Addis Fortune (Addis Ababa)

Ethiopia: No Better Trade Without Reforms

analysis

The adoption of the Bali Package on December 7, 2013, generated no small amount of euphoria among trade officials that gathered at the Ninth Ministerial of the World Trade Organisation (WTO). The WTO claims that the deal will generate between 400 billion dollars and one trillion dollars in global trade.

The mere fact that 159 members achieved consensus in Baliis an impressive feat in its own right. The Doha Development Round had come to be characterised by polarisation, especially between the major developed countries and the emerging economies of the south.

The agreement in Bali provides a timely boost for the multilateral trading system, which last witnessed such excitement during the launch of the Doha Development Agenda (DDA) inQatarin 2001. Back then, there was a great deal of optimism about how Doha would help to address imbalances in the global trading regime.

However, the Doha became constrained by intractable differences, leading most countries to resort to bilateral and regional trade pacts. That seems to have changed as the Bali Declaration "reaffirms (Members') commitment to the WTO, as the pre-eminent global forum for trade".

Essentially, the Bali Package contains a subset of issues, from the broader Doha Round - such as agriculture - and issues of concern to the Least Developed Countries (LDCs). Of particular interest is the trade facilitation component because it holds tremendous potential for African countries and complements a lot of the infrastructure investments that are being undertaken across the continent, particularly in the transport sector.

The LDC package contains best endeavours, rather than binding commitments. Among others it reiterates members' commitment to providing duty-free-quota-free market access to LDCs. Upon closer examination, the benefits of the market access might prove superficial for various reasons, including the less than 100pc coverage, effects of preference erosion, rules of origin and non-tariff barriers, which are of equal if not bigger concern than tariffs for LDCs.

The duty-free quota-free market access, without complimentary measures, does not produce the sizeable supply response we have seen with the European Union's 'Everything but Arms' (EBA) and the United States' 'African Growth & Opportunity Act' (AGOA) preference schemes. Overall, there has been little improvement on the LDC package since the 2011 Ministerial Conference.

The agriculture negotiations only yielded an interim mechanism following some "arm wrestling" between India and the US, necessitating further negotiations in order to nail down a lasting solution. For African countries, therefore, the Agreement on Trade Facilitation seems to be the main take-away from Bali.

Trade facilitation is vital for Africa's own competitiveness as it will reduce costs for traders. While tariffs have progressively fallen, the key challenge to intra-African trade is non-tariff barriers that stifle the movement of goods, services and people across borders. To use a clichéd example, it has often been said that shipping a car from Japan to Abidjan costs 1,500 dollars, but shipping the same car from Abidjan to Addis Ababa costs 5,000 dollars.

There are 16 landlocked countries in Africa. For these countries, the average customs transaction involves 20 to 30 steps, 40 documents, 200 data elements and the re-keying of 60pc to 70pc of all data at least once. It, therefore, comes as no surprise that trade facilitation bottlenecks, such as border crossing procedures, cumbersome documentation, regulations and non-tariff barriers, account for 14pc of trade costs in Africa's landlocked countries, compared to a developing country average of 8.6pc.

Trade facilitation measures in the coastal and transit countries also have a spillover impact to the hinterland countries. Due to such positive externalities, some trade facilitation reforms and investments need to be viewed as regional public goods.

Trade facilitation is vital for boosting intra-African trade, which is estimated at between 10pc and 16pc, depending on the data source. Analytical studies indicate that the creation of a continental free trade area, accompanied by more efficient customs procedures and reduction in delays at African ports, would more than double intra-African trade within a decade.

African countries have been unanimous in their desire to improve customs and other border procedures and transit regimes. This was echoed by customs and trade officials during a trade facilitation symposium jointly organised by the African Development Bank (AfDB) and the WTO, in November 2012, in Nairobi,Kenya.

Many African countries have initiated programs to modernise their customs at the ports of entry and along transit corridors using the guidelines of the Revised Kyoto Convention (RKC) of the World Customs Organisation. The benefits of such initiatives are evident. In West Africa, for example, the clearance time for passenger coaches has been more than halved from two hours to under one hour, thereby facilitating movement of people, including small-scale traders in the region. Improved trade facilitation reforms have also helped raise government revenue through the improved collection of import duties based on enhanced efficiency in border management.

If countries are already implementing trade facilitation measures unilaterally, what value is added through the Bali deal?

A binding trade facilitation agreement under the WTO will push countries to undertake reforms in keeping with their commitments. There are a number of countries that have been lethargic in undertaking customs reforms and other trade facilitation measures, even though such reforms could boost national and regional competitiveness.

Such tardiness can have serious negative consequences for the successful and efficient operation of regional transport corridors. In some instances, there is little buy-in amongst the key government agencies to undertake such reforms. The binding agreement on trade facilitation, once it enters into force, will help to lock in reforms.

The Agreement on Trade Facilitation contains obligations on the publication of information on a number of issues, including documents and forms on import, export and transit procedures, duties and taxes, fees imposed by governments in connection with importation or exportation; import, export or transit restriction and appeal procedures, among other items. There are also provisions related to a range of Revised Kyoto Convention issues, such as advanced rulings, pre-arrival processing, risk management, post-clearance audit, authorised economic operators and the establishment of single windows, among others.

It goes without saying that these provisions will benefit traders by ensuring the availability of information and encouraging transparency. The agreement also contains generous flexibilities for developing countries, under which they have the option to identify provisions that they can implement upon entry into force, after a transition period and after a transition period upon provision of technical assistance and capacity building. Where plausible, members can switch items between the latter two.

Moreover, the Bali Agreement on trade facilitation encourages development partners to provide assistance and support in this area. This was not without contention - as African countries had hoped for more concrete commitments for technical and financial support.

African countries will have to specify their capacity building needs in order to undertake specific reforms. There is always a danger, of course, that if support is not forthcoming as expected, then the pace of reforms and implementation will be slow.

Nevertheless, there are opportunities here for African countries - working in partnership with development partners - to develop and experiment with innovative means of financing reforms and infrastructure development.

Critics of the trade facilitation argue that the benefits are heavily tilted in favour of exporting countries, and refer to it as an "import-facilitating agreement", which will worsen Africa's trade balance. They contend that the agreement fails to address the productive and export constraints facing developing countries and LDCs.

Arguably, countries that are export-ready will reap the immediate benefits of trade facilitation. Therefore, African countries must prioritise value-adding activities by promoting investment in areas such as value chains, which are becoming increasingly prominent.

In the absence of such complementary measures, the benefits of the trade facilitation deal will be marginal and African countries will miss out on the alleged one trillion dollar Bali trade boost. The multilateral trading system should support these measures by decisively addressing tariff peaks and tariff escalation - the former prevents developing countries from exporting products in which they have a comparative advantage, while the latter curtails their chances of climbing the value chain.

Issues such as non-tariff barriers, compliance with sanitary and phyto-sanitary standards, tariff escalation and tariff peaks on products of interest to African exporters will continue to stifle Africa's prospects to penetrate international markets and upgrade along the value chain. Therefore, parallel efforts are required to continue to address these issues, both in regional and global trade.

The adoption of the Bali deal is a call to development partners to help address the legitimate implementation challenges faced by LDCs. There is a need to bridge the hard-soft infrastructure continuum by ensuring that soft aspects, such as trade facilitation reforms, are mainstreamed within transport infrastructure projects, such as road, ports and railways, right from the design stage.

Patrick Kanyimbo and Calvin Mandun Patrick Kanyimbo, a Principal Regional Integration Expert At the African Development Bank (afdb), and Calvin Mandun, a Principal Regional Trade Expert At the Same Institution.

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