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The implications of CET for Nigerian products

Daily Times, Nigeria

The implications of CET for Nigerian products

By: Charles Okonji

27 September 2015

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

The ECOWAS Heads of State took this decision in 2001 at their summit, requiring member states to harmonise their import tariffs with the West African Economic and Monetary Union (UEMOA).

The CET was principally adopted by the eight francophone member states in 1998. Confronted 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 nothing had been done with regard to the subject, and consequently adopted a fast tracking of the CET harmonisation in line with the UEMOA rate.2.

Basically, the UEMOA CET is characterised with four tariff categories with rates of 0.0 per cent for necessary social goods, 5.0 per cent for essential/ basic raw materials, capital goods and specific inputs, 10 per cent for intermediary products, and a peak tariff rate of 20 per cent for final consumer goods.

Irrespective of the earlier 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.

Moreover, 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, the adoption of a common external tariff becomes imperative because it is on this foundation that offers could be made to the EU.

Timing is a very important factor in the pursuit of a regional CET, and it is also crucial to look at the wider world events in order to help take appropriate decisions. In a very clear term, import tariff levels maintain an inverse relationship with levels of economic development. For instance, average global tariff rates (ATR) indicates that the EU, a high income region, has an ATR of 3.5 per cent. The Mercosur, which is a middle-income region, has 11 per cent, while SACU, another middle-income region has 11.4% and CEMAC, which is a low income bloc, has 18.4%., which shows that the UEMOA CET with an average tariff rate of 12.1 per cent 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.

Though, Nigeria is among the 15 ECOWAS member-countries that recently agreed to begin implementation of CET, which is a trade liberalisation scheme that seeks to introduce uniform tariffs, customs union and economic integration across the West African sub-region as earlier stated.

But the Manufacturers Association of Nigeria (MAN) had previously warned that CET and EPA would throw up fresh challenges that will complicate the current performance of the manufacturing sector, though, the president of the association, Frank Jacobs, lamented that the implication of these trade treaty is that the manufacturing sector will be further challenged as the market would be flooded with products manufactured under favourable business environment and sold at a price that indigenous products may not be able to compete.

Looking at the present economic situation in the country, which amounts to emphasizing the obvious saying that Nigeria is currently mired in crisis occasioned by weak naira, which was recently devalued by the Central Bank of Nigeria (CBN), and declining oil prices at the international market, now less than $50 per barrel, $15 less than the 2015 budget benchmark of $65. The country depends on oil for 75 per cent of its budget and 95 per cent foreign exchange earnings.

It is on this premise that the players in the economy have reservations on the perceived merits and benefits of this common tariff to the country. The key industry watchers’ fear that with uniform tariffs, revenue accruing to the Federal Government through duties collected by the Nigeria Customs Service (NCS) (which reached N3 trillion in 44 months preceding September 2014 and N977 billion between January and December 2014) will fall.

The trade agreement will further impoverish the manufacturing sector and non-oil export could be the worst hit as the two sectors suffer from significant problem of lack of competitiveness, while many sub-sectors in manufacturing have low capacity, non-oil export is mainly dominated by raw agricultural commodities rather than finished manufactured or semi-finished goods.

A situation where CET regime will make countries with weak manufacturing base to lose out and become a dumping ground for other economies in the sub-region was anticipated, and this has a very negative implication for Nigeria.

The implementation of cross-border policies such as the CET and EPA would no doubt throw up fresh challenges that might further complicate the current lack-lustre performance of the manufacturing sector.

The fear of the real sector players in this connection is that regionalisation made possible by CET could create an avenue for the adoption of the EPA, which is a trade liberalisation agreement between ECOWAS member states and the European Union, which manufacturers believe EPA will open doors for European products that will box local commodities to a corner.

Another implication of all these for the Nigerian economy is that EPA, like CET, could lead to revenue loss estimated at $1.3 trillion by the Federal Government while the country stands the risk of being flooded with European products.

As Nigerians have welcomed this initiative with its inherent benefits, it is also advised that, because of the country’s peculiar economic circumstances at the moment, it should trade with caution by avoiding what might turn out ‘mercy-killing’ to local the industries.

For the Nigerian economy to subdue inflation, the government should establish mitigating measures such as anti-dumping measures, labour market reforms, and technological support to private firms to improve their ability to compete.

It could be recalled that Nigeria, at various stages in the EPA negotiation process, had voiced strong opposition to the agreement and raised concerns that the Agreement could only lead to deindustrialization in West Africa, with serious economic and employment consequences for Nigeria because of her 60 per cent share of the regional market and 77 per cent contribution to the region’s GDP.