A Trade Facilitation Council to boost regional integration in North Africa
What are the intra-regionaltrade andtrade facilitation situations in North Africa? What actions need to be taken tosupport trade andeconomic integrationin the region?
The WTO General Council held on November 27, 2014 ended a deadlock lasting several months, impeding implementation of the Bali Package signed in December of 2013. Following resolution of the dispute between the United States and India regarding food security, members adopted a decision on the protocol of amendment for inserting the Trade Facilitation Agreement into the WTO texts.
This article aims to address the issue of economic integration in the North African sub-region—including Mauritania, Morocco, Algeria, Tunisia, Libya, Egypt and Sudan—as it is currently the least economically integrated sub-region on the African continent.
Intra-regional trade below the continental average
According to the United Nations Conference on Trade and Development (UNCTAD), on the average, intra-regional trade in North Africa represents only 5 percent of the region’s total worldwide trade. This level is not only low, but far below the continental average, which is approximately 12 percent. The reality of the North African situation is that trade is primarily performed on a vertical basis with the European Union (EU), rather than on a horizontal basis. For example, North African trade with the EU represents, on the average, nearly 60 percent of the countries’ total worldwide trade (with the exception of Sudan, which conducts over 65 percent of its trade with Asia).
Heterogeneous and potentially high transaction costs
In terms of the transaction costs associated with the export and import operations carried out by North African traders, according to data from Doing Business 2014, it appears that the price of transporting goods from one country to another varied from USD $595 in the case of Morocco to USD $2,900 in the case of Sudan. In comparison, the highest cross-border trade transaction cost among OECD countries was USD $1,680 in Canada. Thus, the high transaction costs existing in North Africa represent a significant barrier to cross-border trade.
Lack of harmonisation in cross-border customs formalities and procedures
One of the primary explanations for the weakness in intra-regional trade and the high transaction costs is the lack of harmonisation in customs procedures from one country to the next. Differences in the number and types of documents required to carry out transactions, as well as differences in the processes at the border for circulating goods, have had a negative impact on trade. Furthermore, North African countries find themselves in the unique circumstance of participating in various customs union and free trade zone agreements (Agadir, CEN-SAD, COMESA, GAFTA and AMU) that also exhibit a lack of consistency in their approach to regional integration. Indeed, the same goods exported from the same country to a third North African country may be taxed differently depending on the regime to which they are subjected, which is determined at the discretion of the customs authority with no real possibility of being contested. This situation, which is conducive to potential conflicts of interest, seriously undermines intra-regional trade.
The paradox of trade facilitation in North Africa
The trade facilitation situation in North Africa displays a certain form of paradox. On the one hand, there is an extremely low level of intra-regional trade. On the other hand, it appears that the majority of North African countries primarily adhere to the international trade facilitation standards set forth in the Bali Agreement.
More specifically, foreign trade legislation in Tunisia, Morocco, Algeria and Egypt is approximately 50 percent in compliance vis-à-vis the new trade facilitation measures defined in the Bali Agreement, while Libya, Mauritania and Sudan exhibit a level of compliance significantly lower than 50 percent. It is very likely that they will require strong technical assistance in order to build their capacity.
As a whole, the seven countries of North Africa coincide more readily in their ability to make the information on the formalities and procedures required for foreign trade available. They all use the Internet for this purpose, although some sites are more informative and interactive than others. Nevertheless, the Customs Code is present in all cases.
The differences in trade facilitation performance are essentially related to the current procedures and arrangements governing the release and clearance of goods at the border posts. The first group of countries (in compliance with more than 50 percent of the Bali provisions on trade facilitation) has a higher propensity for accelerating the movement of goods, mainly due to the application of advance rulings, the separation of release from the final determination of customs duties and post-clearance audits. However, the second group of countries (with less than 50 percent compliance) is lacking one or more of the key measures that favour acceleration in the release and clearance of goods.
The deficiency that exists in all the analysed countries concerns the single window and its countrywide implementation. This measure, which is expensive by nature, represents the utmost degree of simplification in customs formalities and procedures.
The paradox that exists in North Africa, in terms of the low level of intra-regional trade in association with the relatively high level of compliance with international standards for trade facilitation, can be explained in large part by the presence in certain countries of bilateral agreements with the European Union, the United States or both. These agreements, which were concluded between 2000 and 2010 with Morocco, Tunisia, Algeria and Egypt, have had the effect of pushing those countries toward the implementation of customs reforms.
A North African Trade Facilitation Council to boost regional trade
With the aim of dynamising intra-regional trade in North Africa and unleashing the sub-region’s economic potential, it would be appropriate to equip the zone with the necessary administrative framework for implementing a dedicated regional Action Plan (AP) for trade facilitation.
This administration would take the form of a North African Trade Facilitation Council, composed of existing or proposed national committees for trade facilitation—as envisaged in the texts of the Bali Agreement.
This structure would create synergy between the objectives of coordinating implementation of the provisions of the Agreement at the domestic level and coordinating implementation of the AP for facilitating regional trade—since the AP is based on the same fundamentals as the Bali Agreement, i.e. simplification and standardisation of customs formalities and procedures, as well as the cooperation and involvement of the private sector.
A North African Trade Facilitation Council would promote effective harmonisation of trade procedures and quicker implementation of an Action Plan. It would also ensure consistency between the collective initiatives taken over time with the goal of sub-regional economic integration.
Moreover, a North African Trade Facilitation Council could be supported by the Arab Maghreb Union (AMU), which would assume the role of Secretariat. During implementation of the North African Action Plan, the two entities could elicit the support of the appropriate international and regional institutions that are active in the area of trade facilitation and development.
Four areas of priority for North Africa
The primary focus should be on: (i) harmonisation of formalities and customs cooperation; (ii) increased predictability for traders; (iii) training and exchange of information; and (iv) cooperation between the private and public sectors.
Recommendations in these four areas include standardisation of cross-border documentation for import and export, consolidation of juxtaposed border posts and single windows, simultaneous consolidation of the procedures for advance rulings and for processing the documentation of goods prior to their arrival, development of joint customs training programs, exchange of electronic data between customs authorities (C2C), and between customs authorities and exporting or importing companies (C2B), on declarations and trade flows.
Prioritising these types of actions and applying them consistently across all the countries will significantly reduce cross-border transaction costs in North Africa by creating economies of scale, therefore saving time in the movement of goods—although other important factors also come into play, such as logistics and infrastructure quality.
The key to the success of a North African Trade Facilitation Action Plan for economic integration lies in cross-border cooperation. In this sense, a North African Trade Facilitation Council would be an appropriate instrument for providing cohesion, as well as a critical factor for success.
Finally, in addition to aiding regional integration, by attracting more large multinational and foreign investors, the North African Trade Facilitation Council would aid in the development of regional value chains in a current landscape in which production is fragmented. Regional integration will promote the emergence of North Africa as a major platform for global value chains, linking north and south, east and west.
Author: Khalid El Bernoussi is an economist and expert consultant on trade and development.
The analysis and recommendations presented in this article are the result of a work conducted for the Office for North Africa of the United Nations Economic Commission for Africa (UNECA/NA). The conclusions were approved in an experts group meeting on the theme of International Transport and Trade Facilitation in North Africa.