lead to increased revenue collection, an important result considering that many governments in the region rely heavily on import duties for their revenue. Investments in trade related infrastructure could also lead to job creation and could potentially stimulate increased economic activity.
By removing restrictions on providers of trade-related services such as trucking firms, customs brokers and port service providers and lowering the barriers to entry in these sectors, governments could increase competition among providers of these services. This in turn would likely translate into lower costs for importers and exporters. In many cases however, such reforms are likely to meet resistance as they would harm entrenched interests. Difficult as such measures may be, they are essential for improving the competitiveness of exporters in lower-income countries, who not only have to deal with poorer infrastructure than their competitors in wealthier countries, but often face higher trade-related service charges as well.
Another important measure, especially for the many landlocked developing countries in SSA, is the implementation of regional initiatives to improve the effectiveness of transit systems and regional corridors. Without such measures landlocked countries will not be able to effectively tap into global logistics chains, even if they have made domestic reform efforts and invested in domestic infrastructure. Because logistics networks are only as efficient as their weakest link, it is of little use for a landlocked developing country to improve its own transport infrastructure if its goods are simply going to be held up at its neighbour’s ports. This is why regional initiatives involving the cooperation of landlocked countries and their neighbours are so important, especially in SSA, where poor, landlocked countries are highly prevalent.
Having said all this, it is important to note that trade facilitation alone will not result in large increases in exports from SSA. Trade facilitation should instead be understood as a vitally important complement to industrial policies aimed at ensuring that countries in the region actually have the capacity to produce tradable goods. As encouraging and important as ongoing trade facilitation efforts throughout the region are, they will be of little use if the region is unable to produce anything to export.
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Special Features
2010 World Economic Forum in Davos
Paul Kruger, a tralac Researcher, discusses the annual meeting of the World Economic Forum that was held in Davos-Klosters, Switzerland, from 27 – 31 January 2010. The sessions ranged from the usual economic topics such as Rethinking Systematic Financial Risk and The Next Global Crisis to off-beat topics such as Lessons from Shakespeare and The Art and Science of Imagination. While the theme in 2009 was “Shaping the Post-crisis world”, the 2010 meeting focussed on the “rethinking, redesigning and rebuilding” efforts to improve the state of the world. This year four main subjects led the discussions at Davos: The impact of technology, Social entrepreneurship and aid, Economic recovery and Regulatory reform in the banking sector. Read more here... Weekly Customs, Excise, Tariff and Trade Remedy Summary Notification
Download the notification here. News
Thailand, Brazil, Australia may take EU sugar case to WTO
The world’s three major sugar-exporting nations – Thailand, Brazil and Australia – recently expressed their opposition to the European Union’s (EU’s) export subsidy on sugar, on the grounds that it affects prices and lowers other countries’ export volumes.
Obama trade talk offers hope amid Doha gloom
A breakthrough this year in world trade talks looks unlikely, but United States President Barack Obama has provided a glimmer of hope that a deal can ultimately be achieved by talking up the economic benefits of trade.
Kenya blames EU changes for stalled EPAs
The Kenyan government now says structural changes within the European Union (EU) are partly to blame for derailing negotiations on Economic Partnership Agreements (EPAs) whose set completion date was July last year.
US, China join Copenhagen Accord on climate
The United States, China, and numerous other countries accounting for nearly 80% of the world’s greenhouse gas emissions have signed onto a voluntary agreement to curb climate change.
WTO ministers reaffirm anti-protectionism stance
Some 17 members of the World Trade Organisation (WTO) reaffirmed their commitment to fight protectionism on Saturday despite the world trade body’s long-time deadlock in the Doha Round trade-opening negotiations.
Business pleads for 2010 Doha deal amid uncertainty
Global business leaders on Thursday appealed to governments to make good on their commitment to conclude the stalled Doha trade liberalisation talks this year and boost a world economic recovery.
WTO shares India’s concerns on protectionism
The World Trade Organisation (WTO) said on Thursday that protectionism is a major concern, sharing the views of India and other developing countries. However, the trade body expressed confidence that a deal on opening up world trade further is possible this year.
New trade platform to boost EAC ties with US
The East African Community (EAC) is set to boost business ties with the United States in a new trade platform that is to be launched in February.
Events
Workshop on Regional Trade Developments for Southern Africa
tralac will host a half-day workshop on 9 February 2010 in Cape Town to discuss specifically regional trade developments for Southern Africa. This workshop is prepared specifically for the diplomatic community and is scheduled to coincide with the Opening of the South African Parliament (closed event by invitation only).The Trade Law Centre for Southern Africa (tralac) builds trade law and policy capacity in east and southern Africa. We aim to assist countries to build their trade law and policy capacity, both in terms of technical skills and institutional capacity. All countries in our region are engaging a very demanding trade agenda at the multilateral, regional and bilateral levels. The range of substantive issues on the agenda is becoming more complex as behind the border issues such as services, investment and competition policy become important issues especially on the regional trade agenda. Implementation issues continue to pose significant challenges especially as far as these regional trade agreements are concerned. Of course without effective implementation the potential benefits of the agreements cannot be realized.
The recent Ministerial Conference held in Geneva exemplified the challenges that the multilateral trading system is facing. Although this Conference was not part of the Doha Round of negotiations, it provided an opportunity to assess commitment to the multilateral system as well as to reflect on more systemic challenges that the multilateral system is facing. The accommodation of developing countries within the system continues to highlight the importance of the linkages between trade and development, and the tricky business of negotiating rules that accommodate diversity in terms of size, levels of development and many other important characteristics of especially developing and least developed countries. Many statements of political commitment to the multilateral system of international trade governance, and specifically to the Doha Round were made in Geneva, but it remains to be seen if these will translate into a successful conclusion to the Doha Round in the foreseeable future.
On the regional front, there is no lack of activity, both as regards intra-regional, and extra-regional trade negotiations. On the extra-regional front, the negotiations with the European Union to conclude Economic Partnership Agreements (EPAs) continue amidst regional discontent especially in the Southern African Development Community (SADC) group. Debate on the future of the Southern African Customs Union (SACU) continues after an Extra-Ordinary Meeting held in Swaziland in September 2009. At this meeting member states agreed to look into a review of the SACU Agreement, with particular focus most probably on the revenue sharing agreement. They also agreed to consider issues such as services which are not specifically included in the 2002 SACU Agreement. Meanwhile South Africa is expected to release a Trade Policy document, articulating its position on trade policy issues; including the multilateral trading system, South-South partnerships and its strategy for regional integration. A strategic tariff review process is also to be spelt out, with a clear statement of the interface between trade and industrial policy and the process of tariff review and amendment. This will have important implications for the region, especially for SACU. At a broader regional level, the decision in October 2008 by the member states of the Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for East and Southern Africa (COMESA) saw at regional secretariat level, the beginning of technical work to prepare for the negotiation of a Tripartite Free Trade Area. Of course this will have to be negotiated by member states; at this stage it is not clear that discussions about this initiative have reached member state level.
Publications
The World Trade Organisation: an African Perspective, more than a decade later
New book: The World Trade Organisation: an African Perspective, more than a decade later: The current Round of trade negotiations is the first 'Development Round.' Given the challenges of addressing development issues in the context of trade negotiations in the WTO, which is not a development institution, it should not be surprising that the current negotiations are proving extremely difficult. The WTO remains however the core of the rules-based system of international trade governance, providing also the rules for RTAs that are still growing rapidly, both in number and in scope and coverage. The WTO was established in 1995 as the institutional anchor of the multilateral trading system. Since then significant developments have taken place, on the trade agenda as well as in the participation of developing countries in the WTO. This collection of papers provides an African perspective on the first decade of the WTO. Substantive trade issues such as agriculture remain, despite their declining importance in terms of overall economic activity even in African countries, of key importance to Africa. Key issues on the agriculture agenda are not addressed on the Regional Trade Arrangement (RTA) agenda and so the WTO remains the only forum within which to address these. Africa is still engaging at the margins of the international economy and this collection of papers explores some of the challenges as well as prospects for Africa within the WTO. Download the book here...Measuring the gains from currency union membership in southern Africa
New working paper: Measuring the gains from currency union membership in southern Africa by Johan Fourie and María Santana-Gallego. African countries have latched on to growing empirical evidence that creating a currency union may result in large trade gains. This is based on the belief that lower transaction costs would lead to large increases in intra-regional trade volumes, augmenting growth. Yet there is growing evidence that not all countries may benefit from entering a currency union. This paper is an attempt to measure the gains from trade that are realised when entering a currency union. Using a standard gravity framework, we find that countries that decide to give up their currency and adopt an existing one or create a new common currency area stand to benefit significantly from a shared currency. However, these benefits are greater for a select few and the gains in terms of trade will depend on how open the country is and the intensity of trade flows with the other members of the currency union. Read more here...Safeguards and trade remedies in the SADC and ESA Economic Partnership Agreements
New working paper: Safeguards and trade remedies in the SADC and ESA Economic Partnership Agreements by Prof. Gerhard Erasmus, a tralac Associate. This paper discusses the “Trade Defence Instruments” in the Economic Partnership Agreements (EPAs) currently being negotiated between the European Union (EU), on the one hand, and different configurations of ACP (African, Caribbean and Pacific) countries on the other. These “instruments” cover remedies against unfair trade practices (anti-dumping and countervailing measures) as well as safeguards. ACP concerns about infant industry protection, food security and agriculture are also on the agenda. Read more here...AGOA.info
AGOA trade data to November has been updated
New trade data to November was released yesterday and updated on AGOA.info (full-year 2009 data will be published 12 February 2010). Aggregate exports from eligible African countries $ 39bn, while imports were valued at $ 12.7bn. These figures remain substantially weaker that comparative data for 2008, owing to much lower oil revenues this year. Of the $39bn in exports, over $29bn (77%) qualified for duty-free access under AGOA. See aggregate data here and AGOA data at this link.
Proposed amendments to AGOA legislation - HR4101
Bill 4101 was introduced by Sen. Bill McDermott during November 2009, and has been referred to the US Committee on Ways and Means. It is also known as the "New Partnership for Trade Development Act of 2009". Visit AGOA.info for further details.Other AGOA data includes disaggregated bilateral trade profiles for each AGOA country individually (as well as within various regional configurations), preferential trade under AGOA / GSP and sectoral data from AGOA-eligible countries by value and as a proportion of US imports, as well as sectoral “new AGOA” and “GSP AGOA” data. Textile data is available by value and by volume. The recently completed quota period commenced in October 2008 and terminated in September 2009. Quota utilisation for the full year was 15.7%, and 30.5% under the LDC sub-quota (applicable to the use of third country fabrics). For the new quota year (October 2009 - September 2011), the fill rate for October-November 2009 was 3.39% and 6.62% under the LDC sub-quota. A new overall quota has also been set: details at this link.
Bilateral and regional trade profiles
Bilateral US-Africa trade profiles on a country-by-country basis have been updated. Follow this link to individual country profiles as well as various regional country configurations. Examples include South Africa , Lesotho , Botswana , Namibia , Swaziland , BLNS , SACU , SADC , etc.Latest AGOA news
- Nigeria: US Ambassador, BoI MD laud AGOA resource centre initiative
- Leveraging non-oil export for economic development
- African Union dismayed by what it calls US "trade sanctions on Africa"
- New trade platform to boost EAC ties with the US
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