Trade facilitation in WTO’s Bali Package: What’s in it for Africa?

The adoption of the Bali Package on December 7 last year in Indonesia generated no small amount of euphoria among trade officials at the ministerial meeting of the World Trade Organisation (WTO).

The Bali Package is a series of decisions aimed at streamlining trade, allowing developing countries more options for providing food security, boosting least-developed countries’ trade and helping development more generally.

The WTO claims that the deal will generate between $400 billion and $1 trillion in global trade. But what does the Bali Package really mean for Africa?

The fact that 159 WTO member countries reached consensus is an impressive feat in its own right.

The Doha Development Round/Agenda (DDA) of trade negotiations among the WTO membership carried out in Qatar in 2001, while aimed at improving the trading prospects of developing countries, had come to be characterised by polarisation between the major developed countries and the emerging economies of the South.

The agreement in Bali provides a timely boost for the multilateral trading system, which last witnessed such excitement at the launch of the DDA. Back then, there was a great deal of optimism about how these trade negotiations would help address the imbalances in the global trading regime.

However, the agenda became constrained by intractable differences leading most countries to resort to bilateral and regional trade pacts.

The Bali Package contains a subset of issues from the broader DDA such as agriculture and issues of concern to least developed countries (LDCs).

Of particular interest is the trade facilitation component because it holds tremendous potential for African countries and complements a lot of the infrastructure investments that are being undertaken across the continent, particularly in transport.

The LDC package contains best endeavours rather than binding commitments. Among other things, it reiterates members’ commitment to providing duty-free-quota-free (DFQF) market access to LDCs. Upon closer examination, the benefits of DFQF could prove superficial for various reasons, including the less than 100 per cent coverage, effects of preference erosion, rules of origin and non-tariff barriers than are of equal if not bigger concern than tariffs for LDCs.

DFQF without complementary measures does not produce the sizeable supply response we have seen with the European Union’s Everything but Arms and the USA’s Africa Growth and Opportunity Act (Agoa).

Overall, there has been little improvement on the LDC package since the 2011 ministerial conference.

The agriculture negotiations only yielded an interim mechanism following some “arm wrestling” between India and the US, necessitating further negotiations in order to nail down a lasting solution. For African countries, therefore, the agreement on trade facilitation seems to be the main take-away from Bali.

Trade facilitation is vital for Africa’s own competitiveness as it will reduce costs for traders. While tariffs have progressively fallen, the key challenge to intra-African trade is non-tariff barriers that stifle the movement of goods, services and people across borders.

There are 16 landlocked countries on the continent. For these countries, the average Customs transaction involves 20 to 30 steps, 40 documents, 200 data elements and re-keying of 60 per cent to 70 per cent of all data at least once.

It, therefore, comes as no surprise that bottlenecks account for 14 per cent of trade costs in Africa’s landlocked countries, compared with a developing country’s average of 8.6 per cent.

African countries have been unanimous in their desire to improve Customs and other border procedures and transit regimes. This was echoed at a joint African Development Bank-WTO trade facilitation symposium in November 2012 in Nairobi.

Many African countries have initiated programmes to modernise their Customs at the ports of entry and along transit corridors using the guidelines of the Revised Kyoto Convention of the World Customs Organisation. The benefits of such initiatives are evident.

At the Chirundu one-stop border post between Zambia and Zimbabwe for example, clearance times for commercial trucks have been reduced from five days to a single day, with those cleared under the fast-lane facility taking at most five hours. The clearance time for passenger coaches has been halved to under one hour.

Improved trade facilitation reforms have also helped raise government revenue through improved collection of import duties based on enhanced efficiency in border management.

If countries are already implementing trade facilitation measures unilaterally, what is the value-added on the Bali deal?

First, a binding agreement under the WTO will push countries to undertake trade facilitation reforms in keeping with their commitments. A number of countries have been lethargic in undertaking Customs reforms and other trade facilitation measures.

Such tardiness can have serious negative consequences for the efficient operation of regional transport corridors. In some instances, there is little buy-in among the key government agencies to undertake such reforms.

Once the binding agreement on trade facilitation enters into force, it will help lock in reforms. There are also provisions related to a range of the Revised Kyoto Convention issues such as advanced rulings, pre-arrival processing, risk management, post-clearance audit, authorised economic operators, and the establishment of single windows. These provisions will benefit traders by ensuring availability of information and encouraging transparency.

Critics of the trade facilitation argue that the benefits are heavily tilted in favour of exporting countries, and refer to it as an “import-facilitating agreement” that will worsen Africa’s trade balance. They contend that the agreement fails to address the productive and export constraints facing developing countries and LDCs.

Arguably, countries that are export-ready will reap the immediate benefits of trade facilitation. Therefore, African countries must prioritise value adding activities by promoting investment in areas such as value chains.

In the absence of such complementary measures, the benefits of the trade facilitation deal will be marginal and African countries will miss out on the alleged $1 trillion Bali trade boost.

The multilateral trading system should support these measures by decisively addressing tariff peaks and tariff escalation. The former prevents developing countries from exporting products in which they have a comparative advantage, while the latter curtails their chances of climbing the value chain.

Therefore, parallel efforts are required to continue to address these issues both in regional and global trade.

Patrick Kanyimbo and Calvin Manduna are integration and trade experts at the AfDB