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Use of Electronic Certificates of Origin now and beyond COVID-19 in intra-African Trade

By Rwatida Mafurutu
29 Jun 2020
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Use of Electronic Certificates of Origin now and beyond COVID-19 in intra-African Trade

As the COVID-19 pandemic persists, it continues to restrain free movement of people, goods and services across African borders to unprecedented levels. Countries find themselves confronted with the increasing need to move away from over-reliance on their traditional manual ways of doing things in favour of automated alternatives. In order to encourage member states to simplify and automate trade and trade documents, African regional economic communities (RECs) such as the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) have adopted guidelines and recommendations for their respective member states to follow during this pandemic. If properly adopted, these measures are aimed at facilitating easier movement of essential cargo and services across borders, and will reduce chances of the transmission of COVID-19 through human interface at ports of entry. One such compelling strategy is the need for African governments to start fully embracing the use of electronic certificates of origin (e-CoO) within their RECs. To looking at the use of the e-CoO in COMESA and SADC Free Trade Areas (FTAs), this article goes on to review on what this might mean to the African Continental Free Trade Area (AfCFTA). In conclusion, it restates that embracing the use of e-CoO is one of the important ways to do business in Africa, not only during the COVID-19 pandemic, but into the future.

Origin, Certificates of Origin and their importance to trade

Regional and global value chains have resulted in numerous goods and services laterally being produced across a range of geographic locations rather than purely originating from a single jurisdiction. In today’s complex trading environment, goods are increasingly being processed, made or manufactured from raw materials, parts, components, inputs and services obtained from an integrated supply chain, all cutting across commerce of various countries, regions and continents. This reality calls for the increasing need for member states to correctly determine the origin status of such goods when traded under preferential or free trade arrangements. In determining the origin status of goods, there is a need to balance customs administrative rules of origin (RoO) compliance requirements with the elimination of unnecessary trade costs, avoidable additional cross-border transaction costs. The COVID-19 pandemic has also made it important to reduce the physical human interface in this process.

Preferential RoO concerns the determination of the economic nationality of goods being internationally exported so that they can enjoy preferential treatment in the country of importation[1]. The economic nationality of goods traded under preferential trade agreements (PTA) or FTA is important to determine customs treatment in the importing country. This information is needed for the correct tariff classification and valuation of origin claiming goods. The customs trilogy of origin, valuation and tariff classification is used to determine and collect reduced rates of duties and extending appropriate preferential treatment on qualifying goods. This further ensures that the goals of trade creation, economic growth and development through trade under PTAs and FTAs are realised. For goods to qualify under origin preference, they must have been manufactured or processed according to stipulated RoO criteria. Depending on the protocol of origin in the applicable preferential or FTA, goods may claim origin status if they conform to any of the following five Origin Standards.

Table: Different RoO criteria in most PTAs and FTAs

 
Origin criteria
Comment
1
Wholly Originating Products
Applied mainly on raw materials
2
Sufficiently Worked or Processed
Product specific RoO
3
Regional Value Content
Value addition test
4
HS Tariff Classification Test
Change of tariff heading rule
5
Calculation of Percentage Content
Percentage of added value on non-originating materials

A preferential CoO refers to an international trade document that is issued to a registered exporter to confirm origin of the good. To attest to the origin status, it accompanies goods being exported so that they enjoy preferential or reduced rates of duty in the country of destination. If origin is the economic nationality of goods as determined by the RoO criteria contained in the origin protocol of a PTA or FTA, then the CoO becomes their passport in which a non-preference or preference visa will be granted by Customs administrations or their equivalence on entry in the country of importation. As immigration officials are earnestly moving away from manual processing of travellers’ passports, there is increasing need for member states to move away from manually processing of CoO to digitalised CoO as well.

In both SADC and COMESA FTAs, the qualifying exporters under origin preference are registered and authorised on application to the Designated Issuing Authority in the respective member state. Depending on each member state, the Designated Issuing Authority can either be the Ministry of Trade (Mauritius, Uganda, Djibouti etc.), Customs or Revenue Authorities (Madagascar, Zambia, Zimbabwe, Eswatini, Kenya etc.) or the Chamber of Commerce and Industry (Malawi, Eritrea, Ethiopia etc.).

Use of Electronic Certificates of Origin in COMESA and SADC FTAs

When a CoO, is electronically completed by the registered exporter, processed and issued by the designated issuing authority in the member state of exportation and then transmitted online to the country of final importation through a digital certificate of origin platform, it changes its name from a manual CoO to an Electronic Certificate of Origin (e-CoO). In essence, the main difference between the manual CoO and the e-CoO is that the former is issued physically as a paper document while the latter is an online based document which is forwarded directly to the Customs administration and the importer in the country of final destination as a downloadable softcopy.

In 2014, COMESA Council of Ministers embraced the decision to replace manual CoO by developing the COMESA Electronic Certificate of Origin (e-CO) System, under its COMESA Digital Free Trade Area (DFTA) initiative. The main purpose of the initiative is to enhance intra-regional trade within the COMESA FTA by lowering costs and effort associated with the manual application for registration, processing, validation and submission of the COMESA CoO by registered exporters. In November 2019, the COMESA Council of Ministers agreed on the draft regulations to practically implement the use of the e-CO System. In its most recent adopted guidelines on handling of cargo at ports of entry during its 8th Extra-Ordinary Council of Ministers’ Meeting held on the 14 May 2020, COMESA encouraged its member states to accept electronic documents where border agencies require permits, licenses and certificates for the imported goods to avoid delays at the ports of entry[2].

Regardless of these previous developments and the latest COVID-19 inspired recommendations, the uptake of e-CoO within the COMESA FTA member states is yet to obtain traction. Despite 15 COMESA[3] member states indicating as recently as June 2020, their preparedness to pilot the e-CO, none of its member states have practically adopted the use of e-CoO as a measure to contain the spread of the COVID-19, reduce transaction costs and facilitate the expeditious movement of cargo across the borders. Going by the current status quo, it can be concluded that none of the COMESA FTA member states are using this facility to its full advantage.

On the other hand, in March 2016, SADC held its 16th Meeting of the Ministerial Task Force on Regional Economic Integration in Gaborone, Botswana. In this meeting, the Ministers of Trade identified among other issues, the need to implement the e-CoO within the SADC FTA as a crucial strategy for enhancing movement of goods. This strategy would simultaneously reduce the cost of doing business under the REC’s Trade Facilitation Programme[4]. By allowing registered exporters to apply for e-CoO online, this would reduce time taken to complete, apply, process and have them validated for onward transmission. In their 31st Meeting held in June 2019 in Windhoek, Namibia, the Sectoral Committee of Ministers of Trade approved the SADC Regional e-CoO framework whose aim was to harmonise and automate the processing, issuing and online forwarding of the e-CoO. As recently as March 2020, just like COMESA, SADC adopted Guidelines[5] for its member states in response to the COVID-19 pandemic which emphasised the need to automate trade documents and certificates.

Despite all these developments, at best, the majority of the SADC member states are at e-CoO piloting stage. To date, only Mauritius has completely developed its e-CoO facility and this now awaits online exchange with the rest of the SADC FTA member states. Botswana, Eswatini, Malawi, Namibia, Tanzania and Zambia have all fully established their national e-CoO modules. However, they are all currently at the piloting stages of the process.

While the existence of various benefits arising from the use of e-CoO over the manual CoO are clear the effective uptake of the use of e-CoO in both COMESA and SADC FTAs has been slow.The continued use of manual CoO within FTAs is not only costly but increases delays in the movement of goods across borders owing to a series of manual processes that is required. For it to be effective, it requires the physical human presence and intervention at almost every stage of processing which in turn increases the rate of exposure to the COVID-19 pandemic. In between human presence and interventions, movement of the manual CoO from exporter to Issuing Authority and back from the registered exporter to the importer in the country of final destination may be through couriers. In most countries couriers are expensive leading to unnecessary trading costs.

In the manual environment the entire process is repetitive and burdensome. Since certificates have to be manually completed and authorised each time a new consignment is to be exported, chances of completion errors are high leading to some manual CoO having to be returned to the country of origin for verification, sometimes weeks and months after goods’ arrival in the country of importation. Meanwhile goods will be delayed from being cleared under preference without the correctly completed CoO. Instead they will be accruing warehouse rents and demurrage charges with each day of waiting for the corrected documentation to be re-sent. In worst case scenarios, goods which qualify for origin preference will end up being cleared under non-preference. Manual CoO are easy to manipulate and tamper with so that non-qualifying goods may end up being cleared under preference when they should not.

The manual CoO system presents unique costs, administrative and logistical challenges to Customs or Revenue Authorities and Designated Issuing Authorities, as they will need increasing filing space for their office copies of the successfully processed CoO. They are required to prepare copies of origin authorised specimen signatures for each signatory which will be sent out to each member state. In return, they should also receive similar copies of origin authorised specimen signatures of every signatory from each member state. A change of signatory implies that the whole process has to be done again so as to keep member states’ databases of signatories updated.

What recommendations can be made for the use of Electronic Certificates of Origin in the AfCFTA?

With COMESA and SADC RECs being two of the eight African FTAs which are recognised building blocks of the AfCFTA, their experiences with the use or non-use of the e-CoO can provide very useful input and guidance for the ultimate design of AfCFTA’s RoO criteria and administrative documentation and processes.

The use of the e-CoO in the AfCFTA is highly recommended as this will eliminate considerable trade costs ordinarily incurred under a manual environment. Delays resulting from repetitive manual completion of CoO by exporters each time an export is being done can be eliminated. It is recommended that AfCFTA state parties adopt a single common digital CoO System as a standard platform which can easily be accessed by all exporters and administrative agencies in all state parties.

At REC level, customs and administrative formalities associated with RoO as well as CoO have been noted as top Non-Tariff Barriers (NTBs) in intra-COMESA trade. This observation was specifically noted by the COMESA Trade and Trade Facilitation Subcommittee in 2017[6]. Allowing exporter online self-certification through the platform and authenticity verification by customs administrations through checks on the same platform will go a long way to eliminating this type of NTB. Time taken for processing and authenticating manual CoO can be significantly reduced when government agencies including customs administrations use electronic signatures on the e-CoO, as well as a unique barcoding system to guard against abuse related to fake documentation. The use of e-CoO in conjunction with the adoption of simple and easy RoO under the AfCFTA is of paramount importance to commercial exporters.

For individual importers the use of electronic simplified trade regimes with exemption thresholds will make it possible for vulnerable groups such as small-scale farmers, women and the youth to fully participate in the economy. They should also be able to process their e-CoO online using less complicated technology such as cell phones and less expensive computer systems.

The use of e-CoO eliminates delays in the movement of goods across borders thereby enhancing intra-regional and continental trade in Africa. It reduces the chance of spreading the COVID-19 pandemic by reducing the necessity for human interface in these processes. Opportunities for rent seeking behaviour and corruption will also be greatly reduced as state parties embrace the use of the e-CoO with their trade arrangements. The use of e-CoO in AfCFTA should become the way to business in Africa’s RECs and in the AfCFTA. This must not only be the case during the COVID-19 pandemic, the use of e-CoO together with other online computerised declaration processing systems will be critical tools for facilitating cross-border trade now and into the future under the AfCFTA.


[1] Guide to the Protocol on rules of origin of the Economic Partnership Agreement (EPA) between the European Union and its Member States, of the one part, and the SADC EPA States, of the other part. European Commission (Directorate-General for Taxation and Customs Union). https://www.tralac.org/documents/resources/sadc/epa/3825-guide-to-the-protocol-on-rules-of-origin-of-the-eu-sadc-epa-2017.html

[2] For details see Guidelines for Movement of Goods and Services across The COMESA Region During the Covid-19 Pandemic (As adopted by the 8th Extra-Ordinary Council of Ministers’ Meeting, 14th May 2020). https://www.tralac.org/documents/resources/covid-19/regional/3639-guidelines-for-the-movement-of-goods-and-services-across-comesa-region-during-covid-19-pandemic-may-2020.html

[3] 15 Member States Ready to Pilot the COMESA Electronic Certificate of Origin. These member states are Burundi, Democratic Republic of Congo, Egypt, Eswatini, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Tunisia, Zambia and Zimbabwe. See https://www.tralac.org/news/article/14675-15-member-states-ready-to-pilot-the-comesa-electronic-certificate-of-origin.html

[4] SADC. 2016. Ministers of Trade approves Trade Facilitation Programme. https://www.tralac.org/news/article/9251-sadc-ministers-of-trade-approve-trade-facilitation-programme.html

[5] See SADC Guidelines on Harmonization of Cross Border Operations during COVID19 Pandemic. https://www.tralac.org/documents/resources/covid-19/regional/3222-final-sadc-guidelines-on-cross-border-transport-during-covid-19-adopted-on-6-april-2020.html These have since been revised (see Revision 1)

[6] The TradeCOM II Programme: Knowledge Sharing on the COMESA’s eCO. http://www.tradecom-acpeu.org/imcustom/Best%20Practices/Docs/Cluster3/2.%20COMESA%20-%20Electroninc%20Certificate%20of%20Origin.pdf

About the Author(s)

Rwatida Mafurutu

Rwatida Mafurutu

Rwatida Mafurutu is a career expert of more than twenty-seven years of technical experience in the management, administration and implementation of Customs & Excise and Internal Taxes. He has a keen research interest in regional and continental trade and policy issues in Africa. Rwatida is a holder of Master of Commerce Specializing in Management Practice in the Field of Trade Law and Policy (University of Cape Town), Master of Philosophy in Taxation (University of Pretoria) and a Master of Science in Fiscal Studies (National University of Science and Technology).

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