Chapter

18 The Role of ECOWAS in Trade Liberalization

Editor(s):
Zubair Iqbal, and Mohsin Khan
Published Date:
December 1998
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Author(s)
Charles D. Jebuni

The Economic Community of West African States, which is made up of 16 countries of the West African subregion, was established in 1975 with the ultimate objective of forming an economic community. It was the product of the Pan-Africanism sweeping the African continent at the time, as well as the efforts of the private sector lobby and the encouragement of ECA.

Although, the treaty was signed in May 1975, five protocols critical to the trade liberalization component attached to the treaty were not ratified by the required minimum number of states until November 1976. The Community was, therefore, not operational until early 1977.

The trade liberalization scheme of the Community, which was expected to begin two years after the ratification of the treaty, actually started in 1990. Thus, between 1977 and 1990, the Community was preoccupied with the establishment of institutions deemed important for its success, and the ratification of protocols and conventions to clarify issues relating to the Community. Not much else seems to have been achieved.

Following a number of developments within their domestic economies and in the international environment, the treaty establishing ECOWAS was revised in 1992 as an attempt to revamp the Community. The history of ECOWAS thus falls into two phases: the initial period up to 1991, and the period of the revised treaty starting in 1992. In this chapter, we shall refer to the earlier period as ECOWAS, Part I, and to the period of the revised treaty as ECOWAS, Part II.

It will be argued here that the fundamental problem confronting ECOWAS, Part I, was a domestic policy framework at variance with the ideals of integration or trade liberalization. This was compounded by a weak domestic governance base and a legalistic approach to regional integration.

Since the second half of the 1980s, there has been a wave of political and economic reforms, including unilateral trade liberalization, taking place within individual ECOWAS countries. Economic reforms and their impact on international trade of individual countries can be expected to lead to a certain level of regionalization of trade, in spite of ECOWAS. ECOWAS, it is argued, must renew its commitments and reorient its activities to facilitate the process.

A common feature of Part I and II is that, far from ECOWAS having a dynamic of its own and influencing the policies of member states; if anything, the lines of causality run the other way. The dominant policies of the member states, which are different between the two periods but broadly the same within periods, determined what ECOWAS was to be or not to be.

ECOWAS, Part I: 1975–91

To understand the success or failure of ECOWAS to serve as an effective vehicle for trade liberalization and the approach adopted, it is necessary to examine the prevailing conditions in the region before the establishment of ECOWAS. The interplay of these conditions with world conditions constitutes the fundamental explanation of the difficulties facing the community.

A striking feature of the grouping is the diversity of the member states in terms of their economic size and potential. Twelve of the 16 member countries are classified among the least developed countries. The majority of the member states are, individually, too small in terms of income level and market size to ensure a takeoff to self-sustained economic development. In many of the countries, the smallness of the domestic economy is compounded by poor endowments of natural resources and a very poorly developed human capital base. Table 1 indicates a considerable variation among member countries in terms of GDP and population. GDP ranged from about $79 million in Guinea-Bissau to $11.6 billion for Nigeria in 1970. Only three countries, Nigeria, Ghana, and Cote d’Ivoire, had GDPs of more than $1 billion for both 1970 and 1975. While growth rates were positive, they were generally low. In terms of growth, Nigeria and Cote d’Ivoire dominated, with average growth rates of 8.1 percent per year between 1970 and 1975. Thus individual country markets were small to support viable industries and the total market size for the 16 member countries was less than $50 billion. The diversity and inviability of several states, one would have thought, would encourage the small states to work for the success of ECOWAS. The reality instead pointed to anglophone-francophone rivalry.

Table 1.Economic Indicators for the Economic Community of West African States
CountryGDP, 1970 (Millions of dollars)Average Annual Growth (Percent)GDP, 1975 (Millions of dollars)Average Population, 1970 (Million)Annual Growth (Percent)Population, 1975 (Millions)
French-speaking
Benin3321.53532.72.383.0
Burkina Faso3352.63905.62.226.2
Cote d’Ivoire1,1478.11,6625.54.156.8
Mali3383.93975.52.356.2
Niger647-1.25694.22.724.8
Senegal8653.59724.22.894.8
Guinea3.91.234.1
Togo2533.43062.02.472.3
Mauritania1971.71951.22.321.4
English-speaking
Liberia1.43.001.6
Sierra Leone3833.94352.71.972.9
Gambia, The0.463.320.55
Ghana2,2141.52,1668.62.659.8
Nigeria11,5948.115,20756.63.1866.6
Guinea-Bissau794.1970.533.580.63
Cape Verde0.2670.800.278
Source: Calculated from average annual growth (percent) given in World Bank, World Tables and World Population Prospects (1990).
Source: Calculated from average annual growth (percent) given in World Bank, World Tables and World Population Prospects (1990).

Population among member countries ranged from less than 300,000 for Cape Verde to 56.6 million for Nigeria. Population growth rates, however, were high. In terms of linguistic differences, there were only three official languages, English, French and Portuguese. This is a much smaller number than spoken in the European Union, for example. More important, however, in understanding the dilemma ECOWAS was to face, was the domestic economic policy framework of the member states.

At the time that West African leaders signed the ECOWAS protocols in 1975, most countries were pursuing import-substitution industrialization strategies behind high protective walls. Each nation state was committed to its own development and to the possibility of becoming the most developed country in Africa. This nationalist sentiment, combined with development theory of the 1950s and 1960s which preached dirigism, led West African states to adopt state-led import substitution development strategies. The resulting import-substitution syndrome (Little, Scitovsky, and Scott, 1970), with accompanying overvalued currencies and controlled regimes, generated rents that developed powerful supportive vested interests. The beneficiaries of this system were usually the politicians, the bureaucrats, the military corps, and the workers, managers, and owners of the dependent industries that relied on the largesse of the state and import licenses. These groups also constituted the ruling coalition and therefore could not be expected to implement policies that would erode their rents.

In West Africa, the fact that almost every country was pursuing these types of domestic economic policies reinforced every other country’s commitment to these policies, in spite of the adverse economic consequences. Thus this negative neighborhood effect reinforced and deepened these policies, with no group of countries emerging to champion the cause of ECOWAS.

Table 2 provides the structure of trade of members before ECOWAS. While exports of the group of countries constituting ECOWAS consisted largely of agricultural and mineral products, imports were largely manufactured products. The table indicates that more than 95 percent of exports consisted of agricultural products, raw materials, and mineral products with mineral fuels—crude petroleum—dominating. These products were exported largely to the industrial countries along colonial lines. Only 4.2 percent of exports went to destinations within the region in 1975. More than 75 percent of imports consisted of manufactured products. If one adds processed food, the proportion is even higher (90 percent).

Table 2.The Structure of Trade of the West African Countries, 1971–95(In percent)
Standardized International Trade Classification SectionExportsImports
0Food and live animals17.413.4
1Beverages and tobacco0.11.7
2Crude materials, excluding fuels16.42.5
3Mineral fuels59.26.3
4Animal and vegetable oils, fat2.30.5
5Chemicals0.39.5
6Basic manufactures3.124.1
7Machines and transport equipment0.533.0
8Miscellaneous manufacturing0.26.6
9Goods not classified by kind0.41.6
Source: Calculated from Table 6 of ECA, Foreign Trade Statistics for Africa (various issues), Summary Table C.
Source: Calculated from Table 6 of ECA, Foreign Trade Statistics for Africa (various issues), Summary Table C.

This pattern of exports and imports showed that to increase intra-ECOWAS trade, substantial industrial development was required to compete with imports from industrial countries, or substantial increases in growth and per capita incomes were needed to increase demand and intra-ECOWAS exports.

The Treaty and Trade Liberalization

The treaty establishing ECOWAS, among other things, provided for trade liberalization and the establishment of an economic community among member countries. Specifically, the community would ensure by stages:

  • The elimination of customs duties and other charges with respect to trade flows among member countries.

  • The abolition of quantitative and administrative restrictions on trade flows among member states.

  • The establishment of a common customs tariff and a common commercial policy toward third countries.

The objectives were to be achieved over a 15-year period. The first 2 years were a period of consolidation of customs duties and NTBs. During this period, member states were not bound to reduce or remove import duties.

The second stage was the succeeding 8 years, when member states were to progressively reduce and eliminate import duties. The second phase, which entailed total liberalization of trade, was based on three product types and three groups of countries for its implementation. The three product types included unprocessed goods, which include animal, mineral, and plant products. These products were not eligible for compensation for loss of revenue suffered as a result of their importation from member states. The second group of products was referred to as traditional handicraft products, while the third group of products was classified as industrial products produced within the Community.

While the first two groups of commodities have been enjoying free movement within the Community (i.e., without duties and entry charges), the timetable for the elimination of duties and taxes under the Trade Liberalization Scheme for the third product group was based on a member country’s economic state as determined by level of development, the importance of custom receipts in the member state’s revenue, and problems deriving from difficulty of access (landlocked members). Thus, the implementation period ranges between 6 and 10 years, with corresponding annual rate of reduction in duties and taxes of between 16.6 and 10 percent, respectively (see Table 3).

Table 3.The ECOWAS Tariff Reduction Schedule
Group of CountriesImplementation Period (Years)Annual Percentage Reduction Rate of Duties and Taxes
A.Cape Verde, Burkina Faso, The Gambia, Guinea-Bissau, Mali, Mauritania, Niger1010.0
B.Benin, Guinea, Liberia, Sierra Leone, Togo812.5
C.Côte d’Ivoire, Ghana, Nigeria, Senegal616.6
Source: ECOWAS Secretariat, Lagos.
Source: ECOWAS Secretariat, Lagos.

The third stage was the next 5 years after the second stage, when member countries were expected to gradually abolish existing differences in their external customs tariffs.

Assessing Performance

In assessing the performance of ECOWAS, a number of methods may be used. One could assess it in terms of the extent to which it was able to achieve its stated objectives. Data difficulties, relating to the levels of tariffs and NTBs among ECOWAS countries, limit the possibility of comparisons in terms of the changes that must have occurred over time. In this section, we first assess the extent to which agreements were implemented and then follow with the extent to which the implementation of the agreement affected intra-ECOWAS trade.

Implementation of Agreements

The provisions of the treaty are meant to be implemented through protocols and conventions. Indeed, five initial protocols, which were annexed to the treaty, provide details of the agreement on the following issues: definition of the concept of products originating from the member states; reexportation within the region of goods imported from third countries; assessment of loss of revenue by member states as a result of implementing the provisions of the treaty; the Fund for Co-operation, Compensation and Development; and contributions by member states to the budget of the Community. These protocols were not signed by the required minimum number of states until 1977. The Trade Liberalization Scheme was therefore expected to start in 1979. The takeoff of the scheme was postponed until 1989, and despite more than eight protocols and conventions, the implementation timetable was later shifted to January 1990.

The revised timetable indicates that NTBs were to be removed gradually over a four-year period (1990–93) in such a way that by January 1, 1994, all NTBs would have been removed. The commencement of the second stage (immediate liberalization of tariffs on unprocessed goods and traditional handicrafts) was also billed to begin by January 1990. The implementation of the third stage, gradual liberalization of tariffs on industrial products originating from member states, took off in 1992.

The implementation of the current timetable was hindered by rules of origin, lists of agreed enterprises and products, and the classification of member states into three economic groups, among other things. The implementation of free movement of persons was met with various obstacles at the final stage. Indeed, the protocol on free movement of persons has not been implemented. To a large extent, the ECOWAS protocols were not implemented under ECOWAS, Part I.

Trade Integration

A second strand in our assessment of ECOWAS, Part I, is to examine the extent to which the existence of ECOWAS led to trade integration. For, as stated by de Melo and Panagariya (1993, p. 12): “Whatever the ultimate goal of a regional arrangement, increased intra-regional trade ranks high among the priorities. It is also the yardstick to measure how deep integration actually is.”

Assessing the role of a regional trade arrangement is often complicated by the need to distinguish between regionalism and regionalization. Preferential trade arrangements such as ECOWAS are about regionalism of trade. In the absence of such arrangements, market forces would have led to some level of regionalization of trade.

Two efforts at measuring the impact of ECOWAS on intraregional trade can be identified. First, there are those based on trade ratios (share of intraregional trade in total trade flows). Second, those that are based on the gravity model. The results emanating from these groups of studies conclude that intraregional trade flows remain insignificant and that it has not shown appreciable change over the years. In this section, we shall examine these groups of studies.

Using the trade ratio method, Ariyo and Raheem (1991), Torre and Kelly (1992), Langhammer and Hiemenz (1991), de Melo, Montenegero, and Panagariya (1992), and Foroutan (1992), among others, conclude that the regional efforts have not significantly affected intraregional trade flows. Trade flows are variously defined to include exports, imports, or the summation of exports and imports. Notwithstanding the definition adopted by various researchers, the main finding is that the share of intraregional trade flows of the member states of ECOWAS in total trade is small (in all cases below 10 percent) and at best stagnant. In Table 4, we report intra-ECOWAS trade. From a level of 4.2 percent in 1975, intra-ECOWAS trade as a proportion of ECOWAS exports first declined and then increased steadily, peaking in 1988–89. This increase in intragroup trade is attributed by Foroutan (1992) to the decline in oil prices during the period 1980–90, causing Nigerian and ECOWAS dollar exports to the world to decline by 47 and 35 percent, respectively. It should be noted that the period of the increase also coincides with the adoption of structural adjustment programs by West African countries. It is possible that, given the nonimplementation of the trade liberalization component of ECOWAS before 1990, what occurred was a regionalization of trade and not the regionalism that ECOWAS attempted to promote. Whatever the interpretation, Table 4 shows that the level of trade among ECOWAS is low.

Table 4.Share of Intra-ECOWAS Exports
YearPercentage
19703.0
19754.2
19803.5
19855.3
19866.7
19876.4
19887.8
19897.8
19906.0

A number of studies using gravity models try to estimate the effect of ECOWAS on intra-ECOWAS trade. Foroutan and Prichett (1993) focus primarily on intra-sub-Saharan-African trade. Using trade ratios (measured as share of intra-sub-Saharan exports of sub-Saharan Africa to total exports of the region) the study indicates that intra-sub-Saharan trade flows are small. A gravity model was used to compare actual trade with what a gravity model would predict. The result of the analysis shows that the gravity model predicts very well the low level of intra-sub-Saharan trade. In other words, given the determinants of trade flows, intra-sub-Saharan trade is not low because of factors that work differentially against such trade; rather, it is naturally low. The study concludes that “increasing intra-SSA trade is not just a matter of removing discriminatory distortions or biases in infrastructure. It requires positive action such as providing differential incentives to intraregional trade.”

The estimate of the dummy variable for ECOWAS, which was included in the gravity model, was neither significant nor consistent, as it was positive and negative in import and export equations, respectively. It implies that ECOWAS has not significantly affected intra-ECOWAS trade.

Ogunkola (1994), unlike Foroutan and Pritchett (1993), focused on the regional integration efforts in West Africa, with emphasis on ECOWAS. Similar to Foroutan and Prichett (1993), he used the gravity model to explain the impact of ECOWAS and to measure trade potential in the subregion. Two periods were used: average trade flows for 1970–72, the pre-integration period, and average trade flows for 1978–80, the post-integration period. Comparing the estimates of the dummy for ECOWAS in the two periods, the study concludes that the effect of ECOWAS on intra-ECOWAS trade must have been very small.

Issues and Constraints

In the preceding section, we have demonstrated that most of the ECOWAS protocols were not implemented. Second, in spite of the long-run potential for increased intraregional trade, the existence of ECOWAS did not seem to have increased intraregional trade. This failure could be attributed to a number of factors. In this section, we examine some of these constraints.

Domestic Economic Policies

One of the major factors responsible for both the nonimplementation of the treaty and protocols and ineffectiveness of ECOWAS in increasing intraregional trade was the continuation of the initial domestic policy framework.

As indicated above, all the member states of ECOWAS at the time of signing the treaty were pursuing state-led import-substitution industrialization strategies and continued to do so even after signing. Promoting the ideals of ECOWAS required increasing exports, especially of the nontraditional type, and lowering tariffs. The domestic policy strategy adopted required higher tariffs and discouraged exports. Thus the domestic policy stance of most governments was at variance with the conditions required for the success of ECOWAS.

The initial structure of exports and imports dictated that to increase intraregional trade, manufactured exports had to increase. It is possible that the initial experience with import-substitution industrialization could have provided a basis for the takeoff into exporting through learning-by-doing effects or exports of Linder-type products. This, however, required a change in strategy and domestic policy framework. This change did not occur for reasons discussed above. This hampered the realization of the intent of the ECOWAS treaty and protocols in several ways.

First, the institution of general controls on international trade in terms of tariffs and NTBs tended to adversely affect overall exports and intra-ECOWAS trade. The incidence of these taxes are usually borne to a large extent by the export sector. Estimates of the incidence of these taxes on exports are not available for all ECOWAS countries. Two examples illustrate the point. For Ghana, it is estimated that approximately 74–85 percent of the import tax was shifted to the export sector (Jebuni and others, 1992). In 1986, an estimate of 55–90 percent was obtained for Nigeria. These negative effects on exporting were reinforced by an inappropriate combination of macroeconomic and exchange rate policies. The result was economies bound to their traditional exports, whose direction of flow and composition were determined largely by their colonial heritage.

Second, the resulting import-substitution syndrome (Little, Scitovsky, and Scott, 1970) with accompanying overvalued currencies and controlled regimes generated rents that developed powerful supporting vested interests of politicians, the bureaucrats, the military corps, and the workers and managers of the dependent industries that relied on the largesse of the state and import licenses. These groups also constituted the ruling coalitions and could not be expected to implement policies that would erode their rents.

With inadequate resources, ECOWAS countries had to rely on external assistance and aid to maintain the tempo of post-independence development. A large part of this aid came in the form of trade credit. This implied that imports had to be made from the donor community. Tying of aid therefore reinforced the colonial pattern of exports and imports.

The private sector, represented by the various national chambers of commerce, was one of the key advocates for the formation of ECOWAS. The Federation of West African Chambers of Commerce, first started by the Sierra Leone National Chamber of Commerce and Lagos Chamber of Commerce and Industry in 1963 and later covering most of West Africa in 1972, had among its objectives the promotion of regional integration. Pursuant to this goal, it set out on a number of campaigns and tours of the countries of the subregion between 1972 and 1974, lobbying heads of state and other government officials on the urgent necessity to formalize the ECOWAS arrangement. The state-led development strategy literally killed the private sector. What was left of the private sector became dependent on the state and the rents from the import-licensing system. Furthermore, the policy and economic environment tended to narrow the horizons of firms to the domestic market.

Dependence on Trade Taxes

The heavy dependence of various governments on taxes on international transactions is another factor that continues to hinder the progress of subregional integration. In fact, this was the focus of Ariyo (1992). Some of the countries still depend on taxes on international transactions to the tune of more than 30 percent of government revenue. Table 5 presents the ratio of taxes on international trade and transactions to total government revenue during the period 1975–95.

Table 5.Tax on Trade as a Percentage of Government Revenue
Country1975–791980–851985–891991–95
Benin51.3
Burkina Faso49.438.832.1
Cape Verde
Côte d’Ivoire35.633
Gambia, The63.567.866.442.4
Ghana45.836.539.831.2
Guinea47.532.815.746.1
Guinea-Bissau35.233.9
Liberia32.631.129.6
Mali27.219.923.3
Mauritania26.739.434.6
Niger32.3
Nigeria16.615.511.6
Senegal44.536.231.3
Sierra Leone46.342.340.037.7
Togo33.230.432.1
Source: For 1975–89, African Development Indicators, various issues. For 1990–95, World Development Report 1997.
Source: For 1975–89, African Development Indicators, various issues. For 1990–95, World Development Report 1997.

For the period 1975–79, dependence on trade taxes ranges from 16.6 percent of total government revenues in Nigeria to 63 percent in The Gambia. Fear of loss of revenues had been fully recognized as a major constraint to the success of ECOWAS, and countries were classified into three groups with different speeds for phasing out tariffs.

ECOWAS, Part II: After 1992

In the previous section, we argued that both the economic policy framework and the nature of governance in most member countries did not augur well for trade liberalization under ECOWAS. These circumstances began to change in the late 1980s. These changes provided an opportunity to revamp the ailing ECOWAS. Thus domestic developments, combined with world developments and the poor performance of ECOWAS, led to the revision of the ECOWAS treaty. The revised treaty has moved from mere statement of intention and general prescriptions about integration to defining strategies and even introducing sanctions where appropriate.

The timetable of the Community has been revised, with stages of implementation more clearly defined. The new timetable shows that, within a period of 10 years, effective from January 1, 1990, a customs union among the member states would be established. In other words, by January 1, 2000, a customs union would have been established in the region. Within the five years following the establishment of a customs union, an economic and monetary union would be established. Thus, by the year 2005, an economic and monetary union would be in place in the region. In the rest of the chapter, we examine the new economic circumstances in ECOWAS and how this may impact on the achievement of trade liberalization among ECOWAS countries.

Since the second half of the 1980s, most ECOWAS countries have embarked on some form of structural adjustment. Given the similarity of the initial economic conditions and the central role of the Bretton Woods institutions in the structural adjustment process, the set of policies pursued has also been remarkably similar.

Critical to the issue of trade integration is the pursuit of unilateral trade liberalization, reduction in the extent of overvaluation of currencies, and a greater disposition toward export promotion. Table 6 shows that, between 1985 and 1992, exchange rates of most English-speaking ECOWAS members have depreciated considerably in real terms. Countries with considerable changes include The Gambia, Ghana, Nigeria, and Sierra Leone. The situation in the French-speaking countries changed significantly after the devaluation of the CFA franc in 1994. These changes have tended to create a more conducive atmosphere for export development.

Table 6.Index of Real Exchange Rates of ECOWAS Countries(National currency per U.S. dollar)
Country198519861987198819891990199111992
Benin
Burkina Faso1008574848578
Cape Verde1007867
Côte d’Ivoire100776571
Gambia, The10013396921129310392
Ghana100117168174192165
Liberia10093918783
Mali10076777070
Niger100867863968998
Nigeria100305351305304345335
Senegal100786983837678
Sierra Leone1003678711612517820140
Togo1008068808173
Source: Calculated from IMF, International Financial Statistics (Washington, October 1992).Note: The real exchange rate is defined as EXR-WPus/CPI, where EXR is the nominal exchange rate expressed in units of domestic currency per U.S. dollar; CPI is the consumer price index in the given country, and WPI is the U.S. wholesale price index.

Refers to second quarter of 1991.

Source: Calculated from IMF, International Financial Statistics (Washington, October 1992).Note: The real exchange rate is defined as EXR-WPus/CPI, where EXR is the nominal exchange rate expressed in units of domestic currency per U.S. dollar; CPI is the consumer price index in the given country, and WPI is the U.S. wholesale price index.

Refers to second quarter of 1991.

At the same time, as a result of trade liberalization policies included in most SAPs, the levels of both tariffs and NTBs to international trade have been reduced. These policies have had a greater impact on reducing the levels of trade barriers among ECOWAS member countries than the ECOWAS protocols. It might be argued that this unilateral trade liberalization could reduce the margin of advantages that may accrue from preferential trade liberalization. However, this may encourage speedy action by regional groups to remove other impediments to intraregional trade.

Apart from the trade and macroeconomic component, SAPs have also generally aimed at generating competition within the domestic economy, increasing productivity, and simplifying and reducing the administrative, regulatory, and legal impediments to efficient economic activity. If successful, these measures would make transparent the environment for business activity in each ECOWAS member country to the other. The development of transportation and communication networks may be expected to have complementary impact on regional integration.

Furthermore, intraregional trade is much more acceptable and the costs are lower among countries with growing economies in the context of expanding exports. Structural adjustment could provide the instrument for trade integration. The expansion in exports, in combination with unilateral trade liberalization, could increase intra-ECOWAS trade without substantial trade diversion. The resulting economic growth and improvements in fiscal and external balances should reduce the incentive for further trade restrictions and lead to a further improvement in the trade and payments regimes among ECOWAS member countries.

A major consideration in discussions of regional integration in Africa alluded to above is the role of government tax revenues. A large number of African governments depend to a great extent on taxes on international trade. In some cases, revenue considerations have led countries to prefer trade with the outside world to other African countries. Countries take advantage of policy disparities among the countries of the region: trade policy, price policy, monetary policy.

These considerations have also led governments to revenue-compensating arrangements that tend to restrict trade among ECOWAS countries. Given the low levels of intraregional trade, revenue losses to government under preferential trade liberalization should be low, depending on the extent to which member countries can be induced to take advantage of the preferences and the size of the preferences.

At the theoretical level, the effect of trade liberalization under SAPs on tax revenues depends on the direct impact on trade tax revenues and the economy’s response to the changes in relative prices. Liberalization may have a positive effect on tax revenue through

  • The replacement of quotas and other quantitative restrictions by tariffs.

  • Reduction of duties from the prohibitive to a more normal range.

  • Putting low tariffs on previously exempted goods (in a situation where exempted goods form a large share of imports perhaps due to import-substitution industrialization policy, this change is potentially very important in terms of revenue yield.

  • The likely reduction in smuggling.

  • Some positive effects associated with a possible change in the composition of imports in favor of the decreased incentive to bias imports toward raw materials and intermediate products.

  • Some positive effects on tradable output, especially over the medium run, associated with the liberalization policy (Tanzi, 1989).

At the practical level, “a serious trade liberalization is likely to increase revenues as it is to reduce them: the elimination of tariff exemption and quantitative restrictions and the ensuing import boom, may more that outweigh the reduction in (statutory) tariffs in practice” (Rodrik, 1993, p. 2). Greenway and Milner (1993), however, find no evident relationship between trade reform and the amount of revenue collected from trade taxes; for a number of EGOWAS countries pursuing liberalization programs, dependence on trade taxes has decreased.

An issue of considerable concern in trade liberalization among ECOWAS countries is the balance of payments effects of such liberalization. It has been argued that, because in the short run at least, trade liberalization may be expected to worsen the trade balance, it may not be a viable policy option for countries with foreign exchange or borrowing constraints. These considerations may lead individual countries to begin to roll back the liberalization effort.

But evidence from both the theoretical and empirical literature indicates that the effect of trade liberalization on the external balance is ambiguous. The current account is identically equal to the difference between national savings and investment. Liberalization can therefore be expected to affect the current account if it induces a differential response of savings and investment flows. Liberalization under the SAPs recognize the likelihood of a deterioration in the short run with the savings rate, even if improving, not enough to finance investment growth required for structural adjustment. Hence the necessity of aid.

Using this savings-investment approach and considering a model that involves reduction of restrictions on imported intermediate inputs, Ostry (1991), for example, concludes, that “if tradables use both capital and intermediate imports intensively relative to the rest of the economy, liberalization leads to an increase in the level of savings and a decline in the level of investment and, hence, unambiguously to an improvement in the external current balance” (1991, p. 476). Of course, the reverse could occur under alternative assumptions.

The use of balance of payments considerations to deny access to products from other ECOWAS countries may be based on short-term trade balance and revenue considerations. Typical of this attitude are the trade relations between Ghana, Nigeria, and Cote d’Ivoire. All three are members of ECOWAS, and all three have embarked on trade liberalization. The manufactured goods to be exported among them and other ECOWAS members are approved and certified by the ECOWAS Secretariat. Yet customs officials deny duty free access of these goods to each other’s markets.

Successful adjustment should reduce the dependence of governments on taxation of international trade and make them more willing to grant concessions to other ECOWAS countries. Similarly, the effects of these policies on the external balance of individual countries could reduce the importance of balance of payments considerations in denying markets access to ECOWAS countries.

One of the critical elements of the economic reforms taking place among the domestic economies of member countries is the reduction in the role of government in directly productive activities and the increased importance of the private sector. Under SAPs, both private capital and the private sector are expected to play a leading role in the development of ECOWAS member economies. As indicated above, the private sector was one of the key players in the formation of ECOWAS. However, as the development strategy adopted by these economies reduced the role of the private sector, its involvement and role in ECOWAS diminished. Furthermore, the small private sector left in most of these economies got absorbed into the rentier state system and lost its ambitions beyond national boundaries.

There are no data to indicate the extent to which the new circumstances have led to intra-ECOWAS movement of capital. However, the formation of the West African Enterprise Network is an encouraging sign of the positive role the private sector can play. The network is already leading to joint ventures among private sector individuals and enterprises with some external support.

At the same time that domestic economic policy reform seems to be moving in the right direction in terms of ECOWAS objectives, developments in the international environment in such areas as world technology and the conclusion of the Uruguay Round of GATT are proving to be complementary.

There have been dramatic changes in both production technology and information technology, but much more so in information technology. These developments are reducing the transaction costs of international trade and changing the nature of the basis of comparative advantage. Increasing with improvements in information technology, comparative advantage will no longer be location-specific. It’s now possible for firms to source products and services worldwide in a matter of minutes. These developments imply that, unless ECOWAS is able to adapt to the new technology, there will be a tendency for firms within the region to transact business outside the region, as the transactions costs will be lower.

The conclusion of the Uruguay Round of GATT negotiations offered an opportunity for multilateral trade liberalization. Even though African countries’ participation in the round was minimal, the round has implications for these economies. The impact of the round on Africa’s economies is expected to occur through its effect on the world economy, reduction in tariff escalation and NTBs, loss of preferential market access under the ACP and EU, and Africa’s obligations from WTO membership.

Quantitative estimates of the impact range from a 2 percent to a 0.55 percent gain in exports (Harrold, 1995). For West African countries, the significant reduction in tariff escalation for wood and paper products, leather products, and tobacco products should be encouraging. This has to be set against the increasing escalation for cocoa.

What is more important is the extent to which the Uruguay Round will encourage or discourage intra-ECOWAS trade. Unilateral trade liberalization, which is not matched by similar liberalization among ECOWAS members, will tend to increase ECOWAS trade with the rest of the world and probably have adverse effects on intra-ECOWAS trade. Conversely, as has been argued by Harrold (1995), the Uruguay Round offered an opportunity for African countries to “bind their domestic reforms to an international anchor to improve their credibility.” The failure of ECOWAS countries to take the opportunity to make a credible commitment to trade liberalization might signal their continuing reluctance to liberalize trade among themselves in spite of the revised treaty.

Conclusion

The Economic Community of West African States was established two decades ago. Its efforts at promoting regional integration have been ineffective. To a large extent, this failure has been due to a domestic policy stance at variance with its ultimate objectives and to misgivings about the effects of the intra-ECOWAS trade liberalization on individual member country’s balance of payments and government revenue.

Changing domestic policies occurring under the structural adjustment programs in member countries provided better prospects for intraregional trade than events at the multilateral level. It must be realized that any multilateral arrangements that are not buttressed by a credible commitment to domestic policy reform involving trade liberalization and the development of the private sector are unlikely to succeed.

While the reform process in individual countries could work in favor of the ECOWAS objective, it could also work in the opposite direction. Increased domestic competitiveness could result in exporting to the industrial world. A lot will depend on transaction costs within the subregion. ECOWAS must therefore examine and redefine its role in the new circumstances. While not abandoning its overall objectives, a phased program with one modest objective at a time is perhaps a better procedure.

In the short to medium term, ECOWAS should take advantage of developments in individual countries and concentrate on facilitating trade among ECOWAS countries by measures and investments aimed at reducing transaction costs. This may be achieved through the development of intra-ECOWAS infrastructure and the easing of controls.

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