Trade facilitation and Non- measures in the Arab region

Newsletter

In this issue: N°1 - First Quarter 2016

Morocco continues to simplify import -export procedures…………..…………….2 Dear Reader,

The Office for Arab States (OAS) is pleased to share the first issue of The ITC report on the Newsletter on Trade Faciliation and - Non tariff measures in the within the Arab States and the chal- Arab region. It will be published quaterly, disseminated among all part- lenge of non-tariff measures…………..3 ners, and featured on the ITC website. The Newsletter contains articles that provide highlights and updates on status of implementation of the `s Trade Faciliation Agreement (TFA) as well Continental Area in as related technical assistance programmes and progress of ITC activi- and implication for the Arab ties on the ground.

Maghreb Union……………………………….4 The purpose of this Newsletter is to dessiminate information, foster sharing of experiences and offer insignts into trade development in the Arab region. As we move ahead with future issues of the Newsletter, Harmonization of customs procedures we intend to include interviews wtih beneficiaries, exporters and deci- and the electronic exchange of cus- sion-makers in the region to present their views on trade develop- toms documents in and ment challenges they face, insights into national and regional initia- the Middle East……………………………….5 tives helping to overcome these challenges and promote trade as an engine of economic development and growth.

Rules of Origin in Greater Arab Free Trade Area: Issues of Implementation We welcome suggestions from our readers and encourage contribu- tions for the future issues. and Reform…………………………………….6

Enjoy the reading!

The Global Alliance for Trade Facilita- Lilia Naas, tion: A Public and Private Platform Chief, Office for Arab States born under the auspices of the inter- national community……………………….8

Morocco continues to simplify import-export procedures

In order to simplify foreign trade procedures and reduce international transaction costs, the Ministry of Foreign Trade in Morocco undertook a study in September 2015 to assess and update the National Plan for the Simplification of Foreign Trade Procedures (NPSFTP) and the mainstreaming of electronic data exchange. The NPSFTP was first launched in 2006.

The study is expected to measure the results of NPSFTP implementation over the period from 2006 to 2015 in terms of the impact of facilitating trade through simplified trade procedures on transaction costs and to deter- mine whether changes were necessary to improve performance.

The conclusions and recommendations of the study will allow the Ministry of Foreign Trade to identify which formalities and foreign trade documents can be processed online via the PortNet platform – a tool to im- prove the competitiveness of economic operators.

By engaging in the online procedure for obtaining an export authorization in order to move from paper for- mat to e-documents, the Ministry intends to facilitate and improve export procedures in integrating the platform PortNet. It will modernize the management of duty-free requests.

To improve control efficiency, the Ministry of Foreign Trade intends to allow the Office National de Sécurité Sanitaire des produits Alimentaires (National Food Safety Authority) and the Direction de la qualité et de la surveil- lance des marchés (Ministry of Commerce, Industry and the Digital Economy) to have access to PortNet, and there- fore to documents relating to the control of conformity to standards.

The ultimate goal, thanks to PortNet, is to have the clearance of goods through electronic tools wides- pread. Significant progress has been made in this respect.

Today, PortNet enables import documents to be processed in less than three hours, on average, compared to the several days it previously took. More than 11,795 customers were able to use this service in 2015, compared with 569 customers registered at the end of December 2014.

Morocco has managed to improve its Doing Business ranking and to move up to 31st position worldwide in terms of the facilitation of cross-border trade, due to the dematerialization of import documentation achieved in 2015.

The challenge for the Ministry of Foreign Trade, in addition to updating the NPSFTP, is to develop me- chanisms as well as monitoring and assessment tools to adapt the plan to changes in national foreign trade.

ITC Trade Facilitation in the Arab Region Newsletter N°. 1 – First Quarter 2016 Page| 2

The ITC report on regional integration within the Arab States and the challenge of non- tariff measures

ITC has recently surveyed obstacles to trade facing the private sector in the Arab States. The study was un- dertaken as part of the programme developed by the organization that aims for transparency of non-tariff mea- sures that SME/SMI export businesses encounter.

Published in October 2015, the report ‘Making Regional Integration Work: Company Perspectives on Non- Tariff Measures in Arab States’ is a cross-country analysis of Egypt, Morocco, Palestine and Tunisia, and seeks to help policymakers gain better understanding about obstacles to foreign trade that affect their country’s businesses and how to provide relevant solutions. The analysis is based on surveys conducted by ITC on more than 2,700 com- panies in the four states.

Intraregional trade between Arab States is not as significant as in other regions such as Asia. Most of the obstacles are procedural red tape imposed by governments. The report shows that standards and conformity- assessment procedures represent a serious obstacle (especially sanitary and phytosanitary measures, and technical barriers), as well as rules of origin and release procedures and customs clearance at borders. The report also pin- points a lack of infrastructure for facilitating trade, at both the customs level and vis-à-vis testing procedures.

One of the report’s key recommendations for handling major domestic barriers and improving the level of regional integration is to streamline procedures rather than to change rules. Arab States should take advantage of the existing free trade agreements such as GAFTA and Agadir, as well as the Kyoto Convention and the WTO Trade Facilitation Agreement to improve their competitiveness.

Furthermore, the report highlights the importance of transparency for export and import procedures, in order to make transactions more predictable and to lower costs for companies. The quality of infrastructure must also be improved, along with product traceability.

This report on non-tariff measures and regional integration of the Arab States was presented during the World Export Development Forum, organized by ITC and hosted by the Qatar Ministry of Finance in Doha on 20 and 21 October 2015. A special session was dedicated to the issue of regional integration of the Arab States.

ITC Trade Facilitation in the Arab Region Newsletter N°. 1 – First Quarter 2016 Page| 3

Continental Free Trade Area in Africa and implications for the

The officially began negotiations to establish a Continental Free Trade Area (CFTA) in Africa on 15 June 2015 in Johannesburg, South Africa. This initiative features in the list of priorities for the AU 2063 Agen- da. The talks are expected to produce a result by 2017.

The CFTA aims to promote prosperity based on inclusive growth, development, systematic convergence towards the most developed countries and regions, and integration of Africa into the world economy as a major player.

The CFTA will bring together 54 African countries – including several Member States of the Organisation of Islamic Cooperation – with a combined population of more than 1 billion people and an estimated global gross do- mestic product exceeding US$3 trillion in 2014. According to the United Nations Economic Commission for Africa, implementing the CFTA should provide a 52% increase in trade among African countries by 2022, which represents an increase in revenue of US$ 35 billion.

The main challenges facing the creation of the CFTA include insufficient or low-quality transport infrastruc- ture. The cost of transportation greatly affects the competitiveness of African products, in the same way as cus- toms procedural red tape affects cross-border trade.

Investment in the quality and quantity of infrastructure needs to be increased so the implementation of the CFTA can be successful. Authorities must reduce tariff and non-tariff barriers, harmonize rules of origin, imple- ment good policy for trade facilitation and reinforce the production base and industrial potential.

Challenges for the CFTA are complementary with initiatives that have already been taken to reinforce economic and trade integration in Africa by creating eight Regional Economic Communities (RECs). These include the Economic Community of West African States (ECOWAS), the Community of Sahel-Saharan States (CEN-SAD), the Southern African Development Community (SADC), the (EAC) and the Arab Maghreb Union (AMU). In other words, the CFTA is built on the existing RECs that remain solid bases with implementation capacities. The difference with the CFTA is that arrangements are now focused on a continental dimension.

The Arab Maghreb Union is following this dynamic. Secretary General Habib Benyahia said Maghreb trade ministers have given the green light for the AMU to participate in continental negotiations on free trade. Moreover, it is thought that the creation of the CFTA will help to achieve integration at the sub-regional level in North Africa.

ITC Trade Facilitation in the Arab Region Newsletter N°. 1 – First Quarter 2016 Page| 4

Harmonization of customs procedures and the electronic exchange of customs docu- ments in North Africa and the Middle East

From 2–4 December 2015, the United Nations Economic Commission for Africa’s Office for North Africa (UNECA-NA), in collaboration with the Arab Maghreb Union (AMU) and the Economic and Social Commission for Western Asia (ESCWA), organized a workshop on the harmonization of customs procedures and the electronic exchange of customs documents. The workshop in Casablanca was part of a project to reinforce countries’ ability to facilitate goods crossing borders and to encourage cooperation, as well as regional integration in North Africa and the Middle East.

The meeting was held to discuss the implementation of an electronic customs-to-customs document- exchange platform and the security of electronic exchange of information between customs administrations of the region. The discussions focused in particular on experiences and practices in ASEAN countries in terms of de- materialization and harmonization of customs procedures. Participants discussed technical and legal shortcomings related to electronic document exchanges between customs authorities, as well as the analysis of obstacles to customs harmonization in North Africa and in the Arab States.

This workshop was organized following a preliminary study by the UNECA-NA, which selected Morocco and Tunisia, in order to link their customs systems with a customs-to-customs exchange platform. Nassim Oul- mane, Acting Director of UNECA-NA, said cross-border electronic exchange of customs information would not on- ly help rationalize border-crossing procedures, but would also improve risk management.

The efficient transfer of goods from one country to another is as important as signing free trade agree- ments. Within the Arab States, there are mainly non-tariff obstacles to trade (including customs procedures) that represent the equivalent of a 30%–40% tax. The aim is to facilitate trade between countries, in the field, at a cus- toms level. The electronic-exchange platform project will address this goal through the exchange of documents between customs offices.

At the end of the workshop, experts acknowledged the importance of implementing this pilot project for electronic data exchange between the Moroccan and Tunisian customs authorities. By the time the project ends, the integration of other Agadir Agreement Member States should be feasible.

ITC Trade Facilitation in the Arab Region Newsletter N°. 1 – First Quarter 2016 Page| 5

Rules of Origin in Greater Arab Free Trade Area: Issues of Implementation and Reform

Like any other , the Greater Arab Free Trade Area (GAFTA) uses rules of origin to counter trade deflection. Rules of origin are supposed to be straightforward and easy to follow methods used to determine origin. However, there is evidence that GAFTA rules of origin are restrictive in some parts, and used to protect local industries, all of which constrain intraregional trade opportunities.

Although GAFTA includes rules on minimum local content value, GAFTA does not provide details as how to allocate direct and indirect labor and overhead costs, and other costs. In addition, GAFTA does not determine the situations whereby the "net cost" method or the "final value of product" method can be used to determine the lo- cal content requirement.

GAFTA tariff change rule is strict since it requires – in most circumstances – that all of the parts used in ma- nufacturing a product be imported and classified under a different tariff category than the category in which the final product would be classified. In order to facilitate trade, GAFTA’s "change of tariff category" rule should be re- laxed. Not all tariff heading changes are considered significant enough to produce a change in origin. Use of tariff heading in GAFTA should necessitate the drafting of additional specifications to indicate which changes in tariff classification must occur to change the origin of imported materials.

GAFTA should also ease the burden of rules of origin by exempting certain goods from meeting the requi- red rules of origin. In other words, there are no value-added, changes of tariff category, or certain process require- ments. Simply put, these goods can pass through some Arab countries. The exemption can apply to imported goods that have no tariffs at all or where trivial tariff is imposed.

One of the most important aspects of GAFTA rules of origin is the dispute settlement process. Any dispute relating to interpretation of rules of origin or origin verification shall be settled bilaterally, or if unsuccessful, through the Committee on Implementation and Execution, or through the Committee of Dispute Settlement. The dispute settlement process can play a crucial role especially at times when the political will of the integration is questionable. If the dispute settlement body or process is seen as being independent and able to ascertain its po- wer, this will engender confidence in an integration scheme. There is no public record of origin disputes among GAFTA countries that would shed light on thorny issues. The resulting body of case law can help in interpreting ori- gin rules and remove ambiguities.

Regarding certificate of origin, Chambers of Commerce are the leading entities for issuing and certifying certificates of origin under GAFTA. Other governmental entities play less important roles. There should be a stan- dardized authority in all Arab countries that oversees certificates of origin i.e. Chambers of Commerce.

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A number of countries require the GAFTA certificate of origin and enclosed bills to be 100% in Arabic. This is a strict interpretation of GAFTA rules. However, it makes common sense to allow some items to be in English es- pecially if these items are commonly used. Trade could not proceed if GAFTA rules are interpreted strictly as there must be a level of good faith and honesty. The certificate of origin is valid for a six-month period. For purposes of flexibility and facilitating intra-regional trade, the validity period for certificate of origin can be expanded to twelve months for instance.

It should be acceptable to present a commercial invoice as proof of origin. This step presents another op- tion for traders to prove origin thus reducing non-compliance and easing administrative procedures and costs. Ex- porters can simply insert the required preferential origin declaration on a commercial invoice. Because of the legiti- mate need of exporters and importers to know whether GAFTA preferential tariff rate or the higher most-favored nation tariff rate will apply to their products, GAFTA regulations should allow written advance rulings. Advance ru- ling allows traders to obtain an origin ruling prior to the importation of a product. Hence, advance ruling saves time and energy.

There is no systematic process in GAFTA of monitoring whether trade commitments are implemented, and it is often relatively difficult to identify the extent of implementation in member countries. Nevertheless, through examining the different reports and recommendations issued or made by the League of Arab States technical com- mittee for rules of origin as well as the extraordinary rounds for the Economic and Social Council, Arab countries of GAFTA are in agreement for some rules of origin. However, there are ongoing negotiations among parties for adop- ting rules of origin for some other goods. There are several economic factors that make these goods sensitive from the perspective of some Arab countries: number of economic industries, production volume, level of investment, economic contribution to economy, export value, and use of large number of labor. There is disagreement among Arab countries on the decision mechanism for adopting rules of origin. Some Arab countries made reservations concerning adopting a majority voting when approving rules of origin. Decisions on rules of origin should be made through consensus.

Examples of gaps between decisions and implementation include observations made among numerous ex- porters that despite compliance with rules of origin under GAFTA, companies are not granted preferential treatment and are obliged to pay tariffs. Such decisions are often the result of customs officials' lack of knowledge about the different origin requirements. Moreover, for GAFTA, the zero tariff rate has been applied for the past few years, but only for goods whose rules of origin are agreed upon.

Some positive steps have been taken towards and the implementation of GAFTA is progress toward this goal. However, some issues related to rules of origin for certain goods have yet to be agreed upon between member states. Some of aspects of GAFTA rules of origin need some revision to encourage intra- regional trade. Welfare gains may occur for producers and consumers alike if GAFTA rules of origin are reformed.

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The Global Alliance for Trade Facilitation: A Public-Private Platform born under the aus- pices of the international community

The Global Alliance for Trade Facilitation was launched in in December 2015 to assist developing countries with the implementation of the World Trade Organization's Trade Facilitation Agreement (TFA). At the core of this initiative are support of an active public-private dialog and leverage of business expertise, leadership and resources to promote effective trade facilitation reforms.

In ratifying the TFA countries will commit to implement administrative changes to improve cross-border procedures— from measures on the release and clearance of goods to enhanced cooperation between border agencies. It is estimated that full implementation of the Agreement could reduce trade costs by an average of 14.3% and add over $1 trillion to global trade flows with huge gains for developing markets.

Recognizing that neither governments nor the private sector can deliver on the full potential of the TFA on their own the World Economic Forum, the International Chamber of Commerce and the Center for international Private Enterprises together with the governments of Canada, Germany, the United Kingdom and the United States have joined forces in the Global Alliance for Trade Facilitation.

The Global Alliance will create a framework for international and developing country businesses, particular- ly small- and medium-sized enterprises, to partner with governments to deliver trade facilitation reforms that are commercially meaningful and driven by real-world business metrics. It brings together the business community and public sector and has the following objectives:

 Establishing action-oriented multi-stakeholder dialogue on trade facilitation;

 Mobilzing public-private partnerships to drive change;

 Technical assistance and targeted sub-grants in support of capacity building; and

 Benchmarking, monitoring and evaluation of trade facilitation reforms.

The Global Alliance also aims to provide developing and least developed countries with the flexibility to tailor their commitments and implementation schedules according to their specific needs and commensurate with their level of development.

The Centre, which is closely working with small and medium-sized enterprises in deve- loping countries is keen to contribute to this unique effort.

For more information on the Global Alliance for Trade Faciliation, please visit: www.tradefacilitation.org

ITC Trade Facilitation in the Arab Region Newsletter N°. 1 – First Quarter 2016 Page| 8 Social media Facebook: www.facebook.com/InternationalTradeCentre |Twitter: twitter.com/ITCnews | YouTube: www.youtube.com/exportimpactforgood

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