Fighting illicit trade requires strong institutions
COMESA Business Council
Addis Ababa, Ethiopia - 26 March 2015
Thank you for inviting me to deliver this address to you today which will focus on how the business community, ably led by the COMESA Business Council, can contribute to trade and competitiveness in Eastern and Southern Africa.
COMESA is at the very heart of African regional integration. It is an enormous regional economic community which spreads from Cairo in the North to Swaziland in the South. It contains 19 of Africa’s 54 countries as Members and, in 2013, had a combined GDP of around $640 billion and a growth rate of 15%.
COMESA also has a good story to tell. Intra-regional trade has grown from $3.1 billion in 2000 to $22 billion in 2014. This is a 7-fold increase and shows that the private sector is taking up the opportunities of integration in the way they go about their business. All signals suggest that this integration will deepen further in coming years.
Needless to say, COMESA is a key player in African Integration and it is no surprise that the first steps towards Pan-African integration are emanating from Eastern and Southern Africa.
The Tripartite FTA - which will bring together COMESA, the EAC and SADC in a common market - will cover 26 countries, 625 million people and an aggregate GDP of $1 trillion. In addition to being a key stepping stone, it will also serve as the framework for an FTA between ECOWAS and the Tripartite region, and ultimately a Continent-wide FTA.
Regional trade can only be sustainable where the private sector sees a business logic behind the Common Market agenda. Any half-hearted attempts at integration, which are usually accompanied by high tariffs on sensitive products of export interest and the persistence of non-tariff barriers, sustain unfulfilled processes. Such impediments and challenges have generated uncertainty, increased costs and lost significant time for businesses, all too often leading to their disinterest in the process of regional integration.
In successful regional integration projects, the private sector has a key role to play – not just in taking advantage of the economic opportunities offered by integration, but also by driving the agenda through effective advocacy and acting as a constituency for politically-difficult reforms. This is a role which the COMESA Business Council has effectively been carrying out.
I would like to start by addressing the problem of illicit trade which, in many respects, is the antithesis of integration. Illicit trade occurs when economic operators lose confidence in the formal trading system or see opportunities in bypassing laws and formal structures. This may be due to various reasons, such as the difficulties of complying with the necessary rules and standards to operate in the formal economy or the costs and delays associated with formal trade.
While the ITC does not explicitly operate in the field of illicit trade, all of our interventions are designed to improve the competitiveness of the private sector and facilitate the ability of business to operate – and thrive – in the formal economy. We assist companies to comply with standards which may – in some cases – be the only barrier preventing producers from engaging in formal and legal trade. We also work with governments to ensure that they understand the interests of the private sector and minimise the time and cost associated with complying with regulatory requirements.
When talking about illicit trade, it’s worth noting that this trade may be based on illegal products or it may be based on legal products which are traded in an illegal way. In both cases, the WTO Trade Facilitation Agreement has an important role to play.
We tend to think of illegal products arriving on a beach in a row boat in the middle of the night with no lights and the smugglers dressed in dark clothes, carrying weapons and keeping their voices down. While some illegal trade happens this way, illegal products also cross through official borders hidden in legal consignments with a false customs declaration. In these cases, the risk assessment mechanisms used by Customs are crucial to prevent illegal products from entering. Under the TFA, the ITC is working with developing countries to ensure that they operate well-designed and robust risk assessment systems to deal with these types of situations.
For legal products, the calculation is different. These are products which traders could choose to trade in a formal and legal way but, for some reason, they consider it advantageous to trade the product in an illicit way. In many cases, the driving motivation behind this calculation is costs – compliance costs, taxes or lost time.
The TFA provides a unique opportunity to reduce the time and cost of international trade by imposing binding obligations on WTO Members to improve the transparency and efficiency of border procedures. This will encourage traders to re-enter the legal and formal economy by reducing the costs of trade and therefore reducing the incentive to engage in illegal trade.
Quick and easy processing of trade transactions is critical to international competitiveness of businesses, especially small and medium-sized enterprises.
In this context, the ITC has strengthened its Trade Facilitation offer to assist developing countries and LDCs implementing the TFA in a way which contributes to SME competitiveness. ITC provides support and technical assistance to national governments to ensure that new rules shaping the national, regional and international trade facilitation agenda comprehensively respond to business needs and contribute to SMEs’ competitiveness and integration into international value chains.
Following the recent MoU between COMESA and the ITC, we are working with the region on the implementation of the WTO Trade Facilitation Agreement to build momentum for trade related reforms.
This cooperation will aim at supporting COMESA around four high-impact clusters of interventions:
• Improving inter-agency coordination and Increasing SME involvement in public-private dialogue; e.g. establishment of National Trade Facilitation Committees, implementation of public-private dialogue mechanisms
• Enhancing transparency and access to information and documentation; e.g. development of national Trade Facilitation Portals, establishment of enquiry points
• Improving the efficiency and modernization of cross-border procedures; e.g. establishment of “single window”, set-up frameworks for risk management systems
• Building private sector capacity to comply with cross-border procedures; e.g. strengthening SMEs capacities to meet border regulatory agencies requirements
My recommendation number one would be implementation of the WTO TFA as a priority as strengthening the functioning of customs is an essential ingredient to fight against illicit trade.
Responsible value chain management and sustainable trade are inextricably interlinked, and it is ITC’s goal to contribute to sustainable trade, and development. As one of its solutions towards attaining this goal, ITC has developed Standards Map, a web-based tool for practitioners from public and private institutions as well as consumers, to shed light on the complex landscape of private/voluntary standards covering issues such as work and labour rights, economic development, quality – as well as environmental protection and business ethics in international supply chains.
Standards Map provides comprehensive and comparable information on sustainability standards and audit protocols, enabling users to make analyses, comparisons and reviews of sustainability standards using a unique set of criteria, audit best practices and good governance models.
A number of voluntary schemes referenced on Standards Map were developed by civil society actors, private and public organizations to encourage best practices in business to market products whose production did not entail harmful effects on the environment or social conditions of those involved in producing them.
By offering access to verified, freely available and transparent information on available certification schemes to producers and consumers, the Standards Map encourages the uptake of voluntary sustainability standards by the individual economic operators within the global supply chains.
T4SD – Standards Map covers 160+ sustainability standards and codes applicable in over 180 countries and 80 sectors.
85% of these standards and codes specifically address legality issues as being part of the certification or compliance verification process, namely through verification of the business license of the certified operator, land ownership etc.
Standards and codes not addressing specifically the legality of the business operations do nevertheless encompass criteria that aim to legalise the business operations in a step-by-step approach; a number of standards contain requirements for policies ensuring no net reduction in or extinction of critically endangered species, or tackling human rights and ethics issues such as the ILO Labour Standards, and encouraging responsible sourcing.
In turn, standards and codes communicate these messages to consumers through associated “labels”; through making the Standards Map a globally available public good for both businesses and consumers, ITC works to raise awareness and encourage internalisation of these standards by business.
ITC Standards Map partners with local actors in many countries to help SMEs perform self-assessment, identify areas of improvement, among which the legalisation of their business activities can be a first starting point of their roadmap to sustainable trade.
For instance, through the development of a customized tool, ITC Standards Map contributes to legalisation of producers in Colombia in regions historically producing a lot of illicit materials like drugs, now receiving support from government and NGOs – for instance SwissContact – to turn from illicit productions into cocoa production.
This work demonstrates great possibilities to demonstrate positive effects at the public policy level. ITC Standards Map’s new collaboration with UN Global Compact on the Integrated Sustainable Agriculture Protocol will contribute towards connecting hundreds of thousands of farmers to markets via a combination of using unique farm ID system and using the Standards Map self-assessment tool – hence promoting transparency and traceability in global supply chains, and facilitating integration of SMEs in legal trade.
My second recommendation is that the COMESA business council encourage SMEs in COMESA to use ITC's standards map.
The world’s biodiversity is under severe pressure from climate change. The illegal wildlife trade is also depleting animal, plant, timber and fish species at unsustainable rates. As a result, the African continent risks seeing the extinction of some iconic species like the white rhinoceros and elephant.
The UN’s response under the umbrella of The International Consortium on Combating Wildlife Crime (ICCWC) is to provide long-term capacity building among national agencies responsible for wildlife law enforcement. ITC is working closely with one of its members, CITES, the Convention on International Trade in Endangered Species, to promote a legal and transparent trade in animal and plant species.
ITC sees biodiversity as a great business opportunity for Africa particularly for its more marginalized rural communities. In Madagascar, ITC together with the International Union for Conservation of Nature, and Kering, the world’s largest fashion brand owners, including the likes of Gucci, formed the Madagascar Crocodile Conservation Sustainable Use Programme (MCCSUP). The objective of this partnership is to raise incomes for entrepreneurs and local communities by strengthening Madagascar’s artisanal crocodile trade.
Previously the species were viewed as a threat to the local people. Following a CITES decision in 2014 to open the trade, this threat has been turned into an opportunity for economic empowerment for local people. Through sustainable management of the species, local people, many of them women, can derive a cash income from the collection and rearing of the eggs for crocodile ranches.
The ITC-IUCN-Kering partnership works with the Direction General des Fôrets (DGF) in Madagascar. It provides market intelligence and capacity building on sustainable sourcing to Malagasy government representatives as well as entrepreneurs and their suppliers in the crocodile supply chain. By improving quality management and sustainable sourcing, exporters and their suppliers will ensure access to higher value markets. At ITC, we can see that it is possible to set incentives in a way that means communities have a financial stake in the sustainable utilization and not the poaching of wildlife.
Biodiversity is a business opportunity and driver for job creation in Africa. The combination of African entrepreneurism, great “products and services”, namely Africa’s unique biodiversity, together with an improving business climate is resulting in positive developmental impacts from the legal and transparent trade in biodiversity.
My recommendation number three would be to develop incentives and mechanisms to ensure local communities have a stake in sustainable use, no poaching, of wildlife.
As you can see the ITC is engaged in a number of areas which works to combat illicit trade and build the competitiveness of SMEs to operate in the formal economy. We will continue to work closely with the CBC and remain your partner moving forward. My final recommendation would be to invest in building strong institutions: customs, quality control institutions, and laboratories that are well equipped and with staff that are well trained and well paid. Fighting illicit trade after all does indeed require strong institutions.