SPEED Support Program for Economic and Enterprise Development

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1 SPEED Support Program for Economic and Enterprise Development Preliminary Baseline Analysis of Mozambique s Conformity with Trade Facilitation Agreements Note 1 1. INTRODUCTION This report was prepared by independent consultant Daniel Plunkett for DAI under the Mozambique Support Program for Economic and Enterprise Development (SPEED) project financed by USAID/Mozambique. It is intended to assist the Government of Mozambique, the Mozambican private sector, civil society, women s groups and youth entrepreneurs to understand the different trade agreements Mozambique has signed with other countries and regional groupings, in order to stimulate interest in expanding trade by reducing the costs of trade facilitation. The study was conducted in early September 2015 based on a desk review of available literature. The purpose is to introduce the topic of conformity with existing and proposed trade agreements as a means of monitoring and evaluating the degree of implementation and to suggest the potential benefits for Mozambique in achieving greater conformity. The Mozambican government has called for more intensive research in the area of trade agreements. This preliminary study attempts to gauge progress towards meeting existing commitments related to trade facilitation documentation and procedures under the Trade Protocol of the Southern African Development Community (SADC), and future commitments related to the WTO s Trade Facilitation Agreement (TFA) and the East African Tripartite Free Trade Area (TFTA). 2. OVERVIEW Mozambique deserves praise for its judicious trade policymaking in respect of its African neighbors. The Southern African Development Community (SADC), the 15-country political and economic grouping that includes Mozambique s key regional trading partners, is engaged in discussions with 11 other African countries in negotiation of the Tripartite Free Trade Area (TFTA) designed to bring together 3 of the leading African regional economic communities (RECs), with the East African Community (EAC) and the Common Market for Eastern and Southern Africa (COMESA) joining SADC to create a free trade area covering half the continent. The Tripartite FTA is intended to be one of the building blocks for the African Union s Continental Free Trade Area (CFTA), eventually bringing together all of the African countries and resolving the spaghetti bowl of overlapping memberships in African RECs. These examples of dynamic African regional economic integration are presently occurring in the context of several other initiatives at the global, regional and bilateral level. 1 Daniel Plunkett, Consultant to DAI 2

2 At the global or multilateral level, Mozambique is being asked to monitor national implementation of the commitments undertaken as part of the Uruguay Round of the World Trade Organization (WTO), to engage in negotiation of the Doha Round of WTO, and to consider accession to the WTO s Trade Facilitation Agreement (TFA). The negotiation of the series of European Union trade deals including the EU-ACP Cotonou Convention, Everything But Arms, and the EU-SADC Economic Partnership Agreement (EPA) is now completed, with Mozambique now expected to implement the terms of its agreement under the EU-SADC EPA. Mozambique s bilateral agreements on trade and investment with the United States, such as the African Growth and Opportunity Act (AGOA), and with Mozambique s principal partners in transit trade Malawi and Zimbabwe provide greater clarity regarding trading relationships with Mozambique 2. Mozambique is in a unique position amongst its southern African neighbors as the only SADC country with no overlapping regional trade agreements. Mozambique has done well in meeting its SADC obligations, as one of only 3 countries to have aligned with the SADC Model Act and is only the one applying the SADC Common Tariff Nomenclature (CTN) at the time of the last SADC Customs Audit (SADC 2011). The future for Mozambique to make significant economic gains by coming into greater conformity with existing trade agreements and proposed new ones is very bright, especially for agricultural workers in food processing, with enhanced equality for women in the labor force, greater household resilience, and better prospects for youth employment. Development partners interested in helping Mozambique are advised to emphasize trade-related technical assistance oriented around increased conformity with the terms and provisions of trade agreements with an eye on the goal of reducing poverty and food security. Overlapping membership in regional trade agreements is a major hindrance to efficiency in trading procedures for any African country, greatly complicating the work of national Customs services. In the end, engaging in any trade agreement entails greater costs for national governments in terms of dedicating staff resources to follow different negotiating areas and committing Mozambique in specific negotiating areas. The cost related to sending a government official along with Mozambican private sector actors with trade-related aims to meetings associated with trade agreements can be substantial. To represent itself, any country must inevitably undertake a series of meetings and preparatory activities that render engaging in trade negotiations more costly. How and where to deploy national resources, balanced against expected gains, becomes a foremost topic. Mozambique can enhance its economic competitiveness by undertaking steps suggested in the AU s Action Plan for Boosting Intra-African Trade and in seeking greater conformity with the trade facilitation procedures under its sole regional-level trade agreement, the Southern African Development Community (SADC). Mozambique must carefully pick and choose how to deploy the efforts of its negotiating teams in order to glean the greatest gain from the myriad trade agreements already in place and in the process of negotiation. Trade agreements bring both opportunities and commitments. One country reducing a tariff does not necessarily mean an increase in trade for the partner exporter country. A host of factors related to a particular country s natural resource base, development history, and competitiveness weigh upon whether a trade agreement is worth it or not. Mozambique must choose wisely. Many of the trade agreements contain nearly identical goals and objectives. 2 Note that a full list of acronyms used in the report is available at the end of the document 3

3 So far, Mozambique has avoided the hazards of the spaghetti bowl and its cost-heavy negotiations. Substantial economic gains can be made by improving existing commitments on trade facilitation within SADC, along the lines suggested in this preliminary study. There are concrete benefits from achieving greater compliance with existing and proposed trade agreements in terms of reducing poverty and food insecurity. The main areas where greater compliance would benefit Mozambique include reduction in the time and cost associated with improved transit procedures, and simplified documentation. Mozambique is unusual in that its maritime ports are logical transit hubs for landlocked regions in Malawi, South Africa, Swaziland, Zambia, and Zimbabwe. This suggests that reducing the costs of using Mozambique s ports for transit trade would lead to increased trade, improving Mozambique s business investment profile. Trade agreements open opportunities but do not guarantee trade. Trade promotion could be a valuable accompanying measure to efforts to improve trade facilitation as Mozambique aims to achieve export diversification beyond aluminum, natural gas and electricity into products such as bio-fuels, fruits, vegetables and forestry. Greater involvement of Mozambique s women and youth in learning the details of trade facilitation procedures, through public-private sensitization workshops and training, would pay off down the road as a step towards ensuring that Mozambique benefits from the trade agreements it has signed.: 3. WHICH REGIONAL AND INTERNATIONAL TRADE AGREEMENTS IS MOZAMBIQUE PARTY TO? Mozambique is party to more than a dozen international agreements directly related to trade, whether on a bilateral, regional, continental, historical, or multilateral level (Table 1). In reality, there are dozens more relevant agreements, as international initiatives on product standards, process standards, statistical reporting, financial flows, food safety, environmental protection, and labor protections all bring to bear a significant impact on trading patterns and the competitiveness of Mozambique s products, services and labor. Table 1: Mozambique s Trade Agreements Year of Traderelated? Issue areas adhesion Historic-level commitments PALOPs (and Timor Leste) 1992 No Reinforcing alliances CLPL (Lusophone countries) 1996 No Offers an advantage in trade in cultural goods Multilateral-level commitments WTO Uruguay Round commitments (including GATT) WTO Doha Development Round negotiations WTO Trade Facilitation Agreement (Bali) European-level commitments Lomé and Cotonou Conventions (EU- ACP) % bound MFN tariffs on agricultural products, 100% extra fees and charges 2001 Ongoing 2014 Submit accession documents 1984, % bound agricultural tariffs, 4

4 100% extra charges Commonwealth of Nations 1995 No No specific trade concessions Everything but Arms 2001 Unilateral GSP Interim Agreement on Market Access, Economic Cooperation and Development, and Fisheries 2007 Sugar Protocol transition period ends September 30 th, 2015 SADC-EU Economic Partnership 2014 Not customs unionfriendly Agreement African regional integration commitments African Union CFTA 2012 Founding AU member EAC-COMESA-SADC Tripartite FTA Declined in 2015 NEPAD 2001 No No Peer Reviews yet CADDP 2002 No SADC 1992 FTA in 2008 Bilateral agreement with Malawi 2004 Technical-level cooperation Bilateral agreement with Zimbabwe 2005 Technical-level cooperation U.S.-Mozambique commitments Bilateral investment treaty 1998 No Provides legal recourse African Growth and Opportunity Act 2000 Unilateral GSP (AGOA) Trade and Investment Framework (TIFA) 2005 Limited provisions on trade Millennium Challenge Account (MCA) 2007 No Evaluations soon Private and Voluntary Standards ISO Covers a range of product and process standards GLOBAL GAP Necessary to export food products to EU market Extractive Industries Transparency 2006 Ensures traceability Initiative Source: Author s research. List is not exhaustive as many bilateral technical agreements also exist. Mozambique s historical agreements include membership in the group of Portuguese-speaking African countries (PALOPs) and in the worldwide group of Lusophone countries (CLPL). While speaking a common language and common links with Portugal certainly facilitate international trade, these agreements do not contain specific provisions relating to trade. 3.1 Multilateral Commitments (WTO) At the multilateral 3 level, trade concessions are centered around the World Trade Organization (WTO). The WTO came into being in 1994 upon conclusion of the Uruguay Round of negotiations, incorporating all prior commitments undertaken since 1946 as part of the more loosely structured General Agreement on Tariffs and Trade (GATT). Mozambique became a founding member of the 3 Multilateral is a term used to designate initiatives by non-state international bodies such as the United Nations agencies (UNCTAD, UNDP) and others participating in the Integrated Framework, including the International Trade Centre (ITC). 5

5 WTO in 1995, committing to a maximum bound rate for its Most Favored Nation (MFN) tariff of 100% on imports of agricultural products, with 19 non-agricultural product lines (in the HS1996 product classification) bound at either 5% or 15% (WTO 2009). The category of other fees and charges is bound at a maximum 100%. Aside from Customs tariffs, the WTO encompasses a number of detailed agreements that are part and parcel of being a WTO member. 4 One of the most important innovations in the Uruguay Round was the Dispute Settlement Agreement, permitting countries to seek redress if a WTO member does not live up to its commitments. The WTO also includes a series of mandatory notifications to be communicated to other WTO members (via the national WTO focal point) when considering or changing a particular trade policy or product standard affecting imports. Many least-developed countries (LDCs) do not fulfill their notification obligations, even though, depending on the type of change or new measure, these notifications can be very succinct and need be no more than one page long. 5 Many trade agreements nowadays do not deal solely with trade in goods but also include trade in services. In the Uruguay Round, Mozambique submitted a schedule of commitments under the WTO s General Agreement on Trade in Services, with no limitations on the rendering of services trade under the 4 different modes of trade in services (WTO 1995).Under the sector-specific commitments, Mozambique stipulated that for the category of Banking and other financial services, excluding insurance the following criterion must be met: Any foreign bank or financial institution can operate in Mozambique as long as they abide by the domestic rules and regulations governing investment and operations of such institutions. 6 A work permit is also required for foreign nationals to operate in that sector. The Uruguay Round also established the system of WTO Trade Policy Reviews (TPR), whereby a WTO Secretariat team would describe the policies and practices in force in every member country on a periodic basis. The first WTO TPR for Mozambique was in 2001 and the second in 2009, with the next presumably to be in These are highly valuable documents as the research team typically gains unparalleled access. This preliminary baseline analysis has made extensive use of the 2009 WTO TPR for Mozambique (WTO 2009), with the assumption that policies and practices described therein remain in effect, unless otherwise specified, as in the 2011 SADC Customs Audit (SADC 2011a). By all appearances, Mozambique is in conformity with its tariff commitments in the WTO. The Doha Round of WTO negotiations, officially launched in 2001, is now in its teenage years, with no looming prospect of arriving at a comprehensive agreement anytime soon. Mozambique participates in the Doha Round on its own account, as part of the SADC representation, in the African 4 While the GATT had many agreements to which GATT members could choose to belong or not, known as plurilateral agreements, the WTO is intended to be a single undertaking binding all members to all provisions and national commitments. At least one current WTO agreement, the Agreement on Government Procurement, is a plurilateral agreement, meaning countries can choose to join à la carte. 5 Mozambique, in its government response to the WTO s Trade Policy Review in 2009, noted that Mozambique has been notifying for the Organization of International Epizootics and the Codex Alimentarius. It is unclear if Mozambique has begun to make notifications to the International Plant Protection Convention, the third of the international bodies recognized by the WTO as standards-setting bodies for agricultural and food trade. 6 This curious phrase inscribed in Mozambique s WTO schedule, expressing what might seem very obvious and part of the standard way of doing business, can perhaps be explained by Mozambique s long and difficult history of involvement with foreign companies operating under at times under rules of their own without international supervision. With this phrasing, Mozambique asserts its sovereignty to make decisions regarding its banking and financial services sector. 6

6 Group, and in the G77. 7 It is unclear what Mozambique may have already offered in terms of tariff reductions, market access, domestic support, or other commitments, but Mozambique is most likely to be the beneficiary of Doha Round impacts, as per as the agreement to eliminate export subsidies on agricultural products by the EU, U.S. and other OECD countries. The newest WTO agreement is the WTO Trade Facilitation Agreement (TFA), agreed upon by WTO members in December 2013, which will come into force once three-quarters of the WTO members have ratified it. As of September 2015, 15 countries had ratified the WTO s TFA (WTO 2015). The WTO s TFA is discussed in greater detail below. 3.2 At the Continental Level The African Union member countries agreed in 2012 to create the Continental Free Trade Area (CFTA), building upon the existing African regional economic communities (RECs). Progress towards the EAC-COMESA-SADC Tripartite Free Trade Area certainly was a leading impetus for agreement to negotiate the CFTA, scheduled to be completed in 2017 (USAID 2012). The CFTA would be one of the building blocks towards the African Economic Community, the longterm vision for the African Union featuring a customs union, a common currency, and many other features of an advanced regional economic integration scheme. The present target date for the African Economic Community is the year Negotiations on the CFTA are not yet underway, although the African Union Commission is proceeding with plans for how to structure them. As the CFTA also includes the goal of free trade in services between African countries, there is a great deal of background work such as case studies and explanation needed before countries are ready to make commitments. One of the conclusions regarding the CFTA is that the greatest economic gains will come from consolidation by African countries of the free trade areas already envisioned within their existing RECs (USAID 2012). That is, living up to their existing commitments will bring greater gains than making new commitments. The CFTA of course can be a stimulus for African countries to come into greater compliance within their existing RECs before opening up to new agreements. 7 The Group of 77 developing countries was effective at influencing prior GATT and WTO negotiations, but has struggled to bring its weight to bear in the Doha Round. The G77 now includes roughly 90 countries, with somewhat fluid membership. Mozambique also belongs to the Non-Aligned Movement, but this is not a trade-related agreement. 7

7 Figure 1: The Spaghetti Bowl of Overlapping Membership in Regional Economic Communities Source: USAID (2012). As part of the CFTA, the AU member countries also agreed on the Action Plan for Boosting Intra- African Trade (BIAT), which provides direction in terms of how to improve national benefits both from a continental free trade area and during the negotiating period. Seven clusters were identified where member states needed to improve their performance in order to boost intra-african trade: Trade policy Trade facilitation Trade-related infrastructure Productive capacity Trade finance Trade information. The CFTA would solve the widespread problem in Africa of overlapping membership in RECs, as shown in the spaghetti bowl diagram (Figure 1). When countries belong to more than one REC, or have bilateral trade agreements (with just one other country), the national Customs code becomes more complicated, with a special column for imports arriving under the terms of that trade agreement. Overlapping membership requires both border officials and traders to be more knowledgeable about 8

8 the precise rules of origin and product classification in order to have the correct Customs tariff applied. Fortunately, Mozambique only belongs to one REC, SADC, other than the African Union itself. The Tripartite Free Trade Area (TFTA) has been in negotiation since 2008, aiming to bring together the 26 countries of the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and SADC in one large free trade area covering half the continent. Mozambique has been part of the process since the beginning in 2008, and plans to join at the opportune moment, but announced in June 2015 that it will not take part in the present phase of the Tripartite FTA negotiations, as described in more detail below. 3.3 At the European Level Mozambique is party to 3 main agreements with the European Union. Portugal, like all EU members, has transferred authority for external trading relations to the European Commission (EC). While historic links, a common language, and cultural preferences very well may boost trade between Mozambique and Portugal, Mozambique s trade agreements are Europe-wide commitments. The EU-ACP Cotonou Convention remains in force, symbolizing the evolution of Europe s relationship with most of its former colonies and certain other LDCs. The Cotonou Convention covers a total of 28 countries on the EU side and 71 on the ACP side and historically has provided disproportionately favorable access to EU markets for ACP products while requiring little in the way of market access into ACP countries. The Cotonou Convention extends duty-free, quota-free access to most ACP exports to the European Union under the unilateral Generalized System of Preferences (GSP). Some developing countries committing to respect international labor rights and environmental considerations can be eligible for greater access under GSP+. More than solely a trade agreement, the Cotonou Convention also includes access for ACP countries to the European Development Fund (EDF), a multi-billion Euro fund capable of financing a range of infrastructure and economic development activities. The EU s common trade policy does not extend to development assistance, so beyond the common EC and EDF assistance, Portugal and other EU countries are free to provide bilateral development assistance to Mozambique as they see fit. The Everything But Arms Agreement slightly expands access for ACP export into EU markets, including for previously well-protected commodity areas such as bananas and sugar. Unlike the EU- ACP Cotonou Agreement, Everything But Arms does not include a development aid dimension. The main purpose of Everything but Arms, which is essentially a unilateral concession on the part of the EU, is to guarantee the maintenance of the same degree of GSP access to the ACP countries even in the event of the failure to come to agreement on an Economic Partnership Agreement. The EU-SADC Economic Partnership Agreement (EPA) signed in July 2014 is the primary framework governing the trading relationship going forward between the EU and a group of SADC countries, including Botswana, Lesotho, Mozambique, South Africa and perhaps others. 8 This longawaited agreement in principle resolves several highly technical WTO-related issues related to the granting by the EU of greater preferences to the ACP countries than to other developing countries such as those in Latin America. Mozambique was one of 5 SADC LDCs that signed an interim EPA with the EU in June 2009, along with Botswana, Lesotho, Mozambique, Namibia and Swaziland, although that interim agreement was never fully ratified. 8 Angola has an option to join the EU-SADC EPA in the future. 9

9 The EU-SADC EPA only concerns trade in goods, but also continues access by the ACP countries to the European Development Fund. Few if any new trade concessions were opened up in terms of market access into Europe, particularly since everything but arms guarantees that most products could already enter the EU duty-free and quota-free. Most of the tariff concessions in the EU-SADC EPA are on the side of the SADC countries, which is in part why the EPA took more than 10 years to negotiate. In the coming years, Mozambique will need to implement tariff reductions on European imports as part of the EU-SADC EPA and monitor their impact on national revenue and trade flows. Under the EU-SADC EPA, the Trade Related Facility Programme was agreed upon in June 2014 as a way for the EU to provide implementation assistance to the SADC Secretariat and SADC member countries. Mozambique is eligible for 1.4 million for establishment of an STP Window for monitoring of the SADC Trade Protocol and 1.2 million for the EPA Window to enhance implementation of the EU-SADC EPA. As of this date, it is unclear what effect the Trade Related Facility Programme has had regarding progress on either objective for Mozambique. Aside from theoretically bringing to an end the long debate within the GATT and WTO regarding the use of GSP to favor certain developing countries over others, one of the most intriguing aspects of the new arrangements with the EU under the EU-SADC EPA is a new EU export promotion facility. The EU has established a help desk ( to assist potential exporters become familiar with the rules for exporting to the EU. The services of the EU Export Help Desk are available in English, French, Spanish and Portuguese, covering requirements and taxes, import tariffs and other import measures, the terms of preferential arrangements, trade statistics, weblinks, a quarterly newsletter, and a contact point to lodge detailed questions. 3.4 Agreements with the U.S. Mozambique and the U.S. have been cementing their trade relationship on a closer basis since 1998, starting with an initial bilateral investment treaty. The 2005 U.S.-Mozambique Trade and Investment Framework Agreement (TIFA) further reinforced the enabling environment for bilateral trade, such as provisions related to exporters or importers seeking recourse in national court systems, but did not contain specific trade concessions. The main agreement directly related to trade is the U.S. African Growth and Opportunity Act (AGOA) from 2000, providing duty-free, quota-free access for most Mozambican products into the U.S. market. AGOA essentially is a unilateral concession on the part of the U.S., offered under the Generalized System of Preferences (GSP). While opening a trade opportunity, AGOA does not guarantee that Mozambique can export to the U.S., as meeting product standards and ensuring traceability can be high hurdles in some areas. Similar to the 1998 bilateral investment treaty, Mozambique s participation since 2008 in the Millennium Challenge Account (MCA) facility can be seen as part of the enabling environment in which trade occurs, but does not contain specific trade concessions. As with development assistance via USAID, programs under the Millennium Challenge Account can help to increase the competitiveness of Mozambique s exports, and promote greater export diversification. 3.5 At the Regional Level The sole regional economic community to which Mozambique belongs is the Southern African Development Community (SADC), whose other members are Angola, Botswana, the Democratic 10

10 Republic of Congo, Lesotho, Malawi, Mauritius, Namibia, the Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe (Figure2).As can be seen in Table 2, all of the other SADC countries belong to one or more other RECs. The SADC Trade Protocol took many years to negotiate in the 1990s, as the SADC countries found it particularly difficult to agree upon rules of origin, in the end arriving at quite stringent rules of origin above all on textiles and garments. The SADC Trade Protocol was signed in 1996, came into effect in 2000, and the SADC Free Trade Area was declared to be operational in 2008, with 85% of tariffs eliminated amongst its member countries. 9 Mozambique appears to be in full compliance with its tariff reduction commitments under SADC. Figure 2: The Southern Africa Development Community Source: USAID (2012). In addition to tariff liberalization, SADC also includes a number of enabling environment issues such as competition law, anti-dumping and safeguard measures. In terms of trade facilitation, the SADC Trade Protocol also calls for Customs cooperation, simplification and harmonization of trade documentation and procedures, use of common SADC documents, and other aspects. Table 2: Overlapping Membership in RECs by SADC Members (but not Mozambique) Country ECCAS SADC EAC COMESA SACU Angola X X Botswana X X Lesotho X X Madagascar X X Malawi X X Mauritius X X 9 Sugar is one notable exception. 11

11 Mozambique X Namibia X X Democratic X X X Republic of Congo Seychelles X X South Africa X X Swaziland X X X Tanzania X X Zambia X X Zimbabwe X X Source: Research by author. Beyond simply a free trade area, SADC countries also cooperate on political issues, taking common positions within the African Union, the WTO and other bodies when possible. SADC aims for a Customs Union (with a target date of 2010), a Common Market (2014), and a Monetary Union (2018), although as with other advanced regional integration schemes elsewhere, these dates are not hard and fast. Mozambique is not a member of the other large REC in the area, the Common Market for Eastern and Southern Africa (COMESA), but 8 of its SADC partners are (Figure 3). Mozambique used to belong to COMESA, but left in Each REC requires roughly a half-million dollars in annual membership fees, plus the costs of attending regional meetings and summits. Mozambique has bilateral agreements with its 2 most important transit trade partners, Malawi and Zimbabwe, both member countries of COMESA and SADC, clarifying the precise terms of trading arrangements. While not a member of the Southern Africa Customs Union (SACU), in which the Republic of South Africa predominates, Mozambique has long trading ties in goods, services, and capital with South Africa. 10 SADC remains the regional economic community in which Mozambique and South Africa collaborate. Figure 3: COMESA Source: USAID (2012). 10 SACU, established in 1910, is the oldest Customs Union in the world. One feature of SACU that no other African REC has achieved is the putting in common of all Customs revenue. 12

12 3.6 At the Bilateral Level As mentioned above, Mozambique negotiated bilateral trade agreements with Malawi in 2005 and with Zimbabwe in 2004, formalizing long-standing trade preferences that go back to the colonial period before independence (WTO 2009). Malawi and Mozambique agreed on reciprocal duty-free treatment for import products originating in each country, with exceptions for beer, branded soft drinks, chicken, cooking oil, petroleum products, sugar and tobacco. The agreement with Zimbabwe is similar, with exceptions including beer, branded soft drinks, manufactured tobacco, road motor vehicles, and sugar. As can be seen from Figure 3, both Malawi and Zimbabwe are landlocked countries and Mozambique is the most logical port of entry for transit goods. While the SADC Trade Protocol covers transit trade, the bilateral agreements go into greater detail, for example stipulating that goods must enter Mozambique through specified Customs posts. 4. MOZAMBIQUE S DEGREE OF CONFORMITY WITH SADC PROVISIONS The topic of a given country s conformity with national obligations under different trade agreements can at times be a highly controversial subject, as it could conceivably in the minds of some be seen as a criticism of the national government. But there is no WTO jail. In any multilateral agreement or REC, member countries retain full sovereignty over the conduct of their trade policies. If countries remain out of conformity, partner countries under the particular agreement could potentially undertake an action via the particular dispute settlement provisions, seeking authorization of countervailing duties or other compensatory measures up to the value of the damage incurred from the partner country s non-compliance. At first blush, Mozambique scores well on the degree of implementation of SADC and other international trade facilitation provisions. From the literature review, without the benefit of on-the-ground interviews, it is possible to provide a preliminary impression of the degree of implementation by Mozambique with multilateral agreements related to trade facilitation (Table 3). This preliminary study will not go into detail about each of these multilateral agreements, all of which fall under either the World Customs Organization (WCO) or the GATT/WTO. Table 3: Mozambique s Implementation of Multilateral Trade Facilitation Provisions INTERNATIONAL INSTRUMENTS GATT Article V Mozambique Partial GATT Article VIII Partial GATT Article X Partial Revised Kyoto Convention WCO SAFE Framework of Standards Nairobi Convention Partial Arusha/Maputo Declaration Partial Istanbul Convention Partial ATA Carnet No WTO Valuation Harmonized System 2007 Source: SADC (2013a); Literature review; Author s preliminary impression representing a starting point for assessment. 13

13 As for the trade facilitation provisions under the SADC Trade Protocol, Mozambique is largely in conformity, with some procedural reforms needed to come into greater compliance. As stated above, Mozambique has evidently implemented the tariff reduction commitments required under SADC, although inevitably in any country there are anecdotal discrepancies in product classification or examples of uniformed officials not following the stated rules. Under the current understanding of subsidiarity within African RECs, national administrations are primarily responsible for ensuring their own compliance with regional agreements (USAID 2012). The role of the REC Secretariat, in this case the SADC Secretariat, is to lead the way in helping the REC Secretariats to improve their oversight of national implementation, in part by involving the private sector in each country in the process by which national administrations oversee their own compliance. (USAID 2012). Consistent with its role, the SADC Secretariat developed a framework for evaluating each member state s progress in 30 different aspects of the SADC trade facilitation agenda grouped into 9 different categories. 11 The SADC Secretariat, with the assistance of the USAID Southern Africa Trade Hub (SATH), then proceeded to conduct a Customs Audit of all 15 SADC members in Drawing from the SADC report (SADC 2011), Table 4 summarizes the findings for Mozambique, showing that Mozambique scored well on the SADC Customs Audit in Without the benefit of field interviews, it was not possible for this preliminary study to assess the conditions in Table 4: Mozambique s Compliance with SADC Trade Facilitation Provisions Mozambique SADC REGIONAL Model Act INSTRUMENTS Rules of origin SADC Common Tariff Nomenclature (CTN) Transit management system No Regional Customs transit bond guarantee No SADC Customs Declaration No SADC Transit Control Form No INFORMATION Website COMMUNICATIONS TECHNOLOGY Automated E-filing E-learning No Scanners Interconnection with other No administrations TRADE One Stop Border Posts FACILITATION Cross-border traders provision HARMONIZED Risk management PROCEDURES Post-clearance audit Authorized economic operators No Pre-clearance 11 This has been called the SADC Trade Monitoring, Evaluation and Reporting System, although it is unclear to what extent it is operational. 14

14 REVENUE Code of conduct No SAFEGUARDS IMAGE Integrity plan No Exchange of information COMPLIANCE Taxpayer service STAKEHOLDER PARTNERSHIP MOU Customs-to-Customs CAPACITY BUILDING MOU Customs-to-Business Exchange program Training institutions Accredited trainers REVENUE Other fees in addition to Customs, Excise, COLLECTION VAT Pre-shipment inspection No Sources: SADC audit conducted by USAID s Southern Africa Trade Hub in 2011 (SADC 2011a); SADC 2013 Customs Strategy (SADC 2013a); Author s preliminary assessment. While all of these 30 aspects in theory are of equal importance in terms of gauging the degree of conformity with the SADC trade facilitation provisions, a handful of the provisions seem the most important in terms of improving the efficiency and growth potential of Mozambique s trade performance. These are the use of the regional documents, such as the SADC Customs Declaration and the SADC Transit Control Form, and the establishment of a more-favorable system within Mozambique for authorized economic operators. Beyond those aspects discussed in the 2011 SADC Customs Audit and the 2013 SADC ICT Customs Strategy, there are other aspects of reform that would improve Mozambique s competitiveness in order to benefit from the trade concessions under the SADC Protocol. As one example, Mozambique could contribute to a fuller extent to the SADC Secretariat s efforts to construct a REC-wide database. In addition to improving policy development within SADC, better national statistics would contribute to more accurate information being provided to the African Union in its quest for a CFTA, as can be seen in Figure 4. Better national statistics would also enhance the quality of national information available via the United Nations COMTRADE and FAO-STAT databases, enriching analyses by the World Bank and others, and of course providing heightened incentive for domestic and international investors to invest in Mozambique. Mozambique could also revive its national Customs Business Forum called for under SADC in order to facilitate greater public-private dialogue. No Figure 4: Flow of Intra-African Data and Information Needed for M&E Source: USAID (2012). Member States in each REC 15

15 5. STEPS REQUIRED FOR MOZAMBIQUE TO ACCEDE TO WTO BALI TRADE FACILITATION AGREEMENT The World Trade Organization s Trade Facilitation Agreement is the newest component accord within the WTO, with 15 countries having completed the accession protocol by mid-september Acceding to the WTO TFA is not a difficult step, requiring the deposition of the national accession instruments, but implementing the terms of the agreement and actually benefiting from its provisions will require planning, coordination, and substantial public-private sector engagement. The best way to view the WTO s TFA is mainly as a series of voluntary actions, rather than binding commitments for reform. Even upon the coming into force of the TFA once three-quarters of the WTO member countries join, it is unlikely that Mozambique s WTO trading partners would ever enter a case into the WTO s dispute settlement mechanism regarding the technical-level aspects where Mozambique may remain out of conformity. Mozambique can use the WTO s special and differential treatment for LDCs to make the needed reforms on its own schedule. Nevertheless, there are many potential benefits for Mozambique in reforming its procedures along the lines suggested by the WTO s TFA. Improving the efficiency of its import, export and transit trade systems would permit increased shipments per calendar month, inducing investment in trade-related infrastructure and ICT. The net result would be greater economic opportunities for all levels of Mozambican society, helping to reduce poverty and combat food insecurity among the most disadvantaged populations such as women, youth, the elderly and handicapped persons. The WTO s Trade Facilitation Agreement builds upon the principles long established in GATT Articles V, VIII and X. There appear to be certain inconsistencies between Mozambique s current trade facilitation procedures and these GATT articles: for GATT Article V on freedom of transit, it is a question of providing foreign goods with national treatment; for GATT Article VIII on the fees and formalities connected with importation and exportation, Mozambique may only charge for the approximate cost of service provided, rather than basing the charge on the value of the imported item; and for GATT Article X on the publication and administration of trade regulation, Mozambique will need to provide timely and regular notification its WTO trading partners. Beyond the general principles of the aforementioned GATT Articles, the literature review, which included input by Mozambican traders, revealed a half-dozen issue areas in which Mozambique might wish to seek to come into greater conformity with the WTO s TFA (Table 5). In light of the prominent role given to the provision of technical assistance to help developing countries under the TFA, these issue areas could be seen as opportunities for Mozambique to receive outside assistance to improve its trade competitiveness. Table 5: Issues to Resolve for Greater Compliance with WTO Trade Facilitation Agreement In compliance? Details 1. Mandatory use of clearing agents (despachantes) (kind of) Technically in compliance, but practice is discouraged and may not be expanded 2. Pre-shipment inspection No PSI requirements are an administrative barrier to trade, may not be used for valuation purposes 3. Import and export licensing No Not in compliance, disproportionate and used in valuation % scanner fees No Gray area of WTO law. It s okay to scan 100% for security reasons based 16

16 on risk analysis, but not as a revenue measure 5. Lack of Authorized Operators No Scheme required, or streamlined scheme procedures made generally available 6. Single Export Window (SEW) No Established traders face more barriers than before export bond was eliminated under SEW Source: Author s preliminary impression from literature review. Besides these highly technical issue areas, there are other areas where Mozambique undoubtedly could improve its system for trade facilitation that would be worth the investment of time and money. These include: reforming the national notification procedures related to policy changes in all areas of trade in goods; improving the system for meeting the national statistical reporting obligations to the UN trade databases COMTRADE and FAO-STAT; and creation of a national trade facilitation committee (as called for in the WTO s TFA Section 1, Article 13), which would improve the opportunity for public-private dialogue on trade-related matters. 6. ISSUES MOZAMBIQUE CONSIDERS BARRIERS TO ACCESSION TO EAST AFRICA TRIPARTITE FTA The Tripartite FTA, introduced briefly above, is a massive undertaking designed to significantly advance economic integration on the African continent. In addition to trade in goods, it includes liberalization of trade in services and a whole range of technical negotiating areas, among them intellectual property rights, competition policies, the free movement of business persons, and the category known as SQMT (standards, quality assurance, accreditation, metrology and testing). A modeling exercise funded by DFID suggested overall gains in economic welfare of $600 billion from the Tripartite FTA, with a total of $1.1 billion in Customs revenue to be eliminated (TradeMark SA 2013). 12 The Tripartite s Phase I of negotiations started out swiftly, at the 2008 COMESA-EAC-SADC summit, with the cost of organizing and attending regional meetings supported by substantial assistance from the UK s Department for Foreign and International Development (DFID). Working groups were established in each of the technical negotiating areas, with the Phase I negotiations focusing on trade in goods and the free movement of business persons becoming bogged down due to the large number of countries involved and a sharp reduction in the DFID funding. The Roadmap to the Tripartite FTA established in 2011 was ambitious, but the original deadlines have continued to be missed (Table 6). One concrete step all of the Tripartite countries agreed to follow was to encourage their private sector operators to make use of the Non-Tariff Barriers Notification Platform ( The Secretariats of the 3 RECs involved (COMESA-EAC-SADC) will monitor the online submissions registering unfair non-tariff barriers to trade experienced by traders in their business activities, then presumably take action to resolve the issues. While the system for online submissions seems to work well, the success of the Secretariats in ensuring follow-up actions is less clear. Table 6: Roadmap to the Tripartite Free Trade Area 12 The value of Customs revenue at stake for Mozambique was undoubtedly estimated for the TradeMark SA study, but not made explicit. With the benefit of in-country interviews, particularly with the Mozambique Customs Service, Autoridade Tributaria(AT), and the Ministry of Finance, it would be possible to estimate the potential impact on Mozambique s Customs revenue under accession to the Tripartite Free Trade Area. 17

17 Thematic Area Activity Output Responsibility Time Memorandum Signing of MoU Signed MoU REC Chairs By January of Understanding establishing Tripartite 2011 Policy Organs Meetings to Launch TFTA Post-Launch Pre-Negotiations Preparations Negotiations Finalisation of FTA Agreement and Entry into Force Performance Monitoring Source: Saana (2015). Meetings of the Tripartite Ministerial Committee, Council Summit and Preparatory phase Commencement and completion of phase 1 negotiations Commencement and completion of negotiations on movement of business persons Review of progress on the FTA negotiations in Phase I Commencement of negotiations on Built-In Agenda under Phase II Tripartite summit Monitoring Evaluation and * Approve principles, processes and institutional framework *Approve Roadmap with negotiation timeframes * Official launch of the FTA negotiations and Declaration signed * Comprehensive publicity campaign initialed * Information exchange, including applied national tariffs and trade data and measures, * Adopt TORs and rules of procedure *Adoption of schedule of negotiations * Monitoring and Evaluation mechanism established * National negotiating positions prepared for core FTA items Agreement reached on trade in goods Agreement reached on movement of business persons Member States with Tripartite Task Force Member States with assistance of Tripartite Taskforce Member States with assistance of Tripartite Taskforce Member States with assistance of Tripartite Taskforce months Continuous months months Revised roadmap Ministerial Council continuous Negotiations of Built-In Agenda Commenced FTA Agreement on trade in goods approved in goods approved by Member States Monitoring and evaluation reports considered Member States with assistance of Tripartite Taskforce Member States Tripartite council After completion Phase I End of Phase I Continuous of 18

18 In June 2015, Mozambique clarified its approach to the Tripartite FTA with two related actions. Mozambique did sign the Tripartite s Sharm el Sheikh Declaration in June 2015, signaling its intention to join the Tripartite FTA eventually, but decided not to participate in the technical working groups for the time being (allafrica.com 2015). The headline read, Mozambique Declines to Sign Up to Free Trade Area, but this does not seem entirely accurate. One Mozambican official noted the need for more intensive analysis of the impact of the Tripartite FTA on Mozambique s economy. Without the benefit of in-country interviews, this preliminary study could not determine the precise issues Mozambique considers barriers to accession to the Tripartite FTA, but it is possible to propose a few hypotheses. First, the cost of attending the Tripartite FTA negotiating meetings in the full range of technical negotiating areas can be quite high, in terms of airfares, per diems, preparation of national negotiating positions, and in staff time dedicated to the topic. Ideally, members of the private sector in each country would accompany the national negotiators to meetings as well, often with the expectation that the national government would pay the cost of travel. While the Tripartite negotiations started quickly, they seem to have bogged down in recent years. So add to the high cost the lack of a productive work program, and Mozambique s decision to join in when negotiations are further along seems quite prudent. Secondly, there may be limited gains for Mozambique from the Tripartite FTA in terms of expanding exports to the non-sadc Tripartite countries. There are not clear complementarities between the products and services Mozambique can offer with those available in the non-sadc partner countries of the Tripartite, as there are for example between the cereals-producing countries of the EAC and the northern tier of COMESA countries heavily dependent on cereals imports. For sure, these are some of the areas the Mozambican government intends to study before resuming its participation in the Tripartite FTA negotiations. Finally, a main impetus for establishing the Tripartite FTA is to resolve the issue of overlapping membership in African RECs. From Figure 1 above, it can be concluded that Mozambique is the only one of the 26 original Tripartite belonging to only one REC. With the SADC Trade Protocol and the bilateral agreements with Malawi and Zimbabwe in place, Mozambique may already have the optimal trading arrangements in place. So Mozambique deserves praise for carefully picking and choosing in which negotiations to participation, weighing the cost with the expected gains, until the time seems more propitious. 7. THE ROLE OF WOMEN AND YOUTH IN ACCESSING THE BENEFITS OF TRADE Half of Mozambique s population is in the category of youth. Mozambique figures among the lowestranking countries in terms of literacy and rural electrification, with women and youth among the most affected. Historically, women played a pivotal role in the development of Mozambique s labor force and now in this era of opening towards regional trade can reap greater benefits from their central position. As part of the African Union s Continental Free Trade Area, the Action Plan for Boosting Intra- African Trade (BIAT) calls on AU countries female and youth labor forces to lead the way in helping to integrate the continent (USAID 2012). Labor-rich assembly and harvesting operations, along with female entrepreneurship, are some of the promising areas for the future. 19

19 Acronyms ACP AGOA AU BIAT CAADP CFTA CLPL CTN DFID EAC EC EDF EPA EU FTA COMESA GAP GATT ISO ITC LDC MCA M&E MFN NEPAD OECD PALOPs PSI REC SACU SADC SQMT TFA TFTA TIFA TPR UK UNCTAD UNDP USAID WTO WCO African, Caribbean, Pacific countries U.S. African Growth and Opportunity Act African Union Action Plan for Boosting Intra-African Trade Comprehensive African Agriculture Development Program Continental Free Trade Agreement Comunidade de Países de Língua Portuguesa SADC Common Tariff Nomenclature UK Department for Foreign and International Development East African Community European Commission European Development Fund Economic Partnership Agreement European Union Free Trade Agreement Common Market for Eastern and Southern Africa Good Agricultural Practices General Agreement on Tariffs and Trade International Standardization Organization International Trade Centre Least-Developed Country U.S. Millennium Challenge Account Monitoring and Evaluation Most Favored Nation New Economic Partnership for Africa Organization for Economic Cooperation and Development Países Africanos de Língua Oficial Portuguesa Pre-shipment Inspection Regional Economic Community Southern Africa Customs Union Southern African Development Community Standards, quality assurance, accreditation, metrology and testing WTO Trade Facilitation Agreement Tripartite Free Trade Agreement (EAC-COMESA-SADC) Trade and Investment Framework Agreement WTO Trade Policy Review United Kingdom United Nations Conference on Trade and Development United Nations Development Program United States Agency for International Development World Trade Organization World Customs Organization 20

20 Bibliography allafrica.com (2015). Mozambique Declines to Sign up to Free Trade Area. June 11 th. Enhanced Integrated Framework (2014). Revised Diagnostic Trade Integration Study for Mozambique October 30 th draft not for citation. GiZ (2010). German Aid for Trade: Past Experience, Lessons Learnt and the Way Forward: Country Case Study for Mozambique. Saana (2015). Stock-take of Available Research on the African Union s Continental Free Trade Area (CFTA) and Gap Analysis. Prepared for the African Union Commission under DFID funding. April 15 th. SADC (2015). Communiqué of the 35 th Summit of SADC Heads of State and Government. August 17 th -18 th. SADC (2013a). SADC Customs ICT Strategy. SADC (2013b). SADC Private Sector Involvement Strategy. May. Southern African Development Community (2011a) Audit of the Implementation of Regional SADC Customs Instruments and International Conventions. Prepared by the USAID Southern Africa Trade Hub. October. SADC (2011b). SADC Free Trade Area. Leaflet. SADC (2003a). SADC Customs Information Communication Technology Strategy. May. SADC (2003b). Rules of Origin: Exporters Guide Manual. November. TradeMark SA (2013). General Equilibrium Analysis of the COMESA-EAC-SADC Tripartite FTA. Prepared by Dirk Willenbockel, University of Sussex. September. tralac (2015). Implications of the Tripartite FTA for SADC and its Member States. July. tralac (2014). Developments on Tripartite FTA on Movement of Business Persons. November. USAID SPEED Program (2015). Mozambique: Use Academic Research to Solve the People s Problems. Link from August 30 th. USAID (2011a). Supporting the African Union s Action Plan for Boosting Intra-African Trade: Analytical Review. Prepared for USAID/AU under the BEAM IQC. May. World Bank (2015a). Safety Nets in Africa: Effective Mechanisms to Reach the Poor and Most Vulnerable. World Bank (2015b). Enabling the Business of Agriculture. World Bank (2012). Mozambique Cashew Reforms Revisited. Policy Research Paper January. World Bank (2011). Mozambique s Infrastructure: A Continental Perspective. Policy Research Paper September. World Bank (2005). The Doha Trade Round and Mozambique. World Bank (2013). The Agro-business Innovation Center in Mozambique: Developing Value Adding Market-led Post-harvest Processing Enterprises in Mozambique. World Bank (2009). Professional Services and Development: A Study of Mozambique. March. World Bank (2009). Mozambique Investment Climate Assessment 2009: Sustaining and Broadening Growth. WTO (2015). Belize, Switzerland Ratify Trade Facilitation Agreement. 2 September. WTO (2009). Trade Policy Review: Mozambique. WTO (2001). Trade Policy Review: Mozambique. WTO (1995). Mozambique: Schedule of Commitments 21