Best buys for Africa: Trade Facilitation in the African Continental Free Trade Area
The African Continental Free Trade Area (AfCFTA) was signed by 44 African countries in March 2018. To date, 24 countries have ratified this major regional trade agreement (RTA), which entered into force for these countries in May 2019. The AfCFTA seeks to boost intra-regional trade by supporting free cross-border movement of goods and people along regional corridors throughout Africa. Removing barriers to trade is a pre-requisite for realizing Agenda 2063 aspirations for interconnected and sustainable transport infrastructure systems. These will necessitate an additional US$2 billion each year. With prevailing high transaction costs these investments are unlikely to materialize; if they do, they will have a much lower rate of return than they would have if trade barriers were not substantially removed.
The AfCFTA has prioritized the removal of import tariffs on intra-AfCFTA trade. As important is to dismantle non-tariff measures (NTMs) affecting intra-African trade. Both types of policies increase trade costs by driving a wedge between consumer prices in the importing country and producer prices in the exporting country. Often NTMs are associated with domestic regulation, and trade costs arise due to regulatory heterogeneity. But NTMs may also reflect a policy to protect domestic firms, or rent-seeking behavior by officials at the border. As many NTMs have legitimate social goals the aim cannot be simple elimination as in the case of tariffs. Trade stakeholders must work together to reduce the trade restrictive effects of NTMs. To do so they require information on a broad range of NTMs and mechanisms to determine their effects and incidence. Transparency is both a critical input and output, needed to determine priorities for action, assess progress in reducing trade costs, and accountability for results (monitoring and evaluation).
This brief argues that simple, low cost interventions to improve collection and use of information on the prevalence, intensity and incidence of trade costs associated with NTMs have the potential to greatly increase the economic gains from the AfCFTA. The premise – based on global experience – is that the extent to which the AfCFTA will be effective to reduce trade costs depends importantly on governments addressing NTMs, including in services markets. Current technologies permit information on the effect of NTMs to be collected from traders – whether firms, farmers, truckers, or day traders. Real time data on NTMs that is fed into/used to inform the activities and deliberations of national and sub-regional trade facilitation institutions will help target actions on trade policy areas that generate the highest trade costs. As the relative importance of different NTMs will change over time as the AfCFTA is implemented, real-time information is also important to ensure high BCR interventions are pursued over time as opposed to a single point in time.
The proposed intervention capitalizes on a new UNCTAD/Africa Union initiative to collect and record data on NTMs using cell phones and an online portal. We propose building on and extending that mechanism to include services, as it is currently limited to goods. In addition, the intervention will support monitoring and evaluation of the CFTA implementation, as well as future developments in the integration of services markets across the continent. We very conservatively assess the BCR of action to measure trade costs from ‘NTMs at work’ and putting in place mechanisms to help traders advocate, discuss and monitor progress in reducing trade costs at 20.