A Positive Agenda for Trade Facilitation Negotiations in Africa

This paper I wrote is a little dated but the concision is still useful given the conclusion of the WTO Trade Facilitation negotiations. The paper can be assessed here.

Trade facilitation is definitely a potential source of growth promotion in Africa and African countries need to continue focus on an integrated and coherent approach. Progress achieved in such a broad approach does not, however, necessarily mean multilateral binding. It is important to provide adequate policy flexibility in the rules to enable countries commit according to own priorities and capabilities. Members should be allowed to pre-commit, with the option of linking pre-commitments to effectiveness of capacity building efforts. A multilaterally agreed monitoring framework will be necessary. Such a review needs to monitor and evaluate the commitments made, the implementation capacity and the availability of technical and financial assistance. Experience with ongoing trade facilitation programme suggests that the cost of ambitious multilateral agreement on trade facilitation will be high and certainly beyond the capability of African countries. 

There is, therefore, a need for trade facilitation fund to cater for necessary adjustment costs arising from the expected new commitments in the final WTO trade facilitation agreements. The next steps for adequate participation of Africa in these negotiations would be to document the situation in a selected group of countries that have made relatively good progress in these areas and that could provide “best practice” examples. These case could be used to design a comprehensive programme that a typical African country would have to undertake in order to comply to a multilateral agreement on trade facilitation with elements in proposals being tabled are to become binding. Additionally, submissions to the negotiating group on trade facilitation can be made specifically to address concerns of African countries and present possible positions following the needs assessment exercise.

See other comments I have made on trade facilitation here.

Nigeria's Trade Policy Reforms

Legal constraints on the EU’s ability to withdraw EPA preferences

Dr Lorand Bartels provides useful and timely advice on the legal constraints behind the EU's ability to withdraw EPA preferences from ACP States and he identifies various problems with the EC Commission’s proposal.   These include steps taken towards ratification i.e. progress to date and the mechanism of provisional application. 

He concludes by stating that EC Council Regulation 1528/2007 can only be terminated in accordance with Article 25(2) of the Vienna Convention on On the Law of Treaties. This provision lists three ways in which this can be done: by agreement between the parties; according to the treaty itself; and when the party seeking to terminate notifies the other party or parties that it does not intend to become a party to the treaty. Where these conditions are not satisfied, the provisions of the treaty being provisionally applied are treated as applicable for that party.

While the EU can still remove ACP countries from the list of beneficiaries, if it wishes to do this, it must notify them of its intention not to become a party to the respective agreements. What it cannot do is remove beneficiaries from Annex I of the Regulation as the Commission is proposing to do - not, at least, without violating Article 25(2) of the Vienna Convention on the Law of Treaties, and thereby also EU law itself.

Assess full article here and see previous EPA posts here.

The Year in Trade 2010

A good resource for anyone working in or covering the field of international trade. The USITC’s Year in Trade 2010 is one of the US government’s most comprehensive reports on U.S. trade-related activities, covering major multilateral, regional, and bilateral developments.

The publication reviews U.S. international trade laws and actions under these laws, activities of the World Trade Organization (WTO), U.S. free trade agreements and negotiations, and U.S. bilateral trade relations with major trading partners. The Year in Trade 2010 also includes complete listings of antidumping, countervailing duty, safeguards, intellectual property rights infringement, and section 301 cases undertaken by the U.S. government in 2009.

Global Preferential Trade Agreements Database

The World Bank has recently launched the Global Preferential Trade Agreements Database, (GPTAD) which includes trade agreements that have been notified to the World Trade Organization (WTO) and those that have not been notified to the  WTO. The database contains about 330 agreements which are indexed using a classification consistent with WTO criteria.

The WTO houses a similar database on RTAs. The WTO Regional Trade Agreements Information System includes agreements that have either been notified to the WTO or of which an early announcement has been made at the WTO. This database contains all the relevant documentation received by the WTO, following notification by a WTO member that an RTA has been established.

great tools for policy makers. 

India's National Innovation Council

There is much we can learn from India on innovation (viewed as the transformation of knowledge into goods and services for the marketplace).  Realising that innovation is the engine for the growth of prosperity and national competitiveness in the 21st century, the President of India declared 2010 as the ‘Decade of Innovation’. To take this agenda forward, the Office of Adviser to the PM on Public Information Infrastructure and Innovations (PIII) developed a national strategy on innovation with a focus on an Indian model of inclusive growth. The idea is to create an indigenous model of development suited to Indian needs and challenges.

Towards this end, the Prime Minister has approved the setting up of a National Innovation Council (NIC) under the Chairmanship of Mr. Sam Pitroda, Adviser to the PM on PIII to discuss, analyse and help implement strategies for inclusive innovation in India and prepare a Roadmap for Innovation 2010-2020. NIC would be the first step in creating a crosscutting system which will provide mutually reinforcing policies, recommendations and methodologies to implement and boost innovation performance in the country.

One of the outcomes of this process has been a proposal to set up 14 new “universities for innovation” that will aim at stimulating economic growth.  Africa can learn a lot from India’s experiences, especially in regard to the importance of bringing technical knowledge to bear on development through a new species of universities.  These universities will aim at doing for India in the 21st century what its institutes of technology did in the last century.  India is showing Africa that the secret of economic success is not a secret: it lays in re-inventing the university system.

Africa should therefore no longer be an enclave reserved for mineral and raw material extraction.  There is alot of potential in the African continent however the limiting factors include Africa’s low level of training in engineering sciences and the lack of venture capital to turn ideas of products for the marketplace. On education, a new generation of technology/innovation schools directly linked to the productive sector, will be an effective way to move to the frontiers of technological innovation.

Useful discussion on innovation in Africa can be accessed here.

EPA Rules of Origin and Value Added Methodology

My article on Tralac website republished here. (original dated March 2007)

In a March 2005 communication, the European Commission (EC) proposed a radical change to its origin rules and suggested that the reform would simplify processes and make the rules more development friendly. The EC envisages sweeping away the present multiplicity of rules of origin and replacing them with a single rule, based on value addition in the beneficiary country. Under this methodology, a product resulting from the working or processing of imported non-originating materials would be considered as originating if the value added in the country (or in a region where cumulation is permitted) amounted at least to a certain threshold (a minimum "local of regional value content") expressed as a percentage of the net production cost of the final product. 

Value addition is one of the three major criteria to determine last substantial transformation for non-originating inputs in the ACP-EU Cotonou Partnership Agreement. The other two criteria are the Change in Tariff Heading (CTH) test which requires that the tariff-heading of the final product should be different from the tariff-headings of its inputs at the four HS digit code and the Specific Process (SP) test, which requires a product to undergo certain stipulated processes before originating status can be conferred. 

As agreed by ACP Ministers in Port Moresby, Papua New Guinea in June 2006, the negotiating mechanism for the rules of origin in the EPA negotiations will be at the level of the ACP-EU. In this regard, while the harmonisation of the methodology for determining substantial transformation in the EU rules of origin regime is understandable, given that the EU has about forty preferential arrangements with third countries or groups of third countries in total, a proposed move to a single value addition methodology in the ACP-EU EPA negotiations would undermine the ACP negotiating position given its less frequent usage as a sole criteria and comparatively infant stages of regional integration in the ACP.

With regard to the usage of the value added methodology, the recent study by ODI Creating Development Friendly Rules of Origin in the EU found that the value added test has been aplied as the originating test for only about one tenth of the products that poor countries such as ACP countries actually export to the EU. Furthermore the study indicates that the value added test is the second most frequently applied sole substantial transformation criterion after specific processes, with a utilisation of 23.5% across all EU agreements. Taking this into account, a move to this single approach within the ACP could erode the benefits accruing in the EPA negotiations, unless the methodology can accommodate the CTH rules and SP and production methods already triggering trade within the Cotonou Agreement.

Given that the future ACP-EU rules of origin are expected to be an outcome of the EPA negotiations, a single value added approach by the EC would still need to accommodate ACP interests as part of the outcome of the negotiations. The ACP-EU negotiations would therefore need to take into account sound regional economic analysis that meets the objectives of the EPAs, which is development. Any benchmarks under consideration would need to enhance and stimulate trade for this methodology to be feasible across the sectors of interest to the ACP.

In addition, the ACP countries may also consider the following in their negotiations:

The value addition criteria, where it is utilized would rather be costs based rather than the ex-works price. The ex works price currently applied in the Cotonou Agreement may compromise the value of the EPA preferences particularly for landlocked and LDC countries.

Methodology for the valuation of non-originating materials will need to consider that some ACP States to date, still do not have the capacity to implement and apply the WTO or WCO customs valuation agreements.

The methodology should provide reduced local value added thresholds for LDCs and small, vulnerable, island and landlocked States given their unique challenges.

Value added thresholds where they are agreed upon should be as low as necessary to accommodate the diverse objectives of the different EPA regions and sectors of interest given that high or low wages and rents can conceal the true value added levels.

Thresholds will need to be achievable by firms and enterprises across the board and be based on EPA regional economic analysis and specific sectors of interest given that percentages for minimum value addition thresholds can vary significantly between products and sectors. This may arise due to the prevailing labour costs, capital and technology, cost of inputs and the import dependence of the region in terms of intermediates.

Reciprocity in rules of origin will need to be considered given that thresholds will need to accommodate the variance between developed, developing and least developed countries. This may need to be sector specific, such as clothing, textiles and fisheries, given that the ODI study on rules of origin has indicated that value added is not always lowest in low-income countries with some EU countries meeting lower value added thresholds than ACP States in certain sectors in light of technological advances for instance.

ACP defensive rules of origin will need to complement the objectives of ACP sensitive sectors vis a vis the EU and hence the value added methodology may need to consider EU sectoral processes and production advantages as well.

Detailed regional analysis will need to supplement the ACP-EU level negotiations both on the substance and objectives of EPAs. The negotiations should therefore take into account the highly unequal levels of the Parties with regard to regional integration. The concerns around overlapping membership in regional trade agreements and thereby overlapping rules of origin are relevant, if EPAs are to promote regional integration and enhance competitiveness.

The task ahead is indeed momentous. Rules of origin have frequently been identified as the root cause of underutilization of the long standing ACP-EU preference regime. Fortunately, the ACP States now have a historic opportunity to improve upon these rules in order to expand trade and development in their economies. However given the complexity of this issue, divergence in the negotiating strength of the two Parties and ACP regional variances, one wonders if ACP countries will be adequately prepared this year to negotiate reciprocal rules of origin using the value added methodology as the cornerstone of the negotiations.

EPAs: Of what significance Multilaterally?

My article published on Tralac Website (original dated January 2008)

January 2008 ushered in useful milestones. Seven EPAs are reportedly in place, of which six are coined interim EPAs and therefore earmarked for further negotiations while the Caribbean-EC EPA has been crowned the full comprehensive EPA. All agreements have met the core objective, which is to conclude WTO compatible trade in goods agreements under Article XXIV and have thereby prevented trade disruption on the part of ACP States. EPAs have also provided the EU private sector with historic market access opportunities into some of the poorest countries in the world. Nonetheless, with additional negotiations anticipated in six EPA regions, the Cotonou Agreement preparatory period is far from over. Additionally, the repercussions of these agreements both regionally and at the WTO are not encouraging. 

The new EPA environment has been birthed amidst controversy and ingenuity. The conclusion of interim EPA or full comprehensive EPA has further compounded confusion as to the legal basis for additional negotiations, when in fact both EPAs meet the Cotonou Agreement core objective of WTO compatibility in trade in goods. GATT Article XXIV technically only differentiates between fully liberalised FTAs and interim tariff dismantling FTAs, while WTO practice finds that almost none of the near 300 regional trade agreements notified under Article XXIV to the WTO RTA Committee, have been notified as interim agreements. In practice however, interim EPAs are expected to rapidly migrate beyond goods into full comprehensive EPAs, by concluding on a range of rules, some of which the WTO has not even considered, such as the Singapore issues. 

This migration plunges ACP States into a minefield of multilaterally unregulated trade territory and one with almost no disciplines for regional trade agreements. The graduation of the interim EPA also moves against the negotiating procedures of the Cotonou Agreement Article 37, which mandates that EPAs would progressively eliminate barriers in accordance with relevant WTO rules. Furthermore, the development objective of negotiations in areas the WTO has not even considered remains questionable given various documented research findings that comprehensive EPAs would not support the development objectives of many poor countries. Nonetheless, taking into account the limited to non-existent negotiating capacity including incoherent regional participation in some EPA regions which dismally constitute only one or two ACP countries, its not clear how or whether the additional negotiations scheduled for 2008 would be consummated on the part of the ACP EPA Parties. 

At the WTO, reciprocal parties to FTAs with developed countries will for the first time include LDCs, in essence contradicting the developmental arguments put forth in the Doha Round by the poorest countries. The same can be said of the Small Economies whose vulnerabilities have been acknowledged by trade and development experts globally and considered in the Doha negotiations. On this basis, the role of the WTO in the area of development could be eventually eroded as the negotiating positions and coalitions among developing and LDCs are thrown into further disarray and possible fragmentation.

The second phase of EPA negotiations could also potentially worsen what is already an uncomfortable situation in trade in goods both in the regional and WTO context. Regionally EPAs may provide EC goods access into the wider ACP markets. At the WTO, EPAs appear to have compromised the potential development benefits of the Doha Round, given concluded provisions reverse some of the Doha negotiating positions of developing countries. These include EPA commitments even by LDCs, to reduce up to 80% of tariffs, to eliminate export taxes and other useful development tools. Further negotiations with the EC, before the conclusion of the Doha round could further detract from development objectives of developing countries and their negotiating leverage at the WTO. 

Additionally, future negotiations on the development dimension of Article XXIV may have been compromised by these agreements. It remains doubtful if the threshold for substantially all trade even for LDCs will be reviewed or whether additional flexibilities for developing countries under GATT Article XXIV will be permissible in the WTO negotiations, beyond that agreed upon in the EPAs. 

Finally, EPAs may essentially determine or provide advance impetus for a possible agenda for the next round of multilateral trade negotiations. This agenda may include the formerly rejected Singapore issues such as investment, competition, public procurement, among other areas now agreed as part of the interim EPA, but not presently regulated by the WTO. If the interim EPAs are fully concluded by most ACP States, this may compromise future multilateral negotiations, when these issues do come under the ambit of the WTO. 

ACP States and the EU Members combined, constitute close to two thirds of the 150 WTO Membership. So far about half the ACP membership has concluded an EPA with the EC, with more ACP countries likely to do so to safeguard their regional integration efforts. Which raises the question; what impact could EPAs have on the multilateral trade and development agenda as a whole?

The Life Cycle of Trade in Services Negotiations

Despite the experience gained from more than two decades of services negotiations at the multilateral, plurilateral, and bilateral levels, trade in services continues to rank among the most complex subject matters in modern trade diplomacy. Such complexity arises from a number of factors, including:

1. the intangible nature of service-sector activity, and the corresponding difficulty of measuring and assessing a sector’s contribution to production and exchange and the economic consequences of alternative policy choices;

2. the considerable diversity of activities encompassed in a sector;

3. the challenge of factor mobility (capital and labor) involved in services transactions; and

4. the ubiquity (and diversity) of market failures affecting services transactions and related regulatory intensity.

For instance some African countries may be considering services market opening with the EC, as a part of the EPA Services and Investment negotiations. In this regard, the World Bank has developed a useful manual on trade in services negotiations, which addresses the 5 stages of the services negotiations life cycle. The stages include:

1. mapping a strategy for services in national development plans;
2. preparing for services negotiations (i.e., developing an informed negotiating strategy or identifying the capacity needs required to do so; setting up the proper channels of communication with key stakeholders; and conducting a trade-related regulatory audit);
3. conducting services negotiations (i.e., acquiring a voice in debates on outstanding rule-making  challenges in services trade by pursuing offensive interests; devising strategies to deal with defensive concerns; analysis of negotiating requests of trading partners; formulating own requests and offers; and participating in collective requests and offers);
4. implementing negotiated outcomes (i.e., addressing regulatory capacities and weaknesses; and identifying implementation bottlenecks); and
5. supplying newly-opened markets with competitive and international standard-compliant services (i.e., addressing supply-side constraints on the ability to take full advantage of the outcome of trade negotiations, including aid-for-trade in services).

The manual provides guidance on each of these platforms and can be accessed here.  


Meanwhile. the EPA-EC negotiations remain contentious and inclusive interim goods agreements in several regions have not even been completed (e.g. West Africa, East Africa, SADC EPA and Pacific regions).  On services and investment, it is not clear if African countries will get sufficient time and resources to negotiate with the the largest services economy in the world, the EU.  


Nonetheless, African countries should proceed with caution and with a clear strategy.  They should also bear in mind that Europe as a single market is the world‘s largest exporter of manufactured goods and services; the biggest export market for more than one hundred countries and has over 20 FTA and other trade negotiations under way (counted by country), which include services agreements.

Has the Financial Crisis Revealed the Limits of an Export Led Strategy?

The global economic crisis is making it painfully evident to the developing world, the limitations of over-dependence on a narrow set of exports and markets. Many countries are rightly worried about the merits of a growth process built on export-led growth. In the case of successful export-led growth strategies, the global economic crisis is revealing an additional limitation: the large exposure of exporting countries to financial vulnerability. 

For these reasons, countries should: strengthen their diversification and avoid agricultural or natural resource export vulnerability; emphasise the development of the domestic market; develop industrial policies rather than narrowly defined export led strategies only; increase regional trade and integration; enhance infrastructure development and other private sector development tools.

For instance, China's dependence on export-led growth, particularly as a global platform for exports of manufactured products, left it vulnerable to the effects of the global economic recession that began in late 2008. In 2009, China's exports fell by 16% and its imports fell by 11%, reflecting the high import-intensity of its manufactured export sector. Real GDP growth declined from 9.6% in 2008 to a year-on-year rate of 6.2% in the first quarter of 2009, the lowest rate in more than a decade. If China can be vulnerable to the downside of export-led growth, African countries are no exception.

Has the Financial Crisis Revealed the Limits of an Export Led Strategy? other views here.

World Bank's Open Data Initiative

The World Bank's new open data initiative can be accessed here.  The initiative is bringing global economic and development data to the web for the world to use.  As we all know, statistics are a key part of knowledge based decision making and thankfully comprehensive data about development indicators in countries around the globe is now easily accessible.

Africa Development Indicators can be obtained here.

World Bank Trade Website can be accessed here.

President's Export Council: Is this a useful model for Africa?

President Barack Obama recently named Boeing Chairman, President and Chief Executive Jim McNerney as chairman of the Presidents Export Council (PEC) with Xerox Chief Executive Ursula Burns as Vice Chairwoman of the Council and has 8 private sector members. The PEC was created to advise the President on exports, trade, promotion and other matters relevant to exports and was first created in 1973 by President Nixon according to the U.S. Department of Commerce Charter of the Presidents Export Council.

Originally, the PEC consisted of only 20 private sector members drawn from business and industry, mostly CEO's of major U.S. companies. Eight of the members were chosen "without regard to geographic considerations." Twelve members were selected to provide appropriate regional representation. Six years later, in 1979, President Jimmy Carter reconstituted and expanded the PEC to the current roster of 48 members which was extended to include leaders of labor and agriculture communities, members of Congress, and members of the executive branch. 

The PEC reports its advice through the Secretary of Commerce. Members serve "at the pleasure of the President" with no set term of office and thus, a change in administrations would bring a change in the Council. The PEC’s activities and operations are subject to the Federal Advisory Committee Act and the full council meets at least twice a year with no compensation to members for their services.  The PEC maintains subcommittees according to the council’s interests, and membership in those subordinate committees is drawn from the council’s membership. The PEC in the past has maintained 5 subcommittees as follows:

1. Trade Promotion and Negotiations

2. Technology and Competitiveness

3. Services.

4. Corporate Stewardship

5. Export Administration

When I first heard about the PEC, I wondered whether African Heads of State could benefit from similar Advisory bodies in order to address key economic challenges.  For instance, the PEC has had an impact on US negotiating positions and made significant input in the National Export Strategy.  During the George Bush administration, the growth of the US trade deficit by over 50% was a key issue of concern which the PEC used to influence US negotiations in the WTO Doha round and the regional context.  President Obama’s administration is currently faced with even more dire economic challenges including the recent loss of 8 million American jobs, which will undoubtedly influence the incoming PEC’s work. 

In Africa, this approach could be used to address issues pertaining to competitiveness, agriculture, investment etc. in addition to exports.