What Holds African LDC Exports Back? Translating Global Trade Alert Data Into A Positive Trade Agenda For Africa

Trade-Restrictive Measures (TRM) are an area of huge concern to importers and exporters in African Union Least Developed Countries (AU LDCs) located in Sub-Saharan Africa. This report identifies and analyses discriminatory government policies that adversely affect AU LDCs over the period 2009 to 2017 by using the Global Trade Alert database, a database that collects information on trade-discriminatory measures implemented by countries worldwide. The research by the students shows that the most frequently encountered TRM types are import tariff measures, tax-based export incentives, trade finance measures, public procurement localisation and export taxes. However, the Global Trade Alert excludes Technical Barriers to Trade and Sanitary and Phytosanitary measures that are formally justifiable as serving public interests, but are typically the most commonly cited as the biggest obstacles to trade. The report also provides policy recommendations and negotiation positions to the AU LDC Countries to move from a defensive trade agenda to an offensive one. 
 

 

Executive Summary

 

TRMs are a key challenge for AU LDCs

 

After the 2008 global crisis and the recent wave of populism-driven protectionist trade policies in developed economies, trade-restrictive measures (TRMs) have emerged as growing obstacles to international trade. TRMs particularly concern importers and exporters in African Union Least Developed Countries (AU LDCs) located in Sub-Saharan Africa, which suffer from region-specific issues such as inadequate transport infrastructure, landlocked lack of access to sea freight trade routes, lack of export diversification, political conflicts, and institutional challenges.

 

Import tariff measures, tax-based export incentives, and trade finance measures implemented by top developing country markets affect AU LDCs the most 

 

Based on the GTA database, almost 400 (386) different trade-restrictive state policy measures affect AU LDCs. These are implemented by mostly developing country top export markets for AU LDCs including India (24% of all TRMs), China (12%), Indonesia (8%), Argentina (8%), and the United States (7%). From a weighted index score of 2:1:1 based on: 1) the number of different measures; 2) their frequency of occurrence across AU LDC countries; and 3) the number of affected HS6 tariff lines, the most frequently encountered TRM types are import tariff measures, tax-based export incentives, trade finance measures, public procurement localisation and export taxes. However, the GTA excludes TBTs and SPS measures that are formally justifiable as serving public interests, which are typically the most commonly cited as the biggest obstacles to trade.

 

Tax-based export incentives affect 38% of African LDC exports (excluding petroleum)

 

Tax-based export incentives hurt AU LDCs exports as they hinder their competitive opportunities in third-country markets. However, fiscal incentives are difficult to enforce due to the lack of information and the widespread failure to notify existing subsidy programs by WTO Members.

 

Trade finance affects 31% of African LDC exports (excluding petroleum).

 

Trade finance negatively impacts AU LDCs in two ways. First, subsidized trade finance available to others negatively impacts competitive opportunities in third-country markets. Secondly, the lack thereof hinders export opportunities of African products. The lack of transparency with respect to many trade finance programs allows countries to potentially circumvent WTO rules in this respect.

 

Increases in import tariffs negatively impact AU LDCs.  GTA reports a significant number of import tariff increases since 2008 in major African LDC export markets. However most of these remain WTO-legal, implying that African LDCs would greatly benefit from lower tariff bindings, especially in the more restrictive export markets of China and India. Likewise, even under MFN terms, there exist 184 instances in which applied rates exceed bound rates in the seven top AU LDCs export markets: Argentina, Brazil, China, EU, India, Indonesia and the United States. Nine of these are included in the top 200 AU LDC exports, and three of these nine products are not covered by any existing GSP/DFQF schemes.

 

GSP/DFQF schemes exclude significant African LDC exports, a situation worsened by additional layers of restrictive rules of origin

 

For the top 20 AU LDC exports comprising 60% of exports (excluding petroleum), duty free access to major export markets is 100% for the EU, 75% for the United States, and 85% for China but only 5% for India. The US, China and India restrict DFQF access to a significant number of agriculture products that are competitively produced in AU LDCs, while other goods are subject to Tariff Rate Quotas (TRQs) and - especially for apparel and textiles - complex ROOs. Likewise, full access to and product coverage under GSP/DFQF schemes and the complex ROOs accompanying them pose significant barriers to entry. Thus, the negative impact of WTO-inconsistent import tariff measures on current AU LDC exports is minimal but exists; GSP/DFQF schemes mitigate this with preferential access but these are hampered by eligibility and coverage technicalities and restrictive ROOs.

 

Policy Recommendations

  • Request increased transparency:

    • Improved reporting on export incentives: tax-based export incentives and trade finance. Consider giving support to current proposals on strengthening notification at the WTO with appropriate adjustments for LDCs and certain developing countries.

    • Mandatory reporting templates that are developed along the lines of the requirements of the SCM Agreement and the Agreement on Agriculture.

  • Request increased focus on tax-based export incentives and trade finance in WTO Trade Policy Reviews.

  • Transposition of Nairobi commitments into members’ schedules at the earliest moment possible.

  • Incorporate Nairobi disciplines on trade finance into the Agreement on Agriculture as foreseen in Article 10.2.

  • Seek increased eligibility for GSP/DFQF schemes and preferential ROOs. African LDCs should analyze their exports to ensure that top exports are covered by existing schemes.

  • Request a strengthened and more transparent notification process for import tariff rates and GSP/DFQF schemes.

  • Further reduce tariffs bindings as AU LDCs continue to be negatively affected by increased but legal applied rates.

 

The full report can be accessed and downloaded here.

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