Home / COMMENTARY / UNDERSTANDING THE RUDIMENTS OF COMMON EXTERNAL TARRIF (CET) REGIME: A PANACEA FOR REGIONAL TRADE UNIFORMITY

UNDERSTANDING THE RUDIMENTS OF COMMON EXTERNAL TARRIF (CET) REGIME: A PANACEA FOR REGIONAL TRADE UNIFORMITY

The adoption of the Common External Tariff (CET).  One of the major components of the ECOWAS Customs union, was decided upon as part of the integration process of ECOWAS by the ECOWAS Heads of State in the 1975 ECOWAS Treaty and again in the 1993 Revised ECOWAS Treaty.  To reinvigorate the process, the ECOWAS Heads of State and Government agreed in December 2000 that the Common External Tariff of the West African Economic and Monetary union (WAEMU) would form the basis for the ECOWAS Common External Tariff.  The Federal Government finally gave the consent for the Implementation of the Economic Community of West Africa States (ECOWAS) 2015 – 2019 Common External Tariff (CET).

This concept was welcomed by the key maritime actors and stakeholders through the former Coordinating Minister for the Economy/Finance Minister, Ngozi Okonjo Iwueala through the Nigeria Customs Service.

The Common External Tariff and the Regional Integration Process

A Common External Tariff implies that all goods entering into the Customs territory of any ECOWAS county will be assessed the same rate of Customs duty.  The ECOWAS CET and the ECOWAS Trade Liberalisation Scheme (ETLS) constitute the two main components of the ECOWAS Customs union, which is an important step towards the establishment of the ECOWAS common market and subsequently in ECOWAS economic and monetary union.

Global Imperatives
Contemporary global changes in the social, political, economic and technological spheres have continued to pose serious challenges to our development efforts as a people and as an economic community.  For the ECOWAS region to be competitive and to set itself on the path to sustainable development within the current global environment, we cannot continue to operate on the basis of the existing small and weak economies that characterize the region.  W e need to strategically position our economies in a way that will not only provide for synergy but also strengthen the comparative advantage of the region; and thus create an enabling environment for economic stability and growth, industrial
development and investment.

Some Benefits of the CET

An enlarged market with a total population of about 234 millionØ people.  This will enhance industrial growth by making it possible for business people to widen the scope of their businesses and to benefit from the economies of scale.  It will also create increase competition within the region and therefore bring about increased efficiency and productivity.

Reasonable and uniform tariff levels, thus eliminating theØ incentive for smuggling and fraud.  This will bring about increased Customs revenue for investment in infrastructural development and social projects.  This wholesomeness of imports, thus protecting the health and well-being of the population.

Cost certainty for traders, in view of the uniform tariff levelsØ across the region, thus making it possible for business people to undertake effective business forecasting and planning.

Modernization of Customs procedures and revenue collectionØ system, making them increasingly transparent and business-friendly, thus facilitating business transaction and removing the bottlenecks often experienced by business people.    Efficiency in port administration and procedures, undoubtedly,Ø importers will prefer to import through ports that are less expensive and take less time to process imports.  This will provide an incentive for ports within the sub-region to improve their efficiency, thereby significantly reducing the cost of doing business, and consequently the prices of imported goods.

Concrete evidence of economic integration, which is an imperativeØ for the sustainable development of the ECOWAS region.  Economic integration will ensure the integration of the ECOWAS region in the global economy from a position of strength and sustainability.

Implementation of the CET – Key Stakeholders
Over the years, the ECOWAS Executive Secretariat has worked very closely with the non-WAEMU member states, namely Cape Verde, the Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone.  Towards creating the framework for the effective implementation of the CET.  Efforts were made to ensure the involvement of all stakeholders in the CET adoption process at both national and regional levels,  including government ministries, departments and agencies (MDAs), the organized private sector and civil society groups.

Structure of the CET

Under the CET, imported products are classified into the following four broad categories and tariff bands:

Category    Products    Import Duty
0    Social goods and other basic necessities     0%
1    Essential goods, raw materials, capital goods and specific equipment and inputs    5%
2    Intermediate Products    10%
3    Finish Products    20%
The statistical tax and the community levies of ECOWAS and WAEMU will be added to the above rates.

Safeguard Measures
The ECOWAS Secretariat is not unaware of the likely challenges that the economy of the ECOWAS region stands to face with the implementation of the CET, particularly the agriculture.

Consequently, in addition to the duty rates proposed under the common external tariff, the secretariat is currently preparing proposals for the adoption of certain safeguard measures that seek to provide significant protection to these sectors, including the following:-

i.    The Import Safeguard Tax
This is a temporary tax that will be used to provide protection to local products against erratic fluctuations in prices on the world market, price distortions resulting from subsidization of production and exports in industrial countries, dumping of products onto the world market, and lack of competitiveness due to high cost of production.  The Tax may be applied by member state to agricultural and industrial products, and may be adjusted periodically to take into account changes in world market prices or local production cost.

ii.    The Decreasing Protection Tax (DPT)
This is a temporary tax that will be applied as a safeguard measure, to products where the level of protection available under the ECOWAS CET may not be high enough to cushion local production from undue competition from imports.  The DPT is phased out gradually in such as a way as to enable
producers and manufacturers within the ECOWAS region to adjust to global competition.

iii.    The ECOWAS Agricultural Safeguard Mechanism (ASM)

This is an additional tax on imports of agricultural livestock, fishing and forestry products originating from outside the ECOWAS region.

The purpose of this tax is to protect local production from price variability and import surges.

This mechanism is partly in fulfillment of the tenets of the Economic Community of West African States common Agricultural Policy (ECOWAP), adopted by the ECOWAS Heads of State and Government in January 2005.

ECOWAS aims at creating a conducive environment for increasing the agricultural food production, fisheries and livestock production of the sub-region in order to guarantee sustainable food security; for developing intra-community trade by facilitating complementarily between the different agro-ecological zones; and for supporting the development of agricultural exports.

In addition to the Agricultural Safeguard Mechanism, the Secretariat proposes the following measures with the view to further strengthening the agricultural sector:

•    The total removal of taxation on all agricultural seed imports, all acquisitions of productive animals and alevins
•    The removal of taxation on agricultural inputs and production equipment used in farming;

The ECOWAS Compensatory Levy (ECL)
This is a transparent mechanism for addressing the deleterious impacts of levels of domestic support and export subsidies by ECOWAS World Trade Organisation (WTO) partners, primarily the industrialized countries of the organization for Economic Cooperation and Development (OECD).  The ECOWAS Compensatory levy will be imposed if it is found out that subsidies of the industrialized countries are causing injury or threat of injury to ECOWAS producers involved in agriculture, livestock, fishery or forestry processing industries.

These accompanying measures are very technical and are currently in the process of development.
Exemptions
Exemptions offer concessionary of duty-free access under special import regimes, such as an investment code.  They are usually established for transitional or temporary periods, but then often remain in force beyond the established period.  Exemptions have the tendency to undermine the uniformity of the CET and therefore need to be harmonized.

The most notable exemption include the following:
•    Diplomatic exemptions, involving the granting of duty-free status on imports related to diplomatic delegations under the Vienna Convention of Diplomatic Relations (1961) and the Vienna Convention on Consular Relations and Optional Protocols (1963);
•    Government imports, often involving imports for infrastructure investments, military supplies, and agricultural  and food products for public feeding programs;
•    Concessions on import duties under investment codes;
•    Temporary admission, duty drawback, or bonded warehouses for inputs
•    Special taxes or exonerations, particularly with respects to goods imported by charities of NGOs;
•    Treatment of goods imported under-funded programs

Bilateral Trade Agreements
Some ECOWAS member states have signed bilateral trade agreements with non-ECOWAS states, that provide for tariff concessions and other preferential arrangements.  Such agreements, if allowed to continue, have the tendency to distort the uniform application of the ECOWAS CET.  There is therefore the need for the ECOWAS Secretariat and the Member states to work towards harmonizing such bilateral agreements and thus eliminate any incompatibilities with the CET.

Special Export Processing Zones
Some ECOWAS member states have established free trade zones or export processing zone (EPZs), under which producers enjoy import duty waivers, tax breaks and other concessions, on condition that a certain percentage of the finished products are exported.  This places enterprises operating outside of the free trade zone at a disadvantage if their products have to compete on the local market with those produced by EPZ enterprises.

Consequently, the principles governing export processing zones must be harmonized in such a way that the re-export of goods produced in such zones.

Challenges
Beyond the issue of tariffs and other protective measures, there are broader issues that affect the agricultural, manufacturing and industrial sectors, and therefore the sustainable development of the ECOWAS region.

These issues need to be taken seriously, primarily in view of the challenges posed by the increasingly globalised world economy.

The key challenge facing these very important sectors is that of being competitive.  No matter the amount of protection that is provided to the industrial and manufacturing sectors, we can only achieve sustainable development if these sectors are competitive in the global sense.  In effect, we as an economic community, and the private sector in particular, must be able to strategically position these sectors and their products in a way that will make them competitive in the global market place.

Another major development challenge has to do with the nature of the physical infrastructure in the ECOWAS region, particularly energy, road, water for industrial purposes and telecommunications.  Inadequate infrastructural development in most of our countries has affected industrial growth significantly and push cost of production to very high levels.  A strong infrastructural base is therefore needed in order to provide the necessary foundation for sustainable industrial growth and development in the ECOWAS region.

The availability of strategic management skills and competences and the ability to adopt management best practices have posed serious challenges to corporate entities in the ECOWAS region.  In most cases, businesses, in their desire to maximize profits, compromise on the employment of adequately qualified personnel as well as on human capital development, thereby undermining their ability to compete both domestically and internationally.

Research and development (R & D) is another area that continues to pose enormous challenges to industrial concerns within the ECOWAS region.  Most businesses do not see the need to invest in research and development, and so fail to benefit from the industrial and technological advancements, and consequently the competitive urge, that R & D can generate.  There is therefore the need for more priority attention to research and development
at both the corporate and national levels.

Maximizing the benefits of information and communication technology (ICT) also continues to serves as a source of challenges to most industrial concerns.  A lot of businesses in the ECOWAS region have not adequately developed the ability to take advantage of ICT as an instrument for undertaking strategic management and for gaining competitive advantage, and have thus continued to operate according to old-fashioned principles
and practices.

All the factors outline above have contributed significantly to low capacity utilization among a majority of West African businesses.  Low capacity utilization poses a serious threat to industrial growth and development in the ECOWAS region, and there is the need for the creation of an enabling environment for achieving higher capacity utilization and industrial output.

We have come very far in our economic integration effort and we need to strengthen our partnership, both at the ECOWAS and international levels in order to consolidate the gains made so far.  Every citizen of the ECOWAS region has a stake in this process, and so we must all rise to the challenges; the organized private sector, civil society, academia and the must work to complement the efforts of government institutions towards the realization of the dream of full economic integration and sustainable economic development.

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