Global Trade Under Fire: What that Means for Africa?

This post originally appeared on the Africa Syndicate Blog on September 10, 2016.

Global Trade Africa WordcloudBy all accounts, international trade is in trouble as anti-globalization sentiment continues to grow across continents especially in the U.S. and Europe.  Some say it’s the slow economic recovery that has fueled protectionist, xenophobic and nationalistic politics that has given rise to Donald Trump and Marine LePen. It is undeniable that there is a popular sense of disenfranchisement or being left behind by many citizens in these nations.

Whether it is the U.K. leaving the E.U. with the infamous vote on “shall I stay or shall I go,” known as Brexit, or the strong opposition to the Trans-Pacific Partnership (TPP) fueled by the rhetoric of the U.S. presidential race, or the struggle to keep the Trans-Atlantic Trade & Investment Partnership (TTIP) negotiations alive, the U.S. and Europe are decidedly headed toward protectionism and isolationism and appear to be turning their backs on well-established economic theory that supports the benefits of free or open trade.

Let’s drill down a little bit further.  Take for example TPP, a high standard comprehensive trade agreement reached after 5 years of rigorous negotiations amongst 12 countries.  Yet, over the past year or so strong opposition to the pact has been voiced with the anti-TPP chants and placards becoming a familiar image of the U.S. presidential election.  It is highly questionable whether the U.S. Congress will pass the necessary implementing legislation to make it law in the U.S. in the lame duck of Congress after the November election.  Without that, the TPP would truly be in trouble given the difficulties entailed with renegotiating an agreement with 11 other countries.  Then, there is the Trans-Atlantic Trade & Investment Partnership (TTIP), the free trade agreement between the U.S. and the E.U., with the French Minister of State for Foreign Trade Matthias Fekl announcing that the French government will officially request at least a temporary cessation of further negotiations at the informal meeting of EU trade ministers in Bratislava, Slovakia, on September 22-23.  This comes after a German economics minister Sigmar Gabriel saying that the TTIP negotiations have “de facto failed.”  Then there is Brexit, with the impending departure of the U.K. from the EU.  And of course the World Trade Organization, whose accomplishments have been limited and its future uncertain with the lack of success of the Doha Development Round.

While Africa is striving for more economic cooperation and regional integration and someday even a Continental Free Trade Area, developed countries seem to be turning their backs on free trade.  What does this all mean for Africa?  Why should Africans care about the populist resentment towards trade in developed nations?  Africans have their own problems, ranging from conflict, to building infrastructure to establishing their places in global value chains.

A significant reason Africans should care about trade is that it has been incredibly important to reducing poverty and creating prosperity.  As noted by the WTO and World Bank Group in the WTO’s Fifth Global Review of Aid for Trade:

A dramatic increase in developing country participation in trade has coincided with an equally sharp decline in extreme poverty worldwide. Developing countries now constitute 48 percent of world trade, up from 33 percent in 2000, and the number of people living in extreme poverty has been cut in half since 1990, to just under one billion people. Trade has helped increase the number and quality of jobs in developing countries, stimulated economic growth, and driven productivity increases.  http://www.worldbank.org/en/topic/trade/publication/the-role-of-trade-in-ending-poverty

That said, globalization has not been perfect and it is true that the gains have been unequal.  By ignoring the cries of those felt behind in the U.S. and Europe, the leaders of the Western world have put open trade and globalization in jeopardy.  A turn toward protectionism will undoubtedly be disastrous for all nations around the globe.  We are simply too interconnected to be immune from such policies.  Anti-globalization measures will limit access to markets and raise prices for consumers.

So what can African nations do to ensure that the global trading system continues to support growth, development and job creation?  Africans should be part of the solution, not the problem.  Let the Nairobi WTO Ministerial be a symbol of Africa as a positive force in restarting multi-lateral trade talks.  Let’s stop the quibbling over whether the talks are under Doha or otherwise.  There needs to be a way forward and African nations can help forge the way by facilitating collaboration amongst developed and developing countries.  On March 17, 2016, in his speech at the University of Cape Town, WTO Director General (DG) Roberto Azevedo quoted from Nelson Mandela’s speech made in Geneva marking the 50th Anniversary of the multilateral trading system.  Mandela said that the WTO “provides the foundation on which our deliberations can build in order to improve. However, to realize the aspirations of all requires wise work to be done.” https://www.wto.org/english/news_e/spra_e/spra114_e.htm

DG Acevedo also addressed the misconception by some that the WTO is a barrier to regional integration by stating that – like the perception that the WTO is a rich man’s club – does not match up with the facts.  The WTO covers 98% of world trade and is comprised of 162 members at all stages of development, 43 of those members are African countries.  He points out the high costs of tariffs of selling within Africa with an African company facing an average tariff of 8.7% when selling within Africa, as opposed 2.5% elsewhere.  He recognized that regional trade agreements have coexisted with the multilateral system and are not a new phenomenon and stated that the WTO supports both efforts.

Africa should employ every means possible, whether through the multilateral system or regionally, to reduce tariffs and to eliminate non-tariff barriers.  Most notably, African nations should be taking advantage of the WTO Trade Facilitation (TFA) Agreement to simplify and standardize customs procedures, thereby reducing the time and cost of moving goods across borders.  DG Acevedo estimates that full TFA implementation could reduce trade costs by an average of 14.5%.  Remember, God helps those who helps themselves.

And yes Africa should take advantage of the programs offered them to establish their place in the global trading system.  For example, Sub-Saharan African countries should be taking better advantage of the African Growth & Opportunity Act (AGOA), which was renewed June of 2015 for a 10- year period.  It is unlikely that the U.S. will again renew AGOA after this 10-year period as a duty preference program so Sub-Saharan countries should be readying themselves for a different relationship with the U.S. based on the mutual benefits of a free trade agreement.

It would be a shame if the global trading system collapsed at a time when African nations are on the cusp enjoying the benefits of global trade and are finally working to establish their rightful places in the global value chain.  If trade chokes then Africans will miss out on the opportunities that the developed world have enjoyed and may take for granted.  As DG Acevedo noted, we are in a very important period right now.  Africans have an opportunity to shape the agenda in a way that can serve the interests of Africans.  There are differences that must be overcome at the WTO of how to address the remaining Doha issues and how to take on new ones that have arisen since global trade has evolved with e-commerce and digital trade.  Developments such as e-commerce actually provide opportunities for small and medium-sized African businesses that never before existed.

Closed borders will hurt all, especially emerging developing countries.  Closing off trade and investment will hit vulnerable nations even harder.  It is not an answer and African nations must speak up now to offer constructive ideas for solving very complicated problems for 21st Century trade.  Can Africans do the wise work that Nelson Mandela said must be done?  I was in Cape Town when Nelson Mandela passed and witnessed the mourning and celebration of his life.  He was an amazing human being.  I was personally touched.  Let’s heed his advice.

Transborder Integrity Initiative

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The Transborder Integrity Initiative ™ is a network of entities engaged in international commerce seeking to promote, by collective action, transparency and integrity in the importation and exportation of merchandise worldwide, with a focus on emerging countries.  Two pillars support our objectives:

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Feedback Request on AGOA

This post originally appeared on the Africa Syndicate Blog on March 31, 2016.

What’s Your Experience with the African Growth and Development Act (AGOA)?

AGOA - The African Growth and Renewal ActThe African Growth and Opportunity, originally enacted in 2000, was renewed in the summer of 2015 for an additional ten years until September 30, 2025. It is described by the U.S. as the cornerstone of the U.S. economic relationship with sub-Saharan Africa and the most generous trade preference program offered by the U.S. While it is good news that AGOA was renewed, at the same time both the U.S. and sub-Saharan countries have entered into trade agreements with third countries and other developed countries such as the European Union and Canada have migrated away from trade preference programs to reciprocal trade agreements. This has led the U.S. to consider policies and approaches beyond preferences for sub-Saharan Africa. Both the Administration and the Congress in reenacting AGOA have expressed an interest in exploring such changes.

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Where is International Trade headed and what does it mean for Africa?

nairobiAs we welcome the New Year, it is time for the African continent to take stock of developments in international trade policy that occurred in 2015. The year ended with the 10th Ministerial Conference of the World Trade Organization (WTO), which took place in Nairobi, Kenya from 15 to 19 December 2015, a first such meeting to be hosted by an African nation. The Conference was opened by Kenya’s President, Uhuru Kenyatta and hosted by Kenya’s Cabinet Secretary for Foreign Affairs and International Trade Amina Mohamed. They were joined at the Opening Ceremony by President Ellen Johnson Sirleaf of Liberia, whose country concluded its WTO membership negotiations on 16 December 2015. It is interesting to note that the round of trade negotiations being discussed in Nairobi, the Doha Development Agenda (Doha), was launched in Marakesh, Morroco in 2001.

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Does Trade Facilitation Matter in the Fight against Corruption?

This post originally appeared on Richard Bistrong’s blog on August 3, 2015. View the original article here.

The World Trade Organization’s (WTO) Trade Facilitation Agreement (TFA) may seem to be an odd topic for an anti-corruption blog but it is not. It has everything to do with good governance and addressing the demand side of corruption at the border. But in order to understand the relationship one must understand what Trade Facilitation is and how exactly it addresses public corruption at Customs.

The WTO defines trade facilitation as “the simplification and harmonisation 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.” The main features of the TFA include: required publication of regulations and fees; appeal-and-comment rights when new regulations are introduced; mandatory internet availability of documents and payment options; simple and clear access to overseas documents and regulations; special procedures for expedited release of air cargo and perishable goods; transit guarantees for cargoes from land-locked countries through neighboring countries to seaports without special fees; support for the use of express delivery and air cargo; requirements for clear procedures to deal with cargo holdups and releases; and technical assistance and capacity building for low-income countries to put these reforms into place.  In short, TFA provides a blueprint for customs modernization. Successful implementation will lie in the detailed work that lies ahead.

The TFA was finalized at the conclusion of the 9th Ministerial Conference in Bali, Indonesia, on December 7, 2013 (see here). It was the first WTO trade agreement concluded since 1998 and the first fully multilateral trade agreement negotiated under the auspices of the WTO. Unfortunately, India held up final approval of the TFA by linkage to an entirely separate issue addressing food stockholding programs.   Thanks to the leadership of Director-General Roberto Azevedo and persistent efforts of the U.S. Trade Representative Ambassador Michael Froman, on November 27, 2014 the WTO adopted decisions related to public stockholding for food security purposes, the TFA and the post-Bali work, which put TFA back on track for ratification and implementation.

 In spite of the touted benefits, the WTO member countries has been slow to ratify the TFA. As of June 18, 2015, only eight countries had ratified. They include: the United States, Singapore, Hong Kong, Mauritius, Malaysia, Japan, Australia and Botswana. On July 14, 2015, the European Parliament’s INTA Committee approved TFA. Each European Union member state will be counted individually. Nonetheless, two-thirds of the WTO membership, or 108 members, must ratify TFA before it is implemented. Meanwhile, the U.S. and the WTO are encouraging countries to take action before the Tenth WTO Ministerial December 15-18, 2015 in Nairobi Kenya.

Deputy U.S. Trade Representative Bruce Hirsh also called on U.S. businesses with operations in developing countries to weigh in. Companies should view these reforms as a welcome opportunity to also combat public corruption at the border. Moreover, various countries are donating funds to technical assistance programs for developing countries. For example, on July 2, 2015 Australia donated AUD 1 million for the Trade Facilitation Agreement Facility and on July 27, 2015, Ireland donated EUR 350,000 for technical assistance.

The Organization for Economic Cooperation and Development estimates that the customs reforms effected by TFA implementation would lower the total trade cost of shipping goods by 10 to 15 percent depending upon the country. Some expect implementation of TFA’s measures to boost global trade by an estimated $1 trillion and global GDP by nearly 5 percent. As stated by the Office of the United States Trade Representative, “it makes it easier for businesses big and small to participate in trade around the world – and to support jobs through that trade.”

Various aspects of the Agreement, such as transparency, automated entry and payment of duties, can serve powerful measures to address corruption at Customs. Corruption at the border is undoubtedly a significant impediment to trade and investment in the developing world. Corruption at ports is such a serious problem that the maritime industry has organized a collective action effort called the Maritime Anti-Corruption Network (“MACN”) which seeks to “work toward its vision of a maritime industry free of corruption that enables fair trade to the benefit of society at large.”[1] It goes without question that TFA implementation would aid in this effort.

TFA implementation will also be a test of good governance. Countries will have to make the decision of whether they actually want to avail themselves of the donor assistance for capacity building to modernize their border processes. This can be seen as a test of whether a country is really willing to address corruption at Customs. A country’s willingness or unwillingness to adopt measures facilitating trade and reducing the opportunities for corruption at the border may be a powerful indicator of a culture of corruption – more so than any index of perception of corruption.

For companies doing business abroad, especially in emerging countries, a country that undertakes these reforms may be a better bet for business. And hopefully, the countries that take advantage of the assistance will succeed in establishing their places in the global value chain. In sum, TFA implementation should be an important tool in addressing the demand side of corruption and making the implementing country a more attractive and less risky place to do business.

Ms. Suarez is an experienced customs and international trade lawyer with a special focus on import regulation as well as on anti-corruption and trade policy issues. Her practice includes administrative, regulatory, legislative and litigation matters for global companies that are involved in importing, exporting, transportation, logistics, and customs brokerage. Ms. Suarez has also handled high-profile investigations, such as the U.N. Volcker Committee and various Congressional investigations into the U.N. Oil-for-Food Programme. She can be reached via e-mail at esuarez@suarezfirm.com and at 202.552.0310.

[1] http://www.bsr.org/en/our-work/working-groups/maritime-anti-corruption-network.