A look at the Interplay Between the WTO’s Trade Facilitation Agreement and Regional Integration in Africa
What is the value addition of the WTO’s Trade Facilitation Agreement to ongoing trade facilitation processes in Africa, and how could it contribute to regional integration on the continent?
Regional integration has been part of Africa’s development strategy for many decades – indeed for more than a century in the case of the Southern African Customs Union that was established in 1910. Regional integration is expected to help countries on the continent to overcome constraints arising from small domestic markets, allowing them to reap the benefits of scale economies, stronger competition, and more domestic and foreign investment. Such benefits can raise productivity and diversify production and exports.
Regional integration is multi-faceted, encompassing trade, money and finance, infrastructure, natural resources and production, as well as human resources and labour mobility, among others. While progress has been made to varying extents across the different facets and regional economic communities (RECs), several challenges continue to plague Africa’s integration process. These include the multiple and overlapping memberships of RECs; concerns about uneven gains and losses; barriers to the free flow of goods, services, and people across borders; divergent and unstable national macroeconomic policies; and the inadequate capacity of countries and RECs to spearhead the integration process.
Trade is central to Africa’s regional integration agenda. This is reflected in the decision of the African Union Assembly of Heads of State and Government in 2012 to fast-track the establishment of the Continental Free Trade Area (CFTA), with 2017 as an indicative deadline, and its approval of the Action Plan for Boosting Intra-African Trade (BIAT). Trade facilitation is one of the priority areas of the BIAT action plan, the others being trade policy, productive capacity, trade-related infrastructure, trade finance, trade information, and factor market integration. Most RECs also have trade facilitation programmes aimed at enhancing intra-regional trade. The WTO’s Trade Facilitation Agreement (TFA) has thus entered into force at a time when trade facilitation is well embraced in Africa in the context of deepening regional integration.
One would, therefore, wonder if the TFA adds value to ongoing trade facilitation processes in Africa, and how it would contribute to regional integration on the continent. Furthermore, it is important to understand whether the African countries see the importance of the TFA the way they see the RECs-driven trade facilitation efforts. The same question can be framed differently and that is, why is it that only 19 African countries have so far ratified the TFA? Does it mean that RECs are not able to demonstrate how the ratification of the TFA would support the efforts to enhance trade facilitation?
This article aims to shed light on these questions. To that end, it examines the extent to which ongoing trade facilitation measures boost trade flows and regional integration in Africa and how this could be enhanced by the TFA.
Enhancing regional integration and trade
Regional integration impacts on trade in several ways and vice-versa. Trade facilitation, to the extent that it boosts intra-regional trade also deepens regional integration given that intra-regional trade is an indicator of regional integration. Strengthening regional integration and trade is particularly crucial for three reasons: it can foster economic diversification and transformation, increase resilience to global economic shocks, and generate significant economies of scale through the widening of markets.
First, with regard to economic diversification and transformation, intra-African intermediate exports have displayed a stronger dynamism over the last decade than the continent’s intermediate exports to the rest of the world. This is partly because intra-African trade is more diversified than the continent’s trade with the rest of the world and offers broader scope for trading manufacturing intermediates. In 2010-2012, Africa absorbed 20 percent of its intermediate exports in manufacturing, against 10 percent in agriculture and only 6 percent in mining and quarrying. Countries such as Egypt, Ghana, Kenya, Nigeria, South Africa, Tanzania, and Zambia have recorded gains in their exports of manufacturing inputs within Africa, building to some extent forward linkages with manufacturing firms within the continent. If regional integration records decisive progress, intra-African trade could be a springboard to wider economic diversification and industrialisation.
Second, there is evidence that regional integration could serve as a buffer to global economic shocks. The 2008 global financial crisis reiterated the need for Africa to build resilience to such shocks through deepened regional integration. Owing to the relatively weak integration of African financial markets to the global market, the direct effects of the crisis were moderate on the continent. Research shows that the East African Community (EAC) was able to absorb the global economic shocks partly because of deeper intra-regional and intra-African trade ties. The Southern African Customs Union (SACU) region is less resilient to global shocks, notably as a result of weaker regional integration – the small SACU members trade mostly with South Africa and the EU. In general, Africa’s capacity to absorb global shocks can be enhanced by a combination of intra-regional and intra-African trade, fast-growing economies, and diversified trade linkages.
Third, regional integration widens markets, generates economies of scale, and attracts foreign direct investment. Regional infrastructure is important in this context as it links Africa to the global economy and promotes economic integration within the continent. However, gaps in infrastructure and infrastructure services across RECs and Africa raise the cost of doing business and impede factor mobility, investment, and competitiveness. To the extent that it reduces transport costs and delays, infrastructure is an important facilitator of trade. The Southern African Development Community (SADC) has better transport connectivity than the Economic Community for Central African States (ECCAS), leading to stronger intra-regional trade in the former than the latter.
The role of trade facilitation
Trade facilitation enhances trade, and hence contributes directly to regional integration. Importantly, for trade to take place, there must be production. As such, it is sometimes important to also start discussions on the link between trade facilitation and regional integration at a more granular level. Recent literature on agriculture in Uganda shows that there is a link between high transport costs, low productivity, and the size of the agricultural sector. This is a clear evidence that transport costs start affecting a country’s potential to produce, and by extension trade, at the farm level.
At the continental level, research shows that complementing the CFTA with trade facilitation reforms would boost Africa’s exports by over 10 percentage points, compared to four percentage points in the presence of CFTA alone. Trade facilitation reforms, in this case, refer to measures that double the efficiency of customs procedures and port handling capacity for imports and exports by 2017 compared to 2010. This suggests that Africa’s non-tariff barriers to trade constitute a more important source of trade cost than trade policy and may dampen the impact of trade liberalisation on the continent.
Trade facilitation is therefore a preoccupation of Africa’s trade stakeholders, who recognise that reaping the full benefits of the CFTA hinges on a diligent and steadfast implementation of trade facilitation measures. To that end, trade documents, standards, and customs procedures have to be simplified and harmonised and should conform to international and regional regulations. The logistics of moving goods through ports and the movement of documentation associated with cross-border trade also have to be more efficient. In addition, the environment in which trade transactions take place, including the transparency and professionalism of customs and regulatory environments, needs improvement.
Regional economic communities have made significant strides in addressing the above issues. Moreover, most of their efforts are consistent with the provisions of the TFA. For instance, articles 1-6 of the TFA deal with publication and availability of information; other measures to enhance impartiality, non-discrimination, and transparency; and disciplines on fees and charges imposed on or in connection with importation and exportation. In that regard, the EAC, for instance, has relevant trade-related documents such as its Treaty, Customs Management Act and list of tariffs freely available on its website.
In line with Article 7 of the TFA, which addresses the release and clearance of goods, countries such as Uganda have introduced facilities for authorised economic operators. Similarly, the Common Market for Eastern and Southern Africa (COMESA) introduced the Regional Payment and Settlement System (REPSS) in 2012, resulting in a faster and cost-effective transfer of funds. Regarding border agency cooperation which is the focus of Article 8 of the TFA, several one-stop border posts (OSBPs) are operational in Africa, including at Chirundu between Zambia and Zimbabwe, and Cinkase between Burkina Faso and Ghana. Several OSBPs also exist under the framework of the EAC at various locations between Kenya, Rwanda, Tanzania, and Uganda.
African countries and RECs are also addressing issues related to Article 9 of the TFA, which has provisions on the movement of goods intended for import under control, as well as Article 10, which addresses formalities connected with import, export, and transit. For instance, 11 countries on the continent reduced the number of documents required for import and export between 2007 and 2013, and many of them are moving to electronic submission of documents. Several countries have introduced single window systems including Cameroon, Ghana, Kenya, Mauritius, Senegal, and Tunisia, among others. Electronic cargo management has also gained ground, including the use of cargo tracking systems and electronic management of customs warehouse, with Uganda introducing an online tracking process.
Articles 11, 12, and 13 of the TFA cover transit of goods, customs cooperation and exchanges of information, and institutional arrangements respectively. In this regard, most RECs have regulatory frameworks for the movement of goods on transit. They have harmonised or introduced vehicle load and dimension controls, road transit charges, carrier license and transit plates, third party motor insurance schemes, road transport customs transit declaration documents, and regional customs bond guarantee schemes. Most of these measures exceed the scope of the TFA, which does not explicitly deal with transport infrastructure issues. Concerning institutional arrangements, the RECs’ Transport Coordination Committee (REC-TTC) and the African Corridor Management Alliance play important coordination roles at the regional level. Several countries also have national committees on trade facilitation.
Can the TFA help strengthen Africa’s regional integration?
In principle, the TFA could stimulate regional integration by widening markets through improvements in the efficiency of customs and other border agencies in expediting cargo clearance, the ability of relevant actors to track and trace international shipments, and the timelines of shipments in reaching destination.In essence, it could help address the proximity gap observed in Africa, where in many instances it is more costly for a country to trade within its own REC than with countries in other regions of the world. Overall, the TFA could reduce the time and cost required to export and import, including for obtaining all documents, inland transport and handling, customs clearance and inspections, and port and terminal handling.
The TFA fills neither a policy nor programme vacuum in Africa, as the continent already had a well-developed trade facilitation policy landscape prior to its entry into force. This partly explains the initial reluctance of African countries to support a multilateral framework. It may also be the reason why only 19 African countries have ratified the TFA. It is not that trade facilitation issues are not important, but rather that the regional initiatives have been addressing some of the challenges that the TFA is meant to address. However, the multilateral process of developing the TFA raised awareness among African countries and RECs and reiterated the importance of trade facilitation in boosting international trade. It also stimulated action from African countries and RECs that lacked momentum in implementing existing trade facilitation policies. This is because the TFA negotiations confirmed that these countries and RECs were on the right track, given the consistency between the TFA provisions and their trade facilitation programmes. Emphasising this point of consistency would go a long way in demonstrating to African members of the WTO who have not ratified the TFA the merits of doing so.
It is however fair to say that the biggest contribution of the TFA to regional integration in Africa could be in terms of capacity strengthening, a point that African WTO members have emphasised continuously. The TFA promises developing countries, especially the least developed among them, technical assistance and capacity building towards meeting their commitments under the agreement. Specifically, countries have the option of scheduling the implementation of the agreement under three categories (A, B and C). Under category C, developing countries require technical assistance and capacity strengthening.
This will go a long way to contribute in enhancing the capacity of African countries and RECs to spearhead the regional integration process through the implementation of trade facilitation measures. An underlying assumption from a regional cooperation perspective is that the African countries that share borders, or use common port or transport facilities, will coordinate how they implement the trade facilitation measures. In so doing, the coordinated implementation will also strengthen the effectiveness of mechanisms to manage the regional integration process, and the ability of countries to integrate regional integration (in this case, trade facilitation measures) into national development plans.
This article has shown that trade facilitation, to the extent that it boosts intra-regional trade, deepens regional integration – given that intra-regional trade is an indicator of regional integration. It also underlined why strengthening regional integration and trade is crucial, including in terms of economic diversification and transformation, resilience to global economic shocks, and widening of markets.
Trade facilitation is an imperative for boosting intra-African trade and avoiding a sluggish response to trade liberalisation in the context of the CFTA. Therefore, African countries were already implementing measures to tackle barriers to the free flow of goods, services, and people across borders before the TFA entered into force. The TFA could enhance ongoing efforts in Africa, as its provisions are consistent with the continent’s trade facilitation objectives. It could strengthen the capacity of African countries and RECs to spearhead the implementation of trade facilitation measures. Capacity building was the cornerstone of Africa’s position during the TFA negotiations. Going forward, the continent should take full advantage of the capacity building opportunities offered by the TFA, identifying areas where capacity building is required and mobilising resources to close the capacity gap.
Authors: Stephen Karingi, Director of the Capacity Development Division and Officer in Charge of the Regional Integration and Trade Division, Economic Commission for Africa, Addis Ababa. Robert Tama Lisinge, Chief of the Operational Quality Section of the Strategic Planning and Operational Quality Division, Economic Commission for Africa, Addis Ababa.
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