Trade Effects of the Association of African Countries with the European Economic Community

IN FORMING the European Economic Community (EEC) in 1957, the six European countries (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) also decided to include their colonies in this attempt at economic integration. The aims of this inclusion, which had been advocated by France and supported by some other EEC countries, were to continue the preferential treatment between some member states and their overseas dependencies and to promote the economic and social development of these dependencies. Since these colonies were all developing countries, with economic structure substantially different from that of EEC countries, and because of their geographic location, they could not become full members of the EEC, but they were granted the special status of associate members by the Treaty of Rome in 1957. As associate members, these countries do not contribute to the budget of the Community and are not expected to carry out the obligations of the Treaty, except when special provisions apply to them. Although they cannot legally influence the policies of the EEC, it was agreed that the Community would keep the interests of associate members in mind when negotiating with third countries or adopting decisions applicable to the EEC members themselves.

Abstract

IN FORMING the European Economic Community (EEC) in 1957, the six European countries (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) also decided to include their colonies in this attempt at economic integration. The aims of this inclusion, which had been advocated by France and supported by some other EEC countries, were to continue the preferential treatment between some member states and their overseas dependencies and to promote the economic and social development of these dependencies. Since these colonies were all developing countries, with economic structure substantially different from that of EEC countries, and because of their geographic location, they could not become full members of the EEC, but they were granted the special status of associate members by the Treaty of Rome in 1957. As associate members, these countries do not contribute to the budget of the Community and are not expected to carry out the obligations of the Treaty, except when special provisions apply to them. Although they cannot legally influence the policies of the EEC, it was agreed that the Community would keep the interests of associate members in mind when negotiating with third countries or adopting decisions applicable to the EEC members themselves.

IN FORMING the European Economic Community (EEC) in 1957, the six European countries (Belgium, France, Germany, Italy, Luxembourg, and the Netherlands) also decided to include their colonies in this attempt at economic integration. The aims of this inclusion, which had been advocated by France and supported by some other EEC countries, were to continue the preferential treatment between some member states and their overseas dependencies and to promote the economic and social development of these dependencies. Since these colonies were all developing countries, with economic structure substantially different from that of EEC countries, and because of their geographic location, they could not become full members of the EEC, but they were granted the special status of associate members by the Treaty of Rome in 1957. As associate members, these countries do not contribute to the budget of the Community and are not expected to carry out the obligations of the Treaty, except when special provisions apply to them. Although they cannot legally influence the policies of the EEC, it was agreed that the Community would keep the interests of associate members in mind when negotiating with third countries or adopting decisions applicable to the EEC members themselves.

As a result of the association decision, 18 African countries, then colonies (or territories) of Belgium, France, and Italy, became associate members of the EEC. There were 14 former French colonies or dependencies (the Group of Fourteen, G-14)—the Republic of Cameroon, the Central African Republic, Chad, the People’s Republic of the Congo, also known as Congo (Brazzaville), Dahomey, Gabon, Ivory Coast, the Malagasy Republic, Mali, Mauritania, Niger, Senegal, Togo, and Upper Volta;1 three former Belgian colonies—Burundi, Rwanda, and Zaïre, formerly called the Democratic Republic of Congo; and the Somali Republic. Although other African countries south of the Sahara (e.g., Nigeria, Kenya, Tanzania, and Uganda) sought and obtained associate membership in the EEC after 1957, the conditions of their association are substantially different from those of the above-mentioned 18 countries. Consequently, the terms “Associated African Countries” (AACs) or the “Group of Eighteen” (G-18) do not include this latter group.

When the association agreement became effective with the Treaty of Rome on January 1, 1958, several AACs were already linked in bilateral trade and payments arrangements with some EEC member countries. Within the framework of these arrangements, the African countries received trade preferences as well as substantial financial aid and technical assistance from their respective metropoles (i.e., the colonial powers). In return, the African colonies granted their respective metropoles reverse preferences in trade. The association agreement gradually established a preferential area between all EEC countries, on the one hand, and all associated countries, on the other hand. The EEC countries granted tariff preferences on their imports from the AACs and created the European Development Fund (EDF) to assist the associated countries financially in their development effort. In return, the AACs agreed to grant all EEC countries reverse preferences in the form of lower tariffs on EEC products compared with products of third countries and to gradually eliminate quantitative restrictions on their imports from all EEC countries.

The purpose of the present study is to analyze the impact of the association arrangement on the pattern of trade of the AACs and to determine the extent of trade creation or trade diversion caused by the association. Before turning to this, the author reviews the main trade provisions of the association and the theoretical expectations with regard to this trade arrangement.

I. Trade Provisions of Association

The reciprocal trade preferences were contained in the Association Conventions. The provisions of association were agreed upon among the six EEC countries on March 25, 1957. They were renewed in July 1963 in the Second Convention of Association, generally known as the Yaoundé Convention,2 and in July 1969 in the Third Convention of Association, commonly referred to as Yaoundé II.

Under the First Convention of Association, tariff reductions between the EEC and the associated countries were planned in three stages—25 per cent in the first stage, 50 per cent in the second stage (from the level of the first stage), and the remainder in the third stage. However, the Convention provided that

each Associated State may retain or introduce customs duties and charges having an effect equivalent to such duties which correspond to its development needs or its industrialization requirements or which are intended to contribute to its budget.3

The member states of the EEC were to eliminate quantitative restrictions on their imports from the associated countries on the same scale as that adopted for use among themselves. The associated countries, after a period of one year following the entry into force of the First Convention, were required to adopt quotas to be applied without discrimination between member states (i.e., no discrimination in favor of a member that had special relations with the associated countries).

Under the Yaoundé Convention, goods exported by the AACs to the EEC continued to benefit from the EEC’s progressive abolition of customs duties. However, upon entry into force of the Convention, customs duties and charges having an equivalent effect were abolished for the products listed in Table 1 that originated in the AACs; the same products were subject to the common customs duties of the Community when originating in third countries. The provisions for tariff reductions by the AACs on their imports from the EEC remained valid, although reductions were to be made more rapidly whenever the economic situation permitted.

Table 1.

Goods Originating in the AACS and Admitted Duty-Free in the EEC, Beginning in June 1964 1

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Sources: Royal Institute of International Affairs, Convention of Association Between the European Economic Community and the African and Malagasy States Associated with that Community, Annex to the Convention (Oxford University Press, 1963), p. 27; European Community Information Service, Community Topics, No. 26, Partnership in Africa: The Yaoundé Association (December 1966).

When these goods originate from nonassociated countries, they are subject to the tariffs shown.

Duty temporarily suspended.

All quantitative restrictions applied by each associated country to imports of goods originating in the EEC, and all measures having an equivalent effect, had to be abolished not later than four years after the entry into force of the Convention through the use of a global quota opened indiscriminately to all EEC members.4 In the event that the use of tariffs proved insufficient to meet development needs and industrialization requirements, or in the event of balance of payments difficulties or agricultural problems connected with the requirements of existing regional market organizations, an associated country could retain or introduce quantitative restrictions on imports of goods originating in the EEC.

The structure and general concept of Yaoundé II, which entered into force on January 1, 1971, remain largely the same as in the Yaoundé Convention. The trade measures included (1) a lowering of the EEC’s common external tariff (CET) for a number of tropical products 5 and provisions to allow the AACs to participate in the generalized system of preferences; (2) a widening of the freedom given to the AACs to cooperate among themselves or with other African countries at a similar level of development in the framework of customs unions, free trade areas, and economic cooperation agreements; and (3) a set of trade promotion measures to compensate the AACs for the possible consequences of the reduction of preferences and the abolition of price support.

Consequently, the EEC-AAC arrangement is a preferential area that was established gradually. An important step was the adoption by the EEC in June 1964 of the CET on imports of certain tropical products (e.g., coffee and cocoa) from nonassociated countries, while AAC exports of these products entered the EEC duty-free. However, for AAC tropical products that competed with EEC agricultural products (e.g., sugar), certain raw materials (cotton and timber) and minerals, metals, and petroleum, no preferences were given to the AACs by the EEC. Thus, a weighted average tariff based on ten products of the AACs that constitute about 75 per cent of their total exports shows that the index of tariff preference declined from 4.2 per cent in 1959 to 3.4 per cent in 1964. This reflects the fact that the tariff preference on some major exports by the AACs was lowered following the association (Table 2). However, the tariff preference was gradually granted by nonmetropolitan countries (e.g., Germany). The associated countries could not eliminate all charges on imports from the EEC, since import taxes represent a substantial proportion of their governments’ budgetary revenue and the EEC is by far the most important supplier of the AACs. However, many associated countries granted the EEC a margin of preference in the structure of their tariffs by adopting a two-column tariff consisting of a customs duty of a discriminatory nature, from which exemption was granted to EEC countries, and a fiscal duty of a revenue nature, to be levied on all imports regardless of their origin.6

Table 2.

Changes in EEC Tariffs for Major Exports by the AACS, 1957–64

(Ad valorem rates as percentage of value)

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Source: Commision des Communautés Européennes, Evolution du Régime Douanier, Fiscal et Contingentaire des Principaux Produits Tropicaux Importés dan les Etats Membres de la Communauté Economique Européenne de 1958 à 1968 (Brussels, 1968).

French tariffs for imports from outside the French franc area.

Initial EEC tariff when applied; otherwise, tariff of most important member of the EEC on the import of the commodity from an AAC.

Tariffs applicable with the entry into force of the Youndé Convention.

Tariff rates during association period are for the Benelux countries (Belgium, the Netherlands, and Luxembourg).

The elimination of quantitative restrictions within the EEC was also applicable to the AACs, although it did not affect most AAC exports, since metropolitan European powers applied no quantitative restrictions to imports from their former colonies; when used, as France did in some instances, these restrictions served to guarantee the former colony a share of the market in the importing country. On the other hand, quantitative restrictions were frequently applied to imports from non-associated countries. By 1962, the AACs that applied quantitative restrictions to imports from some EEC countries adopted global quotas for specific commodities that were imported from the EEC. These quotas were enlarged from year to year at the expense of quotas applied to non-EEC countries, and by June 1968, in accordance with the provisions of the Yaoundé Convention, quantitative restrictions on imports from EEC countries other than France were eliminated in all the former French colonies; these restrictions were maintained by most of the former French colonies on their imports from non-EEC countries. 7

Trade relations among the associated countries were not affected by the association arrangement, although there are customs unions among several AACs.

II. Theoretical Issues Regarding the EEC-AAC Arrangement

In terms of customs union theory, the preferences offered by the EEC to AAC products could result in some trade creation in the sense that the AACs could supply the EEC with some goods that were formerly produced by the EEC countries themselves. This outcome is highly unlikely in the short run, since the range of commodities produced in the AACs is substantially different from that produced in the EEC countries (i.e., there is complementarity rather than competitiveness in production). The exceptions are perhaps sugar and some oilseeds; however, for these two commodities the EEC has an intricate protective policy that is applied even to the associated countries. Also, preferences could result in some trade diversion in the sense that the AACs could displace certain goods of nonassociated countries in the EEC on account of the tariff preference received by the AACs in the EEC market.

Since the AAC group has relatively free access to the EEC market, some trade creation in favor of the AACs can be expected in the long run, when the AACs can produce and export simple manufactured products to the EEC to replace the EEC production of such goods. However, the possibility of producing simple manufactures for export in most associated countries has been affected by the static production functions resulting from limited technological progress and by limited substitution in the factors of production. Less developed countries (LDCs) in general have faced difficulties in trying to expand their exports to developed industrial countries. Since the EEC-AAC arrangement permits easy access for AAC products to the EEC market in contrast to difficult access to the markets of other industrial countries, the association should cause the EEC to increase its share in total AAC exports. Because the association also permits AAC products easier access to the EEC market in comparison with similar products from nonassociated countries, it should also cause the AACs to increase their share in the total exports of the LDCs to the EEC.

With regard to imports by the AACs, the EEC-AAC arrangement could cause the share of the EEC in total AAC imports to rise. This could happen for three reasons. First, the AACs could now import from the EEC those goods that they produced primarily themselves under previous trade restrictions that have now been removed—in other words, trade creation. Again, this is highly unlikely on account of the lack of competition in the range of commodities produced by both sides. Any competition would have to be in the production of simple manufactured products, but, as most other developing countries have done, the associated countries have introduced restrictions aimed at protecting their infant industries. Second, an increase in the share of the EEC in total AAC imports could also be attributable to the fact that the AACs might now import from the EEC those goods that they formerly imported from non-EEC countries—in other words, trade diversion. This possibility is more likely than trade creation, given the production possibility frontiers in the EEC and the AACs. However, trade diversion in favor of some EEC countries (e.g., Belgium and France) that received preferential treatment in their colonies prior to the association is not likely to be significant. Nonmetropolitan EEC countries, however, could expand their share in AAC imports significantly because of the tariff advantage and the freedom from quantitative restrictions granted to them in the AAC market in connection with the association. Third, an increase in the share of the EEC in total AAC imports could also be attributable to the better competitive position of the EEC resulting from internal and external economies owing to the formation of the EEC rather than to the EEC-AAC arrangement.

III. Overall Trade Impact of the EEC-AAC Arrangement

Availability of data

Prior to 1960, all the AACs were dependencies of three EEC member countries. The only exceptions were West Cameroon (a British trust territory then called Southern Cameroons that joined the French-speaking Republic of Cameroon in 1961 to form the Federal Republic of Cameroon and became the United Republic of Cameroon in 1972) and British Somaliland Protectorate (which joined with Italian Somali-land, a trust territory, in 1960 to form the Somali Republic). Because of this colonial history, statistical information prior to 1960 is not strictly comparable with similar data thereafter. Furthermore, trade data are not always available on a country basis in the former French colonies prior to 1960; such statistics were published separately only for French West Africa (including Guinea, which is not associated with the EEC), French Equatorial Africa, French Cameroon, Madagascar, and the autonomous Republic of Togo. Trade statistics for the former Belgian territories were reported for the single grouping of Belgian Congo and Rwanda-Urundi until 1959, after which date separate statistics were reported for Congo (Leopoldville) and Rwanda-Urundi until 1963.

In the following proposed statistical procedures, the period prior to the EEC-AAC arrangement covers 1953–58. The association period (1959–68) is subdivided into 1959–64 and 1965–68, since the association arrangement moved close to a free trade area only in mid-1964 with the entry into force of the Yaoundé Convention. Despite the aforementioned problem of coverage, trade data for 1953–58 are broadly comparable with those for 1959–68. The exclusion of former British Cameroon and former British Somaliland from trade statistics prior to 1958 is adequately compensated by the inclusion of Guinea (a non-associated country) in the statistics for West Africa during this period. However, measurement problems of compilation, coverage, and conversion technique are not handled in the scope of the present study.

Since the arrangement between the EEC and the AACs provides preferences for certain AAC primary exports to the EEC and reverse preferences for EEC exports to some associated countries, it was argued earlier that the association might be expected to (1) cause AAC exports to the EEC to rise relative to total exports; by the AACs; (2) cause AAC exports to the EEC to rise relative to exports by the LDCs to the EEC; and (3) cause AAC imports from the EEC to rise relative to total imports by the AACs.8

Exports by the AACS to the EEC

During the preassociation period (1953–58), the share of the EEC in total exports by the AACs averaged about 72 per cent per annum (Table 3). France alone accounted for about 38 per cent of total AAC exports in this period. With the association, the share of the EEC declined to 71 per cent in the first period (1959–64) and to 69 per cent in the second period (1965–68), with France’s share dropping to 37 per cent and 32 per cent, respectively. Meanwhile, the share of EEC countries other than France remained at 34 per cent from preassociation to the period 1959–64; it rose to 38 per cent during 1965–68. The share of non-EEC countries increased throughout the periods under review.

Table 3.

AAC Exports: Regional Distribution, 1953–68

(In per cent)

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Sources: Tables 15, 16, and 21 (in the Statistical Appendix).

The trend of exports with respect to the EEC as a whole is somewhat contrary to expectations. One would have expected a rise in the EEC’s share, since the exports of associated countries have relatively free access to the EEC market compared with their exports to other industrialized countries. However, Table 3 shows that the trend in the EEC’s share was explained by the declining French share of the AACs exports. For the former French colonies (G-14) that make up the bulk of the associated countries, the association meant a reduction in the preferential margin that they enjoyed vis-à-vis other countries in the French market.9 This resulted in a gradual erosion of their position in that market, and the share of France in their exports declined from 62 per cent in the preassociation period to 57 per cent during 1959–64 and to 42 per cent during 1965–68 (Table 4). Because they received new preferences in EEC countries other than France, their share in those countries tended to rise with the association but not sufficiently to compensate for the drop caused by the loss of preference in France. The increase in the share of non-EEC countries in exports by the AACs can be attributed partly to the importance of the U. S. market in imports of coffee and cocoa; thus, it was difficult for many AACs to redirect established channels in the export of these commodities following association. Furthermore, primary products respond to preferences with substantial lags, particularly when production is derived from tree crops.

Table 4.

G-14 Exports: Regional Distribution, 1953–68

(In per cent)

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Sources: Tables 15, 16, and 21 (in the Statistical Appendix).

The evolution of the share of France in total AAC exports shows a sharp drop in the ratio, from 36 per cent in 1958 to 29 per cent in 1959. This can be explained by the devaluation of the French franc in late 1958 and the pari passu devaluation of the CFA franc (the currency of the former French colonies in Africa).10 As the supply of most primary commodities is inelastic, devaluation could not result in any significant increase in the volume of exports of such goods in the short run. However, the export price in French francs not having changed since the French and CFA francs were devalued pari passu, the U.S. dollar equivalent declined, leading to a drop in the dollar value of total exports. This is seen in Table 21 (in the Statistical Appendix), where exports by the G-14 to France declined from $438 million in 1958 to $347 million in 1959.

The decline in the share of the EEC in the total AAC exports was reflected in all three groupings of former French colonies, that is, West Africa, Central Africa, and Madagascar (Tables 15 and 16, in the Statistical Appendix). This downward movement was steepest in Madagascar, where the share of the EEC in Malagasy exports went from 72 per cent in 1953 to 39 per cent in 1968 and the value dropped from $61 million to $50 million. On the other hand, the share of the EEC in the total exports of the former Belgian colonies (Burundi, Rwanda, and Zaïre) rose from 69 per cent in 1953 to 78 per cent in 1968, with most of the rise occuring in the period 1965–68. The bulk of Zaïre’s exports consists of minerals that received no preference from the bilateral arrangement with Belgium to the association arrangement, and the increase in exports can be attributed in part to larger production of copper and to higher world market prices for this commodity.

Comparing the preassociation period (1953–58) with the association period, the share of the EEC in total Somali exports declined from 80 per cent to 59 per cent, partly as a result of the lessening of preferences for bananas but also owing to the inclusion of British Somaliland in the trade statistics in 1960, as shown by the dramatic jump in Somalia’s total exports from $19 million in 1959 to $34 million in 1960. Since British Somaliland traded mainly with the United Kingdom, the share of the EEC in Somalia’s total exports dropped from 68 per cent in 1959 to 57 per cent in 1960.

Export performance of the AACS compared with other LDCs

Since the formulation of the EEC in 1958, the economies of the EEC member countries have grown rapidly, and intra-EEC trade, as well as trade with other countries, has risen substantially. In general, this expansion has taken place with industrial countries, particularly the United States and the European Free Trade Association. However, trade expansion with developing countries has also been important. Since the AACs have special trade ties with the EEC, one would expect, ceteris paribus, EEC-AAC trade to expand more rapidly than EEC trade with other developing countries.

Thus, the association should cause the AACs to increase their share in exports by LDCs to the EEC. In fact, the share of the AACs declined from 14 per cent in the preassociation period to about 12 per cent in the association period (Table 5). A breakdown of the association period indicates a slight reduction in the AACs’ share from 12 per cent in the first period (1959–64) to 11.5 per cent in the second period (1965–68). These developments, which imply that LDCs other than the AACs have increased their share of EEC imports from the LDCs during the periods under review, are contrary to expectations. However, a comparison of the AACs with various groupings of the LDCs sheds more light on these developments. The only regions that show a clear rise in their share of the EEC market from the preassociation period to the association period are the Middle East and North Africa. These two regions comprise the major oil-exporting countries among the LDCs and thus are not truly competitive with the AACs. The Latin American countries, which are for the most part exporters of primary commodities, experienced a decline in their share of the EEC market, particularly from the period 1959–64 to 1965–68. For the group of LDCs called Competing Africa (i.e., Angola, Ghana, Nigeria, Kenya, Tanzania, and Uganda—see Table 18 in the Statistical Appendix), the share of the EEC market increased in the period 1959–64 but dropped during 1965–68. Asia’s share in the EEC market dropped substantially from the preassociation period to the association period.

Table 5.

Exports by LDCS to the EEC: Regional Shares, 1953–68

(In per cent)

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Source: Table 25 (in the Statistical Appendix).

The disaggregation of the data by various geographical areas shows that although the performance of the AACs was contrary to expectations a change seems to have taken place since 1965. During the period 1965–68, the growth rate of AAC exports to the EEC was much higher than that of competing regions (i.e., Latin America and “Competing Africa”). As a result, the share of these two regions combined in EEC imports from all LDCs dropped from about 29 per cent during 1959–64 to about 27 per cent during 1965–68. This development implies that the effects of the tariff preference granted by the European Common Market to the AACs began to be felt during 1965–68. Prior to mid-1964, EEC tariffs on primary products were reduced only gradually, and some of the reductions were also applied to nonassociated LDCs; furthermore, Germany, Italy, and Belgium were permitted to import duty-free, within specified quotas, certain quantities of bananas and coffee from nonassociated countries. In short, prior to mid-1964, preferences for the AACs in the EEC market were diffused by special provisions designed to safeguard the political and economic interests of some EEC countries in nonassociated developing countries. From mid-1964, the EEC’s CET on tropical products originating in non-associated countries was established. This development explains why EEC imports from countries (or groups of countries) that are similar to the AACs either in export composition (Latin America) or in overall economic structure (Africa) did not grow as fast as EEC imports from the AACs.

Imports by the AACS

The share of the EEC in total AAC imports rose from 66 per cent during 1953–58 to 68 per cent in the ten-year period ending in 1968 (Table 6); accordingly, the share of non-EEC countries dropped from 34 per cent to 32 per cent. The expansion in the share of the EEC in the imports of the AACs took place entirely in the period 1959–64 and is explained by the sharp increase in the share of France from about 46 per cent during the preassociation period to about 51 per cent in the period 1959–64; at the same time, the share of EEC countries other than France dropped from 21 per cent to 17 per cent.

Table 6.

AAC Imports: Regional Distribution, 1953–68

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Sources: Tables 19, 20, and 22 (in the Statistical Appendix).

These developments between the preassociation period and the first association period (1959–64) can be explained by several factors. First, as a result of the devaluation of the French franc in December 1958 and the pari passu devaluation of the CFA franc, the domestic currency cost of imports by the former French colonies from countries other than France and the French franc area rose, thus giving France a competitive edge equal to the amount of the devaluation. Consequently, imports from France replaced imports from other countries (including other EEC countries), and the share of France in the imports of the G-14 rose from 64 per cent in 1957 to more than 70 per cent in the four-year period following the devaluation (Table 7). Second, during the period 1959–64, the preferences given to EEC countries other than France were also granted to France by several associated countries. This occurred in the countries of the Central African Customs and Economic Union and the Malagasy Republic, which had nondiscriminatory tariff schedules before the association arrangement but granted a margin of tariff preference to all EEC countries in the early 1960s (see Appendix I). Third, such preferences were granted in a piecemeal fashion, and the margin of the tariff preference was limited to customs duties, which are not substantial in comparison with other taxes levied on imports from all countries, including the EEC.11 In many AACs the revenue from customs duties does not exceed 5 per cent of the total receipts from duties and taxes on imports, and the ratio of customs duties to imports from outside the EEC is generally less than 10 per cent (Table 23, in the Statistical Appendix).12 Finally, following the pressure for more revenue, several AACs increased the rates of taxes on imports, leaving the customs duties unchanged, thus reducing the margin of preference enjoyed by EEC countries as a group.

Table 7.

G-14 Imports: Regional Distribution, 1953–68

(In per cent)

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Sources: Tables 19, 20, and 22 (in the Statistical Appendix).

During the second period of association (1965–68), the share of the EEC in AAC imports remained at the level of the previous period, reflecting a decline in the share of France from 51 per cent to 46 per cent and an increase in the share of EEC countries other than France from 17 per cent to 22 per cent. The share of non-EEC countries remained unchanged at 32 per cent from one period to the other. The expansion in the share of EEC countries other than France can be explained by the liberalization of imports from these countries by several AACs. In effect, by June 1968 all quota restrictions against EEC countries had been abolished but quotas against third countries were maintained, although they were generally increased from year to year. As a result of the liberalization, the share of EEC countries other than France in the imports of the former French colonies jumped from 8 per cent during 1959–64 to 16 per cent during 1965–68. The share of non-EEC countries also increased. Disbursements of aid, with a large import content, from the EDF rose significantly after 1964, which, of course, contributed to the performance of the EEC countries. The decline in the share of France in imports by its former colonies was due to the erosion of its competitive margin in the markets of these countries owing to rapid inflation in France in this period, which led to the devaluation of the French franc in August 1969.

The performance of the EEC in the imports of various geographical areas is less uniform than it was for exports. In West Africa, where the preferences received by France before the association were gradually extended to other EEC countries, the share of the EEC in the total imports of the region declined from about 74 per cent in 1953 to 70 per cent in 1968; however, a substantial rise in the ratio took place in the years immediately following the devaluation of the French franc and the pari passu devaluation of the CFA franc. The West African countries maintained the preferential customs duties that were granted to EEC countries unchanged during most of the period under review but raised the fiscal import taxes that are levied on all imports regardless of origin. In Central Africa, where France and other EEC countries received tariff preferences following the association, the share of the EEC in the region’s total imports rose from 68 per cent in 1953 to 76 per cent in 1968. In Madagascar, which also gave preferential tariff treatment to the EEC after the association, the EEC’s share in its imports increased from 80 per cent in 1953 to 82 per cent in 1968.

Apart from the devaluation of the CFA franc and the French franc, political difficulties in Zaïre in the early 1960s, which virtually paralyzed its economy, distorted further developments in the early years of association. Total imports by Zaïre declined from the equivalent of US$276 million in 1959 to slightly over US$190 million in 1960 and 1961 (Table 19, in the Statistical Appendix), and its imports from the European Common Market dropped from US$152 million in 1959 to US$85 million in 1961 (Table 20, in the Statistical Appendix). Thereafter, and particularly during the period 1964–68, Zaire’s imports grew rapidly with economic reconstruction, and the share of the EEC rose from 48 per cent in 1964 to 56 per cent in 1968.

Owing to the problems of coverage mentioned in the study of exports, the share of the EEC in Somalia’s imports declined sharply in 1960. Thereafter, it climbed gradually, with imports from the EEC doubling between 1960 and 1968 while total imports increased by only one third in the same period.

IV. Trade Creation and Trade Diversion in the EEC-AAC Arrangement

The impact of association on EEC-AAC trade flows was mild at first but became more noticeable beginning in 1965. This impact is the combined result of trade creation and trade diversion. It is generally agreed that an a priori judgment regarding the net effects of a customs union on trade flows (i.e., trade creation outweighing trade diversion, or vice versa) cannot be made without a detailed study of the economies involved.13 As the association is a trade arrangement between two groups of countries that are economically dissimilar, it was argued earlier that its trade diversion effects are likely to outweigh those of trade creation. This section attempts to determine the relative importance of trade creation and trade diversion in the EEC-AAC arrangement.

Proposed statistical procedure

Trade creation (or diversion) can be measured by the volume of each item of trade created (or diverted) multiplied by the cost differential if the supply schedule is infinitely elastic in a member country. Although it is sometimes possible to obtain the necessary data for computing cost differentials, the determination of the volume of trade created (or diverted) remains a difficult empirical problem. In the arrangement between the EEC and the AACs, investigations into trade creation and diversion are even more difficult, owing to the lack of data on costs in the African countries. Consequently, less refined methods are called for.

In recent years, several attempts have been made to provide an indication of the trade creating and trade diverting effects of the EEC.14 Such investigations, which deal with both ex ante and ex post situations (i.e., the possible repercussions of the EEC before and after its creation), have pointed out the main problem areas in this type of analysis. These include the difficulty of abstracting from the effects of economic growth on trade flows and of differentiating between the trade creating and trade diverting effects. In order to remedy some of these problems, Balassa has suggested that a comparison of ex post income elasticities of import demand in intra-area trade (i.e., imports of countries forming the customs union among themselves) and in extra-area trade (imports of union members from nonunion members), for periods preceding and following integration, may permit a distinction between the trade creation and trade diversion impact of a customs union.15 Assuming that income elasticities of import demand would have remained unchanged in the absence of integration, a rise in the income elasticity of demand for intra-area imports indicates gross trade creation, while a fall in the income elasticity of demand for extra-area imports provides evidence of the trade-diverting effects of the union.16

Balassa’s method of investigating trade creation and trade diversion is used here. This method assumes that the EEC-AAC arrangement is the single most important factor affecting trade flows between the EEC and the AACs. Using the following notation

i = EEC

j = AAC

k = non-EEC and non-AAC countries

M1 = intra-area imports = Σmji + Σmij

ME = extra-area imports = Σmjk + Σmik

Y = Σyi + Σyj

we want to estimate equations (1) and (2) for periods before and after association

(1)logM1=a+αlogY
(2)logME=b+βlogY

In equation (1), the estimate of a should rise from the period before the association to the period of the association for trade creation. The reverse should occur in equation (2) for the estimate of β to indicate trade diversion.

In order to assess the true impact of the association with respect to the AACs and other LDCs, the following accommodations have been made: (i) MI is the sum of AAC imports from the EEC and of AAC exports to the EEC; (ii) ME is the sum of AAC imports from non-EEC countries and of EEC imports from LDCs other than the AACs; and (iii) Y is the total gross national product (GNP) of EEC countries.

We also use as a dependent variable ME*, which is equal to ME reduced by the EEC imports from the oil exporters (North Africa and the Middle East). The change under (ii) seeks to eliminate from our results the impact of the formation of the EEC on its members and on other industrial countries, which would otherwise overshadow the effects of the association on the AACs and other LDCs; along the same lines, we seek to eliminate the effects attributable to the oil-exporting countries by using ME*. Under (iii), the GNP of the EEC is used instead of that of all 24 countries concerned, owing to the lack of GNP data in the AACs during the entire period under review. This is not unreasonable, since in 1965 the total GNP of all the AACs accounted for 2.3 per cent of the EEC’s gross product; however, the elasticities will be underestimated over time, as economic growth in the EEC has been much faster than in the AACs and the LDCs taken as a whole.17 The size of the elasticities is likely to be less than 1, since most exports of the AACs are primary commodities.

Analysis of income elasticities

There is good reason to assume, a priori, that the income elasticities of import demand would have remained unchanged in the absence of the EEC-AAC arrangement. As noted earlier, various groups of the AACs had close economic and financial ties with some EEC countries prior to the association. This relationship resulted in closely linking the developments in the former colonies with policies in the metropolitan countries. Most of the exports of the former colonies went to the metropolitan European countries, and most of their imports also originated in Europe. Consequently, changes in trade channels would have been unlikely in the absence of the association, and it is reasonable to assume that significant variations in the elasticity estimates can be attributed to the association arrangement.

A consideration of income elasticities for intra-area imports provides evidence of gross trade creation in the EEC-AAC arrangement, with the elasticity increasing from 0.58 in the preassociation period (1953–58) to 0.68 in the association period (1959–68)—see Table 8, equations (2) and (3); when the association period is divided into two subperiods (1959–64 and 1965–68), the resulting coefficient does not change significantly, as shown by the Chow tests 18 in Appendix II.

Table 8.

Income-Elasticity Equations for Intra-Area Trade and for Extra-Area Trade with LDCS and with Competing LDCS

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R2 = Coefficient of correlation squared, adjusted for degrees of freedom.D-W = Durbin-Watson statistic.SEE = Standard error of estimate.

The demand elasticity for extra-area imports declines only slightly, from 0.81 in the preassociation period to 0.79 in the association period—equations (7) and (8); the coefficient, however, does change significantly from one period to the other, thus providing evidence of trade diversion. Similar equations pertaining to the subperiods 1959–64 and 1965–68 do not yield a coefficient that changes significantly.

Changes in the size of the elasticities for intra-area and extra-area imports indicate that the gross trade creation and trade diversion effects were limited. However, the simultaneous occurrence of these two effects would seem to indicate that the increase in intra-area trade was due more to substitution for foreign sources of supply than to substitution among products of union members, that is, that the gross trade creation does not reflect trade creation proper (see footnote 16). This result is consistent with theoretical expectations.

The lack of a more significant trade diversion effect in the period 1965–68, compared with 1959–64, derives from the inclusion of the oil-exporting countries in the data for EEC imports from LDCs. When such data are reduced by EEC imports from North Africa and the Middle East, the elasticities in the relevant equations—(14) and (15)—show substantial trade diversion from one period to the other, the coefficient declining from 0.61 to 0.29. The coefficients for equations (12) and (13), which refer to extra-area trade adjusted for EEC imports from the oil-exporting countries in the periods 1953–58 and 1959–68, do not change significantly from preassociation to the full period of association.

Disaggregation of the data to provide an insight as to the areas and commodities where trade diversion and gross trade creation were experienced is not possible, owing to inadequate statistics in AACs. However, a review of AAC performance in its main export commodities to the EEC will shed more light on these issues.

Commodity analysis

The AACs export to the EEC a variety of products, most of which are primary commodities. The important ones are timber, coffee, cocoa, groundnuts, and bananas. However, the single most important export product is copper (from Zaïre), which accounts for 15–20 per cent of the AACs’ total exports to the EEC. The expansion in AAC exports during the period 1958–68 was essentially due to products that received no preferential tariff treatment as a result of the association arrangement; copper alone accounted for almost 40 per cent of the increase in total AAC exports to the EEC, and timber for about 12 per cent (Table 9). Products such as coffee, cocoa, and bananas, which enjoy tariff preference in EEC vis-à-vis other LDCs, have contributed very little to export expansion. Exports of several other primary products (e.g., groundnuts, cotton, and palm kernels) actually declined. A detailed analysis of AAC performance in the export of commodities that receive preferential treatment in the EEC follows.

Table 9.

Exports by the AACS to the EEC: Composition, 1958–68

(In millions of U.S. dollars)

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Sources: Communauté Economique Européenne, Les Echanges Commerciaux entre la CEE et les Etats Africains et Malgaches Associés, 1958–1966/67, Etudes, Série Aide du Développement, No. 2 (1966), and Rapport Annuel d’Activité du Conseil d’ Association a la Conférence Parlementaire de I’ Association, July 1, 1970-June 30, 1971 (Brussels, 1971).

Coffee

The share of the AACs in EEC coffee imports from LDCs declined slightly, from 24 per cent during 1959–64 to 22 per cent during 1965–68 (Table 10). This occurred despite the tariff advantage of about 10 per cent enjoyed by the AACs in the EEC market. As the table shows, the bulk of AAC coffee exports to the EEC is made by the former French colonies. Before the association these countries had a tariff advantage of 20 per cent in the French market, which absorbed most of their production. This tariff advantage was reduced to 18 per cent in January 1959; further reductions were made in subsequent years, leading to the adoption in mid-1964 of the CET of 9.6 per cent levied by the EEC on coffee imported from nonassociated countries.19 The Benelux countries (Belgium, the Netherlands, and Luxembourg) levied no customs duty on coffee imports, but with the association they were to levy a duty of 4.8 per cent ad valorem on coffee imports from non-associated countries beginning in 1962. However, owing to special provisions in the Treaty of Rome, they were able to import coffee duty-free from nonassociated countries in 1962–63, and the tariff rate of 9.6 per cent was applied beginning only in 1965. In Germany the customs duty on coffee was equivalent to 26 per cent ad valorem in 1957. With the formation of the EEC, this tariff was reduced in January 1959 to the equivalent of 16 per cent applicable to all countries, and it remained at that level until the adoption of the CET in mid-1964. In Italy the tariff on coffee was the equivalent of 10.4 per cent in 1957 and was applied to all countries. With the formation of the EEC, the tariff applicable to the EEC and associated countries was reduced by about 10 per cent each year,20 while that applied to other countries remained at the original level until the CET was adopted in 1964.

Table 10.

EEC: Origin of Coffee Imports, 1959–68

(In millions of U.S. dollars)

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Sources: Organization for Economic Cooperation and Development, Foreign Trade, Series C: Commodity Trade (Paris, 1959–68).

Union Douanière et Economique de l’Afrique Centrale (Central African Customs and Economic Union).

In summary, the tariff advantage enjoyed by AAC coffee in France was reduced with the association, while in the other EEC markets the gain in tariff preference by the AACs was small and was granted in a piecemeal fashion until 1964. Moreover, the world coffee market has been regulated through the International Coffee Agreement since 1963. Between 1959 and 1962 the world supply was managed through export quotas agreed among coffee producers, including African producers. As a result, exportable quantities of coffee were predetermined during the period under review and did not reflect the interplay of market forces.21 With regard to prices, the coffee market describes a situation of oligopoly/oligopsony, with a few large sellers (in Brazil, Ivory Coast, and a few other countries in the Western Hemisphere) and a few large buyers (in the United States and a few European countries), in which most of the AACs are price takers. Furthermore, since coffee produced in the AACs is of the robusta type, while European consumers, except France, prefer arabica coffee 22 (which is of higher quality), the tariff advantage enjoyed by AAC coffee in the EEC would have to be high to produce a shift from arabica to robusta coffee. On the other hand, U. S. demand for robusta coffee rose steeply in the early 1960s owing to the rapid increase in the manufacture of solubles, for which the robusta type has some technical advantage, so that AAC coffee went to that country instead of to EEC countries other than France. In the light of all these factors, the evolution of the AAC share in the EEC’s total imports of coffee is difficult to interpret and should be treated with caution.

Cocoa

The share of the AACs in EEC cocoa imports jumped from 35 per cent during 1959–64 to 48 per cent in the four-year period ending in 1968 (Table 11). This development provides evidence that the AACs have partially displaced competing countries in the EEC cocoa market. As the table shows, practically all AAC cocoa is produced by former French colonies, Ivory Coast and Cameroon being the main producers. The EEC countries levied no tariff duty on cocoa imports except in Germany, where the levy was equivalent to 9 per cent ad valorem. With the formation of the EEC, the member countries other than Germany began to levy customs duties on cocoa imports from nonassociated countries, which were raised gradually to reach the CET of 5.4 per cent in mid-1964. In Germany, the customs duty (9 per cent) was reduced gradually until eliminated for cocoa originating in the AACs, while for nonassociated countries it was maintained at the original level until the CET was adopted. Therefore, the AACs clearly gained preferential treatment for their cocoa exports to EEC countries with the association. As a result, the AACs were able to displace competing countries—Ghana and Nigeria, which recently supplied 25 per cent and 20 per cent, respectively, of EEC cocoa imports. In addition to the tariff preference in cocoa trade, this commodity is not subject to an international agreement limiting the quantity of exports, and it is homogeneous, thus eliminating the problem of taste mentioned in connection with coffee. Moreover, cocoa producers in the AACs seem to be considerably responsive to price changes in the short run, which means that the Governments of the AACs could use the tariff advantage in the EEC to stimulate production in a relatively few years.23

Table 11.

EEC: Origin of Cocoa Imports, 1959–68

{In millions of U.S. dollars)

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Sources: Organization for Economic Cooperation and Development, Foreign Trade, Series C: Commodity Trade (Paris, 1959–68).

Union Douanière et Economiquede l–Afrique Centrale (Central African Customs and Economic Union).

Bananas

EEC banana imports from the AACs, which accounted for 20 per cent of total EEC banana imports in 1959, rose to 32 per cent in 1963 (Table 12). Thereafter, this ratio declined gradually to 21 per cent in 1967–68. AAC bananas are produced mainly by the former French colonies and Somalia. As with coffee, the banana trade has been characterized by a complex system of protection and preferences. Before association, all EEC countries except Germany provided some of the AACs with a preferential tariff when importing from these countries. In France, bananas from the French franc area entered duty-free, while banana imports from other areas were subject to a 20 per cent levy. In Italy, the tariff advantage for Italian Somaliland was 36 per cent; in the Benelux countries, the advantage for Burundi, Rwanda, and Zaïre was 15 per cent. The association sought to harmonize these different regimes into a global tariff advantage for all associated countries (including dependencies and territories) against nonassociated countries. However, this was extremely difficult in view of the important supplier position of the Latin American countries, which provided most of the German import requirement. As a result, although Germany was to levy a tariff of 6 per cent beginning in 1962 (and 12 per cent beginning in 1966) on banana imports from nonassociated countries, it was able to import duty-free predetermined amounts that were about equal to its consumption requirements. Since Germany accounts, on average, for two thirds of the EEC’s banana imports and the remaining EEC market is adequately supplied by the AACs, this special provision had the effect of putting the AACs on an equal footing with nonassociated countries, thus making it difficult for them to capture part of the German market. Moreover, bananas produced in the AACs are not of the type favored by German consumers. Consequently, the evolution of the AAC share in EEC banana imports cannot be interpreted meaningfully in the light of the tariff preference received by the AACs in some EEC markets; institutional factors, such as taste and marketing arrangements, neutralized the impact of the tariff advantage.

Table 12.

EEC: Origin Of Banana Imports, 1963–681

(In millions of U.S. dollars)

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Sources: Organization for Economic Cooperation and Development, Foreign Trade, Series C: Commodity Trade (Paris, 1963–68).

Comparable statistics for 1959–62 are not available.

The three afore-mentioned commodities are the major export products for which the AACs received a tariff advantage in the European Common Market. The AACs also received a tariff advantage for their exports of groundnut oil and palm oil to the EEC, but these products are of marginal importance in total AAC exports to the EEC. Such primary products as groundnuts, palm kernels, and cotton received no tariff preference with the association, although they had benefited from particular arrangements in France for the former French colonies prior to the association.

Groundnut oil

The export of groundnut oil to the EEC rose from $45 million in 1958 to $54 million in 1967 (Table 13). A sharp drop in those exports had been experienced during 1963–65, owing to low production in the AACs and to the need to satisfy domestic demand first. The available statistics indicate that the share of the AACs in EEC groundnut oil imports from all LDCs grew from 39 per cent in 1965 to 82 per cent in 1968. The nominal tariff advantage of 5 per cent for oil originating in the AACs contributed significantly to this development, since the effective rate of protection through this tariff can be estimated at about 15 per cent.24

Table 13.

EEC: Origin of Groundnut Oil Imports, 1963–681

(In millions of U.S. dollars)

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Sources: Organization for Economic Cooperation and Development, Foreign Trade, Series C: Commodity Trade (Paris, 1963–68).

Comparable statistics for 1959–62 are not available.

Palm oil

With rising consumption of palm oil in the associated countries, exports of palm oil, which received a tariff preference of 9 per cent in the EEC, did not expand significantly during the period under review. The share of the AACs in EEC imports of palm oil fluctuated between 56 per cent and 40 per cent during 1963–68, reflecting mostly developments in Zaïre (Table 14).

Table 14.

EEC: Origin of Palm Oil Imports, 1963–68 1

(In millions of U.S. dollars)

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Sources: Organization for Economic Cooperation and Development, Foreign Trade, Series C: Commodity Trade (Paris, 1963–68).

Comparable statistics for 1959–62 are not available.

Union Douanière et Economique de l’Afrique Centrale (Central African Customs and Economic Union).

V. Conclusion

It would be difficult to argue that the association had a significant beneficial impact on trade flows between the AACs and the EEC or a significant adverse impact on the exports of nonassociated LDCs to the EEC. The period immediately following the association arrangement was a transitional one for both the AACs and the EEC. Although the two partners exchanged preferences in this period, it was done gradually and on a limited scale. EEC preferences applied to very few AAC products, and for several of these products the margin of preference in the EEC was lower than the tariff preference they had enjoyed under preassociation arrangements and supply responsiveness to tariff preference was weak; in addition, several important AAC export goods (e.g., minerals and timber) received no preference in the EEC market. Preferences for EEC goods were extended mostly by the former French colonies, but these preferences, mainly in the form of exemptions from the customs duty, were marginal and declined in importance over the years with the growth of other import taxes; moreover, several AACs liberalized their imports from non-EEC countries in this period.

The main impact of the association was to induce a shift in AAC exports and imports from France to other EEC countries. This was explained by the predominance of the former French colonies, which, with the association, received new preferences in the markets of EEC countries other than France; in addition, they dismantled quotas and extended tariff preference to their imports from the Common Market countries other than France. Although the preferences involved were limited, the larger market provided to the AACs by the association should be important for the expansion of their exports and their economic growth.

The association arrangement seems to have resulted in trade diversion, particularly against nonassociated LDCs whose export products are competitive with those of the AACs. However, the extent of trade diversion was limited owing to various institutional factors, including taste and marketing arrangements in the trade of several of the primary products involved and the limited tariff margins that were traded in the arrangement for association. Although the analysis of income elasticities by commodity could not be carried out because of inadequate trade statistics, trade diversion seems to have affected such products as cocoa and groundnut oil where institutional factors are a weak determinant of trade channels.

APPENDICES

I. Development of the Tariff Treatment of Imports from the EEC by the AACs

The Treaty of Rome laid down the principles governing the AACs’ tariff treatment of imports originating in the EEC. These principles, which are also incorporated in Article 3 of the Yaoundé Convention are (1) the AACs will grant equal tariff treatment to imports originating in the Community without any discrimination against any member state and (2) imports from the EEC will benefit from progressive elimination of customs duties or their equivalent. However, the AACs, subject to consultation with the EEC, can maintain or levy these duties related to the requirements of development, industrialization, or government finance.

Before the association came into effect, some AACs extended tariff preferences to imports from France. Equal tariff treatment of imports from other EEC countries, as well as the progressive elimination of customs duties, have been implemented gradually at different stages, as discussed later.

Equal tariff treatment of imports from the EEC

When the Treaty of Rome came into effect, the AACs belonged to two groups: those that granted tariff preference to imports from France, and those that granted no preference according to origin, even to France.

AACs that granted tariff preference to imports from France

This group included only the members of the first West African Customs Union (Union Douaniére entre les Etats de l’Afrique Occidentale), which was transformed into the West African Customs Union (Union Douaniére des Etats de l’Afrique de l’Ouest) in 1966. Members of this Union are Dahomey, Ivory Coast, Mali, Mauritania, Niger, Senegal, and Upper Volta; Togo is not a member although it joins other members (except Mali) in the West African Monetary Union.

The tariff of the first West African Customs Union consisted of two columns, fiscal duties of a revenue nature levied on all imports regardless of origin, including those from France, and customs duties of a discriminatory nature levied on imports outside the franc zone. Therefore, when the association came into effect, imports from members of the Community other than France were subject in the West African Customs Union to customs duties. Complete exemption from these duties was achieved with effect from December 1, 1964, despite the explicit provisions of Article 133 of the Treaty of Rome, which called for equal tariff treatment to imports from the Community. This treatment was completed in the following steps: (1) A 10 per cent reduction of the customs duty was introduced on January 1, 1959, and similar reductions were allowed on July 1, 1960, January 1, 1962, and July 1, 1963. (2) A complete exemption from the remaining 60 per cent was granted on December 1, 1964 after the Yaoundé Convention came into effect. Through this exemption, imports from the other five members of the Community received the same tariff treatment as that granted to imports from France.

The customs duties that were levied on imports outside the franc zone before the association remained unchanged, and they constitute the CET of the West African Customs Union.

AACs that granted no tariff preference to imports according to origin

This group had three sections: (1) members of the Equatorial Customs Union—the Central African Republic, Chad, Congo (Brazzaville), and Gabon; (2) the Malagasy Republic; and (3) other AAC countries including Burundi, Rwanda, Somalia, Togo, and Zaïre. Before the association the tariff of the countries in the first section consisted of a nondiscriminatory fiscal duty applicable to all imports regardless of origin. The nondiscriminatory tariff treatment was in application of the Congo Basin Treaty of 1883. On June 19, 1962, Cameroon joined the Equatorial Customs Union, which adopted a two-column tariff in customs and fiscal duties. Exemptions from the customs duties were granted to imports from France with suspension for imports from the other five members of the Community. On June 1, 1964, this suspension was transferred into a complete exemption. The Malagasy Republic used to levy a customs duty of a discriminatory nature that exempted imports from the franc zone. This duty was suspended in 1943 but was restored on January 1, 1961; since then the Malagasy Republic has granted complete exemption from the customs duty to imports originating in the Community. The countries in the third section extended no tariff preference to imports according to origin. With the exception of Zaïre, these countries were under the trusteeship of the United Nations, and they could not grant any tariff preference according to origin; Zaïre, which was covered by the Congo Basin Treaty, could not grant tariff preference.

Following the association, Burundi and Somalia introduced a two-column tariff and granted exemption from the customs duty to imports from the EEC. Rwanda, through its tariff reform of February 10, 1965, adopted a two-column tariff with the intention of progressively eliminating the customs duties on imports from the EEC. In July 1966, it granted a 15 per cent reduction and proposed another identical reduction in July 1967, but because of budgetary difficulties, the proposed reduction has not been implemented. Zaïre introduced a two-column tariff, but no exemption is accorded to imports from the EEC. Togo continues to levy its single-column tariff, even without a distinction between a minimum tariff (granted to imports from countries exchanging the most-favored-nation treatment) and a general tariff.

II. Test of Equality Between Coefficients (Chow Test)

Suppose that we have m and n observations in the two equations with k variables. To know whether a coefficient changes significantly from one equation to the other, we compute the F ratio.

F=Q3/KQ2/(m+n2k) with degrees of freedom (k, m + n - 2k)

Q1 = sum of squared residuals from the equation that pools all the m + n observations to compute the least-squares estimate of the coefficient.

Q2 = total of sums of squared residuals from the two equations.

If F, as just defined, is greater than Fk, m+n–2k then the coefficient changes significantly from one relation to the other.25

Intra-area trade

Elasticity coefficient in equations (2) and (3)

(m = 6; n 10; k = 2)

Q1 = (m + n)[(SEE)2 = 16(0.0061) = 0.098

Q2ʹ = (m + n)[(SEE)2] = 6(0.0009) = 0.005

Q2ʹ ʹ (n) [(SEE)2] = 10(0.0015) = 0.015

Q2 = Q2ʹ + Q2ʹ ʹ = 0.020

Q3 = Q1Q2 = 0.078

F=0.78/20.20/12=23.40

Since F0.05k,m+n–2k = 3.88, which is less than F, the coefficient 0.58 in equation (2) is significantly different from the coefficient 0.68 in equation (3).

Elasticity coefficients in equations (4) and (5)

(m = 6; n = 4; k = 2)

Q1 = 0.015

Q2 = 0.009

Q 3 = 0.006

F = 0.006/20.009/6 = 2.00

Since F0.05 2, 6 = 5.14, which is greater than F, the two coefficients are not significantly different.

Extra-area trade

Elasticity coefficients in equations (7) and (8)

(m = 6; n = 10; k = 2)

Q1 = 0.022

Q2 = 0.013

Q3 = 0.009

F=0.009/20.013/12=4.02 (greater than F0. 05 2, 6)

The two coefficients (0.81 and 0.79) are significantly different.

Elasticity coefficients in equations (9) and (10)

(m = 6; n = 4; k = 2)

Q1 = 0.005

Q2 = 0.004

Q3 = 0.001

F=0.001/20.004/6=0.75 (less than F0. 05 2, 6)

The two coefficients are not significantly different.

Elasticity coefficients in equations (12) and (13)

(m = 6; n = 10; k = 2)

Q1 = 0.097

Q2 = 0.062

Q3 = 0.035

F=0.035/20.062/12=3.38 (less than F0. 05 2, 12)

The two coefficients are not significantly different.

Elasticity coefficients in equations (14) and (15)

(m = 6; n = 4; k = 2)

Q1 = 0.0078

Q2 = 0.0027

Q3 = 0.0051

F=0.0051/20.0027/6=5.67

The two coefficients (0.61 and 0.29) are significantly different.

STATISTICAL APPENDIX

Table 15.

AACs: Total Exports, 1953–68

{In millions of U.S. dollars)

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Sources: United Nations (Statistical Office), International Monetary Fund (IMF), and International Bank for Reconstruction and Development (IBRD), Direction of International Trade, Annual Issue (six volumes), covering the years 1953–57 (New York); IMF and IBRD, Direction of Trade, Annual (three volumes), covering the years 1958–68 (Washington).
Table 16.

AACs: Exports to the EEC, 1953–68

(In millions of U.S. dollars)

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Sources: United Nations (Statistical Office), International Monetary Fund (IMF), and International Bank for Reconstruction and Development (IBRD), Direction of International Trade, Annual issue (six volumes), covering the years 1953–57 (New York); IMF and IBRD, Direction of Trade, Annual (three volumes), covering the years 1958–68 (Washington).