1. TRADE FACILITATION IN THE MENA REGION Mona Haddad Sector Manager International Trade Department World Bank UN-ESCWA Expert Group Meeting on Transport and Trade Facilitation in the ESCWA Region Dubai, April 10, 2013

2. 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?  Effect of Logistics on Trade  Improving Trade Facilitation  Trade Facilitation in MENA  Trade Facilitation and Logistics Agenda Looking Forward

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

4. Regional integration is the new model  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

5. Share of developing countries in global trade rising Source: Hanson (chapter 8). Share of World Imports by Country Group

6. Global value chains dominate production trends

7. MENA is among the least integrated regions Share of exports within regions (%)

8. Exports are concentrated Export concentration index

9. Regional supply chains are under-developed Intra-industry trade by region

10.  Effect of Logistics on Trade

11. T RADE C OSTS : F REIGHT VS. T ARIFFS (% 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

12. Better logistics performance increases trade Result when a low income country reaches LPI of middle income average Indicator/policy areaIncrease in trade (%) Logistics Performance Index15.2 All trade barriers reduced to 10%8.4 Doing Business, cost of trading7.4 Tariffs reduced to 5%5.7 Note: LPI = Logistics Performance Index; Tariffs = TTRI = Trade Restrictiveness Index; All barriers = OTRI = Overall Trade Restrictiveness Index.

13. A NNUAL N UMBER OF N ON -T ARIFF B ARRIER N OTIFICATIONS 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

14. Definition of NTMs (UNCTAD classification)

15. Main Challenges NTMs are technical barriers to trade and sanitary and phytosanitary standards ▫ Legal texts complex and non-transparent NTMs issues by many ministries/agencies with different mandates—not always to facilitate trade WTO rules are vague: 1.Transparency 2.Non-discrimination 3.No measure less trade restrictive 4.Scientifically justified (for SPS) An agenda that is increasingly regional

16.  Improving Trade Facilitation and Reducing Trade Costs  Improving Trade Facilitation and Reducing Trade Costs

17. 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

18. 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

19. Efficiency of the clearance process Quality of trade and transport infrastructure Ease of arranging competitively priced shipments Logistics competence and quality of logistics services Ability to track and trace consignments Timeliness of shipment delivery The LPI measures six dimensions of country performance: 19 Measuring logistics efficiency

20. Point of Origin Seller’s Factory Alongside Vessel Delivery to Dock Exporting Country Delivered to Buyer’s Warehouse Frontier/ Border Supply Chain Framework Unloaded on Dock Importing Country Customs Infrastructure Services Quality Timeliness International shipments Tracking and Tracing

21. International shipments Customs Timeliness Tracking and Tracing Infrastructure Services Quality Supply Chain Service Delivery Service Delivery performance outcomes Service Delivery performance outcomes Areas for policy regulations (inputs) Areas for policy regulations (inputs) Time, cost, reliability The LPI: Time, Cost, Reliability

22. 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

23. 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

24.  Trade Facilitation in MENA

25. 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

26. 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

27. 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

28. Higher trade costs within MENA than between MENA and EU MaghrebEgyptMashreq France, Italy, Spain GCC Maghreb95%126%152%75%167% Egypt126% 112%119%111% Mashreq152%112%77%149%96% France, Italy, Spain 75%119%149%50%132% GCC167%111%96%132%69%  Except GCC higher costs within MNA countries including neighbors compared to with EU  Relatively high costs given distance Source World Bank 2012

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

30. LPI ranking among MENA countries

31. Logistics Performance Index 2012 (LPI score 1-5) MENA has relatively poor trade logistics performance compared to countries of same income level

32. Consistent, partial, and unfriendly performers

33. MENA: LPI performance stalled since 2010

34. How far from the top performer?

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

36. 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 155 France75113.912 Spain74123.720 Italy60163.724 Turkey36293.527 Morocco4918350 Algeria31352.4125 Tunisia61053.241 Egypt4820357 Lebanon30392.696 UAE63153.817 Saudi Arabia 50173.237 LSCI = liner shipping connectivity index (UNCTAD) based on volume and diversity of connections with container shipping  Several hub ports in the regions: Tangier, Port Said, Jeddah, Salala (Oman), Dubai  MNA on the main maritime highway

37. 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 AsiaSub-Saharan Africa Total tradeAgricultureManufacturing Percent

38. 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 AsiaSub-Saharan Africa Total tradeAgricultureManufacturing Percent

39. The spaghetti bowl: MENA is no exception

40. 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 requirement 2) High administrative costs of compliance 3) 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

41.  Trade Facilitation and Logistics Agenda Looking Forward

42. Main features in MNA Infrastructure not binding constraint (significant investment in highways and ports) Much less efficient on the soft facilitation issues Worse for cross-border trade: closed borders and/or security concerns Unequal level of facilitation reforms: comparatively better in countries with export oriented manufactures (Morocco, Jordan, Tunisia) Market for logistics services small Better in GCC given higher resources and economies of scale in logistics

43. 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.

44. 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

45. 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

46. 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)  Physical cross border connections, similar logistics patterns, similar facilitation framework.  Implementation should focus on geographically consistent groups  Little scope for MNA wide activities

47. Priorities 1.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

48. 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

49. 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

50. Some recent knowledge contributions 50

51. Contact Us www.worldbank.org/trade www.worldbank.org/tradefacilitation www.worldbank.org/tradelogistics www.worldbank.org/lpi www.worldbank.org/tradestrategy Washington Office 1818 H Street NW Washington DC 20433 Contact: tradefacilitation@worldbank.org The World Bank Group International Trade Department 51

52. THANK YOU For more information: www.worldbank.org/trade