Trade facilitation in the Bali Package: What’s in it for Africa?
By Patrick Kanyimbo and Calvin Manduna
The adoption of the Bali Package on December 7, 2013 generated no small amount of euphoria among trade officials that gathered at the 9th Ministerial of the World Trade Organization (WTO). The WTO claims that the deal will generate between $400 billion and $1 trillion in global trade. But with dust settling from the Ministerial meeting, we briefly examine here what the Bali Package really means for Africa in the area of trade facilitation – which lies at the heart of what was agreed.
Resuscitating the DDA
Firstly, the mere fact that 159 Members achieved consensus in Bali is an impressive feat in its own right. The Doha Development Round had come to be characterized by polarization 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) in Qatar in 2001. Back then there was a great deal of optimism about how the DDA would help to address the imbalances in the global trading regime. However, the DDA became constrained by intractable differences leading most countries to resort to bilateral and regional trade pacts. Paragraph 1.9 of the Bali Declaration “reaffirms (Members’) commitment to the WTO as the pre-eminent global forum for trade.”
Trade facilitation vital for Africa’s competitiveness
Essentially, the Bali Package contains a subset of issues from the broader DDA such as agriculture and issues of concern to 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 least developed country (LDC) package contains best endeavours rather than binding commitments. Among others it reiterates Members’ commitment to providing duty-free-quota-free (DFQF) market access to LDCs. Upon closer examination, the benefits of DFQF might prove superficial for various reasons, including the less than 100 per cent coverage, effects of preference erosion, rules of origin and non-tariff barriers which are of equal if not bigger concern than tariffs for LDCs. DFQF without complimentary measures does not produce the sizeable supply response as we have seen with European Union’s Everything but Arms (EBA) and United States’ African Growth and 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 USA, 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 US $1,500, but shipping the same car from Abidjan to Addis Ababa costs US $5,000.
There are 16 landlocked countries on the continent. For these countries, the average customs transaction involves 20 to 30 steps, 40 documents, 200 data elements and re-keying of 60 per cent to 70 per cent 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 such as police checks account for 14 per cent of trade costs in Africa’s landlocked countries, compared to a developing country average of 8.6 per cent.
Trade facilitation (TF) measures in the coastal and transit countries also have spillover impact to the hinterland countries. Due to such positive externalities some TF reforms and investments need to be viewed as regional public goods. The Kazungula Bridge and the Chirundu One-Stop Border Post are just two examples. Although the Kazungula Bridge connects Zambia and Botswana; most traffic is in transit to the DRC thereby spreading the benefits to a broad region.
Trade facilitation is vital for boosting intra-African trade which is estimated at between 10 per cent and 16 per cent depending on your data source. Analytical studies indicate that the creation of the CFTA 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 joint AfDB-WTO trade facilitation symposium held in November 2012 in Nairobi, Kenya. Many African countries have initiated programs to modernize their customs at the ports of entry and along transit corridors using the guidelines of the Revised Kyoto Convention (RKC) of the World Customs Organization. The benefits of such initiatives are evident. At Chirundu One-Stop Border Post, clearance times between Zambia and Zimbabwe for commercial trucks have been reduced from five days to a single day – if we discount some implementation hiccups – with those cleared under the fast-lane facility taking at most five hours at the border. The clearance time for passenger coaches has been 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 improved collection of import duties based on enhanced efficiency in border management.
The Bali value-added
If countries are already implementing TF measures unilaterally, the question arises as to what is the value-added of the Bali deal?
Firstly, a binding TF agreement under the WTO will push countries to undertake trade facilitation 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 TF, once it enters into force, will help to lock in reforms.
The Agreement on Trade Facilitation contains obligations on 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, authorized economic operators, and establishment of single windows, among others. It goes without saying that these provisions will benefit traders by ensuring availability of information and encouraging transparency. The Agreement also contains generous flexibilities for developing countries under which they have the option to identify provisions which they can implement upon entry into force (category A), after a transition period (category B), and after a transition period upon provision of technical assistance and capacity building (category C). Where plausible, Members can switch items from category B to C.
Moreover, the Bali Agreement on TF 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 such as the African Development Bank and others to develop and experiment with innovative means to finance TF reforms and infrastructure – using PPPs, ICT solutions, etc. We have seen encouraging evidence of this in countries like Mozambique and Ghana.
Whose trade will be facilitated?
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 prioritize value adding activities by promoting investment in areas such as value chains which are becoming increasingly prominent for the African Development Bank. In the absence of such complementary measures, the benefits of the TF deal will be marginal and African countries will miss out on the alleged $1 trillion Bali trade boost. The multilateral trading system should support these measures by decisively addressing tariff peaks and tariff escalation – the former prevents developing countries form exporting products in which they have a comparative advantage, while the latter curtail their chances of climbing the value chain.
Secondly, issues such as non-tariff barriers, compliance with sanitary and phyto-sanitary standards, tariff escalation and tariff peaks on products of interest to us 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.
What should the Bank do to make Bali work for Africa?
The adoption of the TF at Bali is a call to development partners like the African Development Bank, bilateral and multilateral donors to scale up their response – in a coordinated manner – to help address the legitimate implementation challenges faced by African countries. The AfDB has a comparative advantage in infrastructure investments and there is growing awareness of the 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. We encourage the Bank to also escalate its economic and sector work in this area in order to provide sound policy advice, identify lessons learnt and monitor results in regional member countries.
The Bank also has an opportunity to enhance its capacity-building support in trade facilitation especially targeting land-locked and fragile states to implement their trade facilitation commitments – but also targeting the ‘gateway’ coastal countries. The creation of the AfDB’s Africa Trade Fund (AFTRA) is both timely and positive, but it needs to be significantly strengthened if it is to make a serious dent considering the extent of needs.
Patrick Kanyimbo is a Principal Regional Integration Expert in the NEPAD Regional Integration and Trade Department at the African Development Bank. He joined the Bank in October 2012 from the Commonwealth Secretariat Programme on Enhancing Trade Capacity Development in ACP States, where he served for six years (2006-2012) as National Trade Adviser assigned to the Ministry of Trade and Industry in Trinidad and Tobago. He holds a Master of Science in Industrial Strategy and Trade Policy from the University of Manchester and a Bachelor of Social Science Degree (Economics) from the University of Malawi. His work interests are trade-related capacity building, trade policy formulation, trade facilitation, competitiveness and investment.
Calvin Manduna is a Principal Trade Expert in the NEPAD Regional Integration and Trade Department of the African Development Bank. His work covers trade facilitation, value chains and trade in services. Calvin has worked for the Commonwealth Secretariat, the SADC Secretariat and the Trade Law Centre for Southern Africa (tralac) prior to joining the Bank.