Trade Facilitation and Intra-African Trade

Ad Hoc Expert Group Meeting cum Workshop on Supporting the Establishment of inter-REC Free Trade Areas and the Establishment of Harmonized FTA regimes among RECs

31 May - 1 June 2011Addis Ababa, Ethiopia

Introduction

An Economic Case for Trade Facilitation

The facilitation of Trade in Africa.

Regional Initiatives to tackling the challenges of Trade Facilitation in Africa.

Concluding Remarks.

Outline of PresentationOutline of Presentation

Despite Africa’s determination to dismantle trade

restrictions in order to create a common market within the framework of regional and sub-regional agreements, barriers to intra-regional-economic-community trade development are numerous.

These barriers are mostly the consequences of the economic structure of the countries; institutional policies, weak infrastructure; weak financial and capital markets and failure to implement trade protocols.

Introduction

Baldwin (2003), has demonstrated that countries with few restrictions on trade achieve faster economic growth than countries that have more restrictions on trade.

This is because trade liberalization reduces distortions in relative prices, and allows those activities with a comparative advantage to expand and consequently faster economic growth.

The Links between Trade, Growth

and Poverty Reduction

What is Trade Facilitation? According to the WTO, trade facilitation refers to “the simplification and harmonization of international trade procedures” covering the “activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade.”.

An Economic Case for Trade

Facilitation

Why does Trade Facilitation Matter? The importance of trade facilitation stems from the fact that global trade has grown rapidly in recent years because of the progressive reduction of tariffs and quotas as a result of trade liberalisation. This implies that more goods are crossing borders and having to comply with Customs formalities, putting a strain on the resources of custom officials and other government officials.

An Economic Case for Trade

Facilitation (II)

The Literature shows that: There is a positive link between trade facilitation and trade.

Modest reductions in trade transaction costs significantly increase trade flows.

Trade in both rich and poor countries stand to gain from improvements in trade facilitation. However, trade gains are higher in developing countries than in developed countries because of comparatively less efficient customs administrations and ports in developing countries.

An Economic Case for Trade

Facilitation (III)

Countries that undertake trade facilitation reforms stand to gain substantially from enhanced efficiency of customs procedures.

The potential gain from increasing port efficiency is considerably larger than for increasing efficiency of customs procedures. Nevertheless, improved customs procedures significantly increase trade flows.

Inefficient movement of goods across borders is a serious impediment to trade and growth.

An Economic Case for Trade

Facilitation (III)

The literature defines total trade costs broadly as all costs incurred in getting a final good to a final user – other than the cost of producing the good itself.

In general, exporters or importers incur trade costs at all stages of the processes involved in exporting and importing goods.

The costs begin to tally with obtaining information about market conditions in a foreign market and ends with receipt of final payment for a good.

What are Trade Costs?

Estimates of Trade Costs in Industrialized countries

Anderson and Van Wincoop (2004) calculate that the average trade costs for industrialized countries are equivalent to an ad-valorem term of 170%.

The estimated trade costs represents the total for three components: a 21% ad-valorem equivalent for transportation costs, 44% for border-related trade barriers, and 55% for retail and wholesale distribution costs

Estimates of Trade Costs in Industrialized countries(II)

Transport Cost (freight costs as a percentage of total import value)

Africa in general, and SSA in particular, has the highest cost rates in the world.

This is further supported by the World Bank’s

(2008) Doing Business Report which suggests that the trading costs for African countries are about twice as high than as those in high-income OECD countries.

Transport Cost (freight costs as a percentage of total import value)

(II)

Poor Road and Rail Transport Infrastructure.

Poor Port and Maritime Transport.

Poor Vehicle use and management.

High Transport cost

Cumbersome Customs procedures

Why are trade costs higher in Africa?

Unwarranted road blocks.

Product Standards and Technical Regulations.

Information and communication costs.

Poor and inadequate payment mechanism

Costs associated to preferential trade: rules of origin

Why are trade costs higher in Africa? (II)

Proportion of paved and unpaved roads in Africa

Transport costs from selected cities to Rotterdam, Netherlands

Number of Exports and Imports Procedures

Delays in days, compared by world regional and country groupings

Checkpoints on selected West African Highways

Highways Distance (km)

Number of Checkpoints

Checkpoints

per 100 km

Tema-Ouagadougou

962 25 2.6

Ouagadougou-Bamako

910 19 2.09

Lomé-Ouagadougou

1036 23 2.22

Cotonou-Niamey 1036 34 3.28Abidjan-

Ouagadougou1122 37 3.30

Niamey-Ouagadougou

529 20 3.78

Internet Diffusion worldwide (users per 1,000 populations)

Improved Trade facilitation can:

Significantly lower trade costs, especially reducing time;

Bring about significant increases in the volume of trade, imports and exports, that may be even greater than the direct gains from trade policy reform;

Concluding Remarks

Allow for increases in government revenue and collection efficiency;

Generally contribute to welfare improvements and economic growth

Concluding Remarks (II)

Trade Facilitation is relevant in the context of regional integration because:

Reducing the costs of trade will tend to stimulate increased trade, particularly for landlocked countries.

It supports regional integration as many of the measures relate to cross-border procedures.

Measures related to Customs procedures tend to increase the efficiency of revenue collection and are therefore typically associated with increases in revenue.

Concluding Remarks (III)

Thank You

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