REVISITING THE ECOWAS TRADE LIBERALISATION SCHEME (ETLS) FOR ECONOMIC GROWTH AND DEVELOPMENT OF THE REGION
By Sunday Oghayei, Ph.D.
A supranational approach to regional integration was adopted by establishing the Economic Community of West African States (ECOWAS) in 1975 that would facilitate deepening cooperation among member states with a vision of establishing a common market as well as Economic and Monetary Union through the effective liberalisation of trade and forming a custom union among member states. The process of achieving such an ambition involves the pursuit of a deeper integration from forming a free trade area, custom union and common market.
Article 3 of the Treaty establishing ECOWAS provide for the elimination of tariffs and non-tariff barriers. Relying on the Article, the region agreed on the ECOWAS Trade Liberalisation Scheme in 1979, although it was launched in 1990. To date, intra-ECOWAS trade is low. According to ITC survey, only 15% share of total ECOWAS export trade goes to fellow member states and only 5% share of total ECOWAS imports goes to fellow member states. The total intra-regional trade is around 12%, although with high informal trade not captured by official statistics. The 11 years delay and the performance of the scheme till date, therefore call for a critical review of the scheme. In order to achieve the desired economic growth and development in ECOWAS member states, the ETLS needs re-designing and upgrading strategies. Strategies need to be informed by knowledge on deepening regional integration and how it can be implemented.
This Paper is intended to highlight critical issues in the ETLS and serve as the basis for discussion and review of the role that the ETLS can and should be made to play in the economic growth and development of ECOWAS Member States. It would therefore be more from the perspective of strategy and focus rather than from that of the non-implementation of existing decisions. Of course, the status and reasons for the non-implementation would inform how to proceed.
This paper is outlined according to issues with Section 1 discuss what is ETLS? Section II highlights what are/were the expectations; while Section III reviews the missing gaps in being able to realise those expectations and Why – a diagnosis. Section IV discuss how that (missing gap) might be addressed – a Prescription? Section V concludes with recommendations.
I. What is ETLS?
The adoption of the ETLS Scheme as a regional trade agreement was to provide a platform for dynamic economic activities to build competitiveness, diversify economy and expand markets in West Africa through increased economic activities to expand exports. General tradeables include fresh and processed foods, Metal and other basic manufacturing, Chemicals, Wood and wood products, and Transport equipment, machinery, electronics etc. The ETLS created a free trade among members that would:
a. Encourage entrepreneurial development in the region.
b. Increase intra-regional trade and boosting economic activity.
c. Increase West African competitiveness on the global market.
d. Increase GDP of member States, thus better the welfare for citizens.
The ETLS was conceived to increase production and competitiveness and to grow Member States economic activities by having access to and using the resources of the Region as a whole rather than relying only on the resources of the particular Member State. To do so entailed functioning as a single economic space even while recognising the limits of not being a single jurisdiction at that time. Again in that context, the ETLS was to serve as a foundation for the regional integration of ECOWAS member states to building economic resilience as a priority to focus on market integration and production integration. It would have served as avenue for the development of regional value chains along all supply chains of goods.
The Strategic Focus and objective of making the ETLS arrangements more attractive is to support regional integration through the duty free and quota free (DFQF) benefits it confers on originating goods from the region and the opportunity provided for ECOWAS nationals and businesses to function in a larger economic space or market. The pertinent questions therefore are–
(i) Why is it that the ETLS is not being taken as seriously it needs to be?
(ii) Why is it not being used more when logically we can find no better strategy?
(iii) Is it fashioned or being implemented in a way to achieve its objectives– economic growth, development and achieving the other national and regional objectives of full employment, improved living standards etc.,?
(iv) What strategically should be our focus and priorities at this time?
(v) How can the various stakeholders be made to know more about the role of and benefits from the ETLS as a strategy to support national and regional goals and objectives?
(vi) As a strategy, should we not increase the promoting of regional integration as a whole rather than just the ETLS?
(vii) Should we or can we continue to go at the pace of the slowest. The ‘breakout’ UOEMA Economic Union construct says more than ‘perhaps not’. There has been increasing impatience at the rate of progress by more than half of our Member States?
II. What were the expectations?
The intended outcome of the ETLS was to provide a single economic/market space which is larger than the national market available to Member States with possibilities posited as:
• Economies of scale and scope, efficiencies, opportunities, capital accumulation, creating jobs, generating exports;
• providing markets for goods and services, accessing inputs (goods and services, skills, capital and technology) and resources for the production
• market and production integration opportunities;
• the single space complemented with appropriate sectoral and economic policies engendering competitive production.
One question is, are we as a region, meeting the delivery expectations of member states? There are various publics judging the ETLS in terms of its promises and its value added.
For the ECOWAS national, the expectation include:
(i) accessing a greater variety of regional goods and services which are also of better quality, standards etc; and
(ii) value for money.
For business persons, the expectation include:
(i). Easier to do business whether it is –
a. Choosing personnel from any part of the Region;
b. Less onerous to establish a business; and
c. Easier to provide services cross-border including using existing personnel;
(ii). Possibilities for more profitable opportunities including for production integration
(iii). Increased markets for goods and services
(iv).. Having a product trade marked “ECOWAS product” instead of “National product”.
III. What is missing in being able to realise those expectations and Why – a diagnosis
Currently, more than 50% of tradeables are from Fresh and processed food accounting for 34%; and Metal and other basic manufacturing accounting for 15% according to ITC data (2014). The ITC survey (2015) data also reveal that about 73% of companies in ECOWAS face regulatory and procedural trade obstacles. The existence of non-tariff barriers in the region affects doing business and accounts for low trade within the region. It is evident therefore that the ETLS has to be fashioned to address the needs of the stakeholders in Member States and the region.
There is the need to determine how to structure and execute integration to create a single market and production base which is stable, prosperous, highly competitive and economically integrated. And this is an issue with which other Integration Groupings are grappling with.
It is clear that the ETLS needs re-tooling and to address:
(i) Lack of Regional Industrial and robost national industrial policies;
(ii) The capacity of these Member States must to be taken into account when determining the scope of the ETLS;
(iii) That a single economic space requires a sophisticated economic structure which is resilient and predictable to make it work;
(iv) That a single economic space also requires a sophisticated political structure (supranational);
(v) That the single economic space has to be managed in the context of independent countries at different levels or stages of economic development and of countries accustomed to determining their own fiscal and monetary policies and institutions;
(vi) That sufficient attention has not yet been paid to translate the integration ideals agreed by the policy makers into actual integration for the average person;
(vii) The need to take into account language and other constraints;
(viii) That the integration process should be no more onerous on users or demanding on Public Service but re-focus on private sector;
(ix) The need to adopt complementary policies including trade related policies and provide space for national cooperation agreements among members.
However, these components are interwoven and inter-dependent and should be considered as a whole with the single market infrastructure and the macro-economic framework providing the single space and support for competitive and increased production for domestic, regional and extra-regional markets. The contrary was the case in actual implementation where the elements were seen and operated in silos.
A critical missing area is in terms of logistics. There were many non-tariff measures hindering the free flow of goods in the region. This include unfair trading practices occurring in agricultural sector. An effective initiative in this area could prove particularly valuable for ECOWAS smallholder food and agricultural producers seeking to participate in high value export supply chains. Too often smallholder farmers find themselves subject to unfair trading practices of ‘’trade mafias’’. Eliminating Unfair Trading Practices and non-tariff measures (barriers) along agro-food sector Supply Chains will boost intra-regional trade.
The lack of regional and national industrial policies to drive trade was a major setback for the scheme particularly recognising the importance of regional value chains along supply chains in the region. The production sector faced challenging and often hostile business and trade facilitation environment; and absence of trade support infrastructure at regional and national levels. Trade facilitation is vital for the competitiveness of the ECOWAS region as it will reduce costs for traders. While tariffs between ECOWAS Member states have fallen or eliminated, and continue to do so with the full implementation of the ECOWAS Trade Liberalisation Scheme (ETLS), the key challenge to intra-regional trade is non-tariff barriers that stifle the movement of goods, services and people across borders. Improving the Business and Trade Facilitation environment is important to become more competitive and create the conditions for economic growth. Policymakers globally recognize the logistics sector as one of their key pillars for development. Trade powerhouses in Europe like the Netherlands or in developing countries like Vietnam or Indonesia see seamless and sustainable logistics as an engine of growth and of integration with regional or global value chains.
Business Facilitation reforms and investments also have positive impacts on the hinterland, whether it be the Northern or Eastern regions of the ECOWAS countries undertaking the reforms or the landlocked countries (Mali, Burkina Faso and Niger). Due to such positive externalities, Trade and business facilitation reforms and investments could be considered as regional public goods. Therefore, ECOWAS countries should adopt regional approaches to the effective and full implementation of the WTO TFA.
IV. How that (missing gaps) might be addressed – a Prescription?
In order to make the ETLS effective will require:
(i) Developing regional and national industrial policies;
(ii) Develop regional value chains along supply chains;
(iii) Improving business and trade facilitation environment;
(iv) Strengthening business linkages. The “business linkages” generally refers to any upstream or downstream business relationship.
(v) Strengthen Inter State Road Transport Scheme: Sensitization of existing ECOWAS Inter State Road Transport Scheme ; Adoption of ISRT Scheme and Enforcement by Transport Regulators
(vi) Identifying support mechanisms (regional initiative) to address challenges faced in the development of intra-regional logistics issues.
(vii) Introduce the Electronic Payment System for importers and exporters at all Customs clearance points
(viii) Launching Regional and National Single Window for trade transactions
(ix) Harmonising border agency practices including customs procedures
(x) The need to develop mechanisms, such as equivalence/recognition agreements, to address SBS/TBT issues that may arise
(xi) Aggressive sensitization of the Business Community ;
(xii) The single market infrastructure of –The five Free Movement regimes – goods, services, skills, capital and establishment – with related legislative and administrative arrangements; Competition Policy and regulations, consumer protection, protection of Intellectual Property with the latter still to be determined;
(xiii) On-line Complaints Procedure as some of the support measures to be put in place;
(xiv) Regional Public Procurement, E-commerce, Free Circulation and Free Zones;
(xv) The macro-economic framework of –Investment Code and Incentives Regime, Revised Double Taxation Agreement, ECOWAS Financial Services Agreement, Risk Management Framework for Fiscal Sustainability which should be developed; Integrated Capital Market, Currency Convertibility, Deposit Insurance System, Regional Credit Information Sharing where for the most part, some areas the technical work has commenced;
(xvi) Ease of Doing Business which cuts across the entire ECOWAS;
The single market infrastructure is mostly about removing restrictions and about rights and obligations. The establishment of the macro framework speaks mostly to the development, the coordination and the harmonisation of trade related policies, while others relate to developing policy frameworks and strategizing for increasing production
V. Going forward/recommendation:
Against the foregoing, revisiting the orientation and implementation strategy for the ETLS in terms of the single market, the creation of the macro-economic environment and the growth sectors seems logical. This would entail addressing the most pressing needs and concerns of the regional economies in a way to deliver tangible benefits in a foreseeable timeframe and include having to –
At the national level –
• Identify the issues affecting implementation whether they relate to capacity, interest, understanding, commitment, protectionist tendencies or others;
• Develop Industrial policy that creates a linkage between industry and trade within the context of resources available;
• Address any bureaucratic inefficiencies;
• Implement awareness programmes for all stakeholders particularly business entities;
• Improve trade support infrastructure
• Foster greater use/integration of regionally agreed policies and technical programmes into national policies and programmes;
• Establish effective consultative mechanisms which would include the private sector, labour, public sector; and
• Formulate complementary policies that supports industry and trade including investment policies/code; transport policy etc.
At the regional level –
i) Addressing issues most important to the various publics of Member States, for example those relating to –
the agreed categories for free movement;
the right of establishment including movement of technical, managerial and supervisory staff;
Macro-economic issues that are focused on, for example, investment, tax policy, labour market policies, measures relating to the capital market, export facilitation etc;
ii) Critical for completing an effective ETLS such as Contingent rights to give effect to free movement;
iii) Review the ETLS implementation construct in terms of integration, functional cooperation, harmonisation, coordination as it relates to whether, for example, there needs to be or there could be greater emphasis on unification of critical macro-economic policies and institutional arrangements rather than just co-ordination and harmonisation. This would include consideration of what is reasonably doable versus what is necessary to achieve increased levels of economic growth and development;
iv) The need to develop a system to capture specific challenges faced by the private sector in ECOWAS markets, with a view to having those challenges addressed formally by institutional mechanisms under the ETLS;
v) The need for an ongoing assessment of how each member states is operating the ETLS. An appropriate mechanism would allow countries to report on the ETLS’s operation in a systematic way;
vi) The need for structured consultations with the private sector at the regional level;
vii) Take more deliberately into account, the capacity of Member States in determining the priorities and timeframes for implementation;
viii) Identify what measures are necessary to promote and sustain cross-border transactions and production integration including new measures which induce and sustain cross-border transactions such as tax policy, labour market policies, measures relating to the capital market, export facilitation; protection of intellectual property and increased availability of and access to information by the public;
ix) Seek to more effectively integrate the private sector into the ETLS process by, for example, determining mechanisms (including the consultative process) that would enable them to be aware of developments and opportunities on a continuous basis, and by identifying and responding to identified needs where possible;
x) Develop regional policy and regional value chains; and
xi) Develop regional trade support programmes like import-export Bank, development of a Website to host and promote ECOWAS product, Strengthen and support women owned businesses to increase their ability to access finance
xii) Support access to new markets through facilitating networking opportunities and B2B meetings
xiii) Provide training opportunities in core business and professional areas identified as priority areas by private sector particularly female entrepreneurs.
It is to be noted that more and more countries are grouping themselves together to reap the synergies that can result and to become more formidable forces in global trade. There is need for a more detailed matching of solutions to problems and objectives (and expectations) with realistic timeframes. There is also the need to recognise that recommendations must take into account the ECOWAS development Plan which would have been developed with broader brush strokes.
The contribution of the production sectors is critical to achieving the objectives of the ETLS. The single market and macro-economic framework are intended to contribute to the competitiveness of these sectors and to possibilities for production integration to exploit cross-border resources. The Next Steps must be designed to achieve these results bearing in mind the agreed priorities of 21st century trade policies on ICT, energy and transportation for which will entail strengthening policy frameworks and developing new policies for the economic growth and development of the region.