81085 Indicators to Monitor Regional Trade Integration in Africa Peter Walkenhorst Africa Trade Practice Working Paper Series Number 1 September 2013 www.worldbabk.org/africa/trade This work is funded by the Multi-Donor Trust Fund for Trade and Development supported by the governments of the United Kingdom, Finland, Sweden and Norway. The views expressed in this paper reflect solely those of the authors and not necessarily the views of the funders, the World Bank Group or its Executive Directors. This series of working papers is designed to share new voices and analysis on the key issues for trade and regional integration in Africa today. Africa Trade Practice Working Paper 2 Executive summary Stronger regional integration has been a policy priority in Africa for several decades. Closer trade links with neighboring countries promise to stabilize food markets, enhance profitable exchanges in light manufactures, reduce consumer prices, and help develop regional production networks. However, the implementation of existing integration initiatives has often been lackluster, so that the economic development and poverty reduction potential from expanded intra-regional trade has remained untapped. More effective monitoring processes for existing integration arrangements could help to raise the profile of the prevailing implementation deficits and provide policy makers and civil society with the necessary information to push for corrective action. Successful implementation of regional integra- tion agreements requires two steps: first, the transposition of common commitments into national law, and second, the de-facto change of trading practices on the ground. In countries with notable governance challenges and under-resourced administrations, such as many African countries, the gap between the two implementation steps can be substantial, so that the de-facto implementa- tion of trade reforms remains incomplete and ordinary traders, business people and consumers experience little, if any, benefits from regional integration. Most existing integration monitoring systems are scorecard-based compliance assessments. These processes are useful in determining which member countries have transposed their regional- level reform commitments into national law, but are saying little about changes in trade practices on the ground. To obtain information on the impact of integration policies on ordinary traders, indi- cators of trade transaction costs are required. These can be indirect measures of trade volume changes or price differences, or direct estimates of the various trade cost components. The latter tend to be more specific and can more easily be related to changes in particular policy measures. Most integration monitoring processes in Africa are based on compliance indicators. Where out- come indicators are used, these generally are of an aggregate nature, such as measuring changes in the volume of intra-regional trade, or focus on tariff liberalization, the original centerpiece of most regional trade agreements. There are some monitoring systems that go further, though. For exam- ple, COMESA, EAC and SADC have established inventories of non-tariff barriers that are regularly maintained and processed, and the EAC conducts perception surveys among traders and trans- port service providers on non-tariff measures and trade and transport impediments. On the other hand, monitoring efforts concerning trade in services are virtually absent. Outside Africa, there are some regional integration initiatives that have started to systematically monitor trade outcomes through indicators that cover not only aggregate trade evolution and tariff reductions, but also non-tariff measures, trade facilitation, and services trade. Regional trade initia- tives in Africa could usefully adopt similar processes and complement their monitoring systems with indirect goods and service trade volume information, as well as specific indicators on trade costs related to tariffs, non-tariff barriers, trade logistics obstacles, and services market regulation. Some of the data necessary to construct more discerning trade outcome indicators are already available, while additional information that is missing might be relatively easy to generate. The scope of the indicator set and the selection of the particular range of indicators will be specific to each individual integration initiative and require some consultations and negotiation, but if policy makers and public officials are serious about addressing the implementation deficit, they need to Africa Trade Practice Working Paper 3 devote more attention and resources to establishing the extent to which regional integration efforts are being reflected in trading practices. 1. Background and motivation for the analysis The number of regional integration initiatives has been steadily increasing. More than 350  Regional Trade Agreements (RTAs) are currently in force (Figure 1.1) and more than one-half of global trade is carried out under preferential terms. In Africa, all countries are party to at least one, and often several, RTAs. Regional agreements can make it possible to reap benefits from international inte- gration, while tailoring the provisions of the agreements to the particular needs and adjustment ca- pacities of the countries involved. Yet, how effective have the RTAs been in achieving their stated objectives? What have been the impacts of the regional preferences on ordinary citizens? To what extent have RTAs contributed to reduce poverty? Figure 1.1 Regional Trade Agreements notified to the WTO Source: WTO Secretariat. Answering these questions crucially hinges on the availability of high-quality data and indicators. Without these basic analytical tools, it becomes virtually impossible for policy-makers to monitor the effects of existing regional integration initiatives and assess the extent to which expectations have been met and whether policy adjustments might be warranted. Also, a strong set of results- based indicators can help to illuminate the costs and benefits of policy initiatives and, thus, inform the broader public dialogue on complementary reforms. In this context, the following discussion takes stock of the monitoring practices in Africa with re- spect to regional trade initiatives and evaluates the need for further indicator development. The as- sessment will thereby focus on the downstream outcomes of existing trade commitments and the measurement of how regional trade policies affect ordinary traders, producers, and consumers. This spotlight on impact-monitoring for the general population also helps to establish whether deci- Africa Trade Practice Working Paper 4 sion makers have the necessary tools at hand to evaluate the linkages between regional trade ar- rangements and poverty reduction. The remainder of the study falls into four sections. Section 2 briefly discusses integration monitor- ing systems and related indicators in general. Section 3 then presents an overview of regional trade indicators that are currently used by policy-makers in sub-Saharan Africa. Section 4 surveys the respective monitoring practices in other regions of the world. Finally, Section  5 provides sugges- tions for indicator development in Africa based on the practices and gaps identified in the earlier parts of the report. 2. Indicators to monitor regional integration There is broad agreement among analysts and practitioners that many RTAs in developing coun- tries have failed to live up to expectations. This disappointing performance is at least partly due to slow and incomplete implementation of integration commitments (World Bank, 2005). The poor track record can be largely blamed on political economy factors and resource constraints. Political sensitivities, interest group pressure, and bureaucratic rigidity often contrive against policy change, while the expanding number of RTAs and their increasing policy scope put severe strains on the technical capacities of government administrations. 2.1 Monitoring regional integration Light-weight, institutionalized monitoring process to scrutinize the progress in adopting key fea- tures of regional integration commitments can be very valuable to address implementation deficits. Monitoring provides a feedback mechanism for policy makers as well as information for the general public on the progress achieved. Moreover, it constitutes an institutionalized channel of regular information-sharing among the members of an RTA that can help to build trust, and as such en- hance the willingness of partners to envisage steps towards deeper integration. In view of these benefits, several international organizations have put forward formal monitoring systems (De Lom- baerde, Pietrangeli, and Weeratunge, 2008), which vary widely in terms of integration area cover- age and the number of indicators they are proposing to follow. Moreover, in some cases, such as the EU-CARICOM economic partnership agreement, monitoring processes have been explicitly anchored in the RTAs themselves. The purpose of the monitoring exercises is thereby to determine the progress made towards the stated integration objectives ( “reflexive monitoring”), and/or to benchmark the state of integration vis-à-vis third countries or groupings (“comparative monitoring”) (De Lombaerde and van Langenhove, 2005). Two major stages of implementation and related monitoring can be distinguished (Figure 2.1). First, the provisions of a signed and ratified RTA have to be incorporated into national law, which might require some adjustment or amendment to the existing body of laws and regulations. This stage might be called “de-jure implementation” and the associated monitoring process checks on the extent of compliance of a country’s national legislation with the provisions of the RTA. Second, the provisions of the RTA and national laws have to be applied to the situation on the ground. This process would involve the updating of administrative guidelines for executing agen- cies and ensure that the new regional trade arrangements are adhered to not only by the letter of the law, but also in its underlying spirit. For example, where an RTA implies a reduction in border tariffs, this preference should not be offset through a concurrent increase in costly technical inspec- Africa Trade Practice Working Paper 5 tions or additional demands from border officials for informal payments. This second stage might be called “de-facto implementation” and the related monitoring process would focus on integration outcomes. Figure 2.1 RTA implementation and related monitoring RTA  signed and  ratified RTA  provisions pass  into  national  law De-­‐jure   Compliance implementation Monitoring RTA  provisions  are reflected  in  trade  practice De-­‐facto   Outcome implementation Monitoring Source: Author. Both compliance monitoring and outcome monitoring are valuable processes and their findings are complementary. In cases where the enforcement of national laws is strong and where broad politi- cal and administrative support for the regional integration process exists, the qualitative results from the two forms of monitoring will be closely aligned. However, in countries that face severe governance challenges or administrative capacity bottlenecks, compliance and outcome monitor- ing might paint a rather divergent picture of the progress in regional integration. For example, re- form commitments from RTAs might well have been incorporated in national legislation, but might not (yet) be reflected in the practice of traders. In these situations, outcome monitoring is clearly the more discerning approach. Compliance monitoring generally uses scorecards. These performance measurement tools show the status of country-level de-jure implementation across different integration areas and time peri- ods. By doing so, implementation gaps can be exposed over time and offending governments pressured by their peers to act. Outcome monitoring goes further and assesses to what extent the ultimate objective of regional integration, that is the facilitation of intra-regional exchanges for traders and business people, has been achieved. It tends to be more challenging than compliance checks, as the data requirements are more demanding. In the case of trade integration, outcome monitoring relies on indicators that make it possible to assess reductions in overall trade costs, that are all costs incurred in getting a good to a final user other than the marginal cost of producing the good itself (Anderson and Win- Africa Trade Practice Working Paper 6 coop, 2004). They notably include costs related to border tariffs, non-tariff barriers, trade-related regulations, and transport and distribution. 2.2 Trade cost indicators Similar to any good economic indicator, indicators of trade costs should be: (i) relatively easy to understand; (ii) based on readily available data; and (iii) illustrative of an important phenomenon. Ideally, trade costs would be measured directly across the different cost components. However, the necessary data are not always available, so that indirect indicators often have to be used. Such indirect approaches can either rely on quantity information, for example, the share of regional trade in total trade or GDP, or price information, such as cross-border differences in prices for homoge- nous goods. Either economy-wide statistics or firm-level data can serve as the basis for the con- struction of trade cost indicators (Figure 2.2). Trade cost indicators do not necessarily need to be closely related to a particular policy instrument, but the attribution of results becomes more difficult as the number of factors that influence the indi- cator increases. For example, the share of regional trade in total trade might rise due to regional trade policy reforms, but the change in the ratio could also be due to a price drop for the country’s exports to world markets, or a reduction of exports to third countries because of supply con- straints, or a crop failure in a partner country that triggers higher regional food imports. Hence, at- tributing the change in the regional trade to GDP indicator to the success of regional integration policies could be misleading. Figure 2.2 Overview of trade cost measurement Economy-­‐wide  data Firm-­‐level  data Direct  measurement Indirect  measurement Tariffs   Trade  volume   Market  price   Non-­‐tariff  barriers comparisons comparisons Trade  Facilitation  measures Services  trade  &market  regulations Specific  (partial)  indicators Aggregate  indicators Source: Author. Africa Trade Practice Working Paper 7 There are, thus, benefits to more narrowly defined, more specific indicators. Monitoring several of these specific indicators will tend to give a more accurate picture of the state of RTA implementa- tion and provide more clear-cut feedback on particular policies than looking at one or only a few aggregate indicators. Moreover, whenever indicators based on direct measurement are available, the information will be much easier to interpret than data for indirect indicators. The latter always require an additional step of conversion to translate the quantity or price information into estimates of the costs faced by traders. Despite their limitations, indirect, aggregate indicators are widely used for trade integration monitor- ing due to the relative ease of obtaining near-term data that are comparable across countries and time periods. Table 2.1 shows a number of examples. As mentioned earlier, the interpretation of this type of indicator often poses problems. For example, an increased share of regional trade in total trade might suggest closer regional integration, but it could also mean that the country has been losing competitiveness in international markets. Moreover, in cross-country comparisons, the ratio will be heavily influenced by country size and geography. Also, it is unclear what an optimal ratio of regional to total trade should be, so that the value of the indicator for guiding trade policy is relatively low. Table 2.1 Examples of indirect, aggregate trade cost indicators Quantity-based Price-based Share of regional trade in total trade Price of staple food items (maize, rice) Share of regional trade in GDP Price of a typical bag of fertilizer Intra-regional trade intensity (i.e. ratio of regional trade share Price of a liter of diesel to global trade share) Number of firms exporting to global and to regional markets Price of homogenous manufactures (e.g. plastic and to both buckets, steel tubes, Ikea catalogue items) Number of products being exported to regional and global markets and to both Value of exports per firm – regional/global Employment in exporting firms – regional/global Number of new export products that were first traded regionally before being exported globally Number of "new" seed varieties available to farmers Source: Author. Comparisons of prices for homogenous products can also be difficult to interpret when seen in iso- lation. Even in a perfectly integrated market, one would not expect the prices in the supply center and the demand center to be identical, as there are transport and transaction costs to link the two markets. Hence, some knowledge of the magnitude of these trade costs (and for time-series analysis their evolution) would be needed in order to make proper judgments on the degree of Africa Trade Practice Working Paper 8 market integration. In addition, there are challenges with respect to the comparability of products, the degree of competition in the markets, and currency conversion. Among partial trade cost indicators, information on tariff barriers is most prevalent, since the liber- alization of border taxes has been the early focus of most trade integration agreements. A number of different indicators can be envisioned, either using direct tariff measurement or indirect preva- lence data (Table 2.2). Table 2.2 Examples of tariff-centered trade cost indicators Direct Indirect Production-weighted average regional and MFN tariff Share of regional trade that pays MFN duty Trade-weighted average regional and MFN tariff Share of non-zero intra-regional and MFN tariff lines Simple average intra-regional and MFN tariff Share of tariff lines that are exempted from regional preferences Highest intra-regional and MFN tariff Prevalence of intra-regional and MFN tariff peaks Source: Author. Non-tariff measures (NTMs) come in many shapes and configurations. UNCTAD distinguishes a total of 16 different categories. These comprise technical measures (SPS, TBT, Pre-shipment in- spection), non-technical measures (contingent trade protection, non-automatic licenses, price con- trols, finance-related, competition-related, investment-related, distribution-related, post-sales, sub- sidies, government procurement, intellectual property, rules of origin), and export-related measures (UNCTAD, 2013). Most NTMs have a domestic policy rationale, but if they are implemented in an overly restrictive manner, they can become barriers to trade. Table 2.3 lists a selection of indicators that can be used to monitor trade and integration. Table 2.3 Examples of NTB-centered trade cost indicators Direct Indirect Cost of border crossing permit/jetton Time to cross border Cost of obtaining import/export license/permit Time to obtain import/export license/permit Cost of obtaining certificate of origin Time for obtaining certificate of origin Cost to obtain SPS certificate Time to obtain SPS certificate Amount of informal payments at border Share of tariff lines subject to export bans Cost of standard tests for aflatoxin Source: Author. Trade facilitation related barriers constitute a subset of NTBs that is related to the logistics of cross- border trade. These measures cover practices and procedures concerning transport and border clearance. Again, a large number of potential direct and indirect indicators can be envisaged, of which a sample is presented in Table 2.4. A well performing logistics sector is particularly important for the emergence of regional production chains. Production networks spanning across several economies have been at the center of the Africa Trade Practice Working Paper 9 manufacturing export success in East Asia. While monitoring regional and global production chains is a demanding, data-intensive undertaking, several promising approaches have recently been de- veloped: Koopman and others (2011) calculate a global or regional participation index based on foreign value-added embodied in gross exports and the domestic value-added embodied in third countries’ gross exports; Fally (2011) takes the number of production stages as an indicator on the length of the global or regional value chain; and Antràs and others (2012) calculate an index of “upstreamness” based on industry-level input-output tables.Table 2.4 Examples of trade facilitation-centered trade cost indicators Direct Indirect Average cost per mile to transport goods to Number of road blocks on key trade routes neighboring markets Average cost of delivering a container from the port to Number of weigh stations on key trade routes the main consumption center Number of transport operators that traders can choose from Frequency of physical inspections at border Frequency of rejections of certificate of origin Share of eligible small-scale traders that benefit from simplified documentation procedures Share of one-stop border posts in total number of border posts Source: Author. Services trade is substantially different from goods trade. Services can be delivered through four different modes, notably consumption abroad, cross-border delivery, commercial presence, pres- ence of natural persons, and are heavily affected by behind-the-border regulations. Concerning indicators for integration monitoring, indirect aggregate indicators based on quantity or price are similar in nature to those used for goods trade, while direct partial indicators are specific to the sector or sub-sector. Table 2.5 provides a number of examples. Africa Trade Practice Working Paper 10 Table 2.5 Examples of services trade-centered trade cost indicators Partial Aggregate Direct Indirect Quantity Price Average hourly fees Number of professionals Share of regional services Fees charged by service charged by services that obtain work permits trade in total services providers for selected providers under mutual recognition trade standardized services agreements Cost to obtain business Time to obtain a business Share of regional services Cost of trade finance visa for neighboring visa for neighboring markets trade in GDP markets Cost to obtain work permit Time to obtain work permit Cost of crop insurance for neighboring markets for neighboring markets Cost of local/international phone call Source: Author. 3. Currently used indicators in Africa Regional integration in Africa offers substantial opportunities for growth and employment creation. Official statistics show that trade with neighboring countries in food and basic manufacturing goods is very low, but burgeoning informal markets for these products in border regions attest to the existence of price differences that can be profitably exploited. Also, regional production net- works are virtually non-existent in Africa, while such regional supply chains have helped countries in East Asia to boost their exports of manufactures to world markets. Recent analytical work sug- gests that behind-the-border barriers and anti-competitive regulations are major obstacles to mu- tual beneficial exchanges at the regional level in Africa and that policy reforms in areas such as non-tariff barriers, trade logistics, and services market regulations could generate substantial bene- fits (Brenton and Isik, 2012). Governments in Africa are aware of the growing importance of the “new issues” in regional integra- tion, such as non-tariff measures, trade facilitation, and services trade. Corresponding chapters or protocols have been added to most existing RTAs to supplement the original focus on tariff liberali- zation. Yet, the operationalization and implementation of the new issue areas lags behind, such that the good integration intentions of the agreements often exist only on paper, but not in the real- ity of the traders. Furthermore, monitoring of regional trade integration in general, and of integration with respect to the removal of non-tariff barriers, trade logistics impediments, and services trade obstacles in par- ticular, is not very well developed. The processes maintained within the different Regional Eco- nomic Communities tend to focus on compliance with integration commitments in the area of tariff integration. Other subject areas are poorly covered and de-facto implementation is rarely assessed. A laudable exception is the proposal by the COMESA Secretariat for a set of regional integration indicators, which is comprehensive and covers all the new trade integration areas (COMESA, 2002). Yet, even within this proposal, more than two-thirds of all the indicators that concern trade Africa Trade Practice Working Paper 11 are compliance indicators and trade integration outcomes are only considered in some of the cate- gories (Table 3.1). The compliance indicators on COMESA’s list illustrate some of the challenges that analysts face when assessing the status of integration based on such tools. In particular, some of the compli- ance indicators are defined very broadly and leave substantial digression to the evaluator. For ex- ample, the issue whether an independent competition authority exists has, in fact, several dimen- sions: Has a law on the establishment of a competition authority been passed? Is the institution independent from government influence, including funding? Has the authority been provided with appropriate human and financial resources? Is there case evidence that the institution is function- ing? - If a “yes” to only the first question were already to trigger a full score for integration in this category, the monitoring process would be rather weak, as obviously a fully functioning competition authority would only have been partially established. A better way to reflect the status of integration in this case would be to record the progress made towards the integration objective by reporting, for instance, completion scores in percentage terms. Table 3.1 COMESA’s Proposal for a Set of Regional Trade Integration Indicators Category Variables Outcome indicator Indicator of Direct Indirect compliance Trade Number of non-zero tariffs X liberalization Highest MFN tariff X Highest regional tariff X Weighted Average MFN tariff X Trade Level of conformity to the WTO TBT Agreement X facilitation Capacity of member states to implement mutually X recognized certification marking schemes Notification of national enquiry points X Ability to regulate and monitor sanitary and X phytosanitary standards Use of ASYCUDA (or similar) X Use of GATT valuation system X Use of COMESA customs document X Use of HS1996 (or later) customs classification system X Trade in Establishment and publication of Contact and Enquiry X services Point Performance with regard to commitments X Reductions in exemptions over time X Transit Implementation of COMESA harmonized road transit X facilitation charges Use of COMESA carriers license X Use of COMESA customs bond guarantee X Implementation of harmonized axle load and vehicle X dimension regulations Africa Trade Practice Working Paper 12 Implementation of COMESA third party vehicle licensing X system Capital flows Existence of foreign investment code providing national X and foreign treatment investment Degree to which there are any restrictions on foreign X ownership of businesses Level of restrictions on foreign ownership of land X Level of restrictions on repatriation of earnings X Regulatory Existence of an independent competition authority X environment tasked with implementing a set of legally recognized rules and regulations on competition Existence of an independent telecommunications X authority tasked with implementing a set of legally recognized rules and regulations on telecommunications Existence of an independent standards authority tasked X with implementing a set of legally recognized rules and regulations on standards Existence of defined regulations dealing with public X procurement in member states Licensing Level of licensing requirements to operate a business X requirements Time taken to obtain appropriate licenses to start X business operations Transparency of licensing system X Source: COMESA (2002). 3.1 Compliance and tariff monitoring The examination of compliance with tariff reduction and harmonization commitments in trade agreements can be described as the standard form of monitoring. The processes are normally managed by the RTA-Secretariats, who receive respective information from members. For exam- ple, the African Union Commission, in collaboration with the African Development Bank and the United Nations Economic Commission for Africa, checks regularly on progress at the continental level with respect to the implementation of the Abuja Treaty of 1991 (Table 3.2). Similar monitoring systems based on self-reporting and aggregate “achieved/not achieved” assessments are available for virtually all integration agreements within Africa. The integration outcomes reported in Table 3.2 again highlight the drawbacks of highly aggregated compliance monitoring. For example, while COMESA has been working to remove tariff and non- tariff barriers among its members, not all member countries are participating in its Free Trade Area. Nevertheless, the scorecard records an unambiguous “achieved” for this category. Similar reserva- tions could be made for the integration progress in ECCAS and ECOWAS. In West Africa, WAEMU (2010) uses a detailed scorecard approach. It lists the community-level directives in different policy areas and reports whether or not a member country has transcribed Africa Trade Practice Working Paper 13 the integration measures into national law. In addition, the reporting comprises an average of com- pliance across all member countries, as well as an average of compliance across integration measures in each country. Table 3.2 Abuja-Treaty scorecard of regional integration in Africa Source: UNECA, 2012. In the East African Community, a framework for monitoring and evaluating the implementation of the EAC Common Market Protocol was established in 2012. This framework calls for the periodic preparation of reports on the de-jure implementation of Protocol provisions for submission to the Council of Ministers, which then assesses the progress made towards the original schedule. As part of its strategic planning, COMESA has mapped out a set of quantitative targets that it and its member states hope to meet by 2014 (COMESA, 2012). A useful characteristic of the listing is that it specifies targets for particular sub-categories (e.g. adoption of harmonized standards, com- mon tariff nomenclature, CET) instead of just focusing on a broad, overall assessment of tariff commitment implementation: • At least 10 Member States formalize Inter-Ministerial Committees by 2014 • Full implementation of FTA by Eritrea, Ethiopia, RD Congo and Uganda • At least 30% of NTB resolved per year per country • At least 10 Member States implement some of the harmonized standards by 2014 • All Member States countries domesticate the Common Tariff Nomenclature by 2014 • At least 10 COMESA Member States implement CET by 2014 (excluding sensitive and ex- cluded lists) • At least 11 MSs have their final list of sensitive products submitted to COMESA Secretariat and gazetted at MS level by 2014 • At least 10 MS domesticate the Customs Management Regulations by 2014 Africa Trade Practice Working Paper 14 • At least 10 Member States submit final schedule of commitments by 2014 • At least 10 Member States adopt the COMESA Competition Enforcement Guidelines by 2014 • At least 6 Member States sign and ratify the Protocol to the Common Investment Agree- ment and domesticate the investment agreements by 2014 • Member States implement Transit Transport Facilitation Instruments by 2014 The monitoring process at SADC also keeps track mainly of the “existence” of national institutions or laws (Table 3.3). In addition, the analysis matrix contains some entries that point towards aggre- gate outcome indicators. Table 3.3 SADC trade integration monitoring matrix Source: SADC (2012). 3.2 Non-tariff barriers Non-tariff barriers are highly heterogeneous and quantifying their prevalence and impact is a major challenge. NTBs range from procedural and administrative issues (such as customs clearance pro- cedures, documentation, interpretation and application of Rules of Origin) to technical and regula- tory matters (such as divergent standards), as well as charges and fees related to the clearance of goods in transit. In 2007, SADC instituted a mechanism that registers complaints from private sector operators re- garding NTBs, which was subsequently extended to COMESA and EAC as part of the Tripartite arrangement. Implementation of the mechanism involves collaboration between traders, national focal points based in government trade departments and the RTA Secretariats in bringing conten- tious issues to the attention of policy makers and following up on complaints until their resolution. Between 2007 and 2012, 329 notifications have been made to the SADC Secretariat, of which 223 have been resolved (SADC, 2012). Table 3.4 shows an excerpt on resolved NTB issues within the EAC. Africa Trade Practice Working Paper 15 While the process of establishing an NTB registry and negotiating the resolution of complaints is a valuable undertaking, it is important to ensure that the resolution mechanism does not remain lim- ited to the particular case, but extends to the underlying policy issue. If complaints are treated as isolated cases that can be taken off the table through administrative derogation, the overarching aim of facilitating intra-regional trade might not be achieved, as the trade impediments that trig- gered the complaint are not addressed. Indeed, the same type of complaints might surface again and again. In this context it could be useful for the REC-Secretariats, perhaps in cooperation with development partners, to undertake an assessment of the impact of the NTB complaints registry on trade policy in member countries. Table 3.4 NTB resolution in the EAC Source: EAC (2012). Africa Trade Practice Working Paper 16 Data on direct costs of NTBs are generally difficult to find, but surveys of traders can help to get estimates that illustrate the order of magnitude. For example, the EAC in collaboration with several development partners has regularly undertaken surveys of traders, transport service providers, and business people in order to obtain information on the severity of impediments related to technical standards, SPS measures, and business licensing. Figure 3.1 summarizes the results concerning costs incurred due to the lack of information about new standards. Figure 3.1 Average extra costs incurred as a result of not being adequately informed about new/ changed regulations on quality Source: EAC (2011). 3.3 Trade logistics barriers Barriers to trade logistics can be seen as a subset of non-tariff barriers. The same difficulties with respect to measurement and quantification apply and have limited the use of trade facilitation out- come indicator in Africa. Yet, some examples of trade logistics outcome indicators exist. For in- stance, UNECA (2010) counted and reported the number of checkpoints on highways in West Af- rica that slow down shipments (Table 3.5). Table 3.5 Checkpoints on selected West African highways Highways Distance, Km Number of Checkpoints per 100 Checkpoints km Tema - Ouagadougou 962 25 2.60 Ouagadougou – Bamako 910 19 2.09 Lome – Ouagadougou 1036 23 2.22 Cotonou – Niamey 1036 34 3.28 Abidjan – Ouagadougou 1122 37 3.30 Niamey - Ouagadougou 529 20 3.78 Source: UNECA (2010). Africa Trade Practice Working Paper 17 Moreover, the West Africa Trade Hub is monitoring the performance of transport corridors as part of its programme to strengthen the competitiveness of exports from the region. It publishes peri- odic assessments of the trade costs involved in transporting goods along particular corridors and also provides estimates of savings that could be realized if particular impediments were to be elimi- nated. For example, a recent report on the Lomé-Quagadougou corridor found that USD 80 million could be saved annually by adopting best transport practices (USAID, 2012). Another means of obtaining qualitative and quantitative information on trade logistics and other non-tariff barriers are surveys of traders, truck drivers, and regulators. For example, the EAC survey mentioned above also queries transport service providers about their experiences when shipping goods within the Community. Table 3.6 shows a summary of the survey results for the survey area of customs treatment. Table 3.6 Survey findings on obstacles to customs clearance in the EAC Source: EAC (2011). Other areas with potential non-tariff barriers covered in the EAC survey include: • Port administrative requirements; • Immigration procedures; • Police checks at roadblocks; and • Weighbridge station procedures; These survey results provide valuable information on the frequency and severity of different trade logistics and other non-tariff barriers. They are specific and outcome-related, and reflect feedback from ordinary traders, transport providers, and public officials. A drawback of the EAC survey ap- proach, though, is the relative small sample size for individual issue areas, which compromises the representativeness of the findings and the possibility to reliably compare and track outcomes over time. 3.4 Regulatory barriers to trade in services Services trade does not (yet) have a high profile in the trade integration process in Africa and effec- tive monitoring systems do not exist for this trade area. COMESA (2011) included several indica- tors on services trade in its latest medium-term strategic plan, but all of these indicators focus on Africa Trade Practice Working Paper 18 compliance issues and do not address trade outcomes. Table 3.7 contains the respective indicator matrix. Table 3.7 Matrix of services trade monitoring indicators in COMESA Key Actions Key Outcomes Performance Target Indicators Statement Carry out assessments and Additional Regional priority Priority services sectors identify additional priority services sectors agreed agreed services sectors in the Member States Implement the Trade in Regulations on Trade in No of member States that Services Regulations in services implemented have transposed regulation accordance with the Schedules of specific No of sectors offered at Negotiating Guidelines commitments adopted regional level by each member state exceeds its WTO commitments Negotiate levels of market Market access and national Level of services Level of market access and access and national treatment treatment to Member States liberalization provided national treatment accorded to be accorded to service for in the Schedules of suppliers within the region specific commitments Negotiate Mutual Recognition A framework for Mutual Implementation of No of countries Agreements to facilitate Recognition Agreements to Mutual Recognition implementing Mutual movement of professionals in facilitate movement of Agreements Recognition Agreements the region professionals in the region developed and implemented Develop methods of Service statistics methodology Service Statistics Methodology for services gathering services statistics statistics agreed and adopted by Member States by 2014 Establish the COMESA COMESA Regional Association Functional COMESA COMESA Regional Regional Association of of services industry created. Regional Association Association of services Services Industries industry in place by 2013 Review MFN exemptions MFN exemptions finalized Regional exemption list agreed by 2011 Source: COMESA (2011). 4. Currently used indicators in other regions While some initiatives in Eastern and Southern Africa are promising, the preceding section has highlighted some significant gaps in trade integration monitoring, in particular with respect to the monitoring of trade outcomes. In this context the question arises whether RTAs in Africa can learn Africa Trade Practice Working Paper 19 from the experiences and practices in other regions of the World. The following discussion surveys a number of relevant trade monitoring arrangements in East Asia, Europe, and Latin America. Similar to the situation in Africa, compliance monitoring is the dominant form of assessment for re- gional integration agreements. Yet, the scope of the evaluation is often broader and more ambi- tious. For example, the European Union in its Internal Market Scoreboard has set a target for each member state of implementing at least 99.5 percent of all directives. Also, ASEAN uses a score- card approach for its members’ towards the ASEAN Economic Community that gives equal atten- tion to integration in goods, services, investment, capital, and skilled labor (Table 4.1). Table 4.1 ASEAN Economic Community scorecard Source: ASEAN. With respect to overall trade outcomes, the Eurasian Economic Community is tracking not only aggregate intra-regional trade volumes, but similarly trade between country-pairs within the region and between every individual country and the region (Table 4.2). This can make it possible to iden- tify asymmetries in the degree of integration, in particular if some countries trade intensively with regional partners while others do not. A region-wide average could in this case be misleading. Africa Trade Practice Working Paper 20 Table 4.2 Indicators of Market Integration in the Eurasian Economic Community Source: Eurasian Development Bank (2010). Another refinement of overall trade volume analysis is to assess the composition of trade. The latter can be analyzed, for example, by product groups (Figure 4.1) or by technological contents. The Andean Community also tracks the number of products that are being exported to regional part- ners and to the world market (Figure 4.2). Figure 4.1 Goods solely exported within the Eurasian Economic Community Source: EBRD (2012). Africa Trade Practice Working Paper 21 Figure 4.2 Number of products exported within the Andean Community and to external partners Source: Andean Community (2013). Concerning non-tariff barriers, many RTAs maintain inventories of business complaints and provide institutionalized mechanisms for complaint resolution or dispute settlement. Examples include the Central America Free Trade Area, the Andean Community, and Mercosur. Surveys are equally used to collect structured feedback on potential trade impediments. For example Russian businesses were asked to assess the extent to which border procedures within the Eurasian Community are easier to comply with than other border crossings (Figure 4.3). Figure 4.3 Percentage of Russian firms viewing cross-border trade regulations and customs as serious obstacles Source: EBRD (2012). Africa Trade Practice Working Paper 22 Moreover, the Inter-American Development Bank tracks border rejections for exports from Latin America to key export markets (Figure 4.4) as a proxy for problems that exporters face with respect to compliance with international standards. While done by the IDB for the entire sub-continent, similar monitoring schemes could also be established at the level of individual RECs. Figure 4.4 Export standards monitoring in Latin America Source: IDB (2012). Intra-regional services trade is explicitly monitored by the ASEAN Secretariat. It reports on the evo- lution and share of regional in total services imports (Figure 4.5). Moreover, the monitoring process also tracks regional services trade at the sub-sectoral level for member countries (e.g. Singapore) that make respective information available. respect to policies vis-à-vis the services sector, ASEAN has been working with the World Bank on using the Services Trade Restrictiveness Index (STRI) for monitoring purposes. For example, it has been assessing changes in member countries’ regulations over time using the STRI methodology (Figure 4.6). Another form of monitoring has consisted of establishing to what extent commitments under the ASEAN Framework Agreement on Services (AFAS) go beyond multilateral liberalization commitments, thus providing regional partners with preferential treatment. Figure 4.7 provides a snapshot of the findings for the case of The Philippines. Africa Trade Practice Working Paper 23 Figure 4.5 Intra-ASEAN services imports Source: ASEAN (2013). Figure 4.6 Changes in services trade restrictiveness between 2007/08 and 2010 (number of subsector-mode combinations undergoing reform) Source: ASEAN (2013). Africa Trade Practice Working Paper 24 Figure 4.7 Comparison of services trade commitments and policies (higher value indicates more restrictive policy measures) Source: ASEAN (2013). 5. The way forward The preceding discussion has established that a variety of different approaches to monitor regional trade integration exist in Africa and beyond. Unfortunately though, systematic and rigorous imple- mentation monitoring still seems to be more of an afterthought than a well-planned practice. Also, the information systems that inform policy makers and civil society about the status of regional in- tegration appear to be slow in adjusting to mounting evidence that the main impediments to re- gional trade expansion in Africa are no longer due to border taxes, but to non-tariff barriers, poor trade logistics, and excessively strict services market regulations. The analysis distinguished between three types of indicators: those measuring compliance with integration commitments, those measuring outcomes indirectly and at an aggregate level, and those capturing specific trade cost components either directly or indirectly. These categories are roughly aligned with the usefulness of the indicators to discern trade integration outcomes and provide feedback to decision makers. Compliance, that is successful transposition of regional poli- cies into national law, is a necessary but insufficient condition for de-facto implementation. Aggre- gate outcome indicators can point to the impacts of regional integration, but are subject to a large number of influences beyond regional trade policies. In contrast, specific direct and indirect infor- mation on trade cost components can often straightforwardly be linked to particular integration re- forms and, as such, provides for the most powerful indicators. Yet, the usefulness of the indicator Africa Trade Practice Working Paper 25 categories tends to be negatively related to the ease of obtaining respective data and information, so that a trade-off has to be made during the indicator selection process (Figure 5.1). Figure 5.1 The indicator triangle of integration monitoring Specific outcome indicators Policy Data information availability Aggregate outcome indicators Compliance indicators Source: Author. Compliance indicators have been the mainstay of integration monitoring. The required information to generate the scorecards is relatively easy to obtain for the Secretariats of the regional integration agreements that are normally in charge of the monitoring process, and the process of putting peer- pressure on lagging members is valuable for moving the integration process forward. Compliance monitoring is widespread in Africa, but could possibly be further refined to enhance its impact. One aspect that emerges from the earlier analysis is the coverage of different trade aspects. Here, the RTA Secretariats should make sure that all the facets of trade integration, notably tariffs, non-tariff measures, trade facilitation, and services trade, are adequately represented in the scorecard ma- trix. Another relatively easy way to achieve higher outcome relevance of compliance indicators would be to shift to a higher level of disaggregation of the categories that are being scrutinized. For ex- ample, instead of asking whether an agreement’s provision on customs procedures has been im- plemented, it could be monitored whether a particular trade classification is used, whether a par- ticular type of processing software has been adopted, and whether agreed transit procedures that are contained in the provision are being followed. Also, the specificity of the compliance indicators could often be improved by giving them a quantitative dimension. For instance, instead of estab- lishing whether regional certificates of origin are being accepted (in principle), the scorecard entry could record whether in more than 95 percent of cases the regional certificate of origin is being honored. Africa Trade Practice Working Paper 26 Aggregate outcome indicators, notably measures that involve the volume of intra-regional trade, are relatively frequently found in African integration monitoring systems. These indicators are con- structed from data that are normally readily available from national statistical offices or international organizations. As in the case of compliance indicators, room for improvement exists in Africa with respect to the coverage of different trade aspects. Also, in large and diverse RTAs, average indica- tor values can be misleading and could be usefully supplemented by country-level information. For example, a large share of intra-regional trade could be dominated by intensive exchanges between some large countries within the RTAs, while trade of some other countries with their RTA partners might be negligible. An illustrative list of core aggregate outcome indicators might comprise the following: • Intra-regional merchandise trade to GDP ratio (possibly also at country level and for country-pairs) • Intra-regional merchandise trade intensity (possibly also at country level and for country- pairs) • Logistics performance index (World Bank) • Number of documents to import (World Bank Doing Business) • Number of days to import (World Bank Doing Business) • Costs to import (World Bank Doing Business) • Total freight costs of US imports (US-ITC), ratio to regional comparator • Intra-regional services trade to GDP ratio (possibly also at country level and for country- pairs) • Intra-regional services trade intensity (possibly also at country level and for country-pairs) • Intra-regional FDI to GDP ratio (possibly also at individual country level and for country- pairs) Data to construct most of the above indicators is readily available in international databases or from national statistical offices. Yet, some of the listed aggregate outcome indicators, such as those re- lating to trade facilitation, concern trade in general and are not particularly focused on regional trade. Hence, where suitable regional or bilateral information is available, for example from trans- port corridor monitoring, these data could be used to construct more specific, region-centered in- dicators that could substitute for the general indicators listed above. Specific outcome indicators that directly or indirectly reflect parts of the total trade transactions costs faced by traders are currently not widely used in Africa. Yet, these are the indicators that can be most closely associated with a particular policy reform measure, and thus help best to monitor the latter’s impact. Some RTAs in Africa and other regions currently collect information on NTB complaints, but, although valuable, this information is subjective and might not be fully representa- tive of the actual situation. Similarly, the available surveys of business people involved in trade transactions can provide some useful insights on existing obstacles, but generally suffer from a small sample size. Hence, a significant improvement to the available inventory and survey-based monitoring of NTBs and trade logistics impediments would consist of an increase in the number of observations, such that the robustness of the results and the ability to track developments over time would be strengthened. Services trade is the area that is least covered by existing trade integration assessments. This lack of attention reflects partly the relative recent realization by policy makers and analysts that open and competitive services markets play a crucial role for economic growth and development. An- Africa Trade Practice Working Paper 27 other part of the monitoring deficit is certainly due to the general paucity of data on international services transactions. Nevertheless, some quantitative information is available in most countries, for example on the costs of particular services or the number of professionals that are accredited un- der Mutual Recognition Agreements, which would make it possible to construct related indicators. More generally, the overall number of partial trade cost indicators that could potentially be used in trade integration monitoring is large (see section 2.2). A selection has to be made based on policy priorities and the availability of suitable data. Ideally, relevant information might be found in Cus- toms’ records or inventories of business associations. Also, regularly repeated firm or household surveys might contain exploitable data, or could be amended to feed into the monitoring process. Trade is, of course, only one of many integration areas in regional agreements. Modern RTAs con- tain provisions across a large number of dimensions, including institution building, education, cul- ture, and security, to name just a few. Many of these non-trade areas would equally benefit from sharpened monitoring processes and enhanced reliance on outcome indicators. Yet, trade costs are probably easier to capture than the transaction costs in most other integration areas, and it seems therefore justified to first deepen the monitoring effort concerning trade and in subsequent stages enlarge the purview of the monitoring process to other areas. Policy makers and public officials need to be held accountable for any implementation deficits in the integration policies they initiate. Conversely, they need to be able to receive appropriate credit for politically difficult reforms that they pursue successfully. More systematic, outcome-oriented monitoring processes can help to deliver on both of these fronts. 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