Trade Negotiations Insights • Volume 7 • Number 4 • May 2008

ECOWAS CET: the imperatives of Nigeria’s fifth band

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The ECOWAS Common External Tariff (CET) has remained an issue of strong discourse and controversy in West Africa for many years, especially since the inception of the Economic Partnership Agreement negotiations. The ECOWAS CET is an instrument for tariff setting and liberalisation which ought to take care of a common market access within the ambit of regional trade and economic integration in the West African region.

The decision of ECOWAS Heads of State at their 2001 summit required member states to harmonise their import tariffs with the West African Economic and Monetary Union (UEMOA) CET adopted by eight mainly francophone member states in 1998. Faced with the challenges and pressure of concluding the EPA with the European Union (EU), close to five years after the 2001 summit, the Authority of Heads of State and Government of ECOWAS observed that close to nothing had been done with regard to the subject and consequently, further adopted a fast tracking of the CET harmonisation in line with the UEMOA rate.2

UEMOA tariffs

Essentially, the UEMOA CET features four tariff categories with rates of 0% for essential social goods, 5% for essential/ basic raw materials, capital goods and specific inputs, 10% for intermediary products, and a peak tariff rate of 20% for final consumer goods. The unweighted average tariff rate is 12.1%. The UEMOA tariffs are no doubt in line with the global trends towards lower tariff rates and fewer tariff categories, and it is also important to note that they were bound at the WTO.

Apart from the above highlighted rates, in January 2006 ECOWAS Heads of State decided to provide specific protection instruments in addition to the customs duties - such as the regressive protection tax, the special import tax and safeguard measures - to make up for the inadequate taxation of some products. The decision further made provision for a two-year transition period (January 1 2006 to December 31 2007) to enable non–UEMOA countries to adapt to the new tariff policy and to pursue the negotiations with a view to reaching agreement on the re-classification of some products as requested by the non-UEMOA countries. Entry into force was targeted for January 1 2008.

National government

The Federal Government of Nigeria (FGN) had as far back as February 2004 announced its intention to comply with an ECOWAS CET but made provision for a 30% ‘special tax’ to offer temporary protection to selected domestic industry products. The special tax was to be phased out over three or four years. In addition, Nigeria’s government prohibited imports of certain products. But more importantly, it must be highlighted that Nigeria demanded the creation of a fifth tariff band of 50%. This request was made when Nigeria, which had already made a political commitment to align with the UEMOA CET, realised that such a commitment was made without recourse to technical analysis in terms of research, or prior consultations with stakeholders, including relevant sectors of the economy such as the manufacturers, farmers, traders and other private sector organisations. The political statement of commitment was subsequently deemed to have been made by the then President, without consultations with relevant ministries and bodies such as the Federal Ministry of Finance, Commerce, Industry, the Nigerian Export Promotion Council (NEPC), Customs, and other trade related agencies.

It was upon the realisation that the UEMOA tariff rate does not protect Nigeria’s young and aspiring economy with its prospects and plans for industrialisation, coupled with the loud cries from national stakeholders, that the Nigerian government officially applied for the creation of the fifth band. This call for a fifth band has gained the support of prominent private sectors and civil society organisations in West Africa. Unfortunately, while discussions continue, this request made in good faith by Nigeria suddenly appears to have gradually snowballed into controversy: some West African countries have continued to express silent rejection of this proposal while the region as a whole is left without a common external tariff (even after the January 1 2008 deadline) with which third party trade relations and agreements - such as the EPAs - could be mirrored and executed.

The creation of the fifth band

Prior to the ECOWAS ministerial monitoring committee (MMC) in Nouakchott Mauritania, the West African Heads of State met in Ouagadougou on January 18 2008 to direct the Joint ECOWAS-UEMOA Committee on the CET to task themselves with “the possibility of the creation of the fifth tariff band.” In Abuja in June 2007, the Joint Committee had already resolved that “on the creation of the fifth tariff band, a study will be commissioned by the ECOWAS Commission.”

In truth, Nigeria’s request for a fifth band is a significant matter. It is not only of potential interest to Nigeria,

but to all industrially aspiring countries in West Africa

. Indeed, it is in the interests of the people of West Africa. For anybody to reject or even argue against the protection of West African producers is tantamount to an economic crime against the citizens of the region. Why must Nigeria continue to import everything it needs without the possibility of self reliance? Where is our tomorrow? And, who says it shouldn’t be planning for tomorrow? Shall Nigeria remain forever under the illusion of donating raw materials to others while importing finished and sometimes, ‘decorated’ goods? A level of protection is very necessary to ensure diversification in the region. It is also important to ensure that the country’s natural resources can be translated into finished products that could create more employment opportunities for the teeming youth, thereby reducing restiveness and insecurity.

Unfortunately, in a further clear betrayal of commitment and responsibility to the people of West Africa, the Memorandum presented to the West African experts at the Nouakchott meeting tended to highlight and emphasise more of the assumed negative implications and disadvantages, or in their own words “constraints” in the creation of a fifth band. Never did it occur to these colleagues to see if any advantage was worthy of mention concerning the fifth band. To this end therefore, any decision that may have resulted from this lopsided presentation is biased rather than objective.

A trade policy instrument?

Generally, economic observers and trade analysts have always concluded that with the exception of Nigeria’s rate, the rates in the region do not provide the best conditions for such tariffs to be used as a trade policy instrument. Similarly, stakeholders in the productive sector have always made noise about the importance of tariff protection in the implementation of sectoral policies. In fact, professional producer organisations hold the strong view that trade policies, fiscal challenges and sectoral policies should be harmonised; and that an important step in this direction consists of creating a fifth band level (above 20%) of the ECOWAS CET, to facilitate the adoption of a new policy instrument as a means of facilitating some strategic community programmes.

However, one important question remains; why is the CET so essential for West Africa at this stage? At this point, it is necessary to highlight the decision of ECOWAS to negotiate the EPA with the EU as a single customs union. With the scheduled timeline for the negotiation of market access in goods fast approaching (June 2008), the adoption of a common external tariff becomes more imperative because it is on this basis that offers to the EU could be made.

Global tariff levels

While timing is very important in the pursuit of a regional CET, it is also crucial to look at wider world events in order to help take appropriate decisions. In very clear terms, import tariff levels maintain an inverse relationship with levels of economic development. For instance, average global tariff rates (ATR) indicate that the EU, a high income region, has an ATR of 3.5%. The Mercosur, which is a middleincome region, has 11%, while SACU, another middle-income region has 11.4% and CEMAC, which is a low income bloc, has 18.4%.

From the above it can be seen that the UEMOA CET with an average tariff rate of 12.1% is, from a global perspective, out of line with the low-income status of countries in West Africa. The UEMOA tariff structure and rates are in fact similar to CETs adopted by the middle-income countries of South America.

In 2004, most low-income countries in Africa and South Asia still imposed higher tariff rates than the UEMOA rates. These include countries in Central, East, and Southern Africa. Bangladesh and Sri Lanka, and the East African community members of Kenya Uganda and Tanzania have from 2004 settled for three tariff categories of 0%, 10% and 25%. India still had a tariff peak of 30% in 2003, while Pakistan and Nepal had 25% tariff peaks. The UEMOA CET with a 20% tariff peak appears as the exception among the low-income groupings of Africa and South Asia. By most indices of economic development, UEMOA memberstates as a group are not better developed than the other low income economies highlighted above; in fact, the reverse is the case for several of the UEMOA countries.

An African perspective

These facts raise fundamental questions: why have other ECOWAS countries - and Nigeria in particular - committed themselves to harmonisation with the low CET? Some commentators have suggested that most ECOWAS countries are resource poor, with low populations and unviable markets that cannot support competitive production bases and therefore have no need for protective tariffs. Is this description true for Nigeria? Absolutely not! With regard to the fact that tariffs set too low in developing economies will encourage imports and become a disincentive to domestic production and investments, should Nigeria accept wholesale the adoption of the UEMOA CET or seek to modify it? Wouldn’t any country in the shoes of Nigeria (with about 150 million people, and many unemployed) seek to toe the same line of request that Nigeria has done? As such, it would therefore make sense for well-meaning sister countries in West Africa to align themselves with the position of Nigeria.

1 Ken Ukaoha is the President the National Association of Nigerian Traders (NANTS). He also represents Nigerian civil society in the EPA negotiations.

2 This took place during their 30th session held in Niamey in January 2006.