Obstacles to Trade from the Perspective of the Business Sector:A Cross-Country comparison

Third Meeting of Trade Ministers of Landlocked Developing Countries

By Mondher Mimouni, ITCEzulwini, Swaziland, 21-22 October 2009

Plan

• Obstacles to tradeRaising concern of the business sectorTrade costsEmpirical evidenceTypes of obstacles

• ITC’s Project on non-tariff MeasuresNTM classificationOfficial data collectionSurvey of the business sector perceptions

• Conclusions

NTMs – Why important for ITC?

NTMs – Why important for ITC?

Definition of non-tariff measures (NTMs)Several definitions exists.

Definition adopted by multi-agency team working on NTMs:

Non-tariff measures (NTMs) are policy measures, other than ordinary customs tariffs, that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices or both.

Difficult to make a distinguish between NTMs and non-tariff barriers.

Business sector is most concerned with the costs associated with NTMs and related trade cost.

Trade costs composition (I/III)

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 (both freight costs and time costs); •policy barriers (tariffs and non-tariff barriers); •information costs; •contract enforcement costs; •costs associated with the use of different currencies; •legal and regulatory costs; •local distribution costs (wholesale and retail).

Trade costs composition (II/III)

Estimate of the tax equivalent of representative trade costs for industrialised countries is … 170%.

This number breaks down as follows (2.7=1.21*1.44*1.55):

21% transportation costs have to be added to

44% border related trade barriers, plus

55% retail and wholesale distribution costs.

The border related barrier is a combination of direct observation and inferred costs.

Anderson and van Wincoop (2004)

Trade costs composition (III/III)

High transaction costs in trade are not simply analogous to high tariffs, which arise from a single policy instrument and can be reduced by a single action. High transaction costs are associated with interactions among multiple layers of transport, infrastructure, policy, and geography, often involving several countries. This means that trade facilitation efforts targeted at a single point in the process can be easily frustrated.

 

With the increased supply chains interdependency, imported products delivery delays have turned into a severe constraint on production. This is why customs clearance and delivery of imported products have become a quite important determinant of the production process. That is why Trade Facilitation has become a crucial aspect of trade policy.

Documents, time and cost for export and import

 

Documents to export (number)

Time to export (days)

Cost to export (US$ per container)

Documents to import (number)

Time to import (days)

Cost to import (US$ per container)

LLDCs examples            Bhutan 8 38 1210 11 38 2140Bolivia 8 19 1425 7 23 1747Botswana 6 31 2508 9 42 3064Burkina Faso 11 45 2132 11 54 3630Burundi 9 47 2147 10 71 3705Central African Republic 8 57 5121 18 66 5074Chad 6 78 5367 9 102 6020Ethiopia 8 46 2087 8 42 2893Lesotho 6 44 1549 8 49 1715Malawi 12 45 1671 10 54 2550Mali 9 38 2012 11 42 2902Niger 8 59 3547 10 64 3545Swaziland 9 21 2184 11 33 2249Uganda 6 39 3090 7 37 3290Uzbekistan 7 80 3100 11 104 4600Best practice economies            Denmark 5  France 2 2  Malaysia 450  Singapore         3 439Developing economy            Egypt 6 14 737 6 15 823

World Bank, Doing Business Report 2009

Estimated Ad valorem Tariff Equivalent for trade facilitation barriers in Egypt

Chahir Zaki (2009)

CostRwandan coffee:

1,500 km to Mombasa (up to 40% of total costs)

West Africa shea butter producers: high transport costs from poor roads and vehicle repair costs

Uganda apparel: transport costs add the

equivalent of an 80% tax on clothing exports

Unexpected detours increase costs

Source: N. Christ & M. Ferrantino(2009) (extracted from M. Ferrantino presentation Chile 2009) Land Transport for Exports: The Effects of Cost, Time, and Uncertainty in Sub-Saharan Africa

Time

Kenya–Uganda border: avg. 2 days to cross

Some West African corridors may have roadblocks every 30 km

In 2003, wait at Bietbridge reached 6 days

Uganda–Rwanda border: avg. 1 day to cross

CAR–Cameroon border: up to 2 weeks to cross

Unexpected detours increase time

Source: N. Christ & M. Ferrantino(2009) (extracted from M. Ferrantino presentation Chile 2009) Land Transport for Exports: The Effects of Cost, Time, and Uncertainty in Sub-Saharan Africa

USAID (2009) West Africa Trade Hub

Road transport corruption: Landlocked countries more affected

Developing Country Exports Decline in 2009

Decline in Imports from Developing Country Groups 2008-2009 (USD Billions)Importing countries: USA, EU27, Japan, Switzerland, China, Turkey, Australia; Period: Q1-2 2008, 2009 Source: TradeMap, Market Analysis Tools, International Trade Centre,

Decline in Imports from Developing Country Groups 2008-2009 (USD Billions)

Decline in Imports from Developing Country Groups 2008-2009 (USD Billions) exl HS27

LLDCs (USD Thousands) - including 16 LDCs

ExportersQ1-2 2008-2009 Top Exports (HS2, Desc, % Share 2008)

Change%

Change1 2 3

1 Afghanistan* $ -27,540 -33.8% 8 Fruit 51% 57 Carpets 41% 9 Coffee 3%2 Armenia $ -144,500 -53.1% 72 Iron, steel 20% 71 Precious stones 16% 22 Beverages 15%3 Azerbaijan $ -6,638,313 -56.8% 27 Oil 97% 73 Articles of iron, steel 0% 8 Fruit 0%4 Bhutan* $ 1,540 89.0% 27 Oil 49% 9 Coffee 46% 8 Fruit 1%5 Bolivia $ -210,171 -31.3% 27 Oil 59% 26 Ores 8% 23 Food residue 6%6 Botswana $ -273,736 -41.6% 71 Precious stones 50% 75 Nickel 29% 26 Ores 6%7 Burkina Faso* $ -52,338 -32.2% 52 Cotton 53% 71 Precious stones 17% 12 Oil seed, etc 16%8 Burundi* $ 19,949 113.1% 71 Precious stones 43% 9 Coffee 33% 87 Vehicles 6%9 Central African Republic* $ -14,219 -25.7% 44 Wood 49% 71 Precious stones 28% 52 Cotton 13%

10 Chad* $ -936,481 -48.7% 27 Oil 97% 52 Cotton 1% 13 Gums, etc 1%11 Ethiopia* $ 44,114 9.9% 9 Coffee 36% 12 Oil seed, etc 16% 7 Vegetables 14%12 Kazakhstan $ -11,400,344 -53.7% 27 Oil 69% 72 Iron and steel 9% 74 Copper 4%13 Kyrgyzstan $ -70,378 -62.7% 8 Fruit 24% 62 Apparel, not knit 12% 7 Vegetables 11%

14Lao People's Democratic Republic* $ 108,925 62.3% 74 Copper 36% 61 Apparel, knit 12% 44 Wood 11%

15 Lesotho* $ -68,939 -25.2% 71 Precious stones 41% 61 Apparel, knit 34% 62 Apparel, not knit 21%16 Malawi* $ 71,252 40.1% 24 Tobacco 67% 17 Sugars 6% 9 Coffee 5%17 Mali* $ -52,149 -60.3% 71 Precious stones 75% 52 Cotton 11% 1 Live animals 6%18 Mongolia $ -340,563 -41.1% 26 Ores 57% 27 Oil 18% 71 Precious stones 9%19 Nepal* $ -21,276 -18.5% 57 Carpets 12% 72 Iron and steel 12% 39 Plastics 7%20 Niger* $ -33,157 -26.1% 26 Ores 58% 1 Live animals 9% 63 Other textiles 6%21 Paraguay $ -220,243 -49.1% 12 Oil seeds, etc 37% 2 Meat 14% 15 Fats & oils 13%22 Republic of Moldova $ -174,185 -29.7% 22 Beverages 12% 62 Apparel, not knit 10% 85 Electronics 7%23 Rwanda* $ 2,380 5.4% 9 Coffee 45% 26 Ores 34% 22 Beverages 8%24 Swaziland $ -49,232 -24.7% 17 Sugar 21% 33 Essential Oils 12% 21 Misc edible 10%25 Tajikistan $ -93,108 -32.7% 76 Aluminum 63% 52 Cotton 16% 8 Fruit 11%

26The former Yugoslav Republic of Macedonia $ -661,482 -45.0% 72 Iron, steel 32% 62 Apparel, not knit 17% 73 Articles of iron, steel 6%

27 Turkmenistan $ -912,242 -60.0% 27 Oil 94% 52 Cotton 3% 39 Plastics 1%28 Uganda* $ -66,292 -17.9% 9 Coffee 26% 3 Fish 7% 85 Electronics 5%29 Uzbekistan $ -538,390 -45.6% 27 Oil 36% 52 Cotton 12% 87 Vehicles 12%30 Zambia* $ -114,571 -15.2% 74 Copper 66% 26 Ores 13% 81 Other metals 6%31 Zimbabwe $ -251,485 -47.6% 75 Nickel 21% 24 Tobacco 14% 72 Iron, steel 13%

Total LLDCs $ -23,117,174 -49.7% 27 Oil 63% 72 Iron and steel 5% 74 Copper 4%

Non-tariff measures and trade liberalisation

Shallow liberalisation (only tariff elimination) can in certain cases lead to a small welfare decline.

Deep integration (inlcluding elimination of regulatory barriers and red tape and an improvement in the business environment) can results in the substantial welfare gains.

Example: Egypt-EU- Egypt already has duty-free access to the EU for manufactures. Given Egypts trade patterns, the loss in tariff revenues that will be incurred outweighs any trade creation.- Deep integration can results in welfare gains (more than 4% growth in real GNP) Hoekman, B. and D. E. Konan (1999), Konan, Denise and Keith E. Maskus (1997)

Types of NTMs: Current situation

•Only limited information on NTMs existing•Existing information scattered across various countries & various sources within countries•Poor access to existing information•Time consuming for exporters to research measures that may concern their products

Urgent need for a common international NTM

classification and methodology to systematically collect,

analyse and disseminate data on NTMs

This can address the following issues:•Lack of common definition •No agreed taxonomy•Inadequate data: Existing data is limited, not structured and not comparable•No agreed methodology for quantification: In-depth analysis currently not possible due to lack of information

Implications

Multi-Agency TeamMembers: FAO, IMF, ITC, OECD, UNIDO, UNCTAD, World Bank, WTO.Observers: EC, USDA, USITCBiannual meetings

Agenda•Provide clear and concise definition of NTMs•Develop classification system of NTMs to facilitate data collection process and analysis•Devise ways to collect efficiently the information on NTMs taking into account existing mechanism of collecting specific elements of NTMs by each member agency •Provide guidelines for the use of data, including their quantification methodology

ITC-UNCTAD pilot project – Activities

Country programme in 7 pilot countries:• Large-scale business survey (300-500 face-to-face interviews) with

exporters and importers about their daily experiences with NTMs; • Collection and classification of official NTM data applied by the pilot

countries;• Inititialisation of sustainable country-level data collection mechanism;• Inititialisation of public-private dialogue.

Initialisation of official NTM data collection from major importing countries (share in world imports larger than 1%; including EU, US, Japan, China, Canada, Russia, Mexico, Turkey, etc.)

The way forwardOfficial launch of new NTM classification (5 November 2009)

UNCTAD Group of Eminent Persons Meeting

ITC-UNCTAD collaboration on the collection, classification and dissemination of NTM regulations

Data collection:

• Targeting 50 countries by year (ITC and UNCTAD),

• Collaboration with national and regional partners,

(ALADI, ASEAN, COMESA, monitoring intra-regional NTMs);

• priority on major importing countries (>1% of world’s imports)

Dissemination:

• New, integrated application on market access data, including NTMs (ITC, UNCTAD, World Bank).

ITC country projects on obstacles to trade (company surveys)

2009-2012: Roll-out in 27 countries; financed by DFID

Collaboration on NTM: official data NTM Classification: 16 Chapters

A Sanitary and phytosanitary measuresB Technical barriers to tradeC Pre-shipment inspection and other formalitiesD Price control measuresE Licences, quotas, prohibitions and other quantity control

measuresF Charges, taxes and other para-tariff measuresG Finance measuresH Anti-competitive measuresI Trade-related investment measuresJ Distribution restrictionsK Restriction on post-sales servicesL Subsidies (excluding export subsidies under p700)M Government procurement restrictionsN Intellectual propertyO Rules of originP Export related measures

Official data on NTMs (I/III)Example: Descriptive overview of applied measures/regulations by the Philippines

Official data on NTMs (II/III)Example: Applied measures/regulations and imports in the Philippines

Company level survey on non-tariff barriers (NTBs) experienced by the business sector (I/II)

Interview period: July-September 2008

Objectives:

Identify measures that companies perceive as non-tariff barriers and their possible patterns across sectors, countries and regions; identify potential bottlenecks at the national level.

Countries:Brazil, Chile, India, the Philippines, Thailand, Tunisia and Uganda

Nb. of respondedcompanies:

1 730 responded companies in total(290-500 per country)

Nb. of contacted companies

7 000 + contacted companies

Face-to-face interviewsMethod:

Categorisation of obstacles to trade

New classification of non-tariff measures that has been prepared in the framework of UNCTAD’s multi-agency initiative on NTMs.

Questionnaire

Companies were asked to report cases of non-tariff barriers impeding their trade. Each case includes a reference to 1 product (or product group) 1 export destination, 1 measure according to the new NTM classification and the related “procedural obstacle” they face in relation to the applied measure.

Example of one non-tariff barrier case:

Export of Cane or Beet Sugar from Uganda to Burundi, “Inspection and clearance requirement”, “Too complex mechanism”.

Company level survey on non-tariff barriers (NTBs) experienced by the business sector (II/II)

Survey: Key Findings from 5 Countries*

* One landlocked country (Uganda) and four developing countries (Chile, The Philippines, Thailand, and Tunisia)

• The analysis suggests that trade barriers vary considerably across countries, sectors and trading partners.

• Destination countries:

•Many obstacles to trade are experienced when trading regionally.

•Many obstacles to trade are highly concentrated on specific sectors – sometimes, these sectors account for a major share in exports to this destination, sometimes only for a marginal share.

•The affected goods often enjoy preferential tariff treatment by the destination country.

• The experienced obstacles to trade can be often associated with a lack of infrastructure and efficient procedures in the country of origin.

Survey:Types of Reported Barriers

Reported non-tariff barriesaverage of the surveyed countries

Sanitary and phytosanitary measures (SPS)

Technical barriers to trade (TBT)

Pre-shipment inspection and other formalities

Licences, quotas and other quantity control measures

Charges, taxes and other para-tariff measures

Finance measures regulating the access to and cost of foreign exchangefor imports and define the terms of payment.Other

*Based on the data analysis for 5 countries: Chile, the Philippines, Thailand Tunisia, Uganda

Survey: Export destination matters

Importing country/Market(top 20 export destinations for

Ugandan products)

Ugandan export value,

USD (*)

Share in total Ugandan export

Number of reported

complaints about this market

Export value of Ugandan affected products, USD (**)

Share of affected products in the value of Ugandan export to this

market

AfricaSudan 157,066,535 11.8% 51 70,476,613 44.9%Kenya 118,054,232 8.8% 59 51,124,302 43.3%DRC 100,046,098 7.5% 25 30,594,081 30.6%Rwanda 83,284,389 6.2% 110 27,545,528 33.1%Burundi 42,718,942 3.2% 28 15,132,939 35.4%Congo 42,231,387 3.2% 7 46,187 0.1%United Republic of Tanzania 30,594,091 2.3% 20 1,087,705 3.6%South Africa 10,710,972 0.8% 8 14,320 0.1%Sub-total Africa 584,706,646 43.8% 308 196,021,675 33.5%Developing countries outside AfricaUnited Arab Emirates 177,887,225 13.3% 6 119,797 0.1%Singapore 22,515,163 1.7% 0 0 0.0%China 14,406,211 1.1% 18 350,038 2.4%

Sub-total developing countries outside Africa 214,808,599 16.08% 24 469,835 0.2%

Sub-total developing countries 799,515,245 59.84% 332 196,491,510 24.6%

Developed countriesSwitzerland 86,618,601 6.5% 10 79,221,211 91.5%Netherlands 66,506,134 5.0% 40 30,477,476 45.8%Germany 65,093,340 4.9% 21 57,177,212 87.8%United Kingdom 53,265,627 4.0% 52 39,034,002 73.3%Belgium 52,787,915 4.0% 7 27,283,006 51.7%France 32,708,525 2.4% 10 28,212,641 86.3%Spain 26,647,552 2.0% 8 17,971,571 67.4%United States of America 19,588,130 1.5% 20 7,353,283 37.5%Italy 13,239,898 1.0% 10 10,265,539 77.5%Sub-total developed countries 416,455,722 31.2% 178 296,995,941 71.3%

Other 120,200,644 9.0% 85 6,185,817 5.1%Total 1,336,171,611 100.0% 595 499,776,022 37.4%

NTM cases reported in the surver of Ugandan exporters and corresponding trade data,for top 20 Ugandan export destinations, broken down by region

(*) Data source: UNSD Comtrade, 2007.(**) Affected product is the product for which one or more complaints were reported in the survey with the corresponding country.

Selected results from the survey of the business perceptions in Uganda

Overwhelming number of the interviewed exporters complained about poor infrastructure (roads and railway), high air freight charges, power shortages, access to loans, low skills on technology, low access to information. Very few comments concern destination markets outside Africa (EU, US, Asian markets).  

• “The government should standardise and improve on its facilities like warehouses and cold rooms. Sometimes the Entebbe cold room malfunctions and this leads to spoiling of many flowers awaiting export, thus revenue is lost.”

• “Trade with Sudan is really ok. The only problem is roads.”

• “Transport from Mombasa to Kampala is more expensive than transporting a container from China to Mombasa.”

Survey: Business environment at home matters Selected results from the survey of the business sector in the Philippines:

Procedures in the Philippine Customs (89 reports):• the behaviour of the customs officers (46; 52%)

- corruption (25)- too slow (17)

•recognizing other registrations (3)•inconsistent (1)•increasing rate of duty / varying rate of duty (11; 12%)•excessive documentation causing delays (6; 7%)•regulations to obtain export permit to strict (6; 7%)

Certificates needed from the Philippine authorities (169 reports)•the Certificate of Origin (41; 11%) •the phytosanitary certificate needed from the Bureau of Plant Industry (BPI) (30; 8 %)•the fumigation certificate (19; 5%)•too detailed, strict or excessive documentation (17; 4,5%)•documents should be authenticated by embassy (8; 2%)•quarantine clearance (8; 2%)

Survey: Reported Procedural Obstacles

ConclusionsSurvey and research show that

• NTBs are a major impediment to trade• Part of the NTBs are directly related to business environment• In many cases intra-regional trade is more affected.

Business sector in the landlocked countries experience more obstacles to trade due to• Implications for transport (cost, time, uncertainty)• Requirements to comply not only with domestic and partner country

requirements but also with the requirements in the transit country(ies)

The target ITC’s project on non-tariff measures:• Identify problems (through business surveys and official data collection)• Discuss them with national, regional and international institutions

In order to be effective, economic policies should address NTBs.

Thank you for your attention!