TRADE FACILITATION IN THE MENA REGION

Mona HaddadSector Manager

International Trade DepartmentWorld Bank

UN-ESCWAExpert Group Meeting on

Transport and Trade Facilitation in the ESCWA

RegionDubai, April 10, 2013

Outline

New Logistics to Support New Global Trends: Where Does MENA Fit?

Effect of Logistics on Trade

Improving Trade Facilitation

Trade Facilitation in MENA

Trade Facilitation and Logistics Agenda Looking Forward

New Logistics to Support New Global Trends: Where Does MENA Fit?

Regional integration is the new model

19581960

19611970

19711973

19761977

19811983

19851986

19881989

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

20090

50

100

150

200

250

300

Number of PTAs

Date of entry into force

The number of RTAs increased exponentially: 278 RTAs in 2010 Bilateral agreements are increasing, often between different regions South-South RTAs account for two-thirds of the total

Share of developing countries in global trade rising

1996 1998 2000 2002 2004 2006 20080%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Low & middle income countriesBRICsHigh income countries

Shar

e of

wor

ld im

port

s

Source: Hanson (chapter 8).

Share of World Imports by Country Group

Global value chains dominate production trends

MENA is among the least integrated regionsMENA

Oil Exporters

Oil Importers

Arab League

ASEAN

EU27

MERCOSUR

NAFTA

0 10 20 30 40 50 60 70 80

2008-20101998-2000

Share of exports within regions (%)

Exports are concentrated

Export concentration index

LebanonMorocco

Egypt, Arab Rep.JordanTunisia

Syrian Arab RepublicUnited Arab Emirates

BahrainOman

Iran, Islamic Rep.Qatar

Saudi ArabiaYemenKuwaitAlgeria

Iraq

0 0.2 0.4 0.6 0.8 1 1.2

2010200520001995

Regional supply chains are under-developedIntra-industry trade by region

Effect of Logistics on Trade

0%

5%

10%

15%

20%cargaarancel

TRADE COSTS: FREIGHT VS. TARIFFS(% OF LAC EXPORT VALUE TO THE US, 2006) Freight

Tariffs

Logistics matter more for trade than tariffs

Source: Moreira et. al. (2009); IDB INTrade Database; World Bank Trade Indicators; WTO

Better logistics performance increases trade

Result when a low income country reaches LPI of middle income averageIndicator/policy area Increase in trade

(%)Logistics Performance Index 15.2

All trade barriers reduced to 10% 8.4

Doing Business, cost of trading 7.4

Tariffs reduced to 5% 5.7

Note: LPI = Logistics Performance Index; Tariffs = TTRI = Trade Restrictiveness Index; All barriers = OTRI = Overall Trade Restrictiveness Index.

0

200

400

600

800

1000

1200

1400

1600

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Sanitary and phytosanitary measures Technical barriers to trade

ANNUAL NUMBER OF NON-TARIFF BARRIER NOTIFICATIONS TO THE WTO, 1995-2010

NTMs are another source of trade costs

Source: Moreira et. al. (2009); IDB INTrade Database; World Bank Trade Indicators; WTO

Improving Trade Facilitation and Reducing Trade Costs

Goals of trade facilitation and logistics agenda

•Address links between investments in hard infrastructure and policy actions needed to facilitate trade flows

•Make more efficient the supply chains linking domestic producers and buyers to international partners

•Ease the movement of goods regionally and internationally to increase competitiveness

Three pillars of logistics performance

•Availability and quality of trade-related infrastructure: ports, airports, roads, railroads

•Friendliness and transparency of trade procedures implemented by customs and other border control agencies

•Development and quality of logistics services such as trucking, warehousing, freight forwarders, shipping, and customs agents

Efficiency of the clearance processQuality of trade and transport infrastructureEase of arranging competitively priced shipmentsLogistics competence and quality of logistics servicesAbility to track and trace consignmentsTimeliness of shipment delivery

The LPI measures six dimensions of country performance:

19

Measuring logistics efficiency

International shipments

Customs Timeliness

Tracking and Tracing

Infrastructure

Services Quality

Supply Chain Service Delivery

Service Deliveryperformance outcomesAreas for

policy regulations (inputs) Time, cost, reliability

The LPI: Time, Cost, Reliability

A changing trade facilitation agenda

Cross-cutting issues • Making transit

work • Collaborative

border management

Quality and efficiency of service providers• Freight forwarders• Customs brokers• Truckers

Trade related infrastructure• Roads• Ports• Railways

Customs reform and modernization• Fiscal focus• IT orientation

Priority areas for policy interventions

•Regional integration and development of trade corridors, border crossings, and transit regimes

•Customs reform and trade facilitation•Border management beyond customs•Port reform•Regulations and development of logistics services

(trucking, TPLs, freight forwarders, warehousing)•Development of performance metrics•Building public-private coalitions for reforms

Trade Facilitation in MENA

MENA: High trade costs and low logistics performance

•Major East-West shipping thru Mediterranean•Ports active in transshipments, including Egypt

•But…•Small volumes of trade regionally compared to trade

between MENA and EU•Not justified by small size of economies•Supply-side constraints and high bilateral trade costs

Bilateral trade costs•Trade costs= price equivalent of the reduction of

international trade as compared with the potential implied by domestic production and consumption in the origin and destination markets.

•Trade costs captures the effect of:▫Distance▫Connectivity, logistics, facilitation ▫Trade policies ▫NTMs

Bilateral trade costs high within MENA•Cost of trade between neighbors is typically twice as

high among MENA countries compared with those of Western Europe

•Maghreb countries have lower trade costs with Europe than between themselves

•Trade costs are higher for agricultural products, due to higher transportation costs (per unit value), time sensitivity for perishables, border controls, and NTMs

Higher trade costs within MENA than between MENA and EU

Maghreb Egypt Mashreq

France, Italy, Spain

GCC

Maghreb 95% 126% 152% 75% 167%Egypt 126% 112% 119% 111%Mashreq 152% 112% 77% 149% 96%France, Italy, Spain

75% 119% 149% 50% 132%

GCC 167% 111% 96% 132% 69%

Þ Except GCC higher costs within MNA countries including neighbors compared to with EUÞ Relatively high costs given distanceSource World Bank 2012

Higher trade costs within Maghreb than between Maghreb and EU, for manufactured products and more so for agricultural products

LPI ranking among MENA countries

France

Italy

Turkey

Morocco

Tunisia

Lebanon

Saudi Arabia

0 20 40 60 80 100 120 140

LPI Rank 2012

Logistics Performance Index 2012 (LPI score 1-5)

MENA has relatively poor trade logistics performance compared to countries of same income level

Consistent, partial, and unfriendly performers

2

2.2

2.4

2.6

2.8

3

3.2

3.4

3.6

Aver

age

2012

LPI

Sco

re

Consistent perform-

ers

Partialperform-

ersLogistics

unfriendly

Low income

Lower middle income

MENA: LPI performance stalled since 2010

How far from the top performer?

Algeria

Bahrain

Djibouti

Egypt

Iran

Iraq

JordanKuwait

Lebanon

Libya

MoroccoOman

Qatar

Saudi A

rabiaSyr

ia

Tunisia UAE

Yemen0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

percent of highest performer

201220102007

Key areas lagging behind on logistics performance: Logistics competence, infrastructure, customs

MNA better in connectivity than LPI

LSCI 2010

LSCI Rank 2010

LPI 2012 LPI Rank 2012

(0-100) (out of 183) (1-5) out of

155France 75 11 3.9 12Spain 74 12 3.7 20Italy 60 16 3.7 24Turkey 36 29 3.5 27Morocco 49 18 3 50Algeria 31 35 2.4 125Tunisia 6 105 3.2 41Egypt 48 20 3 57Lebanon 30 39 2.6 96UAE 63 15 3.8 17Saudi Arabia 50 17 3.2 37

LSCI = liner shipping connectivity index (UNCTAD) based on volume and diversity of connections with container shippingÞ Several hub ports in the

regions: Tangier, Port Said, Jeddah, Salala (Oman), Dubai

Þ MNA on the main maritime highway

MENA: MFN tariffs remain high but significant progress in reducing them regionally

(Tariff only) Trade Restrictiveness Index

0

5

10

15

20

25

East Asia & Pacific

Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

South Asia Sub-Saharan Africa

Total trade Agriculture Manufacturing

Percent

NTMs are highest in MENA

Overall (Tariff and Non-Tariff) Trade Restrictiveness Index

0

5

10

15

20

25

30

35

40

45

50

East Asia & Pacific

Europe & Central Asia

Latin America & Caribbean

Middle East & North Africa

South Asia Sub- Saharan Africa

Total trade Agriculture Manufacturing

Percent

The spaghetti bowl: MENA is no exception

Rules of origin complicate use of preferences

• PAFTA preference utilization rates are low < 10% of intra-PAFTA trade makes use of the PAFTA preferences

• Reasons for the low utilization rates of PAFTA: 1) Difficulty in satisfying and proving the required value-added

requirement2) High administrative costs of compliance3) Low preference margins

• When the costs of complying with the rules of origin exceed the margin of preference, trade will just take

place under the MFN regime

Trade Facilitation and Logistics Agenda Looking Forward

Strong logistics needed to develop regional production sharing networks

• Countries in the region can be partners not competitors• Each country can better use its comparative advantage

thru production sharing networks• The region can achieve greater economies of scale• Aim for the bigger markets as final destination of the

final product—e.g. EU• Involve the private sector•Hypothetical example: cotton from Egypt, textile from

Syria, designers and financial services from Lebanon, financing from Dubai, high quality assembly in Morocco.

Strengthen trade facilitation

• Trade costs constitute 20-40% of the price for MENA’s non-oil exports • Trade costs between MENA neighbors are twice as high for MENA

countries as in Western Europe • Maghreb countries’ trade costs are lower when trading with Europe

than when trading among themselves• Trade costs are especially high for agricultural products (high

transportation costs, border controls, NTMs)

Liberalize markets for logistics services; Simplify and harmonize customs procedures;

Put in place a transit regime to facilitate movement across countries

Simplify and harmonize non-tariff measures• The rule of origin of 40% VA requirement is prohibitive• NTMs are inconsistent with splintering of supply chains and

specialization in niches/segments of chains

Reduce VA requirement to 25-30%;Introduce cumulation provisions that allow regional content to be counted as originating;Introduce a regional NTM notification register and a regional review of NTMs

Priorities by sub-region in MENA

Four sub-regions from the perspective of supply chain and logistics:•Maghreb countries•GCC• Egypt•Mashreq (Syria, Lebanon, Jordan, WBG)ÞPhysical cross border connections, similar logistics patterns,

similar facilitation framework.ÞImplementation should focus on geographically consistent

groupsÞLittle scope for MNA wide activities

Priorities1. GCC

▫ Comparatively quite advanced in customs reforms▫ Move towards implementation of a customs union▫ Concentration of ownership in infrastructure services

2. Mashreq▫A series of existing corridors linking Turkey to the GCC and the countries

to Europe ▫Corridor facilitation = opportunities for intra-regional and extra-regional

export development in Syria and Jordan▫Serious bottlenecks in border crossings▫ Jordan more advanced in border management reforms▫Major problem in Iraq an Syria where trade facilitation and logistics

agencies need to be rebuilt

Priorities

3. Maghreb▫ Association with EU has been a driver for reforms and

investment▫ Very little regional trade despite the UMA (Maghreb

Union); known cross-border issues▫ Less attention given to the specific needs of regional

transportation and trade ▫ Morocco more advanced in investment and reforms, and

attracts logistics investments▫ Libya trade facilitation and logistics need to be UMA

compatible

Logistics Performance Index (LPI) Trade and Transport Facilitation Assessment (TTFA)

49

From global benchmarks to country-level assessments

• MEASURES the trade logistics efficiency of a country

• Fundamental premise: Efficient logistics drives economic performance and competitiveness

• Diagnostic tool for countries to perform an in-depth assessment and inform policy

• Plans of action to IMPROVE logistics performance

Some recent knowledge contributions50

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www.worldbank.org/tradewww.worldbank.org/tradefacilitationwww.worldbank.org/tradelogisticswww.worldbank.org/lpiwww.worldbank.org/tradestrategy

Washington Office1818 H Street NW

Washington DC 20433

Contact: tradefacilitation@worldbank.org

The World Bank GroupInternational Trade Department

51

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