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Preliminary Baseline Analysis of Mozambique’s Conformity with Trade Facilitation Agreements – Part 5

In this fifth and final blog in our series we consider steps to be taken for Mozambique’s to acceded to the Bali TFA and reasons why Mozambique may choose not to join the East Africa Free Trade Area:

The World Trade Organization’s Trade Facilitation Agreement is the newest component accord within the WTO, with 15 countries having completed the accession protocol by mid-September 2015. Acceding to the WTO TFA is not a difficult step, requiring the deposition of the national accession instruments, but implementing the terms of the agreement and actually benefiting from its provisions will require planning, coordination, and substantial public-private sector engagement.

The best way to view the WTO’s TFA is mainly as a series of voluntary actions, rather than binding commitments for reform. Even upon the coming into force of the TFA once three-quarters of the WTO member countries join, it is unlikely that Mozambique’s WTO trading partners would ever enter a case into the WTO’s dispute settlement mechanism regarding the technical-level aspects where Mozambique may remain out of conformity. Mozambique can use the WTO’s special and differential treatment for LDCs to make the needed reforms on its own schedule.

Nevertheless, there are many potential benefits for Mozambique in reforming its procedures along the lines suggested by the WTO’s TFA. Improving the efficiency of its import, export and transit trade systems would permit increased shipments per calendar month, inducing investment in trade-related infrastructure and ICT. The net result would be greater economic opportunities for all levels of Mozambican society, helping to reduce poverty and combat food insecurity among the most disadvantaged populations such as women, youth, the elderly and handicapped persons.

The WTO’s Trade Facilitation Agreement builds upon the principles long established in GATT Articles V, VIII and X. There appear to be certain inconsistencies between Mozambique’s current trade facilitation procedures and these GATT articles: for GATT Article V on freedom of transit, it is a question of providing foreign goods with national treatment; for GATT Article VIII on the fees and formalities connected with importation and exportation, Mozambique may only charge for the approximate cost of service provided, rather than basing the charge on the value of the imported item; and for GATT Article X on the publication and administration of trade regulation, Mozambique will need to provide timely and regular notification its WTO trading partners.

Beyond the general principles of the aforementioned GATT Articles, the literature review, which included input by Mozambican traders, revealed a half-dozen issue areas in which Mozambique might wish to seek to come into greater conformity with the WTO’s TFA (Table 5). In light of the prominent role given to the provision of technical assistance to help developing countries under the TFA, these issue areas could be seen as opportunities for Mozambique to receive outside assistance to improve its trade competitiveness.

Issues to Resolve for Greater Compliance with WTO Trade Facilitation Agreement

In compliance?

Details

1. Mandatory use of clearing agents (despachantes)

Yes (kind of)

Technically in compliance, but practice is discouraged and may not be expanded

2. Pre-shipment inspection

No

PSI requirements are an  administrative barrier to trade, may not be used for valuation purposes

3. Import and export licensing

No

Not in compliance, disproportionate and used in valuation

4. 100% scanner fees

No

“Gray area” of WTO law. It’s okay to scan 100% for security reasons based on risk analysis, but not as a revenue measure

5. Lack of Authorized Operators scheme

No

Scheme required, or streamlined procedures made generally available

6. Single Export Window (SEW)

No

Established traders face more barriers than before export bond was eliminated under SEW

Source: Author’s preliminary impression from literature review.

Besides these highly technical issue areas, there are other areas where Mozambique undoubtedly could improve its system for trade facilitation that would be worth the investment of time and money. These include: reforming the national notification procedures related to policy changes in all areas of trade in goods; improving the system for meeting the national statistical reporting obligations to the UN trade databases COMTRADE and FAO-STAT; and creation of a national trade facilitation committee (as called for in the WTO’s TFA Section 1, Article 13), which would improve the opportunity for public-private dialogue on trade-related matters.

Issues Mozambique considers barriers to accession to East Africa Tripartite FTA

The Tripartite FTA, introduced briefly above, is a massive undertaking designed to significantly advance economic integration on the African continent. In addition to trade in goods, it includes liberalization of trade in services and a whole range of technical negotiating areas, among them intellectual property rights, competition policies, the free movement of business persons, and the category known as SQMT (standards, quality assurance, accreditation, metrology and testing). A modeling exercise funded by DFID suggested overall gains in economic welfare of $600 billion from the Tripartite FTA, with a total of $1.1 billion in Customs revenue to be eliminated (TradeMark SA 2013).[1]

The Tripartite’s Phase I of negotiations started out swiftly, at the 2008 COMESA-EAC-SADC summit, with the cost of organizing and attending regional meetings supported by substantial assistance from the UK’s Department for Foreign and International Development (DFID). Working groups were established in each of the technical negotiating areas, with the Phase I negotiations focusing on trade in goods and the free movement of business persons becoming bogged down due to the large number of countries involved and a sharp reduction in the DFID funding. The Roadmap to the Tripartite FTA established in 2011 was ambitious, but the original deadlines have continued to be missed.

One concrete step all of the Tripartite countries agreed to follow was to encourage their private sector operators to make use of the Non-Tariff Barriers Notification Platform (www.tradebarriers.org). The Secretariats of the 3 RECs involved (COMESA-EAC-SADC) will monitor the online submissions registering unfair non-tariff barriers to trade experienced by traders in their business activities, then presumably take action to resolve the issues. While the system for online submissions seems to work well, the success of the Secretariats in ensuring follow-up actions is less clear.

Roadmap to the Tripartite Free Trade Area

Thematic Area

Activity

Output

Responsibility

Time

Memorandum of Understanding

Signing of MoU establishing Tripartite

Signed MoU

REC Chairs

By January 2011

Policy Organs Meetings to Launch TFTA

Meetings of the Tripartite Ministerial Committee, Council and Summit

* Approve principles, processes and institutional framework

*Approve Roadmap with negotiation timeframes

* Official launch of the FTA negotiations and Declaration signed

* Comprehensive publicity campaign initialed

Member States with Tripartite Task Force

24-36 months

Post-Launch Pre-Negotiations Preparations

Preparatory phase

* Information exchange, including applied national tariffs and trade data and measures,

* Adopt TORs and rules of procedure

*Adoption of schedule of negotiations

* Monitoring and Evaluation mechanism established

* National negotiating positions prepared for core FTA items

Member States with assistance of Tripartite Taskforce

Continuous

Negotiations

Commencement and completion of phase 1 negotiations

Agreement reached on trade in goods

Member States with assistance of Tripartite Taskforce

24-36 months

Commencement and completion of negotiations on movement of business persons

Agreement reached on movement of business persons

Member States with assistance of Tripartite Taskforce

24-36 months

Review of progress on the FTA negotiations in Phase I

Revised roadmap

Ministerial Council

continuous

Commencement of negotiations on Built-In Agenda under Phase II

Negotiations of Built-In Agenda Commenced

Member States with assistance of Tripartite Taskforce

After completion of Phase I

Finalisation of FTA Agreement and Entry into Force

Tripartite summit

FTA Agreement on trade in goods approved in goods approved by Member States

Member States

End of Phase I

Performance Monitoring

Monitoring and Evaluation

Monitoring and evaluation reports considered

Tripartite council

Continuous

Source: Saana (2015).

In June 2015, Mozambique clarified its approach to the Tripartite FTA with two related actions. Mozambique did sign the Tripartite’s Sharm el Sheikh Declaration in June 2015, signaling its intention to join the Tripartite FTA eventually, but decided not to participate in the technical working groups for the time being (allafrica.com 2015). The headline read, “Mozambique Declines to Sign Up to Free Trade Area,” but this does not seem entirely accurate. One Mozambican official noted the need for more intensive analysis of the impact of the Tripartite FTA on Mozambique’s economy.

Without the benefit of in-country interviews, this preliminary study could not determine the precise issues Mozambique considers barriers to accession to the Tripartite FTA, but it is possible to propose a few hypotheses. First, the cost of attending the Tripartite FTA negotiating meetings in the full range of technical negotiating areas can be quite high, in terms of airfares, per diems, preparation of national negotiating positions, and in staff time dedicated to the topic. Ideally, members of the private sector in each country would accompany the national negotiators to meetings as well, often with the expectation that the national government would pay the cost of travel. While the Tripartite negotiations started quickly, they seem to have bogged down in recent years. So add to the high cost the lack of a productive work program, and Mozambique’s decision to join in when negotiations are further along seems quite prudent.

Secondly, there may be limited gains for Mozambique from the Tripartite FTA in terms of expanding exports to the non-SADC Tripartite countries. There are not clear complementarities between the products and services Mozambique can offer with those available in the non-SADC partner countries of the Tripartite, as there are for example between the cereals-producing countries of the EAC and the northern tier of COMESA countries heavily dependent on cereals imports. For sure, these are some of the areas the Mozambican government intends to study before resuming its participation in the Tripartite FTA negotiations.

Finally, a main impetus for establishing the Tripartite FTA is to resolve the issue of overlapping membership in African RECs. From Figure 1 above, it can be concluded that Mozambique is the only one of the 26 original Tripartite belonging to only one REC. With the SADC Trade Protocol and the bilateral agreements with Malawi and Zimbabwe in place, Mozambique may already have the optimal trading arrangements in place. So Mozambique deserves praise for carefully picking and choosing in which negotiations to participation, weighing the cost with the expected gains, until the time seems more propitious.

[1] The value of Customs revenue at stake for Mozambique was undoubtedly estimated for the TradeMark SA study, but not made explicit. With the benefit of in-country interviews, particularly with the Mozambique Customs Service, Autoridade Tributaria(AT), and the Ministry of Finance, it would be possible to estimate the potential impact on Mozambique’s Customs revenue under accession to the Tripartite Free Trade Area.