Trade Facilitation and African Countries Trade Facilitation u

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Trade Facilitation and African Countries

Trade Facilitation and African Countries

Trade Facilitation u Why Trade Facilitation? n Rapid growth in international trade n n

Trade Facilitation u Why Trade Facilitation? n Rapid growth in international trade n n Ø Ø n There is a consensus in the empirical literature that a decline in trade-related costs can significantly boost trade performance. n n n Reduction in border barriers Complexity of trade Limited administration to cope with the increased trade Increased relative cost of inefficient trade procedures (transaction costs) Falling tariff levels vs. remaining non-tariff measures Inefficient trade procedures serving as impediments to trade Trade Facilitation is a key element of the Doha Development Agenda (DDA) and an important issue in current trade policy debate n Trade Facilitation Agreement at the Bali Ministerial in December 2013

Concept of Trade Facilitation u Definition of Trade Facilitation (TF) § TF is “the

Concept of Trade Facilitation u Definition of Trade Facilitation (TF) § TF is “the simplification and harmonisation of trade procedures” where trade procedures are the “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade” (WTO, 1998) § TF is “expediting the movement, release and clearance of goods, including goods in transit” (Doha Ministerial Declaration, 2001) § TF is “the simplification, standardization and harmonisation of procedures and associated information flows required to move goods from seller to buyer and to make payment” (OECD, 2001) § TF looks at how procedures and controls governing the movement of goods across national borders can be improved to reduce associated cost burdens and maximize efficiency while safeguarding legitimate regulatory objectives (Grainger, 2011)

Sources of Trade Costs u Border barriers n n Tariffs Non-tariff measures (NTM) n

Sources of Trade Costs u Border barriers n n Tariffs Non-tariff measures (NTM) n n Quantitative restrictions Technical product regulations Anti-dumping and countervailing measures Discretionary licensing u Behind the border barriers n n n Transport costs Customs clearance procedures Administrative red tape Quality of infrastructure Performance of logistics services Language, currency, information, etc.

Measures of Trade Costs u “Trading across borders” indicators from World Bank’s Doing Business

Measures of Trade Costs u “Trading across borders” indicators from World Bank’s Doing Business database n n Number of documents required Time and costs associated with exporting/importing a standardized cargo of goods n n To obtain all the documents (bank, custom clearance, port and terminal handling, transport documents) Inland transport and handling Custom clearance and inspections Port and terminal handling u ESCAP-World Bank Trade Costs database n n 180 countries from 1995 Bilateral level

Trade Costs, Regional View u Sub-Saharan Africa is the region where international trade is

Trade Costs, Regional View u Sub-Saharan Africa is the region where international trade is most expensive…

Cost of Export, Africa

Cost of Export, Africa

Cost of Import, Africa

Cost of Import, Africa

To Lower Trade Costs u TF as a Means to Lower Trade Costs §

To Lower Trade Costs u TF as a Means to Lower Trade Costs § Trade costs include all costs incurred in getting a good to a final user (other than the marginal cost of producing the good itself): § Transportation costs (freight and time costs) § Policy barriers (tariff and non-tariff barriers) § Contract enforcement costs § Local distribution costs § Legal and regulatory costs § Recent research on trade and development has emphasized the magnitude of trade costs associated with administrative red tape and entry barriers. Ø Trade Facilitation (TF), as a measure to help alleviate these trade costs, has a significant positive impact on trade flows.

Measuring Trade Facilitation (1) u Wilson, Mann and Otsuki (2003, 2005) § Used constructed

Measuring Trade Facilitation (1) u Wilson, Mann and Otsuki (2003, 2005) § Used constructed indicators for measuring trade facilitation § Previous efforts to proxy trade facilitation using import prices or transportation costs were deemed inadequate for informing policy priorities § Four Measures of Trade Facilitation § Port Efficiency: Quality of port/airport infrastructure § Customs Environment: Direct customs costs, administrative transparency of customs and border crossings § Regulatory Environment: Level of regulations and standards § E-Business Usage: Extent of necessary domestic infrastructure for telecommunications, financial intermediaries, logistics

Measuring Trade Facilitation (2) u Logistics Performance Index (LPI) (World Bank) § Customs: Efficiency

Measuring Trade Facilitation (2) u Logistics Performance Index (LPI) (World Bank) § Customs: Efficiency of clearance process by customs & other agencies § Infrastructure: Quality of transport and IT infrastructure § International shipments: Ease & affordability of arranging international shipments § Logistics competence: Competence of the local logistics industry § Tracking and tracing: Ability to track & trace international shipments § Timeliness: Timeliness of shipments in reaching destination Ø Focus on providing a more integrated & comprehensive approach to reforms along the supply chain – look beyond the traditional trade facilitation agenda focusing on road infrastructure and information technology in customs, to also logistics services markets and coordination among public agencies active in border control

LPI Score (2014)

LPI Score (2014)

Logistics Gap, LPI 2014

Logistics Gap, LPI 2014

Logistics Gap, LPI 2014

Logistics Gap, LPI 2014

Logistics Gap, LPI 2014

Logistics Gap, LPI 2014

LPI Performance & GDPpc

LPI Performance & GDPpc

Measuring Trade Facilitation (3) u Trade Facilitation Indicators (OECD) n n n http: //www.

Measuring Trade Facilitation (3) u Trade Facilitation Indicators (OECD) n n n http: //www. oecd. org/tad/facilitation/indicators. htm TFI cover… n full spectrum of border procedures, from advance rulings to transit guarantees n for 133 countries across income levels, geographical regions and development stages Estimates based on the indicators provide a basis for governments n to prioritise trade facilitation actions n to mobilise technical assistance and capacity-building efforts for developing countries in a more targeted way

Trade Facilitation Indicators

Trade Facilitation Indicators

Trade Facilitation Indicators

Trade Facilitation Indicators

Trade Facilitation Indicators

Trade Facilitation Indicators

Trade Facilitation Indicators

Trade Facilitation Indicators

TFI, Sub-Saharan Africa

TFI, Sub-Saharan Africa

Trade Facilitation and Africa u How critical is trade facilitation for Africa? n High

Trade Facilitation and Africa u How critical is trade facilitation for Africa? n High trade costs result in… n n n Loss of consumer welfare Low business opportunities Poor export competitiveness Less attractive to investment Loss of opportunities of participating in the global value chains and subdivision of production processes u Can trade facilitation boost export? n n directly cutting transaction cost indirectly providing cheaper access to production inputs n to be transformed domestically and then possibly re-exported n Ø but maybe rather limited in view of Africa's persistent dependence on primary commodities High import tariff and transaction costs on intermediate inputs are critical constraint for firms to enter global value chain

Africa’s intermediates trade

Africa’s intermediates trade

Cocoa Value Chain

Cocoa Value Chain

Value-added Contents of Cocoa Exports

Value-added Contents of Cocoa Exports

Value-added Contents of Cocoa Exports

Value-added Contents of Cocoa Exports

Value-added Contents of Cocoa Exports u Constraints and Challenges

Value-added Contents of Cocoa Exports u Constraints and Challenges

Leather Value Chain

Leather Value Chain

Leather Industry in Ethiopia u Government intervention since 2002 n n n Ø restricting

Leather Industry in Ethiopia u Government intervention since 2002 n n n Ø restricting exports of low value added hides and semi-processed leather (export tax) expanding into new export markets and encouraging higher-value products Engaging international lead firms to assist local tanning and manufacturing firms to upgrade their production activities had a notable impact on the composition of the leather industry’s exports, helping to shift the leather industry to finished products

Cost of Trade Facilitation u Trade facilitation measures requires… n n new legislation or

Cost of Trade Facilitation u Trade facilitation measures requires… n n new legislation or amendments to existing laws, requiring time and staff specialized in regulatory work. setting up new units, which may require additional staff and training. equipment and infrastructure, combined and sequenced with regulatory, institutional or human resource changes. information and communication technology to help improve efficiency and effectiveness u Four broad categories of TF n n infrastructure/facility costs human resources costs regulatory/legislative costs reduced revenue from fees and charges

Aid for Trade u Concept of Aid for Trade § “Aid for trade is

Aid for Trade u Concept of Aid for Trade § “Aid for trade is about assisting developing countries to increase exports of goods and services, to integrate into the multilateral trading system, and to benefit from liberalised trade and increased market access” (WTO Task Force on Aid for Trade, 2006) § Financial and technical assistance that facilitates the integration of developing countries into the global economy through initiatives that expand trade (Hoekman and Wilson, 2010) § Af. T Initiative aims to help developing countries overcome structural and capacity limitations that undermine their ability to maximise the benefits from trade opportunities (OECD, Aid for Trade at a Glance 2009)

Aid for Trade u Why Aid for Trade? § Political motivation: Af. T is

Aid for Trade u Why Aid for Trade? § Political motivation: Af. T is an instrument to ‘buy’ progress in Doha Round § Compensation motivation: Developing countries should be compensated for losses arising from specific elements of trade agreements § Fairness/Redistribution motivation: Af. T is a mechanism for redistribution through which unbalanced outcomes can be squared § Effective market access motivation: Limited market access for developing countries due to internal trade barriers (lack of capacity etc. )

Aid for Trade u Five main activities § Technical assistance § Capacity building §

Aid for Trade u Five main activities § Technical assistance § Capacity building § Institutional reform § Infrastructure § Assistance with adjustment costs u Af. T is not new: § Integral part of regular ODA programmes § Current push on Af. T – to scale up aid and make it more effective § Critical juncture of the Doha Round – political focus for Aid for Trade u History § “DAC Guidelines: Strengthening the Trade Capacity for Development” adopted on April 2001 (by 22 DAC members and EC)

How Af. T Works? (Cali and te Velde 2011)

How Af. T Works? (Cali and te Velde 2011)

Af. T to Africa u Of the funds allocated to trade-related infrastructures, over 60%

Af. T to Africa u Of the funds allocated to trade-related infrastructures, over 60% is for transport and storage facilities (mainly roads, and to a much lesser extent rail, water and air), 30% for interventions in the energy sector (including distribution network), and the rest is for communication sector.

Af. T to Africa u Trade Facilitation and Aid for Trade in Africa n

Af. T to Africa u Trade Facilitation and Aid for Trade in Africa n n African countries are already stepping up efforts to facilitate trade, especially intra-African trade and to implement trade facilitation measures to remove barriers to trade. Many trade facilitation initiatives are funded by development partners

Af. T to Africa u In Building productive capacities activities n approximately half of

Af. T to Africa u In Building productive capacities activities n approximately half of the funds benefit agricultural sector, mainly for agricultural development, agricultural policies and irrigation