Why trade facilitation is key to boosting intra-african trade. By Mills Soko 1. Introduction

Transcription

1 1 Why trade facilitation is key to boosting intra-african trade By Mills Soko 1 Evian Group Policy Brief August 2006 Introduction The record of regional economic integration in Africa has been one of failure. Intraregional trade is miniscule, accounting for around 12% of cross-border trade on average for 5.3% of gross domestic product (see graph). 2 One reason for this poor trade cooperation among African countries is the continent s high tariff barriers even though African economies are today relatively more open than those of South Asia Latin America. 3 But it is generally agreed among trade development experts that tariffs comprise only a small share of impediments to African trade. To be sure, the bulk of problems that constrain intra-regional trade have to do with nontariff barriers that stifle the movement of goods services across borders. One issue, therefore, that has been identified as crucial to bolstering intra-african trade is trade facilitation: the process of reducing obstacles to trade at borders, including red tape, corruption, onerous customs procedures, restrictive visa systems, complex data requirements for imports exports. According to the United Nations Conference on Trade Development, the average customs transaction involves different parties, 40 documents, 200 data elements (30 of which are repeated at least 30 times) the re-keying of 60 70% of all data at least once. 4 As such, even though tariffs have progressively fallen across the world, the cost of complying with customs formalities has in some cases surpassed tariff duties. These costs inefficiencies provide a compelling case for implementing trade facilitation measures to make participation in international regional trade easier cheaper. Exporters in the developing countries have become increasingly keen on eliminating administrative obstacles in other developing countries, which today make up 40% of their trade in manufactured goods. 1 Dr Soko is a senior lecturer at the University of Cape Town Graduate School of Business. 2 Commission for Africa, Our Common Interest Report of the Commission for Africa (London: Commission for Africa, 2005), p ibid. 4 World Trade Organisation, Trade Facilitation, at

2 Intra-Regional Trade as a Share of GDP, % 25% 20% 15% 10% 5% 0% 26.5% East Asia Pacific 15.3% Europe Central Asia 6.4% Latin America Caribbean 3.5% Middle East North Africa 0.8% South Asia 5.3% Sub- Saharan Africa Source: UN COMTRADE Africa s trade constraints The exped definition of trade facilitation is germane to Africa. Africa s trade hurdles are not confined to the problem of transport, even though this is paramount. The continent s trade facilitation challenge bestrides a whole range of poor capacities, such as deficient transportation networks, moribund communications energy infrastructure, poor port facilities, a lack of automation systems, a lack of transparent regulatory frameworks, burdensome customs systems, inadequate human resources. 5 On average, Africa has the longest customs delays in the world (see table). It is estimated that border delays in southern Africa cost the region about US$48 million annually. 6 It requires one day for customs clearance in Estonia Lithuania as opposed to 30 days on average in Ethiopia. Not only are the delays long, they are costly. Transport costs in llocked African countries inhabited by 28% of the continent s population are 50 times higher trade volumes more than 50% lower than in similar coastal countries. In the 1990s, it cost almost the same to clear a 20- foot container through the ports of Abidjan or Dakar as it did to ship the same container to a north European port. Shipping a car from Japan to Abidjan costs US$1500, but shipping the same car from Abidjan to Addis Ababa costs US$5000. For example, in Côte d Ivoire it costs US$400 to get a single lorry through the country thanks to the costs on the road (a combination of bribes official payments). 7 Average customs delays in regions of the world (days) Sub-Saharan Africa Latin America Asia Western Europe Source: Economic Commission for Africa The hindrance to the movement of goods services across borders has imposed enormous costs on African economies, with low-income countries small traders 5 Cornelius Mwalwa, Trade facilitation in a multilateral framework: challenges for Africa, statement to the International Forum on Trade Facilitation, Geneva, 15 May Nkululeko Khumalo, Break down Africa s barriers, Business Day, 10 May Commission for Africa, Our Common Interest, pp

3 being the hardest hit. International research has found that the reason why many small medium size enterprises (SMEs) do not actively participate in global trade has more to do with red tape rather than tariff barriers. Given that SMEs do not frequently ship large quantities, the numerous administrative barriers they have to contend with make foreign markets appear unattractive. In the context of globalisation where the provision of efficient competitive services is critical this has undercut the competitiveness of African traders in the international markets. 8 The WTO trade facilitation The issue of trade facilitation was added to the World Trade Organisation (WTO) at the Singapore Ministerial Conference in Having been associated with the socalled Singapore issues in the Doha Round trade negotiations, it became a source of controversy within the WTO, with many developing countries calling for its exclusion from the negotiation agenda. However, it was subsequently included in the negotiations as part of the July package a package of framework agreements concluded at the end of July The successful conclusion of multilateral, regional bilateral trade negotiations in recent decades has resulted in a general tariff decline. This has accentuated the importance of non-tariff barriers in trade, exemplified by the costs of complying with cumbersome customs systems at borders ports. Moreover, the growth in e- commerce just-in-time production has elevated the significance of trade facilitation in the WTO: the issue of trade facilitation has transcended red tape to become a wider policy matter, encompassing an array of administrative, financial, transportation, security e-commerce issues. 9 Negotiations in the WTO have focused largely on strengthening provisions on transit facilitation, simplifying modernising import, export customs formalities, making trade regulations transparent. Although they have agreed on the benefits of trade facilitation, some developing countries have voiced misgivings that an agreement in this area would increase their implementation burdens, especially those of the least-developed countries (LDCs). In recognition of these concerns, the WTO decided that the LDCs would only be required to undertake commitments in proportion to their levels of development their administrative institutional capabilities. WTO members committed themselves to accommodating the trade facilitation needs priorities of the LDCs, to addressing issues pertaining to the costs of enforcing policy measures. Specifically, the industrialised nations committed themselves to providing the LDCs with adequate technical assistance support for capacity building in order to enable them to realise commitments resulting from WTO trade negotiations. 10 Reducing Africa s non-tariff barriers Africa s integration into the world economy has been hampered by inefficiencies resulting from the persistence of non-tariff barriers. Not only have these inefficiencies hindered the export competitiveness of African nations, they have also 8 Nkululeko Khumalo, What opportunities for South African traders?, Saitex 11, April Nkululeko Khumalo, Facilitating cross-border trade: challenges in the WTO Southern Africa, in Peter Draper (ed.) Reconfiguring the Compass South Africa s African Trade Diplomacy (Braamfontein: SAIIA, 2005), p World Trade Organisation, Trade Facilitation, at

4 undermined their efforts to attract foreign direct investment. They have also prevented the continent from realising the full potential of regional integration. Trade facilitation can contribute enormously towards tackling these obstacles. According to some studies, trade facilitation has the potential to yield more economic gains than tariff liberalisation. It is estimated that output gains from average tariff decreases under the Uruguay Round negotiations amounted to 2% of total trade value, whereas gains deriving from trade facilitation could rise as high as 3%. And a World Bank study found that measures applied by the Asia-Pacific Economic Cooperation (APEC) members had grown intra-apec trade by about US$250 billion, exceeding the gains from intra-apec tariff cuts on manufactured goods. 11 Trade facilitation in Africa would benefit not only importers consumers who have to contend with higher prices induced by red tape in import administration, but exporters too. It would enable firms to increase their continental share of trade in goods services as a consequence of lower transactions costs. It would reduce compliance costs (thanks to simplification of documentation), service charges, business opportunity costs (forfeited business or business not considered), costs associated with uncertainty corruption. Provided it is implemented correctly, trade facilitation can benefit governments too. It can bring about: more efficient control methods, better resource allocation, higher revenues, improved trade compliance, faster economic development, a climate conducive to foreign investment. 12 Customs reform should form a core part of any trade facilitation measures in Africa. Customs delays, coupled with corruption bribery at the border, have stifled the continent s competitiveness. Enhancing customs efficiency can have a positive impact on trade investment. There is ample empirical evidence that trade facilitation reduces customs delays costs considerably, while also raising revenue. In Africa, customs revenue can provide close to a quarter of government revenue. However, due to inefficiencies in tax duty collection, the revenue collected falls far short of its potential. 13 Customs reform should be carried out as part of much-needed internal reforms: it cannot be decoupled from the domestic governance agenda. This means creating the appropriate conditions for economic growth including: a reliable transport, energy communications infrastructure; predictable stable economic policies; an enabling regulatory legal environment; effective public administration service delivery. 14 Furthermore, it means addressing the supply-side problems that have hobbled trade integration in most African countries. This requires a greater focus on strengthening the negotiating capacity of African countries, promoting economic diversification, increasing the participation of SMEs in regional global supply chains dealing with infrastructure backlogs. Any efforts to promote African trade must take account of informal cross border trade, which constitutes a significant proportion of trade among African countries. Typically, it is unregulated consists of survivalist economic activities. Studies have shown that informal trade plays a key part in poverty alleviation women s economic empowerment across Africa. Yet it has been restricted by an assortment 11 Khumalo, Facilitating cross-border trade, p ibid., p Commission for Africa, Our Common Interest, p ibid., p.259.

5 of tariff non-tariff barriers, mainly complex customs clearance procedures, difficulties in securing travel visas, lengthy delays at border crossing posts as well as bribery corruption. 15 Several African regional blocs notably the Southern African Development Community, the Economic Community of West African States the Common Market for Eastern Southern Africa have introduced trade facilitation programmes in recent years, with varying degrees of success. These programmes have been aimed at, among other things, harmonising customs formalities trade statistics, developing transport corridors, automating trade customs data. Even so, African countries will need considerable technical assistance in order to overcome their policy institutional weaknesses become effective participants in regional global commerce. The World Bank estimates that US$20 billion per year will be required to finance the development of trade-related infrastructure. The Bank has set up a programme (the Trade Facilitation Initiative ) to increase financial support to projects with trade facilitation goals. Additionally, it has stepped up traderelated assistance to support developing countries in formulating their own trade policies to finance transition costs in these countries in order to enable them to comply with WTO rules. 16 Other institutions, such as the World Customs Organisation regional development banks, have a central role to play in reinforcing the trade capacity of African nations. Conclusion Globalisation has placed enormous dems on firms to become internationally competitive. To participate meaningfully in international regional trade, governments firms must reduce the complexity costs of transactions, including eliminating unnecessary administration using modern technology to encourage cost-effective processing. Africa is no exception. African countries need to develop the necessary capabilities, particularly human infrastructure capacities, to exploit the potential of intra-regional trade. Trade facilitation can play an essential role in stimulating economic development in Africa in facilitating the integration of the continent into the global economy. However, if it is to yield positive outcomes it must be incorporated within domestic reforms that seek to create the proper conditions for social economic development. 15 Khumalo, Facilitating cross-border trade, pp John S. Wilson, Trade facilitation: new issues in a development context, Trade Note 12, World Bank, 8 December 2003, p.4.