West Africa’s new common external tariff and the individual WTO commitments of ECOWAS member states: No insurmountable incompatibilities
The 16-strong Economic Community of West African States has decided to establish a common external tariff (CET), which is currently being finalised. The tariff, set at 35 percent at most, will modify the rights and obligations ECOWAS member countries. This may create a contradiction between the WTO commitments of individual countries and the requirements of the regional trade integration project essential for West Africa’s economic development.
National, regional and multilateral policies are not necessarily coherent or complementary. At first sight, the requirement of WTO compliance jeopardises new commitments at the regional level, but a close reading of WTO law allows us to conclude ECOWAS is likely to be able to continue its regional integration while keeping its new external tariff.
The CET is a priori incompatible with the individual commitments of WTO members
WTO data clearly shows that the application of the ECOWAS common external tariff – both for agriculture and industry – would be a problem with regard to respecting the individual commitments undertaken by the group’s members at the multilateral level.
All West African countries have lower applied agricultural tariffs than those they have bound at the WTO. Nigeria, for instance, has bound its tariff for agricultural products at 150 percent, while its applied tariff is only 33.6 percent. The bound tariffs of Gambia, Burkina Faso and Ghana vary between 140 and 97.1 percent. The least ‘protected’ countries in the region have ‘reasonable’ bound levels in comparison to the tariffs they actually apply. This is the case for Senegal and Guinea Bissau, which have a smaller margin of manoeuvre to adjust their customs tariffs in case of sudden changes in trade flows. The Ivory Coast is exceptional in that its bound and applied tariffs are almost identical at the relatively low level of 14.9 percent.
The picture is less homogenous for industrial products. Togo and Nigeria have high bound tariffs at 80 and 66 respectively. At the other end of the spectrum, Benin, Guinea, Ivory Coast and Mauritania are already in the danger zone as their applied rates are higher than those bound at the WTO.
From a legal perspective, this situation is problematic in two principal ways. First, for some ECOWAS countries the proposed CET is higher than their bound WTO commitments, and second, raising tariffs may have negative impacts on other WTO members.
Problem 1: The CET is higher than bound tariffs
With regard to agricultural products, the application of the envisaged rate of 35 percent will entail legal difficulties for all countries that have bound their tariffs lower than the CET (the argument of applied tariffs does not really apply here). Rather, the legal issue is linked to a discrepancy between binding commitments taken at the multilateral level and problems arising from the desire to establish a regional commercial and agricultural policy. Unless they are granted special waiver, ECOWAS members cannot use a new regional policy as a pretext to exceed their bound commitments.
All but two ECOWAS countries have bound agricultural tariffs above the projected 35-percent CET. However, Senegal with its bound tariff of 29.8 percent will not a priori be able to apply the new common external tariff without a prior revision procedure. The Ivory Coast is in an even worse position since its current bound tariff of 14.9 percent is so low that even a CET limit of 20 percent would be too much.
The same logic applies to industrial products. On the one hand, a group of countries has bound tariffs above the 35-percent ceiling, while eight countries could face difficulties as their bound tariffs are too low to allow automatic application of the regional CET. This would be the case for Ivory Coast, Benin, Burkina Faso, Guinea, Mali and Mauritania (bound tariffs between 9 and 15.5 percent), as well as Senegal (30 percent) and, to a lesser degree, Ghana (34.7 percent).
So, it seems that that the application of CET would face legal problems with regard to the existing individual commitments of ECOWAS members. This problem could be solved in two ways at the WTO.
Solution 1: Countries can choose the status quo
Under this scenario, the ECOWAS customs union with a common external tariff enters into force, leaving some member states in breach of their multilateral commitments. However, WTO law allows for the modification of schedules of concessions with the proviso that the country in question offers ‘compensatory adjustment’ in the form of lower tariffs on other products (GATT Article XXVII.2). Another WTO provision is of even greater interest in that it could secure the maintenance of the CET without compensatory payments. Indeed, GATT Article XXIV.6 provides that in determining compensation “due account shall be taken of the compensation already afforded by the reduction brought about in the corresponding duty of the other constituents of the [customs] union.” ECOWAS members’ combined average bound rates for both agricultural and industrial products are well above the CET ceiling. This system of internal compensation within a customs union would result in higher gains than losses for other WTO members. The overall situation of the region means that member countries’ individual schedules of concessions are unlikely to be affected. In this case, the region would not need to make compensatory payments even if some countries’ bound tariffs are lower than the CET.
Solution 2: Modify schedules of commitment
One way to go about this is through modifying the schedule of concessions. Not only does the WTO offer this possibility through the GATT Article 18 procedure, but the solution has the advantage of having already been tested by Gabon. The country’s authorities noted in 2007 that their industrial product tariffs were bound 15 percent at the WTO, while the duty actually applied was 18 percent under the common external tariff of the Central African Economic and Monetary Community (CAEMC). Faced with a problem of legal inconsistency, they requested the WTO to grant them permission to modify Gabon’s schedule of concession as envisaged in Article 18. In 2008, the WTO Committee on Market Access authorised the country to raise its bound tariff to 18 percent. It should be noted that to optimise its chances, Gabon invoked its status as a ‘small and vulnerable economy’, putting forward several indicators, which were taken into account by the WTO. According to latest news, Gabon has submitted a second request asking to increase its bound tariff from 18 to 28 percent. West African countries should emulate this. A priori, the only difficulty in using this procedure is the lack of grouped solution; every country must initiate its own request.
Problem 2: Negative impact of the CET on third parties
ECOWAS is currently a free trade area. With the adoption of a common external tariff, it would become a full-fledged customs union. GATT Article XXIV.4 recognises that the purpose of a customs union should be to “facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories.” In a similar vein, Article XXIV.5a provides that in the case of the formation of a new customs union “duties and other regulations of commerce imposed […] shall not, on the whole, be higher and more restrictive than the general incidence of the duties and regulations applicable in the constituent territories prior to formation of such a union.” In other words, customs union participants should avoid causing prejudice to third parties (i.e. other WTO members) arising from the establishment of a new regional agreement that confers additional trade commercial benefits to its members. Hypothetically, at least, setting the regional common external tariff ceiling at 35 percent carries the risk of creating additional tariff obligations for third parties since some ECOWAS member states have bound WTO tariffs below that level.
Solution 1: Carry out an assessment of the general incidence of duties and other commercial regulations on the basis duties actually applied in case forming a customs union
Individually, each WTO member retains its margin trade policy space resulting from the difference between bound and applied tariffs. If West African countries leave the situation as it is and start implementing their customs union, they will fall under GATT Article XXVI.5 to the extent that the increase in customs duties enforceable against third parties would result directly from the creation of the union. As a consequence of the establishment of the new entity, the measure will be sanctioned by the negotiation of compensation. On the other hand, taken individually, nothing prevents countries in the region from increasing their applied tariffs to benefit from legal margins before the launch of the customs union. In this way, the higher duties are no longer the result of the establishment of the customs union, but a case of a WTO member country exercising the legal rights granted by the system. This would of course require a high level of regional consultation.
Solution2: Changing the legal basis at the WTO
This solution is the simplest to carry out. All provisions linked to raising duties can be found in GATT Article XXIV. However, ECOWAS has already been notified to the WTO as a free trade area under the 1979 Enabling Clause. If, after the adoption of the common external tariff, the new customs union is notified to the WTO following the same procedure under the Enabling Clause rather than GATT Article XXIV, the impact of higher tariffs resulting from the creation of a customs union no longer applies. It would be wise to proceed in this direction.
Author: El Hadji Abdourahmane Diouf is a lawyer and holds a doctorate in international economic law. He is the Executive Director of the Agence africaine pour le commerce et le développement (2ACD).