Initial Reflections on the ECOWAS Common External Tariff
West Africa has just put the final touches to its Common External Tariff (CET), set to come into force in January 2015. This should allow it to become a full-fledged Customs Union by that date, a significant achievement in light of its regional integration agenda. This article describes some of the tensions that policymakers had to grapple with during the design of the CET, some of its salient features, and areas that will require further work for the consolidation of the region’s CET.
A long road
The Economic Community of West African States (ECOWAS) has, like many African Regional Economic Communities (RECs), a very ambitious integration agenda, sequenced along the “Balassa” model of integration. Beginning with a Free Trade Area (FTA) and eventually ending in a common market with a common currency, this model of integration has proved frustratingly slow and hard to achieve on the African continent.
Currently, the 15 ECOWAS Members States have agreed to liberalise trade between each other. This mechanism, dubbed the “ECOWAS Trade Liberalisation Scheme” (ETLS) is essentially a FTA. Its implementation remains haphazard, with many trade barriers remaining present in the region.
Originally foreseen in 1975, and “fast tracked” in 1999 and 2000 by ECOWAS Heads of States and Governments, the CET is the next echelon on the regional integration ladder. A CET essentially consists of harmonised tariff rates amongst a group of countries. Having a CET has several advantages: it allows for the consolidation of the internal free trade area, the development of a common trade policy, and sets the basis for further integration. Designing a CET is a very technical matter, with negotiators and technocrats going over thousands of tariff lines to agree on common rates, designing trade defense instruments, common administrative procedures, amongst others.
Some political economy issues in the CET negotiation phase
The technical nature of crafting a CET should not overshadow the hard choices that have to be made over the course of negotiations. By agreeing on common rates, countries have to make hard choices, together. Which (or rather whose) industries are to be protected, and under what condition? What are the policy objectives to be favored? These choices are the staple of trade policy in any country. But they become harder when a group of sovereign nations have to agree on a common approach.
ECOWAS is no exception. One of the specificities of the region is that, prior to the ECOWAS CET, a subgrouping of countries in the region already had a CET of their own (the West African Economic and Monetary Union, better known by its French acronym, UEMOA). The UEMOA CET was structured along four “bands” of 0, 5, 10 and 20%. This structure arguably reflects a wish to promote local value addition: “Essential social goods” are placed in the 0% duty band, inputs and intermediary products in the 5 and 10% bands, while final consumption goods are placed in the 20% band.
Early on in the negotiation phase, it was decided to “migrate” non-UEMOA ECOWAS members’ tariff schedules into the UEMOA CET’s template. Under this scenario, the UEMOA CET would essentially have been extended to the rest of the region. This proved exceedingly difficult, for the simple fact that these newcomers very often found the 20% rate too low for their own strategic, nascent industries.
In a way, it is not surprising that a country like Nigeria, with significant productive capacities, and a more protectionist trade policy, would find it hard to align itself with a CET designed by countries with different structural features and policy objectives. This led to the creation of the “fifth band”, at 35%, for “specific goods for economic development” (see Table 1). It was explicitly created to assuage the fears of the largely Anglophone non-UEMOA ECOWAS countries.
Table 1: Structure of the ECOWAS CET (March 2013)
|Category||Description||Average duty rate||Number of tariff lines|
|0||Essential social Goods||0%||85|
|1||Goods of primary necessity, raw materials and specific inputs||5%||2146|
|2||Inputs and Intermediate goods.||10%||1373|
|3||Final Consumption goods||20%||2165|
|4||Specific goods for economic development||35%||130|
Further, whether a good is considered of “social necessity” or of “strategic importance for economic development” is not necessarily straightforward, and can give rise to heated debates. Medicines and pharmaceuticals, for example, are a burgeoning industry in Nigeria and Ghana. But they can also legitimately be considered as “essential” social goods, on which low consumer prices should be the overriding concern. In this example, one has different sets of countries prioritising different policy objectives (industrialisation versus public health).
There are many other cases of hard choices in the ECOWAS CET. Rice and other cereals are another prominent example. There had been a long and forceful advocacy campaign by agricultural producers’ organisations to put key rice and other cereals in the fifth band. Interestingly, these voices often came from UEMOA countries, where agricultural duty rates are notoriously low, and where the agricultural sector is relatively well organised at the national and regional level. The regional agricultural policy, the ECOWAP, drafted at the same time as the CET was being designed, also seemed to go in the way of these demands.
There again, however, camps reportedly emerged between countries favouring an approach focused on boosting demand through increased protection, and others more conscious of (urban) consumer prices, and therefore opting for cheap imports. The positions could not be further apart. On one hand of the spectrum countries like Nigeria do not hesitate to charge 100% duty rates on rice and other cereals, or ban their importation completely, should it consider doing so appropriate. Smaller countries like Cap Verde or Gambia, understandably, do not enjoy the same leeway for obvious reasons. The final agreed rate for rice and most other cereals appears to be 10%, although it can be expected that these goods will feature on the list of tariff lines whose rates will be allowed to diverge from CET rates for a couple of years, as explained below.
Naturally, countries are not monoliths – even in different countries, different social groups favour different options. Importers of agricultural staple goods for example are said to have exercised significant pressure to keep import rates low. Seen in this way, the political economy of integration – at least on trade matters – in Africa is not radically different from that of other countries (interest groups lobby for options that are determined by their economic positions). The author would argue that it is perhaps the way that this trade policy is crafted and applied – the institutional framework around trade policy – that is markedly different in African countries, but this observation would merit additional research.
Even in its “final” form, the ECOWAS CET has not completely solved these dilemmas. Countries will apparently be able to keep divergent rates (up to 70% from the CET rate) for a while on 3% of their tariff lines (1). At first sight this can be interpreted as a pragmatic decision to go ahead with harmonised rates where compromise could be found, and keep off the most contentious tariffs lines for harmonisation at a later date.
Key issues ahead
Even if it is formally adopted, there are still several issues facing the ECOWAS CET in the future. First and foremost Economic Partnership Agreement (EPA) negotiations: if countries were unable to hold a common regional position, this would result in a “hole” in the CET: imports from the EU to potential EPA signatories would then penetrate other countries’ markets (a phenomenon known as trade deflection). Measures could be taken to prevent this from happening, but this would inevitably lower the ambition of the ECOWAS Trade Liberalisation Scheme (ETLS) and common market. This should be avoided at all costs.
The region’s leaders have just mandated regional negotiators to adopt a more flexible position in the negotiations, by revising the upper bound of their market access offer, a longstanding bone of contention in negotiations. The EU will hopefully follow through with flexibility of its own.
Secondly, while the flexibility to accommodate divergent rates for a while is a welcome sign of pragmatism, there nevertheless remains a strong need for monitoring the application of the CET in ECOWAS Member States’ tariff schedules. Regional integration in Africa in general, including in West Africa, is plagued by the non-application of Member States’ regional commitments. In a way, providing flexibility in the application of CET, as is currently the case, is a way of preventing that problem. It avoids putting the bar too high, where no consensus truly exists. But strong monitoring and compliance mechanisms should nevertheless be developed.
Thirdly, there are some multilateral implications of the ECOWAS CET, namely that some countries could exceed their bound duty rates at the World Trade Organization (WTO). The situation described above, whereby there were strong pressures to “revise” UEMOA rates upwards because of the need to accommodate the needs of non-UEMOA ECOWAS members, is a possible explanation for this situation. This could lead to some of them having to engage in renegotiations, although this will largely be dependent on how much pressure these countries will face to do so. Currently, it seems that ECOWAS countries have the possibility of not applying CET rates where this would lead them to exceed their WTO bound rates.
1. See Conseil Extraordinaire Des Ministres de la CEDEAO, Relevé De Conclusions de la Session Extraordinaire du Conseil des Ministres Abidjan, le 30 septembre 2013, available at http://koaci.com/articles-86083.
This article was published in GREAT Insights Volume 2, Issue 8 (November 2013).