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 2011
Addis Ababa, Ethiopia
Outline of Presentation
 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.
Introduction
 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-economiccommunity 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.
The Links between Trade, Growth
and Poverty Reduction
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.
An Economic Case for Trade
Facilitation
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 (II)
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 (III)
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.
What are Trade Costs?
 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.
Estimates of Trade Costs in
Industrialized countries
Estimates of Trade Costs in
Industrialized countries(II)
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
Transport Cost (freight costs as a
percentage of total import value)
Transport Cost (freight costs as a
percentage of total import value) (II)
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.
Why are trade costs higher in Africa?
 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? (II)
 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
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
Check
points
per
100 km
TemaOuagadougou
OuagadougouBamako
LoméOuagadougou
Cotonou-Niamey
962
25
2.6
910
19
2.09
1036
23
2.22
1036
34
3.28
1122
37
3.30
529
20
3.78
AbidjanOuagadougou
Niamey-
Internet Diffusion worldwide (users per
1,000 populations)
Concluding Remarks
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 (II)
 Allow for increases
collection efficiency;
in
government
revenue
and
 Generally contribute to welfare improvements and
economic growth
Concluding Remarks (III)
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.
Thank You
http://www.uneca.org/ATPC