93642 POLICY NOTE NO. 43 JANUARY 2015 2014 Africa Trade Policy Notes Antoine Coste and Erik von Uexkull* Benefits of the ECOWAS CET and EPA will outweigh costs HIGHLIGHTS in Nigeria, but competitiveness is the real issue  After decade-long negotiations, the ECOWAS CET and EPA with the EU recently reached decisive milestones. These major reforms should have significant impacts and A difficult negotiation offer new opportunities to West The regional trade policy agenda in West Africa has been dominated in Africa, but have so far failed to garner recent years by the negotiations of the ECOWAS Common External Tariff (CET) a broad consensus, notably in and of an Economic Partnership Agreement (EPA) with the European Union Nigeria. The lack of objective and (EU). After decade-long negotiations in both cases, major breakthroughs were easily accessible assessments of their st likely effects appears to be partly reached over the last 15 months - the CET entered into force on January 1 , 2015 responsible for this situation. (Box 1) and the EPA is expected to be signed shortly by West African countries and the EU (Box 2).  Two recent World Bank studies use a simple methodology to assess the Over the years, the negotiations for these two instruments have exposed potential impact of these reforms on the frequently diverging interests and positions of the different parties, including Nigeria. Overall, full implementation within the West African block. With regard to the CET, import-dependent of the CET and EPA in Nigeria would result in limited fiscal losses, countries with little domestic production capacity have favored low tariffs to keep marginal welfare gains for consumers imports cheap, while some more advanced countries have pushed for higher tariffs 1 and higher profits for a majority of to protect domestic producers and infant industries (De Roquefeuil 2013) . manufacturing firms accounting for Likewise, countries have had varying incentives to conclude an EPA depending on the majority of jobs in this sector. the vulnerability of their exports to the erosion of EU trade preferences: while Almost all firms experiencing Nigeria mostly exports oil, which does not attract duty in the EU under the negative effects exhibit higher-than- Generalised System of Preference (GSP) it currently benefits from, countries such average profitability before the as Cote d’Ivoire and Ghana, with large and dutiable non-oil exports to Europe reforms and most would remain profitable after them.  The predicted magnitude of both the CET and EPA is small compared to gains that could be achieved by tackling supply-side constraints faced by Nigerian firms. Combining trade policy reforms with an ambitious * Trade Analyst, Trade & Competitiveness Global Practice (acoste@worldbank.org) and Country Economist, Macroeconomics & Fiscal Management Global Practice competitiveness agenda that (jvonuexkull@worldbank.org). addresses the most binding 1 Different stakeholders often have divergent positions within countries as well. For instance, constraints and promotes regional producer organizations in UEMOA countries have lobbied to use the ECOWAS CET as a trade appears as the best way to way to increase tariffs for agricultural products compared to the preexisting WAEMU CET, maximize the benefits and minimize while importers of food staples in the same countries pushed to keep rates low (De the potential costs of these reforms. Roquefeuil 2013). 1 have much more at stake should they lose preferential studies on the potential impact of the CET and EPA on 2 market access (Czapnik 2014) . Nigeria, which were elaborated in consultation with the Federal Government as well as with the ECOWAS A broad consensus has still not been secured for Commission (Von Uexkull and Shui 2014a, 2014b) . 3 either the CET or EPA, jeopardizing their Without arguing in favor or against the agreements, this implementation. Heated debates have notably persisted work is expected to contribute to a more objective basis on the impact and development-friendliness of the EPA. for the debates between stakeholders. The two studies Proponents of the EPA uphold the view that this new combine well-established trade policy analysis tools framework will benefit West African countries in terms of developed by the World Bank with publicly available data trade, economic development, poverty reduction, regional on trade, households, and firms to understand the short integration and insertion in the global economy term effects of trade policy changes linked to the CET (European Commission 2014), a view that is at least and EPA on public revenue, households and industry in partially shared by several West African governments. On Nigeria. The results suggest that, if fully implemented, the the other hand, various public, private and civil society CET and EPA would have positive aggregate effects on actors in different countries have argued that the EPA will Nigerian consumers and producers, with limited fiscal entail large long term costs, harm local industries and losses. While a minority of firms and workers could undermine economic diversification. experience negative effects, the impacts remain small compared to current profit levels and the gains that could The latter view has been particularly prevalent in be achieved through other policies to boost Nigeria, where it is expressed notably by interest groups competitiveness. This note summarizes the main results representing the private sector, and has strongly of the studies and derives practical policy conclusions. influenced the official position of the Federal Government during both the CET and EPA negotiations. Nigeria has long had a more inward-looking trade policy than most of its neighbors, even with regards to intraregional trade. A variety of trade restrictive instruments, such as high tariffs, special levies, and import bans, have been used to protect domestic industries with limited efficiency but damageable side effects (World Bank 2010, Treichel et al. 2012). In the meantime, groups that would likely favor and benefit from a more liberal trade policy stance (e.g. consumers, traders, producers importing inputs, customs officials) are less organized and have carried less weight in these politically sensitive debates. Studies predicting dire impacts of the EPA on public revenue, employment and industrial output have been cited in recent years and used to argue that Nigeria should not sign the EPA. However, some of these studies have not been published, making it hard to evaluate the quality of the methodologies and data used, and thus to assess the accuracy of their results. In order to facilitate an evidence-based dialogue, the World Bank has recently produced two empirical 2 As argued by Von Uexkull and Shui (2014b), substantial tariff barriers remain under the GSP for some non-oil products already exported by Nigeria to the EU (e.g. agricultural products, food and beverages, leather products, textiles, tobacco), implying that producers in these sectors would gain 3 This work programme is currently being expanded to analyze market access with an EPA. the impact of the CET and EPA on other ECOWAS countries. 2 Box 1: The ECOWAS Common External Tariff The establishment of a customs union through the introduction of a CET was planned in the original ECOWAS Treaty of 1975 and Revised Treaty of 1993, but successive deadlines for its adoption were repeatedly postponed during the 2000s due to the limited progress of negotiations. In 1997, the eight ECOWAS countries part of the West Africa Economic and Monetary Union (WAEMU) adopted a CET structured along four tariff bands of 0% (essential social goods), 5% (goods of primary necessity, raw materials and specific inputs), 10 % (intermediary products) and 20% (final consumption products). The double objective of this structure was to promote local value addition while applying low duties on essential goods. This tariff came into effect on January 1st, 2000, though some divergences remain between national tariffs of WAEMU countries . 4 The decision to align the ECOWAS CET to the one adopted at WAEMU level was confirmed by Heads of States at the Niamey summit of January 2006, which adopted a similar four-band tariff and agreed that all non-WAEMU countries would transition to this tariff by end-2008 . However, pressures from certain countries, notably Nigeria, resulted in 2009 in the revision of the TEC to 5 provide additional protection for 130 “specific goods for economic development� through a fifth tariff band, initially proposed at 50% but revised at 35%. In subsequent years, intense technical and political negotiations took place, notably to determine the appropriate tariff band for each product based on different countries and stakeholders’ priorities to protect domestic producers or maintain low consumer prices. A consensus was eventually reached for the final structure of the CET, which was endorsed by ECOWAS Heads of States in Dakar in October 2013 and set to come into force on January 1st, 2015. In addition to customs duties, the CET comprises two Supplementary Protection Measures (SPMs), namely the temporary Import Adjustment Tax (IAT) and the safeguard Supplementary Protection Tax (SPT). During a five-year transition period, member States are granted the flexibility to deviate from the CET for a maximum of 3% of tariff lines and a maximum total tax rate (customs duty, IAT and SPT) of 70%. The adoption of the ECOWAS CET has shifted the focus on its implementation from 2015. Regional meetings in end-2014 confirmed that the region was ready to start applying the CET but acknowledged that significant implementation challenges will be faced, at least initially. Outstanding issues include: (i) the clarification of the application modalities of SPMs, (ii) the development of a community customs code (iii) possible renegotiations at the WTO for some ECOWAS countries and products for which CET rates will exceed WTO-bound rates, (iv) the establishment a sound regional mechanism to monitor the effective implementation by all countries of the CET and compliance with SPM application rules, (v) the removal of policy barriers to intra-regional trade and improvement of the ECOWAS Trade Liberalization Scheme (ETLS), and (vi) the eventual elaboration of a common ECOWAS trade policy. Source : WTO (2005), De Roquefeuil (2013), De Roquefeuil et al. (2014), ECOWAS (2014a, 2014b, 2014c). 4 More than a decade after the entry into force of the WAEMU CET, national tariffs have not all been aligned, additional taxes not planned by the CET continue to be applied, and the temporary Taxe Dégressive de Protection continues to be applied by certain countries when it should have been phased out by end-2006 (UEMOA 2014). 5 In 2005, Nigeria undertook a major reform of its tariff structure to simplify it and partially align it with the proposed ECOWAS CET, although an additional 50% band was introduced. While this reform reduced the average level of tariff protection, it did not remove import bans and increased levies on a number of products, maintaining their overall level of protection (Nielsen and Zouhon-Bi (2007). 3 Box 2: The ECOWAS-EU Economic Partnership Agreement Negotiations of EPAs between the EU and regional groupings of ACP countries, including West Africa, started in 2002 and were 6 initially planned to be completed by 2008. The main objectives advanced by the EU to justify the need for EPAs were to (i) comply with WTO requirement for reciprocity in trade agreements (as opposed to previous unilateral preferential agreements which discriminated against non-ACP developing countries), (ii) promote ACP countries’ trade, development and insertion in the global economy, and (iii) advance regional integration. One complexity of the EPA negotiations in West Africa has stemmed from the diverse economic structures and interests of ECOWAS countries. LDCs, which represent the majority of these countries, are eligible to duty-free quota-free (DFQF) access to the European market under the Everything But Arms (EBA) scheme, and would in theory not lose access should no EPA be signed . Non-LDCs in the region would stand to lose more without an EPA, which pushed Ghana and Cote d’Ivoire to negotiate an 7 “interim EPA� with the EU in 2007. This has undermined the position of the ECOWAS as a single negotiating block and the prospects for an ECOWAS common market, although the interim agreements have not been ratified. As Cotonou Agreement preferences expired in end-2007, the EU temporarily granted DFQF market access to ACP countries having engaged EPA negotiations under the Market Access Regulation (MAR). The others reverted to the less favorable GSP (Nigeria), an enhanced “GSP+� (Cabo Verde) or the EBA in the case of LDCs. EPA negotiations stretched over more than a decade, increasing tensions between the two parties and within the West African group. Some of the main stumbling blocks concerned the extent and timeline of West Africa’s market access offer, as w ell as the amount of the “EPA Development Program� (PAPED in French) meant to help West African countries cope with adjustment costs. In order to speed up negotiations, the European Commission announced in September 2011 that the temporary MAR treatment would end for ACP countries who failed to conclude an EPA by October 2014. A compromise was subsequently found by Chief Negotiators of the two parties in February 2014 and, after some revisions requested by Nigeria and other countries, West African Heads of States eventually endorsed the agreement in July 2014. However, opposition to the EPA by some Nigerian stakeholders has remained strong and the willingness of the Federal Government to sign it is still unclear, maintaining uncertainty regarding the future of the agreement. Under the negotiated agreement, the EU will fully open its market to West African products from the first day of entry into force, while West African countries will gradually remove tariffs on imports from the EU for 75% of ECOWAS CET tariff lines, over a 20-year transition period and at various speeds for different categories of products. The remaining 25% of goods for which ECOWAS countries wish to protect existing or potential producers will not see tariffs reduced. Moreover, trade defense measures are included to protect West African countries from the risk of sudden and excessive increase in imports of liberalized products from the EU, including in infant industries. The more flexible rules of origin will allow West African producers to export duty-free products made with inputs from third countries. Finally, an amount of 6.5 billion euros has been pledged by the EU for the PAPED during the period 2015-2019. The negotiated EPA is a traditional trade agreement, in the sense that it only covers goods and largely focuses on tariff reductions, although many African countries have only seen a weak supply response to such trade preferences in the past. However, the initial objective of the EPAs was to establish more comprehensive development frameworks by supporting domestic and regional reforms that address deeper supply-side constraints to competitiveness, including both tariff and non-tariff barriers to trade, access and costs of backbone services, trade facilitation and regional integration, etc. (Brenton et al. 2008). While further EPA negotiations between West Africa and the EU are expected on issues such as services, competition and investment, no clear timeline has been established so far. The possibility to complement the EPA to cover a broader set of issues related to domestic competiveness will arguably determine its impact on trade, regional integration and development in the future. Source: http://ec.europa.eu, http://www.ictsd.org, http://ecdpm.org 6 The West Africa-EU EPA is negotiated by the 15 ECOWAS countries plus Mauritania. 7 It has been argued that the EPA’s more flexible rules of origin and binding nature would make DFQF market access both easier to use and more predictable for LDCs, and would thus be more interesting for them than EBA status. Moreover, LDCs interest is to graduate from this status, which implies losing EBA eligibility. 4 Impacts of the CET and EPA on revenue, bans or levies. The main results under the different consumers and firms scenarios are as follows: � Tariff level and trade flows: Nigeria’s trade regime is The most contentious issues in the Nigerian expected to become slightly more restrictive under public debate on the CET and EPA have been their scenario A, entailing a marginal reduction of imports impacts on public revenue, consumer welfare, firm by 0.3 - 0.6 %, while liberalization under scenarios B profitability and job creation, with opponents claiming it and C would lead imports to grow by 1.4 - 2.8% and would be strongly negative at all these levels. Part of the 2.7 - 5.3% respectively. Significant tariff reduction confusion and conflicting messages about the predicted would only occur for tobacco under the CET, but impacts of the CET and EPA come from issues related to protection would fall for a more diverse set of methodologies, data availability or quality, and hypotheses products should bans and levies be removed (e.g. used in the various studies prepared. As explained by apparel, textiles, food and beverages, motor vehicles, their authors, the World Bank studies mentioned above leather products). aim at adding value to the policy debate by providing intuitive results relying on a transparent methodology and � Public revenue: Under scenarios A, B and C, total 8 a limited number of simple assumptions . They evaluate revenue collected at borders would respectively the impact on trade, public revenue and domestic prices increase by 2.5 – 2.9% (reflecting a more restrictive of changes in protection levels under the CET and EPA, tariff structure), increase by 4.6 – 6.2% (due to the using the World Bank’s Tariff Reform Impact Simulation substitution of bans by revenue-generating tariffs), and Tool (TRIST). This tool relies on a simple partial decrease by 14.3 - 16.7% (due to loss of levy equilibrium trade model calibrated with standard values collection). This loss should nonetheless be qualified for elasticities of substitution between exporters and for since (i) it is computed as if no duty exemptions were demand, which has widely been used to simulate short granted and therefore overestimate the revenue loss term impacts of tariff reforms. The resulting price changes due to tariff reform (cf. below), (ii) removing levies and are then matched with household and firm-level data to bans would reduce incentives to smuggle and analyze the likely impacts on consumer welfare and firm encourage the use of revenue-generating formal trade profitability, respectively. Regarding firms, the short term channels, and (iii) revenue collected at borders only impact on profitability of tariff-level changes is evaluated accounted for 3.7% of total government revenue in through three price channels, namely the domestic price 2011, so the overall fiscal impact of full CET of their output and the price of imported inputs and of implementation would only be around half a capital goods that they use. In this setting, lower tariffs on percentage point. a firm’s output should reduce its profitability but lower � Consumer welfare: With import bans and levies tariffs on inputs and capital goods should have a positive maintained, CET-induced price changes are expected effect. to inflate the price of the average consumption bundle for consumers at all income levels by up to 0.7% on � Impact of CET implementation average, disproportionately affecting the poor. On the contrary, under the full reform scenario (C), Three scenarios are considered for CET households at every income quintile would benefit implementation in Nigeria, with increasing degree of from 2.3 – 2.7% reduction of the cost of their average liberalization: (A) CET-rate applied to non-banned consumption bundle. The reduction of the price of products according to the agreed schedule (cf. Box 1), rice would be the main driver of this welfare gain, zero tariffs for ECOWAS partners but with bans and notably for the poor, while the CET’s high tariffs for special levies maintained, (B) same with removal of vegetables and meat would partially offset overall gains import bans, (C) full compliance with the CET with no for consumers. � Firm profitability: The estimated overall effect on 8 Detailed discussions of the methodology, its hypotheses, profitability for the median firm in the sample is advantages and limitations relative to methodologies used in marginally positive in the full reform scenario (+0.1%), other existing studies can be found in Von Uexkull and Shui as gains from lower input prices due to the removal of (2014a, 2014b). 5 import bans and levies are predicted to be slightly to be the case in particular for food products and higher than losses to lower output prices. While the beverages, notably in countries such as Ghana, Cote overall impact is limited, it is noteworthy that, unlike d’Ivoire and Senegal, while the picture for other windfall profit gains due to higher tariff protection, sectors is more mixed and depends on the country. profit gains due to lower prices of more efficient This is important since regional markets are often a imported inputs and capital goods have been shown to stepping stone for exporters not yet capable of have positive and durable effect on productivity, competing on global markets. competitiveness and growth. Benefits from lower input � Trade facilitation: While trade in Nigeria is largely prices are found to be relatively evenly distributed undermined by the complex trade policy regime, across the universe of firms, while losses mostly affect another expected benefit of the CET is the firms previously benefiting from high protection from simplification of trade procedures, improved customs import bans and levies (e.g. textiles, apparel, food cooperation between neighboring countries and fewer industries, furniture). Overall, depending on the resources to enforce burdensome inspections as the scenario considered, 60 to 75% of firms are expected incentives to smuggle are reduced. However, to see their profitability increase after the reform. intraregional trade would benefit even more in the Under the full CET scenario with removal of import future from a more advanced form of customs union bans and levies, around 40% of firms would where the CET rate is charged at the border where a experience a reduction in their profitability, but most good first enters the region and tariff revenues are then of them would remain profitable despite the reform. distributed based on an agreed formula, removing the However, from a political economy perspective, the need for transit regimes and rules of origin verification unbalanced distribution of gains and losses from trade for intra-ECOWAS trade. liberalization implies that the negatively affected minority will have strong incentives to resist reforms, while the gains are distributed among a larger number � Impact of EPA implementation of firms that are less likely to actively support reforms. In order to isolate the net impact of gradual � Jobs: Weighing each firm by its contribution to total implementation of the negotiated EPA, the baseline employment suggests that the 33% of firms negatively selected is the trade policy regime that should be applied affected only represent 28% of current jobs. by Nigeria following the full implementation of the CET, Heterogeneity among firms implies that new including removal of import bans and special levies. The employment opportunities might develop in stronger main results of this analysis are as follows: firms even in sectors where some of the weaker firms � Tariff level and trade flows: The weighted average may be forced to shed labor due to decreasing tariff rate would only moderately decrease after the profitability. While this is likely to be the case in food EPA is fully implemented, from initially 11.3% to industries, the situation is expected to be more around 9.1%, which is explained by the EU’s relatively problematic in textile and apparel, making it a possible low share in Nigeria’s total imports (23%) and the priority sector for adjustment assistance to strengthen exclusion of a quarter of tariff lines from EPA firms’ productivity or help redundant workers find liberalization. The extent of tariff reduction is employment in other sectors benefiting from the relatively well balanced across sectors, although there reform. would be a strong reduction of protection for tobacco � Market opportunities: While the debate in Nigeria has products, a sector for which excise duties can be raised focused on concerns over the impact of trade if taxation is driven by revenue and/or health liberalization, the ECOWAS CET will actually concerns. Overall, a moderate import response is significantly raise average tariffs for all other member predicted from this change of tariff levels, around 0.8 - countries. Without considering the impact this will 1.8% of total imports, although some trade diversion have on the countries concerned, this should increase in favor of Europe and at the expense of the rest of the the preferential margin of some of Nigeria’s exports to world is likely to occur. the region (which can already enter ECOWAS � Public revenue: The revenue loss due to the EPA is markets duty-free under the ETLS). This is expected expected to represent around 17.3 – 18.7% of total 6 tariff revenue. While this is far from negligible, it results suggest that gains through lower input prices are would only amount to 0.8% of total fiscal revenue or relatively evenly distributed, while losses through lower 3.3% of non-oil revenue at the end of the EPA output prices would be more concentrated. Four main schedule (with the hypothesis of a 3% annual growth sectors could see profits and employment affected by of all sources of revenue during the 15 years the loss of tariff protection under the EPA, namely implementation period). wood products (e.g. planks, plywood), non-metallic mineral manufactures (e.g. cement, concrete), basic � Consumer welfare: Lower prices due to tariff metals (e.g. metal construction material and furniture reduction for products imported from Europe are part) and metals other than machinery (e.g. doors, expected to lead to a modest decrease by around 0.3% window frames). However, all these sectors except of the price of the average consumption bundle. The wood products have higher than average profit levels main drivers of this effect include vegetables, dairy prior to the reform and would only suffer from small products, fish and seafood, etc. Data limitations make decreases in profitability (1 - 1.9%), even after the EPA it difficult to assess the potential negative impact of the is fully implemented. EPA for households which derive income from (agricultural) products, though the evidence suggests The figures below summarize the predicted that direct competition between products grown in impacts on Nigerian households and firms of full Nigeria and European products is limited. implementation of the CET and the EPA. Figure 1 � Firm profitability and jobs: For all stages of EPA presents the expected reduction in the price of the implementation between 2020 and 2035, the average consumption bundle for households in all income predicted net effect on the median firm’s profitability groups. Figure 2 shows the proportion of firms which are is positive (+0.6%), indicating that the majority of firms expected to see their profits increase as a result of these stand to benefit. However, the mean net effect is two reforms and of firms which could experience losses slightly negative (-0.2%), suggesting that, while they are (distinguishing between firms which remain profitable and fewer, losses for negatively affected firms marginally those which do not). Finally, the first two columns of outweigh gains of positively affected ones. Figure 3 synthesize the impact of the CET and EPA on Interestingly, gains are expected to materialize earlier the median firm’s profitability through differe nt prices than losses, which could leave firms time to adapt to channels. For illustrative purposes, the magnitude of the the changing environment. Overall, 63% of firms effect is shown in comparison to improvements with (representing 58% of jobs) are expected to benefit domestic supply side constraints (power outages and high from higher profitability with the EPA in 2035 and transport costs). It is shown that improvements on either 31% (29% of jobs) could see their profit decrease, of them could significantly outweigh the net effects of the although only 0.5% of firms (0.3% of jobs) would trade reforms for the median firm. become unprofitable as a result. As for the CET, the Figure 1: Price change for the average consumption bundle, by household income Poorest > > > Richest 5th quintile 4th quintile CET 3rd quintile EPA (net effect) 2nd quintile 1st quintile -3.5% -2.5% -1.5% -0.5% 7 Figure 2: Distribution of profitability gains and losses among firms 100% 0.5% 10.2% Never profitable 80% 31.1% 32.3% Profit decreases, no longer profitable 60% Profit decreases, still profitable 40% Profit increases 63.0% 51.5% 20% Exporter 0% 3.2% 3.2% CET EPA (net effect) Figure 3: Magnitude of profitability variation for the median firm 3.5% 3.0% Accompanying competitiveness 2.5% measures 2.0% 3.3% Change in capital goods prices 1.5% 1.0% 0.1% 1.3% Change in input prices 0.5% 1.0% 0.9% 0.0% -0.9% -0.4% Change in output price -0.5% -1.0% 0.0% CET EPA (net effect) 50% fewer power 50% lower transport outages costs 8 Adapting policy responses to a new trade environment some key products for which the CET would actually increase tariffs, it will be important to monitor the Informed evidence on the potential impacts of impact on prices, notably for the poor, and to explore the CET and EPA is essential for Nigerian policymakers the possibility to adjust the CET to lower rates in the to craft appropriate policies that maximize the benefits future. and minimize the downsides of these reforms. Despite the adoption of the CET and EPA, some interest groups  Firm profitability: Beside the fact that most firms are continue to lobby for high trade protection until domestic expected to reap competitive gains as a result from the industries are sufficiently developed to face international CET and EPA, it is clear that losses would be small competition, although there is no evidence that this compared to any productivity gains that could be strategy has produced the desired results over several achieved through policy measures to boost decades (Raballand and Mjekiqi 2010, Treichel et al. competitiveness and reduce supply side constraints. 2012). A broad competitiveness strategy, rather than An exogenous acceleration of annual productivity sector specific trade protection, is more likely to provide growth by 0.1 percentage point would not only more the framework that will drive job creation over the than offset any negative effects from the EPA, but also medium term. The following policies could assist lead to substantial gains across the distribution of different stakeholders adapt to this new trade policy firms, with two thirds of them gaining over 2% in environment, taking advantage of the long profitability. In order to illustrate this point with implementation period: concrete examples, simulations were run using the detailed firm-level data to show the large positive  Public revenue: Most studies agree that applying the impact on profitability of reducing power outages and CET and EPA will lead to a significant decline of tariff transport costs (Figure 3). Defining and implementing revenue, although reliance on tariffs is limited in such a competitiveness agenda, possibly with support Nigeria compared to other West African countries. from the PAPED, could be a key factor in maximizing The authorities could nonetheless compensate this benefits from the EPA for Nigerian firms and loss by improving the low duty collection rate through workers. better control over duty exemptions, corruption and smuggling (Raballand and Mjekiqi 2010). Regarding  Jobs: In sectors where increased competition due to the latter, the simplification of trade procedures and the CET and EPA is expected to put pressure on jobs, regional harmonization of tariffs in the context of the policies could aim at providing affected workers with CET should reduce incentives to avoid formal trade social assistance, training and support to find new jobs channels and increase revenue-generating formal trade in firms and sectors which benefited from the reforms. flows. Finally, reforms of the domestic tax system can  Regional integration: Most studies find that the EPA also be used to compensate shortfalls of taxes on creates a risk of welfare-reducing trade diversion to international trade. EU producers from more efficient ones in third  Consumer welfare: In cases where tariff reduction or countries, including in West Africa. The appropriate the removal of import bans and levies are expected to strategy to minimize this risk would be to pursue trade lower the price of imports for certain products, an liberalization on a non-discriminatory basis and step important accompanying measure would be to inform up efforts to reduce barriers to intra-regional trade. the public and promote competition in the The linkages between the CET and EPA are clear in distribution of these products, in order to ensure that this regard. Again, financial and technical assistance, importers pass the price reductions on to consumers notably in the framework of the PAPED, could rather than absorbing them as windfall profits. For usefully be leveraged for this purpose. Conclusions largely determine the benefits that countries, firms and workers can expect from them, including in Nigeria. The conclusion of negotiations for the ECOWAS CET and EPA were important milestones for For Nigeria, the evidence presented here West Africa, but the way these agreements will now be suggests that consumers, as well as a majority of implemented and complemented with other reforms will manufacturing firms and workers, will experience small 9 gains from the CET and EPA as the costs of consumption this approach alone is unlikely to radically enhance the and of key material inputs fall. EPA-related losses are trade competitiveness of West African countries. While only expected in a limited number of sectors, which the conclusion of negotiations on the CET and EPA is an currently have above-average profitability levels. This is encouraging first step, policy makers should aim at not to say however that these reforms will be entirely complementing and deepening them in the future to costless, and more research is needed to analyze the address the critical barriers to trade and regulatory potential impacts on other groups, such as agricultural reforms in both goods and services that will be required if producers and service providers, and on poverty. broad-based improvements in competitiveness are to be achieved. Clearly, the debate is not purely economic but largely influenced by political economy dynamics and Regarding tariffs and the CET, progressively different stakeholders’ capacity to defend their perceived reducing MFN tariffs and limiting the resort to additional interests. While actors who fear negative repercussions protection measures will be necessary to minimize the risk legitimately express their concerns, it is important to have of trade diversion in favor of European producers an understanding of the overall balance of costs and induced by the EPA and to promote integration in global benefits and of the accompanying measures that can be markets and supply chains. This should be accompanied adopted to minimize the former and maximize the latter. by renewed efforts to remove tariff and non-tariff barriers Policies to support the few who might lose need not to intra-regional trade, so as to make the ECOWAS curtail the opportunities for the many who could gain common market a reality. from an integrated West Africa region and more open Finally, the EPA and related aid for trade could trade regime. As argued above, combining trade policy be leveraged to help African countries integrate in global reforms with an ambitious competitiveness agenda that markets (the adoption of relatively flexible rules of origin truly addresses the most binding supply-side constraints is a positive sign in this regard). They should also support would in fact benefit all firms. domestic and regional reforms that will be required in all cases to strengthen the competitiveness of West African In this regard, it is worth reemphasizing that the producers by mitigating supply-side constraints. CET and EPA are expected to have only moderate direct impacts on firms and consumers. These agreements are illustrative of classic trade integration with a narrow focus on tariff issues, although there is mounting evidence that 10 REFERENCES Brenton, Paul, Mombert Hoppe and Richard Newfarmer. 2008. Economic Partnership Agreements and the Export Competitiveness of Africa. Policy Research Working Paper No. 4627. 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