Personal data in this document have been redacted ...€¦ · DEU Delegation of the European Union to Abidjan FOB Free on Board GH Ghana CR Company registration number MIAIE Ministry

Personal data in this document have been redacted according to the General Data Protection Regulation 2016/679 and the European Commission

Internal Data Protection Regulation 2018/1725

DELEGATION OF THE EUROPEAN UNION

Ivory Coast

Implementation of the Interim EPA in Ivory Coast and in Ghana: impact study on

regional integration in West Africa

Contract N°2018/400469/1

FWC SIEA Lot 2

Infrastructure, sustainable growth and jobs

EuropeAid/138778/DH/SER/Multi

Provisional version of final report:

May 2019

Team members:

The content of this publication is under the sole responsibility of AETS and can in no way

be taken to reflect the position of the European Union.

Implementation of the Interim EPA in Ivory Coast and in Ghana Final Report_Final version

AETS Consortium – FWC SIEA Lot 2 3

Table of contents

Executive summary ................................................................................................................ 6

Introduction ......................................................................................................................... 11

Methodology and data processing .............................................................................. 13

ECOWAS countries' imports of TLS-approved products containing inputs benefitting from the interim EPA............................................................................................................ 15

2.1. ECOWAS countries' imports of products from Ivory Coast .......................................................................... 15 2.2. ECOWAS countries' imports of products from Ghana ................................................................................. 16 2.3. Imported products that are TLS-approved and use EU-origin inputs .......................................................... 17

Impacts of the IEPA on preferential trade within the region ........................................ 19

3.1. Effects of the IEPA on the intra-regional market of transformed products ............................... 20 3.1.1. Effects of the IEPA on the Member countries ........................................................................................... 21 3.1.2. Positive and negative externalities relating to the main products and activity sectors ........................... 22

3.2. The effects of Ivory Coast's and Ghana's IEPAs on procurement of inputs................................ 23 3.2.1. The IEPA tariff removal timetable for inputs used in making approved products .................................... 25

Recommendations ...................................................................................................... 27

APPENDICES ........................................................................................................................ 30

Appendix 1: Formalisation of the effects of the Ivory Coast and Ghana IEPAs ................................ 30

Appendix 2: Certificate of origin ................................................................................................... 33

Appendix 3: List of interviews and organisations met (First name(s), last name) ............................ 34

Appendix 4 : How the approval system works ............................................................................... 37

The compliance-upgrading cost to maintain TLS approval ............................................................. 38

Appendix 5: Intra-regional safeguarding measures ........................................................................ 40



List of tables and charts

Tables

Table 1: Template for "Approval application" table ................................................................................................. 14 Table 2: Intra-regional imports by ECOWAS countries of Ivorian products that are TLS-approved and use IEPA inputs .......................................................................................................................................................................... 17 Table 3: Intra-regional imports by ECOWAS countries of Ghanaian products that are TLS-approved and use IEPA inputs. ......................................................................................................................................................................... 17 Table 4: approved Ivorian products containing EU-origin inputs, imported by Burkina Faso and Mali .................. 18 Table 5: approved Ghanaian products containing EU-origin inputs, imported by Burkina Faso and Togo ............ 18 Table 6: Impacts on intra-regional imports, by ECOWAS countries, of Ivorian products that are TLS-approved and use IEPA inputs ........................................................................................................................................................... 21 Table 7: Impacts on intra-regional imports, by ECOWAS countries, of Ghanaian products that are TLS-approved and use IEPA inputs .................................................................................................................................................... 22 Table 8: The principal approved Ivorian products that use EU-origin inputs ........................................................... 23 Table 9: Principal approved Ghanaian products that use EU-origin inputs .............................................................. 23 Table 10: Effects of the Ivory Coast IEPA on imports of raw materials for use in manufacturing approved goods 24 Table 11: Effects of the Ghana IEPA on imports of raw materials for use in manufacturing approved goods ....... 25 Table 12: Raw materials used to make approved Ivorian products, and IEPA Tariff removal timetable ................ 26 Table 13: Raw materials used to make approved Ghanaian products, and IEPA Tariff removal timetable ........... 26 Table 14: Raw materials used to make approved products in Ivory Coast and Ghana, and excluded from these nations' market access offers (IEPA) .......................................................................................................................... 26

Charts and diagrams

Diagram1: Database of preferential trade in West Africa ....................................................................................... 13 Diagram 2: Scope of the IEPA effects factored into the modelling ........................................................................... 19

Graph 1: Imports of Ivorian products by Burkina Faso and Mali .............................................................................. 16



List of acronyms and abbreviations

Y Year

EPA Economic Partnership Agreement

IEPA Interim Economic Partnership Agreement

BEC Broad Economic Categories

IG Intermediate Goods

BNEDT National Office for Technical Studies and Development

CA Criterion for Approval

CIF Cost, Insurance, Freight

ECOWAS Economic Community of West African States

CI Ivory Coast

NAC National Approvals Committees

DEU Delegation of the European Union to Abidjan

FOB Free on Board

GH Ghana

CR Company registration number

MIAIE Ministry of African Integration and Ivorians Abroad

PA no. Company-product approval number

C no. Company series number

P no. Product series number

TSN Tariff and Statistical Nomenclature

MAO Market access offer

WCO World Customs Organisation

RoW Rest of the world

HS Harmonised System of nomenclatures

TLS Trade Liberalisation Scheme

TOR Terms of reference

CET Common external tariff (ECOWAS)

WAEMU West African Economic and Monetary Union

UN United Nations

SPT Supplementary Protection Tax

IAT Import Adjustment Tax

MFN Most Favoured Nation

TD Trade Diversion

TC Trade Creation

CFTA Continental Free Trade Area (African continental free trade area, AfCFTA)

HS Harmonised System

BF Burkina Faso

Reg. Regulation

Art. Article

AV Added Value

LDC Least Developed Countries



EXECUTIVE SUMMARY

The purpose of this study is to analyse the impact of the EU-Ivory Coast interim EPA and the EU-

Ghana interim EPA, on trade of products incorporating European inputs that are tariff-free and likely

to be exported to the rest of the region under the Trade Liberalisation Scheme (TOR). This study

therefore does not set out to measure all the trade or fiscal effects that the Ivory Coast and Ghana

IEPAs may have on the region as a whole or on each member state. An ex ante tax review on the

subject was conducted in 2014. Ex post analyses will be run in the future when the first tariff cuts

have been made. Neither does this study seek to evaluate the IEPA's impact at national level, for

Ivory Coast or Ghana. Ivory Coast has indicated its intention to conduct a national study to measure

the effects on trade and tax.

The priority for Ivory Coast and Ghana was to assess the impact – on their export flows to the rest

of the region – of making their national markets tariff-free for European products while being

members of the ECOWAS Customs Union. In this case:

• The above does not directly apply to EU-origin products transiting through Ivory Coast or Ghana,

because duty must be paid on the European products when they cross the neighbouring

country's customs border. Also unaffected by the IEPA are wholly obtained products (local

produce, such as agricultural output), as these can be circulated freely.

• On the other hand, Ivorian transformed products (industrial and farmed for food), containing

European inputs subject to tariff removal, might pose a problem if they also benefit from

community preference under the Trade Liberalisation Scheme (TLS), since under the IEPA they

would represent a competitive advantage over other countries in the region. It is this category

of product that the study focuses on.

In the multitude of impact studies that have punctuated the process of examining the EPA's expected

effects, there has been no attempt to assess the consequences for regional integration, taking into

account the Trade Liberalisation Scheme and effects arising from the use of EU-origin inputs. The

question of how to deal with this in the given context – where there are no regional statistics on

product trade, and still less data identifying which inputs are used in manufacturing processes in

Ivory Coast, Ghana and the region as a whole – is the biggest challenge facing the project.

The first stage was about gathering the statistical information needed in order to run the study. It led

to the creation of a database containing information, for the 2015-2017 period, on the trade flows

(imports and exports) of different ECOWAS countries, at the most detailed level of the Tariff and

Statistical Nomenclature (10-position TSN). This information came from the ECOWAS statistical

services, in the same way as the Common external tariff (CET). Details of Ivory Coast's and Ghana's

IEPA market access offers were provided by the EU Directorate General for Trade. Details of the

Ivorian and Ghanaian products eligible for tariff removal under the TLS were obtained from ECOWAS

and the National Approvals Committees (NAC). Use of this information has served to identify the

TLS-approved products that incorporate raw materials originating in the EU. In this way we obtained

a relatively accurate picture of the goods benefitting from TLS approval, along with details of the raw

materials used in each product. By identifying the inputs used, combined with use of the database of

import information, it was possible to specify the origin as being the EU; in the approval request sent

to the NAC, items are designated only as being "of foreign origin".

Imports by ECOWAS countries of products from Ivory Coast represent 1,864 billion $US, which is

just over a quarter of all intra-regional imports. Ivory Coast's two main trading partners on the intra-

regional market are Burkina Faso and Mali. If we look at Burkina Faso's total imports: all products



imported from Ivory Coast account for 10%, Ivorian products with TLS approval represent 5%, and

TLS-approved products that also contain EU-origin inputs account for 2.5%. If we consider only

products containing EU-origin inputs that are excluded from IEPA tariff removal (chiefly tobacco,

cigarettes and pasta), i.e. products which will therefore have no impact on regional integration, this

share of Burkina Faso's imports from Ivory Coast is only 0.9% (equivalent to 31 million $US). In the

case of Mali, products from Ivory Coast account for 10% of total imports, or 4% if these Ivorian

products benefit from TLS approval and 1% if they are TLS-approved and contain EU-origin inputs.

If we take only products that contain inputs eligible for tariff removal under the IEPA, this share of

Mali's imports from Ivory Coast is only 0.6% (equivalent to 24 million $US). The approved products

containing EU inputs imported from Ivory Coast by Burkina Faso are mostly wheat flours, soaps,

preparations for broths, and beauty products. The approved products containing EU inputs imported

from Ivory Coast by Mali are chiefly soaps, carboys (plastic) and beauty products.

ECOWAS countries' imports of products from Ghana total 615 million $US for the period from 2015

to 2017. As Ghana's activities are less focused than Ivory Coast's on the region's interior market,

volumes of goods imported by its main partners on the intra-regional market – Burkina Faso, Niger

and Togo – are smaller. In fact, only Burkina Faso, and to a lesser extent Togo, are of relevance if

we consider the import volumes. For Burkina Faso, products from Ghana represent 4% of total

imports, TLS-approved Ghanaian products represent 2% and TLS-approved Ghanaian products

containing EU-origin inputs account for 0.5% (19 million $US). If we consider only Ghanaian products

containing EU-origin inputs that are excluded from IEPA tariff removal, this share only represents

0.3% of Burkina Faso's total imports (equivalent to 11 million $US). The equivalent figure for Togo's

imports from Ghana is just 0.1% (2.4 million $US). These very modest proportions underline how

little impact Ghana's IEPA has had on regional integration. The approved products containing EU-

origin inputs imported from Ghana by Burkina Faso are primarily cements. Those imported from

Ghana by Togo are mainly prepared or preserved tomatoes, kitchenware and soaps.

The partial equilibrium ex ante modelling of the impacts of Ivory Coast's and Ghana's IEPAs on intra-

regional trade in certain products – i.e. benefitting from community preference, and containing tariff-

free inputs from the EU – shows that these impacts would be relatively small. This result is not overly

surprising, given the initial volume of intra-regional trade from Ivory Coast and Ghana of goods

containing EU-origin inputs. Let's not forget that this type of trade represents less than 1% of total

imports by countries in the region. The result is also hardly surprising considering that on the one

hand, the competitive advantage arising from the IEPA-related preference refers to the inputs used,

which are subject to customs duties at an average of 5%; and on the other hand, these EU-origin

inputs represent only a fraction of all inputs used.

Overall, for Ivory Coast's IEPA, we record a Trade Creation (TC) effect of 2.5% (worth 3 million $US)

across all ECOWAS countries, for products benefitting from the community preference reflected by

TLS approval. On the whole, less trade is diverted (1.7%) than is created. The impacts in terms of

trade volume mainly relate to Burkina Faso and Mali, but the variations remain very small (600,000

$US). For Ghana's IEPA, we note a 3% increase in trade (TC) of products benefitting from community

preference (TLS approval), worth 800,000 $US, and a larger diversion in trade if we consider the

cumulative effect of diversion on imports from the intra-regional market and those coming from the

rest of the world (4.3%). In light of the small volumes at hand (less than 1 million $US for all the

ECOWAS countries), one should not get too carried away with the accuracy of the figures.

From an economic standpoint, trade creation (TC) improves well-being, since consumers get a good

deal on imported items rather than buying local products, thanks to the preference associated with

the IEPA. Trade diversion (TD), on the other hand, lowers well-being, since a more efficient import

source may be downgraded due to other production that benefits from preferential tariff effects.

Based on these criteria, we can suggest a classification of the principal products in terms of their

external effects on regional integration. In the case of the Ivory Coast IEPA, certain products – beauty



products, soaps, carboys and bottles – have positive external effects that promote improved

consumer well-being insofar as trade creation is predominant. Conversely, preparations for soups

and broths, kitchenware and other household articles lead to trade diversions (especially with regard

to the intra-community market) that outweigh the improved benefit to the consumer. The externalities

associated with wheat flour are somewhat mitigated, insofar as the trade creation and diversion

effects more or less balance out. In the case of the Ghana IEPA, the negative externalities,

underlined chiefly by the effects of diverting trade towards the rest of the world, are mainly associated

with cement clinker, prepared or preserved tomatoes, and to a lesser extent kitchenware and soaps.

As regards preparations with a basis of coffee, household articles and beauty products, the positive

and negative external effects are in balance, and small.

By examining the effects of Ivory Coast's IEPA on imports of inputs benefitting from the community

preference and used to produce goods, it can be seen that imports of certain products from the EU

look set to increase: for example, mixtures of odoriferous substances, enzymes, organic colouring

matter, etc. Nevertheless, this trade creation (a 5.6% increase) would represent a relatively small

sum (3 million $US). Trade diversion mainly concerns imports of inputs coming from the rest of the

world. This effect, leading to a change in Ivory Coast's supplier, would represent 4 million $US. With

regard to imports from the ECOWAS countries, trade diversion is insignificant and not detrimental to

regional integration, except in the case of table salt from Senegal. Imports (under the Ghana IEPA)

of raw materials from the EU for use in manufacturing approved goods have a somewhat positive

effect on the economy, insofar as trade creation far outweighs trade diversion. However, the trade

volumes concerned are very small (less than 1 million $US) and dominated by a single product:

cement.

These results clearly show that the impacts would be only slight, yet we must add that they will be

further diluted by the opening of the IEPA markets, which according to the tariff removal timetable

will take place over a ten-year period (2019 to 2029). One third of all the EU-origin raw materials

used in making TLS-approved products is excluded from trade liberalisation. As stated earlier, these

products will be subject to the CET, and as such will not affect regional integration. In total, if we

consider only imports of raw materials with tariffs removed under Ivory Coast's IEPA: 70% are goods

taxed at 5%, not due to become tariff-free until 2024, and 30% are goods taxed at 10%, due to

become tariff-free in 2026 and 2029. The tariff removal timetable of Ghana's IEPA, for inputs used

to produce approved goods, shows that 85% of the imports concerned will fall into the tariff bracket

of 10% taxation. This will begin to take effect in 2026 and 2029, representing 43% of imports.

The ECOWAS Trade Liberalisation Scheme, adopted when establishing the African continental free

trade area (AfCFTA) which has been effective since 1990, sets the conditions for circulating industrial

goods produced in the region. Free, customs-exempt movement of industrial goods is standardised

by the rules on the community origin status granted to products that are either wholly obtained or

meet the sufficient working requirement. The difficulty that the region and IEPA signatory countries

find themselves facing is that products benefitting from community preference fall within the scope

of Article 7 (Protocol A/P1/1/03) which stipulates that: Goods transformed within the framework of

economic or suspensive customs regimes or certain special regimes involving the suspension or

partial or total exemption from customs duties on inputs shall in no case be considered as originating

industrial products, or benefit from the advantages associated with such products.

If the reply from the services that issue certificates of origin is to adhere to the clauses in Article 7, it

would currently be impossible for the region and IEPA signatories to do so, insofar as the bases for

recognising community origin depend on approval that has already been granted. To date, these

services do not have information about the origin of imported raw materials used, except for those

declared in the approval application. This is a major issue, because if there is no way of distinguishing

between products that benefit from the IEPA and those that do not, this would have adverse

consequences for all of Ivory Coast's and Ghana's trade, as well as for all trade within the region.



We emphasise again that this new situation, arising in connection with the IEPA, will be similar for

other preferential project agreements within ECOWAS. Clearly, if there were a full regional EPA, and

if the Customs union were associated with the Free Practice principle, all questions connected to the

TLS or the IEPA would cease to apply.

Considering the results of the analysis undertaken in this study, and the current operation of the

ECOWAS Trade Liberalisation Scheme, the following actions are recommended:

Recommendation 1, which is the principal recommendation: Maintain open trade

borders within the region for an interim period. To preserve the regional integration gains

achieved so far, along with free movement of goods – in light of the IEPA's limited impact on

the intra-regional markets as shown by this study – the preferred solution would be to keep

the intra-regional trade borders fully open for an interim period,

If requested by the ECOWAS Member states, this recommendation could be supported by

safeguarding measures, strengthening Articles 39 and 49 of the ECOWAS Treaty (see Appendix 5

for the full analysis of the proposal).

Recommendation 2, which is an alternative medium-term recommendation: grant

customs duty exemption to inputs that benefit from the IEPA preference and are used in

producing TLS-approved goods. With a view to introducing Free Practice, applying this

recommendation over an interim period would allow companies benefitting from preferential

rates (on inputs used in producing TLS-approved goods) to be excluded from paying customs

duties on these goods in the destination country where the transformed item will be

used/consumed (thereby cancelling out the exemption effect).

It must be pointed out that there is zero monitoring of what the TLS represents in trade terms, which

restricts the task of evaluating this policy. Although the procedure for obtaining approval of

companies and products is free of charge, the necessary administrative formalities and obligations

to renew the certificate of origin regularly represent implicit costs of ensuring continued compliance.

Based on modelling of firms' decisions on whether or not to obtain TLS approval, we have estimated

the cost of upgrading to compliance (administration for obtaining approvals, proof of meeting product

origin regulations, inconvenience, etc.) associated with the TLS: 5% for all products, except products

farmed for food (5.6%). This cost of continued compliance is far from insignificant, and represents a

barrier to the use of community preference.

In the context of this project relating to the IEPA's effects, the absence of monitoring measures has

also been a limiting factor, especially in terms of statistics. To evaluate the impacts that IEPA

preferences have had on trade of Ivorian and Ghanaian TLS-approved goods, first one must know

the details of this type of trade in terms of products and partner countries. As mentioned previously,

this question will also be relevant for future trade agreements between the region and partners other

than the EU. This situation is sure to run into problems as regards coordinating the Customs systems,

though it would be technically possible to set up monitoring of the TLS trade statistics.

(Technical) recommendation 3: introduce an extra specific code, corresponding to the

community preference, in the IT systems of ECOWAS countries' Customs services. A

preferential trade regime code, shared by all ECOWAS member states, would be an element

of the trade monitoring system and enable monitoring of the statistics associated with TLS-

approved goods. It would also be appropriate to consider and clearly identify which bodies are

responsible for this monitoring and the methods it entails.

In the IEPA context, and with a view to opening the region to other preferential agreements, there is

also the issue of monitoring companies' use of inputs. In fact, this traceability ends up being rather



complex, because the companies are only identified in the customs files by their tax reference

number, and these files do not mention the Company-product approval number (an 11-digit code)

which is specific to the TLS.

(Technical) Recommendation 4: create a correlation table linking the approval number

of companies benefitting from the TLS with the tax reference number that identifies

these companies in the Customs files. As part of a market monitoring policy, it would be

advisable to set up monitoring of inputs imported and used in the production of approved

goods. To help with this we suggest creating, in the short term, a correlation table linking the

approval number of companies benefitting from the TLS with the tax reference number that

identifies these companies in the Customs files. If this strategy were used, it would be possible

to automate and monitor the processing of approved companies' imports based on product

origin, now and in the future. This recommendation could be applied in both Ivory Coast and

Ghana.



INTRODUCTION

The purpose of this study is to analyse the impact of the EU-Ivory Coast interim EPA and the EU-

Ghana interim EPA, on trade of products incorporating European inputs that are tariff-free and likely

to be exported to the rest of the region under the Trade Liberalisation Scheme (TOR). This study

does not set out to measure all the trade or fiscal effects that the Ivory Coast and Ghana IEPAs may

have on the region as a whole or on each member state. An ex ante tax review was conducted in

2014. Ex post analyses will be run in the future when the first tariff cuts have been made. Neither

does this study seek to evaluate the IEPA's impact at national level, for Ivory Coast or Ghana. Ivory

Coast has indicated its intention to conduct a national study to measure the effects on trade and tax.

The priority for Ivory Coast and Ghana was to see the potential impact – on their export flows to the

rest of the region – of making their national markets tariff-free for European products while being

members of the ECOWAS Customs Union. In this case:

• The above does not directly apply to EU-origin products transiting through Ivory Coast or Ghana,

because duty must be paid on the European products when they cross the neighbouring

country's customs border. Also unaffected by the IEPA are wholly obtained products (local

produce, such as agricultural output), as these can be circulated freely.

• On the other hand, Ivorian transformed products (industrial and farmed for food) containing

European inputs subject to tariff removal might pose a problem if they also benefit from

community preference under the TLS, since under the IEPA they would represent a competitive

advantage over other countries in the region. It is this category of product that the study focuses

on.

At present, movement of goods within ECOWAS-WAEMU is governed by the transit regime, rather

than by free practice. This means that after clearing Customs, goods within ECOWAS Member states

are not considered to be within the community (unlike in the EU, for example). Even though goods

are circulated under the Common external tariff (CET), the conditions of their movement within the

area depend on what is decreed on the basis of community origin. Free movement of goods, the key

vehicle for regional integration, is standardised in this way by Supplementary Protocol III/2003 on the

rules of origin.

This protocol came into force in 2003, and allows free movement of wholly obtained products (crops,

livestock, and crafts) and products that meet the criterion of having undergone sufficient working.

The latter are transformed products – industrial or farmed for food – which must satisfy certain

conditions (see Appendix 4) to obtain "Goods of Community Origin" status (provide evidence of a

change of tariff heading, or of a value-added tax representing at least 30% of the ex-factory price, or

comprise 60% ECOWAS-origin materials). Goods with a certificate of origin can be circulated freely

between countries. No levy is payable on this circulation for agricultural products, including livestock1,

or for approved industrial products of community origin2. However, non-approved transformed

products from countries in the region do not have community origin status, and are subject to the

CET in the same way as products from third-party countries.

In this way, community preference granted to products with Trade Liberalisation Scheme (TLS)

approval is the key vehicle for regional integration. The purpose of this study is to analyse the impact

1 Agricultural products and livestock are not required to have a certificate of origin. 2 The Supplementary Protection Tax has gradually fallen from 30% less, to 60% less and (currently) 80% less than the CET since 2003. Since 2005, approved industrial products with certificates of community

origin have had their CET reduced by 100%.



of the EU-Ivory Coast interim EPA and the EU-Ghana interim EPA on regional integration. In

particular, it is aimed at analysing transformed products that are TLS-approved and contain tariff-

free European inputs likely to be exported to the rest of the region (TOR).

In the multitude of impact studies that have punctuated the process of examining the EPA's expected

effects, there has been no attempt to assess the consequences for regional integration, taking into

account the Trade Liberalisation Scheme and effects arising from the use of EU-origin inputs. The

question of how to deal with this in the given context – where there are no regional statistics on

product trade, and still less data identifying which inputs are used in manufacturing processes in

Ivory Coast, Ghana and the region as a whole – is the biggest challenge facing the project.

In the first section of this report we will look at the methodology of the data collection and processing.

This part deals with the issue of identifying TLS-approved products, and introduces a descriptive

analysis of Ivory Coast's and Ghana's trade in products containing EU-origin inputs. We will go on to

discuss the impacts of introducing the IEPA, as measured using partial equilibrium modelling. This

section serves to pinpoint the trade creation and trade diversion effects caused by the IEPAs. It will

help identify, for different products, the various (positive or negative) external effects on regional

integration. Lastly, we will make recommendations based on the situation created by the Ivory Coast

and Ghana IEPAs and also by analysing the effects on intra-regional trade.



The two main difficulties that emerged during processing of the statistical information concern

identification and monitoring; on the one hand, of trade in approved products, and on the other, of

the EU-origin inputs used in making these TLS-approved products. To deal with these trade

exchanges of products benefitting from the TLS, we performed an indirect evaluation based on trade

in products that are eligible for the Scheme. One limitation of this approach is over-valuation of the

flows of approved products, insofar as approval is attributed to a company, which means that only a

fraction of the flow is approved for a given product and country. Another source of over-valuation

linked to this approach is the consideration that granting of approval does not necessarily mean that

the product in question will be traded. This methodological choice3 was necessary because the

community preference regime has no standard customs code to aid collection and processing of

statistical data on this kind of trade. This point is developed and discussed in the recommendations

section.

Things become even trickier when it comes to identifying the EU inputs used in manufacturing

approved goods. Information about approved products using EU-origin inputs can theoretically be

obtained by leveraging the customs files on companies, in order to establish the number of

companies with TLS approval and note which approved products they export in the region. On this

basis and as a second step, it should be possible to take a close look at the raw materials imported

from the EU by these companies, and process data on the inputs they contain. However, this new

request during the second assignment, asking Customs services to extract information, was

unsuccessful. Apparently, it is not possible to identify approved companies directly from the customs

files based solely on the approval codes4. To circumvent this problem, we instead used individual

approvals files from the National Approvals Committee (NAC).

TLS approvals are granted by each Member state to companies that request them, following a

proposal by a National Approvals Committee (NAC)5. After this procedure of granting the twofold

approval (i.e. of company and product), the community origin of products obtained within ECOWAS

is evidenced by a certificate of origin6 (see Appendix 2). The aspects relating to how the TLS works

will be explained further in Appendix 4. The key point for us here is that for each transformed product,

the adopted approval procedure specifies the raw materials used (based on the Customs/ECOWAS

tariff nomenclature; see Table 1).

Table 1: Template for "Approval application" table

Sources: National Approvals Committee, Approval application

Based on this information, we utilised the individual approvals files (more than 250) to cover most of

the traded volume of approved goods. The task of manually examining the files could only be

3 Another approach involved using customs statistics on imports from each ECOWAS country, and selecting the imports that had 0% duty levied (except where CET was 0%). This is the method currently

adopted by WAEMU (Trade monitoring report by WAEMU, 2017). We also deployed this method when examining Burkina Faso and Mali. Please note that in this case, it was difficult to differentiate between trade of approved goods and trade that received an exemption (in which case duty is also 0%). 4 The number identifying a company in the customs files seems to correspond to the tax reference number, with no mention of the company's TLS approval ID number. 5 Art. 1 and Art. 4 of Regulation C/REG.3/4/02 6 Regulation C/REG.4/4. /02

Obtained products: …

Description of the Number in the Quantities Value

raw materials (1) Customs/ECOWAS nomenclature used factory entry

A. Foreign origin

B. ECOWAS origin

(1) Specify the principal raw materials used

Reference year: ...



conducted in depth for Ivory Coast. In this way we obtained a relatively accurate picture of the goods

benefitting from TLS approval, along with details of the raw materials used in each product. By

identifying the eligible raw materials, combined with use of the database of import information, it was

possible to specify the origin as being the EU; in the approval request, items are designated only as

being "of foreign origin" (see Table 1).

ECOWAS COUNTRIES' IMPORTS OF TLS-APPROVED

PRODUCTS CONTAINING INPUTS BENEFITTING FROM THE

INTERIM EPA

The effort invested in processing the trade data, which were disaggregated as far as possible in the

regional nomenclature, served to describe the trade in TLS-approved products containing inputs

benefitting from the interim EPA. We will now examine in turn the proportion represented by

preferential trade of Ivorian and Ghanaian products in ECOWAS intra-regional exchanges over the

2015 to 2017 period.

2.1. ECOWAS countries' imports of products from Ivory Coast

Imports by ECOWAS countries of products from Ivory Coast represent 1,864 billion $US, which is

just over a quarter of all intra-regional imports. Ivory Coast's two main trading partners on the intra-

regional market are Burkina Faso and Mali (see Table 2). The selection here takes into account the

import volumes and what they represent for each country as a percentage. If we look at Burkina

Faso's total imports: all products imported from Ivory Coast account for 10%, Ivorian products with

TLS approval represent 5%, and TLS-approved products that also contain EU-origin inputs account

for 2.5%. If we consider only products containing EU-origin inputs that are excluded from IEPA7 tariff

removal i.e. products which will therefore have no impact on regional integration, this share of Burkina

Faso's imports from Ivory Coast is only 0.9% (see Table 2 and Graph 1).

In the case of Mali, products from Ivory Coast account for 10% of total imports, or 4% if these Ivorian

products benefit from TLS approval and 1% if they are TLS-approved and contain EU-origin inputs.

If we take only products that contain inputs eligible for tariff removal under the IEPA, this share of

Mali's imports from Ivory Coast is only 0.6% (see Table 2 and Graph 1).

7 Chiefly tobacco, cigarettes and pasta



Graph 1: Imports of Ivorian products by Burkina Faso and Mali

Sources: ECOWAS trade database (2015-2017), ECOWAS TLS database, NAC

2.2. ECOWAS countries' imports of products from Ghana

ECOWAS countries' imports of products from Ghana total 615 million $US for the period from 2015

to 2017. Ghana's activities are less focused than Ivory Coast's on the region's interior market. As a

result, volumes of goods imported by its main partners on the intra-regional market – Burkina Faso,

Niger and Togo – are smaller. Only Burkina Faso, and to a lesser extent Togo, are actually relevant

if we consider the import volumes (see Table 3). For Burkina Faso, products from Ghana represent

4% of total imports, TLS-approved Ghanaian products represent 2% and TLS-approved Ghanaian

products containing EU-origin inputs account for 0.5%. If we consider only approved Ghanaian

products containing EU-origin inputs that are excluded from IEPA tariff removal, this share only

represents 0.3% of Burkina Faso's total imports. The equivalent figure for Togo's imports from Ghana

is just 0.1%, worth 2.4 million $US (see Table 3 and Graph 1). These very modest proportions

underline how little impact Ghana's IEPA has had on regional integration.



Table 2: Intra-regional imports by ECOWAS countries of Ivorian products that are TLS-

approved and use IEPA inputs

Table 3: Intra-regional imports by ECOWAS countries of Ghanaian products that are TLS-approved and use IEPA inputs.

2.3. Imported products that are TLS-approved and use EU-origin inputs

Even though the intra-regional import volumes of Ivorian and Ghanaian products with TLS approval,

and containing European raw materials, are small, they may still impact on certain other product

markets. The approved products (containing EU-origin inputs) that Burkina Faso imports from Ivory

Coast are mostly wheat flours, tobacco, soaps, pasta, preparations for broths, and beauty products.

The approved products containing EU inputs imported from Ivory Coast by Mali are chiefly soaps,

tobacco, carboys (plastic), pasta and beauty products.

2015-2017 Total imports Total % intra Origin: Origin: From % share

ECOWAS Intra import in total RCI RCI RCI approved

in RCI Share Share

Million $US Mn $US Mn $US imports Mn $US % Mn $US % Mn $US % Mn $US %

BENIN 2 675 335 13 31 1 19 1 6 0,2 6 0,2

BURKINA FASO 3 526 750 21 348 10 181 5 87 2,5 31 0,9

CAPE VERDE 1 143 93 8 31 3 0 0 0 0,0 0 0,0

IVORY COAST 9 613 1 464 15 - - 0 - 0 0,0

GAMBIA 490 207 42 148 30 0 0 0 0,0 0 0,0

GHANA 12 406 444 4 103 1 76 1 17 0,1 16 0,1

GUINEA 3 894 211 5 82 2 6 0 2 0,1 2 0,1

LIBERIA 946 46 5 32 3 4 0 3 0,3 2 0,2

MALI 4 158 1 441 35 402 10 170 4 40 1,0 24 0,6

NIGER 1 916 318 17 44 2 37 2 14 0,7 9 0,4

NIGERIA 33 319 574 2 459 1 64 0 4 0,0 4 0,0

SENEGAL 5 896 677 11 123 2 81 1 8 0,1 7 0,1

SIERRA LEONE 4 726 165 3 19 0 16 0 11 0,2 11 0,2

TOGO 1 669 178 11 42 2 33 2 14 0,8 11 0,6

Total intra ECOWAS 6 903 8 1 864 2 687 1 205 0,2 123 0,1

Total imports by ECOWAS 86 378

Note: the trade data are the averages from 2015 to 2017. Sources: ECOWAS trade database, ECOWAS TLS database, Ivory Coast NAC

ECOWAS countries' imports of products from Ivory Coast

TLS-approved products With inputs

Using EU inputs tariff-free under IEPA

2015-2017 Total imports Total % intra Origin: Origin: Origin:Share of

products

ECOWAS Intra import in total Ghana Ghana Ghana approved Share Share

Million $US Mn $US Mn $US imports Mn $US % Mn $US % Mn $US % Mn $US %

BENIN 2 675 335 13 22 1 17 1 2 0,1 0,9 0,0

BURKINA FASO 3 526 750 21 156 4 54 2 19 0,5 10,6 0,3

CAPE VERDE 1 143 93 8 1 0 1 0 0 0,0 0,0 0,0

IVORY COAST 9 613 1 464 15 77 1 22 0 5 - 2,1 0,0

GAMBIA 490 207 42 0 0 0 0 0 0,0 0,1 0,0

GHANA 12 406 444 4 - - - - - - - -

GUINEA 3 894 211 5 20 1 7 0 1 0,0 0,0 0,0

LIBERIA 946 46 5 4 0 1 0 0 0,0 0,2 0,0

MALI 4 158 1 441 35 68 2 25 1 2 0,1 2,2 0,1

NIGER 1 916 318 17 54 3 50 3 7 0,4 2,2 0,1

NIGERIA 33 319 574 2 60 0 43 0 4 0,0 3,8 0,0

SENEGAL 5 896 677 11 56 1 44 1 2 0,0 0,7 0,0

SIERRA LEONE 4 726 165 3 35 1 8 0 1 0,0 1,0 0,0

TOGO 1 669 178 11 62 4 43 3 11 0,7 2,4 0,1

Total intra ECOWAS 0 6 903 8 615 1 315 0 55 0,1 26,4 0,0

Total imports by ECOWAS 86 378

Note: the trade data are the averages from 2015 to 2017. Sources: TLS-Ghana database; ECOWAS trade database

With inputs

tariff-free under IEPA

ECOWAS countries' imports of products from Ghana

TLS-approved products

Using EU inputs



Table 4: approved Ivorian products containing EU-origin inputs, imported by Burkina Faso and Mali


As noted previously, it turns out that some of the approved products containing raw materials from

the EU are excluded from the market tariff removal offer expressed by Ivory Coast. This is true

particularly for tobacco and for flours used as pasta ingredients in Ivory Coast. The companies that

work with and use these raw materials are therefore obliged to pay customs duty on them, as a result

of which the transformed products will not be eligible for the preferential rate associated with the

IEPA. These transformed products will therefore have no IEPA-derived impact on the intra-regional

market (see Table 4).

The approved products containing EU-origin inputs imported from Ghana by Burkina Faso are

primarily cements, wheat flours, mineral waters and flour-based food preparations. The equivalent

products imported from Ghana by Togo are mainly wheat flours, prepared or preserved tomatoes,

kitchenware, flour-based food preparations, and soaps (see Table 5). As in the previous example of

the Ivory Coast IEPA, some products containing inputs from the EU are similarly excluded from

Ghana's market access offer. Notable examples are flours, pasta and mineral waters.

Table 5: approved Ghanaian products containing EU-origin inputs, imported by Burkina Faso and Togo


It is important to emphasise that Ivory Coast's and Ghana's market access offers differ greatly in

regard to what kind of products are excluded from the tariff removal timetable. As such, wheat and

mineral waters are excluded from Ghana's offer but not from Ivory Coast's, while cement and fresh

tomatoes are excluded from Ivory Coast's offer but not from Ghana's (see Table 14). These far-from-

ideal situations risk introducing trade diversions, which will be taken into consideration in the impact

modelling.

HS6 code Description 1000 $US HS6 code Description 1000 $US

110100 Wheat or meslin flours 12 487 340119 Soap products and preparations 10 198

340119 Soap products and preparations 6 889 392330 Carboys, bottles, flasks 9 284

392330 Carboys, bottles, flasks and similar articles 6 029 330499 Beauty or make-up products 3 360

210410 Soups and broths and preparations 3 454 392490 Household articles or hygienic (plastic) articles 509

330499 Beauty or make-up products 1 146 330491 Make-up powders 489

392490 Household articles or hygienic (plastic) articles 660 392410 Tableware and kitchenware 302

392410 Tableware, kitchenware and other household articles 426 % 110311 Cereal groats and wheat grains 128 %

Total approved products using tariff-free EU inputs 31 115 0,9 Total approved products using tariff-free EU inputs 24 141 0,6

Total approved products using EU inputs 87 075 2 Total approved products using EU inputs 39 834 1

Total approved products from RCI imported by BF 180 680 5 Total approved products from RCI imported by Mali 169 514 4

Total products from RCI imported by BF 348 454 10 Total products from RCI imported by Mali 402 280 10

Total imports by BF 3 525 780 100 Total imports by Mali 4 158 201 100

Ivorian approved products using EU-origin inputs

Imported by Burkina Faso

Ivorian approved products using EU-origin inputs

Imported by Mali

HS6 code Description 1000 $US HS6 code Description 1000 $US

252310 Non-powdered cement, i.e. clinker 8 453 200290 Tomatoes, prepared or preserved 1 356392490 Household articles or hygienic (plastic) articles 799 392410 Tableware and kitchenware 694392410 Tableware and kitchenware 449 340119 Soap products and preparations 183200290 Tomatoes, prepared or preserved 332 392330 Carboys, bottles, flasks 77340119 Soap products and preparations 314 330499 Beauty or make-up products 56210112 Preparations with a basis of extracts, essences or concentrates 182 392490 Household articles or hygienic (plastic) articles 36392330 Carboys, bottles, flasks 73330499 Beauty or make-up products 22210410 Soups and broths and preparations 10 % %

Total approved products using tariff-free EU inputs 10 637 0,3 Total approved products using EU inputs (except excl. from IEPA) 2 402 0,1Total approved products using EU inputs 18 969 0,5 Total approved products using EU inputs 11 356 0,7Total approved products from GH imported by BF 54 262 2 Total approved products from GH imported by TG 42 751 3Total products from GH imported by BF 156 155 4 Total products from GH imported by TG 62 247 4Total imports by Burkina Faso 3 525 780 100 Total imports by Togo 1 669 076 100

Imported by Burkina FasoApproved Ghanaian products using EU inputs

Imported by TogoApproved Ghanaian products using EU inputs



IMPACTS OF THE IEPA ON PREFERENTIAL TRADE WITHIN

THE REGION

The present study analyses the impact of Ivory Coast's and Ghana's IEPAs on the ECOWAS member

countries, based on the data examined in the first part of the project. Special attention is paid to the

trade effects that influence exchanges benefitting from the community preference. In light of the

assigned objective of evaluating the effects to a high level of detail (10-position TSN), and the time

available, we adopted a partial equilibrium approach, distinguishing between products from different

supplier countries8. Our relatively simple, standard model is presented in Appendix 1 of this report.

The estimated effects on ECOWAS countries' imports – stemming from EU preferential trading

conditions, from which Ivory Coast and Ghana will benefit under their respective IEPAs – differentiate

between trade creation and trade diversion (TC and TD). Trade creation refers to an increase in

consumption by the importer country, due to the price effect brought about by the IEPA preference.

Trade diversion, on the other hand, happens when imported products that do not benefit from IEPA

rates are displaced by those that do, from Ivory Coast and Ghana.

Diagram 2: Scope of the IEPA effects factored into the modelling

8 (1969), A Theory of Demand for Products Distinguished by Place of Production, Palgrave Macmillan Journals.



Given the small volumes (identified above) imported under the community trade preference and

containing EU-origin inputs, we opted to use only a median elasticity scenario, distinguishing

between farm products, raw materials and manufactured products9. The import demand elasticities

were 0.7, 0.9 and 1.1, and the substitution elasticities 2.0, 3.5 and 3.0 respectively10. The data used

to evaluate the impacts correspond to the period from 2015 to 2017 (averages), and to static analysis.

In other words, we are assuming full tariff removal in the reference year that the IEPA is applied,

even if considerations related to the tariff removal timetable will be 11introduced subsequently.

The difficulty of this analysis lies in identifying how the effects of the IEPA are transferred to the cost

of producing the transformed goods. The benefit of IEPA preferences received by Ivory Coast and

Ghana will apply to the raw materials used in making transformed products, which will be subject to

free movement under the TLS. For this reason, during analysis of the individual approvals files

special attention was paid to the inputs used in making products that benefit from community

preference. In spite of everything, uncertainties still remain as regards the conditions of assigning

criteria to help determine community origin for sufficiently worked/transformed products.

The rules adopted in order to decide on community origin have different effects on preferential trade

within the community, depending on the "working" criterion declared (see Appendix 4). As a reminder,

community origin status may be granted if a) the raw materials have received a value-added tax

representing at least 30% of the ex-factory price, or b) the materials used are classed under a

different tariff heading than the final product (a change to the 4-digit position in the nomenclature),

or c) the raw materials used comprise 60% ECOWAS-origin materials (as per Protocol A/P1/1/03).

It was observed that these rules of assignment are insufficiently documented in the database of TLS-

approved products and companies compiled by ECOWAS. Nevertheless, the available data showed

that the "sufficiently worked" requirement for approval is usually met on the basis of the products

containing at least 60% ECOWAS-origin inputs. To simplify the procedure we used this criterion,

applicable in most cases, for modelling the effects of the IEPA. This enables us to bring in a technical

coefficient for transformation, which caps inputs from the EU at 40%, and to transfer the effect to the

price of transformed products depending on this coefficient12 (Appendix 1). Ivory Coast's and

Ghana's adoption of IEPAs is factored into this, since a distinction is made between on the one hand,

the effects that TLS-approved products using EU-origin inputs have on the intra-regional market, and

on the other, the effects on the market when EU-origin inputs enter Ivory Coast and Ghana.

3.1. Effects of the IEPA on the intra-regional market of

transformed products

Having modelled how the Ivory Coast and Ghana IEPAs will affect intra-regional trade in products

benefitting from community preference, the results show that the impact on trade will be relatively

small. This result is not overly surprising, given the initial volume of intra-regional trade from Ivory

Coast and Ghana of goods containing EU-origin inputs. Let's not forget that this type of trade

9 Agricultural products are covered in chapters 1 to 24 of the Harmonised System of nomenclatures, while raw materials are covered in chapters 25 to 27 and manufactured products in chapters 28 to 29. 10 For further details, see et al. (2008), Import Demand Elasticities and Trade distortions, Review of Economics and Statistics, and relating to ECOWAS: M. Busse et al. (2004), The impact of EU-ACP (African, Caribbean and Pacific) economic partnership agreements on ECOWAS countries. 11 In order to factor in dynamic effects (e.g. growth, price adjustment over time, etc.), it would be necessary to use general equilibrium modelling, which is far more complex and costly). 12 The "all other things being equal" reasoning specific to partial equilibrium approaches is applicable here, because we ignore the margin behaviour that the companies will adopt. They may transfer to the

transformed goods the IEPA preferential benefits obtained on the raw materials (this is the option used by our model) and thus maintain their margins, or indeed apply the advantage to their margins without altering prices.



represents less than 1% of total imports by countries in the region (see Tables 2 and 3). The result

is also hardly surprising considering that on the one hand, the competitive advantage arising from

the IEPA-related preference refers to the inputs used, which are subject to customs duties at an

average of 5%; and on the other hand, these EU-origin inputs represent only a fraction of all inputs

used. The effect of the IEPA preference on the transformed product price only applies to the raw

materials used in the manufacturing process, whose proportion is imposed by the degree of working

in order for the product to qualify for "goods of community origin" status (see Appendix 1).

3.1.1. Effects of the IEPA on the Member countries

For the Ivory Coast IEPA we note a trade increase effect for products benefitting from community

preference and containing inputs from the EU: up by 2.5% (representing 3 million $US) across all

ECOWAS countries (see Table 6). On the whole, less trade is diverted (1.7%) than is created. The

impacts in terms of trade volume mainly relate to Burkina Faso and Mali, but the variations remain

very small (600,000 $US).

For Ghana's IEPA, we note a 3% increase in trade (TC) of products benefitting from community

preference (TLS approval), valued at 805,000 $US, and a larger diversion in trade if we consider the

cumulative effect of diversion on imports from the intra-regional market and from the rest of the world

(4.3%). In light of the small sums at hand (less than 1 million $US for all the ECOWAS countries),

one should not get too carried away with the accuracy of the quoted figures, particularly in the case

of Ghana. Nevertheless, we may note that the trade effects chiefly concern Burkina Faso, and Niger

to a lesser extent.

Table 6: Impacts on intra-regional imports, by ECOWAS countries, of Ivorian products that are TLS-approved and use IEPA inputs

Sources: ECOWAS trade database (2015-2017), ECOWAS TLS database, NAC, modelling

Ivory Coast IEPA Imports

Country from RCI

ECOWAS tariff-free under IEPA TC TC

1000 $US 1000 $US % 1000 $US % 1000 $US %BENIN 5 562 121 2,2 53 1,0 68 1,2BURKINA FASO 31 115 668 2,1 251 0,8 141 0,5CAPE VERDE 39 1 2,9 0 0,1 2 4,7GAMBIA 38 1 2,7 0 0,7 1 2,9GHANA 15 776 371 2,4 97 0,6 182 1,2GUINEA 2 187 46 2,1 26 1,2 39 1,8LIBERIA 2 342 55 2,3 2 0,1 36 1,5MALI 24 269 635 2,6 200 0,8 120 0,5NIGER 8 511 189 2,2 97 1,1 76 0,9NIGERIA 4 469 130 2,9 20 0,4 131 2,9SENEGAL 7 142 184 2,6 13 0,2 117 1,6SIERRA LEONE 10 604 339 3,2 44 0,4 235 2,2TOGO 10 721 272 2,5 38 0,4 69 0,6Total 122 775 3 013 2,5 842 0,7 1 219 1,0

TD (intra-regional)

Trade CreationTrade Diversion

within the region

Trade Diversion to

RoW

TD (RoW)



Table 7: Impacts on intra-regional imports, by ECOWAS countries, of Ghanaian products that are TLS-approved and use IEPA inputs


3.1.2. Positive and negative externalities relating to the main products and activity

sectors

Here we examine the effects of Ivory Coast's and Ghana's IEPAs on intra-regional trade in the main

products that use raw materials from the EU, and that benefit from community preference. The

objective is also to characterise the products and associated activities from the perspective of positive

and negative external effects arising from the IEPA. From an economic standpoint, trade creation

(TC) improves well-being, since consumers get a good deal on imported items benefitting from the

IEPA preference, rather than buying local products. Trade diversion (TD), on the other hand, lowers

well-being, since a more efficient import source may be downgraded due to high-cost production. In

this case, the diversion is due to a change of supplier, resulting from the alteration of the price

structure that occurred after the preferential tariff was granted to inputs under the IEPAs13. Based on

these criteria, we can suggest a classification of the principal products in terms of their external

effects on regional integration. Even though the effects of Ivory Coast's and Ghana's IEPAs have

several products in common, the resulting externalities are different (as noted previously) insofar as

the market access offers differ, especially as regards which raw materials are excluded from the

agreement..

In the case of the Ivory Coast IEPA (see Table 8), certain products – beauty products, soaps, carboys

and bottles – have positive external effects that promote improved consumer well-being. Conversely,

preparations for soups and broths, kitchenware and other household articles lead to trade diversions

(especially with regard to the intra-community market) that outweigh the improved benefit to the

consumer. The externalities associated with wheat flour are somewhat mitigated, insofar as the TC

13 The literature points out that this diversion effect is only meaningful in a static scenario, or at the most for a short regional period. (See , 1967, Note sur l’effet de détournement, (Note on the diversion effect), Economic Review, pp.637-653). When the prices being passed on are small, as is the case here, this comment is necessary.

Ghana IEPA Imports

Country from Ghana

ECOWAS tariff-free under IEPA TC TC

1000 $US 1000 $US % 1000 $US % 1000 $US %BENIN 928 29 3,1 16 1,7 29 3,1BURKINA FASO 10 637 312 2,9 273 2,6 208 2,0CAPE VERDE 0 0 2,8 0 0,0 0 2,8IVORY COAST 2 145 61 2,8 6 0,3 79 3,7GAMBIA 95 2 2,3 0 0,2 3 3,1GUINEA 47 1 3,1 1 2,4 1 3,1LIBERIA 207 5 2,6 0 0,0 7 3,4MALI 2 221 82 3,7 48 2,2 64 2,9NIGER 2 183 105 4,8 6 0,3 117 5,4NIGERIA 3 817 75 2,0 71 1,9 22 0,6SENEGAL 680 15 2,2 11 1,5 8 1,1SIERRA LEONE 1 043 23 2,2 2 0,2 37 3,5TOGO 2 402 94 3,9 23 1,0 121 5,0Total 26 406 805 3,0 457 1,7 695 2,6

TD (RoW)TD (intra-regional)


within the region

Trade Diversion to

RoW



and TD effects more or less balance out. We note that in the interviews we conducted in Burkina

Faso and Mali, operators in this sector did not seem especially concerned about these effects.

In the case of the Ghana IEPA (see Table 9), the negative externalities are mainly associated with

cement clinker, prepared or preserved tomatoes, and to a lesser extent kitchenware and soaps. As

regards preparations with a basis of coffee, household articles, beauty products and carboys, the

positive and negative external effects are in balance, and small.

Table 8: The principal approved Ivorian products that use EU-origin inputs

Note: green denotes products for which trade creation (TC) outweighs trade diversion (TD),

orange denotes the opposite, and pink is used where TC and TD are equivalent Sources: ECOWAS trade database (2015-2017), ECOWAS TLS database, NAC, modelling

Table 9: Principal approved Ghanaian products that use EU-origin inputs

Note: green denotes products for which trade creation (TC) outweighs trade diversion (TD),

orange denotes the opposite, and pink is used where TC and TD are equivalent Sources: ECOWAS trade database (2015-2017), ECOWAS TLS database, NAC, modelling

3.2. The effects of Ivory Coast's and Ghana's IEPAs on

procurement of inputs

In this section we examine imports of raw materials from the EU intended for use in transformation

of approved products, in the context of Ivory Coast's and Ghana's IEPAs. These imports of inputs

will directly benefit from the IEPA preference by being exempt from customs duty. The effects of the

IEPA will take the form of an increase in imports from the EU, which favour approved companies,

and also a diversion of imports of raw materials originating in ECOWAS countries or elsewhere in

the world. Remember that under the selected conditions imposed in order to benefit from approval,

Imports

(except inputs

HS6 code excluded from IEPA) TC TC

1000 $US 1000 $US % 1000 $US % 1000 $US %

110100 Wheat or meslin flours 13 781 235 1,7 153 1,1 39 0,3

210410 Soups and broths and preparations 21 753 408 1,9 282 1,3 156 0,7

330491 Make-up powders 11 405 365 3,2 49 0,4 242 2,1

330499 Beauty or make-up products 20 756 603 2,9 95 0,5 421 2,0

340119 Soap products and preparations 34 814 883 2,5 75 0,2 146 0,4

392330 Carboys, bottles, flasks 17 758 466 2,6 149 0,8 181 1,0

392410 Tableware and kitchenware 1 015 22 2,2 13 1,3 19 1,8

392490 Household articles or hygienic (plastic) 1 364 29 2,2 26 1,9 12 0,9

Total 122 775 3 013 2,5 842 0,7 1 219 1,0

Approved Ivorian products imported by

ECOWAS countries and containing EU-

origin inputs


within the region

Trade Diversion to

RoW

TD (intra-regional) TD (RoW)

Imports

(except inputs

HS6 code excluded from IEPA) TC TC

1000 $US 1000 $US % 1000 $US % 1000 $US %

252310 Non-powdered cement, i.e. clinker 8 453 253 3,0 234 2,8 171 2,0

200290 Tomatoes, prepared or preserved 5 393 280 5,2 36 0,7 357 6,6

210112 Preparations based on coffee extract 4 780 91 1,9 67 1,4 28 0,6

392410 Tableware and kitchenware 2 688 58 2,2 20 0,8 62 2,3

392490 Household articles or hygienic (plastic) 2 653 57 2,2 34 1,3 36 1,4

330499 Beauty or make-up products 1 025 30 2,9 23 2,3 24 2,4

340119 Soap products and preparations 821 21 2,5 32 3,8 3 0,3

392330 Carboys, bottles, flasks 412 11 2,6 5 1,1 11 2,7

Total 26 406 805 3,0 457 1,7 695 2,6

Approved Ghanaian products imported

by ECOWAS countries and containing

EU-origin inputs


within the region

Trade Diversion to

RoW




the increase in imports is regulated by the constraint that at least 60% of the inputs used must come

from ECOWAS countries. We emphasise that this constraint does not strictly regulate the increase

in imports of EU-origin inputs (capped at 40% of product constituents), because it could

simultaneously boost imports of raw materials originating in ECOWAS countries. This would work in

favour of regional export opportunities, while also helping to maintain the input usage proportions at

60%/40%.

By examining the effects of Ivory Coast's IEPA on imports of inputs benefitting from the community

preference and used to produce goods, it can be seen that imports of certain products from the EU

look set to increase significantly, by about 10%; for example, mixtures of odoriferous substances,

enzymes, organic colouring matter, etc. Nevertheless, more globally for all products this increase in

trade would be roughly 5.6%, representing the relatively small sum of 3 million $US (see Table 10).

Trade diversion mainly concerns imports of inputs coming from the rest of the world. This effect,

resulting in a change of supplier for Ivory Coast, represents 4 million $US, a larger sum than would

be profitable for companies involved in trade creation. With regard to imports from the ECOWAS

countries, trade diversion is insignificant and not detrimental to regional integration, except in the

case of table salt (HS 250100) from Senegal.

Imports (under the Ghana IEPA) of raw materials from the EU, for use in manufacturing goods that

benefit from the TLS, have a somewhat positive effect on the economy insofar as trade creation far

outweighs trade diversion. However, the trade volumes concerned are very small (less than 1 million

$US) and dominated by a single product: cement (see Table 11).

Table 10: Effects of the Ivory Coast IEPA on imports of raw materials for use in manufacturing approved goods


Ivory Coast IEPA Imports

from RCI

riff-free under IEP TC TC

1000 $US 1000 $US % 1000 $US % 1000 $US %

100199 Common (wheat), meslin and other flours 26 828 894 3,3 0 0,0 200 0,7330290 Mixtures of odoriferous substances (perfumery) 6 692 669 10,0 0 0,1 112 1,7

330210 Mixtures of odoriferous substances (flavouring) 4 236 424 10,0 0 0,2 355 8,4

382499 Ink removers 2 455 245 10,0 9 0,4 49 2,0

281512 Sodium hydroxide in aqueous solution 1 274 67 5,2 0 0,4 0 0,0

320611 Colouring matter and preparations based on titanium dioxide 1 194 63 5,2 0 0,4 40 3,4

293299 Heterocyclic compounds with oxygen hetero-atom 1 029 54 5,2 0 0,5 47 4,6

390120 Polyethylene having a specific gravity of 0.94 or higher 1 004 53 5,2 0 0,5 1 000 99,6

390230 Propylene copolymers in primary forms 960 50 5,2 0 0,5 341 35,5

281511 Sodium hydroxide as caustic soda 743 39 5,2 0 0,7 245 33,0850300 Parts suitable for use solely or principally with the machines of heading 8501 or 8502 636 33 5,2 0 0,8 207 32,6

350790 Enzymes and prepared enzymes not elsewhere specified or included 552 55 10,0 9 1,8 0 0,0

220720 Ethyl alcohol and other spirits, denatured, of any strength 552 35 6,4 16 1,2 36 6,5

290532 Propylene glycol (propane-1,2-diol) 508 27 5,2 0 1,0 29 5,8

320417 Synthetic organic colouring matter 451 45 10,0 0 2,2 79 17,5

292242 Glutamic acid and its salts 430 23 5,2 0 1,2 123 28,6

283699 Carbonates and peroxocarbonates (percarbonates) 378 20 5,2 0 1,4 3 0,8

110812 Maize (corn) starch 337 21 6,4 0 1,9 14 4,1

252620 Natural steatite, crushed or powdered 250 11 4,3 0 1,7 13 5,1

290517 Dodecan-1-ol (lauryl alcohol), hexadecan-1-ol (cetyl alcohol) and octadecan-1-ol (stearyl alcohol) 224 12 5,2 0 2,3 85 37,8

170290 Sugars, including invert sugar and other sugar and syrup blends 201 7 3,3 0 1,7 2 1,2

283650 Calcium carbonate 171 9 5,2 0 3,1 80 46,9

250100 Salt, including table salt and denatured salt 161 13 8,2 453 5,1 9 5,8

290545 Glycerol 140 7 5,2 0 3,7 24 17,5

380290 Activated carbon/natural mineral products such as diatom earth (Kieselguhr) 127 13 10,0 0 7,9 21 16,2

130219 Vegetable saps and extracts 110 4 3,3 0 3,0 0 0,2

Total inputs 52 203 2 924 5,6 489 0,0 4 109 7,9

Main inputs imported from the EU under the IEPA, to be used in producing approved goods (>100 000 $US)


within the region

Trade Diversion

to RoW




Table 11: Effects of the Ghana IEPA on imports of raw materials for use in manufacturing approved goods


3.2.1. The IEPA tariff removal timetable for inputs used in making approved

products

The impact evaluations – conducted previously on the intra-regional market of approved Ivorian and

Ghanaian products that benefit from ECOWAS community preference and use inputs from the EU –

are based on the assumption that all customs duties will be removed as soon as the IEPA takes

effect. In other words, our estimations span the entire period of the IEPA's application, making no

distinctions between years. Even though the impacts are only slight, it is important to point out that

they will be further diluted by the fact that the opening the IEPA markets will be both asymmetrical

and gradual, based on a tariff removal timetable spanning ten years.

Table 12 shows how the imports of raw materials used to make approved Ivorian products will move

through different rate brackets in the tariff removal timetable between 2019 and 2029. We may note

that on the one hand, 80% of these imports are inputs subject to customs duty at 5%. On the other

hand, the effects will only start to be seen in 2024, for 42% of imported inputs. We also note that one

third of all the raw materials used in making TLS-approved products is excluded from trade

liberalisation. As stated earlier, these products will be subject to the CET, and as such will not affect

regional integration (they were left out of the modelling). In total, if we consider only imports of raw

materials with tariffs removed under Ivory Coast's IEPA: 70% are goods taxed at 5%, not due to

become tariff-free until 2024, and 30% are goods taxed at 10%, due to become tariff-free in 2026

and 2029.

The tariff removal timetable of Ghana's IEPA, for inputs used to produce approved goods (see Table

13), shows that 85% of the imports concerned will fall into the tariff bracket of 10% taxation. This will

begin to take effect in 2026 and 2029, representing 43% of imports. On this point, it must be noted

that Ghana's market access offer (unlike that of Ivory Coast) introduces gradual removal of tariffs for

some products, based on the tariff line and the rates applied. As a result, allocation of the imports in

this chart would lead to their being counted twice, so we distributed them in equal proportions, half

in 2026 and half in 2029.

Table 14 specifies, for the different inputs used, which ones are excluded from Ivory Coast's and

Ghana's IEPA tariff removal process. Here, the descriptions given are limited to the raw materials

used in making approved products, and it is notable that the list of products excluded from Ghana's

IEPA tariff removal differs from those excluded in Ivory Coast (see infra, 1.1.3.).

Ghana IEPA Imports

from GH

tariff-free under IEPA TC TC

1000 $US 1000 $US % 1000 $US % 1000 $US %

252310 Non-powdered cement 10 438 854 8 0 0 0 0

330210 Mixtures of odoriferous substances (flavouring) 415 41 10 1 0 23 6

110710 Malt, not roasted 287 10 3 0 0 0 0

382499 Ink removers 268 27 10 1 0 7 3

281512 Sodium hydroxide in aqueous solution 136 7 5 0 0 0 0

330290 Mixtures of odoriferous substances (perfumery) 114 11 10 0 0 4 3

850300 Parts suitable for use solely or principally with the machines of heading 8501 or 8502 101 5 5 0 0 3 2

Total inputs 12 134 981 8 109 1 198 2

Main inputs imported from the EU under the IEPA, to be used in producing approved goods (>100

000 $US)


within the region

Trade Diversion

to RoW




Table 12: Raw materials used to make approved Ivorian products, and IEPA Tariff removal timetable


Ivory Coast market access offer

Table 13: Raw materials used to make approved Ghanaian products, and IEPA Tariff removal timetable


Ghana market access offer

Table 14: Raw materials used to make approved products in Ivory Coast and Ghana, and excluded from these nations' market access offers (IEPA)


Ivory Coast's and Ghana's market access offers

RCI Market access offer Total Share

Date 5 10 20 1000 $US %

2 019 311 0 0 311 0

2 021 4 742 680 0 5 422 7

2 024 31 531 1 104 0 32 635 42

2 026 0 7 142 0 7 142 9

2 029 0 6 692 2 6 693 9

Excluded from IEPA 25 454 0 0 25 454 33

Total 1000 $US 62 038 15 617 2 77 657 100

% 80 20 0 100

Total 1000 $US 36 584 15 617 2 52 203

inputs not excluded % 70 30 0 100

Rate

Ghana Market access offer Total Share

Date 5 10 20 1000 $US %

2020 117 0 0 117 1

2024 648 0 0 648 5

2026 0 5 684 1 5 685 43

2028 0 0 1 1 0

2029 0 5 684 0 5 684 43

Excluded from IEPA 969 39 216 1 225 9

Total 1000 $US 1 734 11 407 218 13 359 100

% 13 85 1 100Total 1000 $US 765 11 368 2 12 134

inputs not excluded % 6 94 0 100

Rate

110100 Wheat or meslin flours 100199 Common (wheat) and meslin flours

110710 Malt, not roasted 110100 Wheat or meslin flours

240120 Tobacco, partly stemmed or stripped 110220 Maize (corn) flour

110812 Maize (corn) starch

220210 Waters, including mineral waters and aerated waters

220720 Ethyl alcohol and other spirits

240120 Tobacco, partly stemmed or stripped

250100 Salt, including table salt

380210 Activated carbon

390120 Polyethylene having a specific gravity of 0.94 or higher

390230 Propylene copolymers

Inputs used to make products that are approved but excluded from

Ghana IEPA tariff removal

Inputs used to make products that are approved

but excluded from Ivory Coast IEPA tariff

removal



RECOMMENDATIONS

Together with free movement of people, the Trade Liberalisation Scheme (TLS) for intra-community

exchanges is one of the most important economic gains in the regional integration process. The

ECOWAS Trade Liberalisation Scheme, adopted when establishing the African continental free trade

area (AfCFTA) which has been effective since 1990, sets the conditions for circulating industrial

goods produced in the region14. Implementation of the Free Practice Principle, the route to achieving

full customs union, is the next major stage15 for the regional institutions (ECOWAS and WAEMU)16

stemming from adoption of the CET. Free practice involves removing the customs borders within the

regional community. In this way, merchandise that clears customs at a border of entry into the

community could then be circulated freely within the community area.

Meanwhile, free, customs-exempt movement of industrial goods is standardised by the rules on the

community origin status granted to products that are either wholly obtained or meet the sufficient

working requirement. Regulation C/REG.3/4/02 defines a three-stage system aimed at approving

only those products that satisfy the ECOWAS rules of origin (see Appendix 4 for further detail). As a

reminder (ref. Art. 2 and Art. 4, p.21 of Protocol A/P1/1/03), for a product to attain community origin

status, one of the following three criteria must be met: the product must be wholly obtained within a

Member state, and/or have changed tariff heading, and/or have sufficient added value.

The difficulty that the region and IEPA signatory countries find themselves facing is that products

benefitting from community preference fall within the scope of Article 7 (Protocol A/P1/1/03) which

stipulates that: "Goods transformed within the framework of economic or suspensive customs

regimes, or certain special regimes, involving the suspension or partial or total exemption from

customs duties on inputs, shall in no case be considered as originating products or benefit from the

advantages associated with such products."

If the reply from the services that issue certificates of origin is to adhere to the clauses in Article 7, it

would currently be impossible for the region and IEPA signatories to do so, insofar as the bases for

recognising community origin depend on approval that has already been granted. To date, these

services do not have information about the origin of imported raw materials used, except for those

declared in the approval application. This is a major issue, because if there is no way of distinguishing

between products that benefit from the IEPA and those that do not, this would have adverse

consequences for all of Ivory Coast's and Ghana's trade, as well as for all trade within the region.

We emphasise again that this new situation, arising in connection with the IEPA, will be similar for

other preferential project agreements within ECOWAS. Clearly, if there were a full regional EPA, and

if the Customs union were associated with the Free Practice principle, all questions connected to the

TLS or the IEPA would cease to apply.

14 Bear in mind that local animal and vegetable produce, and crafts, have been benefitting from free movement in the community since 1979. 15 ECOWAS report, "The ECOWAS Common external tariff: progress, challenges and prospects", 2017, p.151 16 A project to introduce free practice in the WAEMU area is currently being considered. According to

the interviews we undertook in the WAEMU area, a team of experts has been selected to lead this initiative.



Considering the results of the analysis undertaken in this study, and the current operation of the

ECOWAS Trade Liberalisation Scheme, the following actions are recommended:

Recommendation 1, which is the principal recommendation: Maintain open trade borders

within the region for an interim period. To preserve the regional integration gains achieved

so far, along with free movement of goods – in light of the IEPA's limited impact on the intra-

regional markets as shown by this study – the preferred solution would be to keep the intra-

regional trade borders fully open for an interim period,

If requested by the ECOWAS Member states, this recommendation could be supported by

safeguarding measures, strengthening Articles 39 and 49 of the ECOWAS Treaty (see Appendix 5

for the full analysis of the proposal).

Recommendation 2, which is an alternative medium-term recommendation: grant

customs duty exemption to inputs that benefit from the IEPA preference and are used in

producing TLS-approved goods. With a view to introducing Free Practice, this recommendation,

for an interim period, allows companies benefitting from preferential rates (on inputs used in

producing TLS-approved goods) to be excluded from paying customs duties on these goods in

the destination country where the transformed item will be used/consumed (thereby cancelling

out the exemption effect).

It must be pointed out that there is zero monitoring of what the TLS represents in trade terms, which

restricts the task of evaluating this policy. Although the procedure for obtaining approval of

companies and products is free of charge, the necessary administrative formalities and obligations

to renew the certificate of origin regularly represent implicit costs of ensuring continued compliance.

Our interviews with companies and the private sector during this project (especially in the case of

LDCs) indirectly approve this situation by presenting the inflexible nature of the TLS's operation (and

of the rules of origin) as a safety net against a situation where free practice would prevail. Based on

modelling of firms' decisions on whether or not to obtain TLS approval (see Appendix 4), we have

estimated the cost of upgrading to compliance (administration for obtaining approvals, proof of

meeting product origin regulations, inconvenience, etc.) associated with the TLS: 5% for all products,

except products farmed for food (5.6%). This cost of continued compliance is far from insignificant,

and represents a barrier to the use of community preference.

In the context of this project relating to the IEPA's effects, the absence of TLS monitoring measures

has been a limiting factor, especially in terms of statistics. To evaluate the impacts that IEPA

preferences have had on trade of Ivorian and Ghanaian TLS-approved goods, first one must know

the details of this type of trade in terms of products and partner countries. As mentioned previously,

this question will also be relevant for future trade agreements between the region and partners other

than the EU. This situation is sure to run into problems as regards coordinating the Customs systems,

though it would be technically possible to set up monitoring of the TLS trade statistics17.

17 For settling declarations related to originating products, the Customs services in Burkina Faso use the additional codes 061 and 062, for local produce and for approved craft and industrial products respectively. Guinea-Bissau uses the additional codes 891, 892, 893 and 894. Togo uses the additional

codes 021 and 022, for local produce and for approved craft and industrial products respectively. The Customs services of Senegal and Ivory Coast have not created specific systems for the tasks involved in preparing recognised originating products for market consumption (2013 Trade Monitoring Report, WAEMU, p.55)



(Technical) recommendation 3: introduce an extra specific code, corresponding to the

community preference, in the IT systems of ECOWAS countries' Customs services. A

preferential trade regime code, shared by all ECOWAS member states, would be an element of

the trade monitoring system and enable monitoring of the statistics associated with trade of TLS-

approved goods. It would also be appropriate to consider and clearly identify which bodies are

responsible for this monitoring and the methods it entails.

In the IEPA context, and with a view to opening the region to other preferential agreements, there is

also the issue of monitoring companies' use of inputs. In fact, this traceability ends up being rather

complex, because the companies are only identified in the customs files by their tax reference

number, and these files do not mention the Company-product approval number (an 11-digit code).

The solution that Ivory Coast Customs agents currently envisage for the IEPA is to call meetings with

approved companies, to specify the nature and origins of the goods they import. This solution seems

to have the merit of providing a tailored response regarding inputs imported from the EU, but does

not entirely settle the legal question of which body is authorised to reconsider the approval acquired

from the TLS; this lies with ECOWAS. The question of whether this approach would enable the review

of already-granted certificates of origin remains unresolved.

(Technical) recommendation 4: create a correlation table linking the approval number of

companies benefitting from the TLS with the tax reference number that identifies these

companies in the Customs files. As part of a market monitoring policy, it would be advisable

to set up monitoring of inputs imported and used in the production of approved goods. To help

with this we suggest creating, in the short term, a correlation table linking the approval number

of companies benefitting from the TLS with the tax reference number that identifies these

companies in the Customs files. If this strategy were used, it would be possible to automate and

monitor the processing of approved companies' imports based on product origin, now and in the

future. This recommendation could be applied in both Ivory Coast and Ghana.

It should be noted that the ECOWAS Commission, in collaboration with the WAEMU Commission,

would like to revise the community texts in force relating to the ECOWAS Trade Liberalisation

Scheme (TLS), especially the procedure and system for approving companies and industrial

products18. This would involve having a criterion, for wholly obtained products, stating that the product

is 100% of ECOWAS origin (rather than 60%). In addition, the added-value threshold, used to

ascertain sufficient working, could be modified. To date, this revision project has not been validated.

The interviews conducted in Ivory Coast revealed a certain reluctance to review the criteria for wholly

obtained products. The importers we met in Burkina Faso and Mali denounced the "change of tariff

heading" criterion as using an easy roundabout way of getting a product to meet (and benefit from)

the sufficient working requirement, especially for reconditioning of palm oil. These considerations

relating to possible modification of the TLS framework texts may be an opportunity to introduce

updating of the approval conditions.

18 A project, the Supplementary Act on the Rules of Origin, was submitted for validation at the first Joint Committee meeting of ECOWAS and WAEMU on Management of the ECOWAS Customs Union (CCGUDC), which took place on 20 and 21 November 2017 in Abuja, Nigeria. The project has

not yet been validated.



APPENDICES

Appendix 1: Formalisation of the effects of the Ivory Coast and

Ghana IEPAs

The general framework of the proposed methodology is based on ex-ante economic modelling, with

the aim of specifying the impacts on different countries' imports of a range of products. The form of

the model will draw on the standards in the partial equilibrium approach. The guiding principle for this

choice is the intention to conduct detailed evaluations (of the product) and to have all the necessary

information.

Ivory Coast's and Ghana's adoption of IEPAs is factored in by distinguishing between on the one

hand, the effects on the intra-regional market when TLS-approved products containing EU-origin

inputs are imported, and on the other, and the effects on the market when (non-TLS-approved) EU-

origin inputs are imported.

a. For TLS-approved products using EU-origin inputs

•

M1,

M2 ,

M3 , respectively the imports by ECOWAS countries of approved products from

Ivory Coast (or Ghana) using EU inputs under the IEPA (TLS-IEU), and imports of the same

products within the region and by other countries (RoW).

•

1,

2 ,

3 , the respective market shares

• The TLS-IEU market share

1 =M1

M1 + M2 + M3 and

1 + 2 + 3 =1

•

Substitution elasticity between ECOWAS countries' imports of approved products from

Ivory Coast (or Ghana) using EU inputs, and intra-regional imports;

is the import demand

elasticity.

•

t0 Base external tariff for the year (CET)

b. For imports of EU inputs

• 1

iM, 2

iM, 3

iM, respectively Ivory Coast (or Ghana)'s imports of EU-origin inputs

benefitting from the IEPA, and imports of the same products within the ECOWAS region and

from other countries (RoW).

• 1

i, 2

i, 3

i, the respective market shares

• The market share of imports for input i

11

1 2 3

ii

i i i

M

M M M =

+ + and 1 2 3 1i i i + + =

•

i Substitution elasticity between Ivory Coast (or Ghana)'s imports (from EU, ECOWAS,

RoW), and

i the import demand elasticity for input i

• 0

it Base external tariff for the year for input i (CET)



A- Effects of the IEPA on the intra-regional market

We can discern an increased trade effect and a trade diversion effect:

• A trade creation effect on the intra-regional market, arising from the price effect on

approved products as a result of the IEPA preference being applied to the use of inputs from

the EU ( APEiTC). This effect is taken into consideration here with the share of inputs accepted

under the regulations to benefit from the Trade Liberalisation Scheme. As such, the TLS

"originating product" status is obtained when inputs from the EU do not exceed 40% (

technical coefficient). The effect on the price of the transformed product using an EU input is

therefore 0 0( 0.4 )idp t = − =

01

01

Intra region

APEiTC M

− −=

+

• A trade diversion effect, in which TLS-approved products from Ivory Coast (or Ghana)

using EU-origin inputs displace imports within the region (

Intra

APEiTD), or from third-party

countries (

Rdm

APEiTD) or from the EU (

UE

NonAPEiTD).

( ) 01 2

01

Intra agréés

APEiTD M

− −= −

+

( ) 01 3

01

Rdm

APEiTD M

−= −

+

( ) 01 4

01

UE

NonAPEiTD M

−= −

+ Total Intra Rdm UE

APEi APEi APEi NonAPEiTD TD TD TD= + +

B- Effects of the IEPA on imports of EU-origin inputs used by Ivory Coast (or Ghana).

The distinction between trade creation and diversion effects is evaluated by:

• Creation of trade for Ivory Coast (or Ghana) arising from the IEPA preference (CET). The

constraint of using no more than 40% of materials from non-ECOWAS countries is introduced

here as 1 1/ 0.4iM M = =

01

01

iIntrants i i

APEi i

tTC M

t

−=

+



• Trade diversion caused by the IEPA preference (CET) in which imports from the EU by

Ivory Coast (or Ghana) displace imports within the region

(

Intrants region

APEiTD −

) or from third-party countries (

Intrants RdM

APEiTD −

).

( ) 01 2

01

iIntrants region i i i i

APEi i

tTD M

t − −

= − +

( ) 01 3

01

iIntrants RdM i i i i

APEi i

tTD M

t − −

= − +

Total Intrants Intrants région Intrants Rdm

APEi APEi APEiTD TD TD− − −= +



Appendix 2: Certificate of origin


37

Appendix 4 : How the approval system works

Regulation C/REG.3/4/02 defines a three-stage system aimed at approving only those products

that satisfy the ECOWAS rules of origin:

• Stage 1: industrial companies seeking approval submit to their NAC requests prepared in

conformity with the standard application (template attached to regulation C/REG.3/4/02). The

NAC is responsible for studying the approval applications, to ensure that the products are of

ECOWAS origin, and then recommending the products on this basis to the designated

competent national authority.

• Stage 2: this national authority sends the ECOWAS Commission the list of approved

companies and industrial products, along with their applications.

• Stage 3: after the administrative checks, the ECOWAS Commission validates the list, and

sends all the Member states this information on the approved companies and industrial

products. Approved products can then be exported freely within the region, with an

accompanying certificate of origin.

When the ECOWAS Commission has notified the Member states of the approved companies and

industrial products, the Ministry (competent authority) in charge of the TLS informs the

company/ies concerned that its products have been approved. This company may then ask for

the Certificate of Origin to be produced. The certificate of origin is valid for six (6) months from its

issue date in ECOWAS, and for 18 months in the WAEMU19 area. The certificate only covers one

product. The certificate of origin is issued by the Member state's designated competent

authorities, and signed by said state's Customs services (Art. 10, Protocol A/P1/1/03).

The criteria for community origin must satisfy one of the following three rules: the product must

be wholly obtained within a Member state, and/or have changed tariff heading, and/or have

sufficient added value. Products are considered to be wholly obtained in the ECOWAS zone if at

least 60% of the total quantity of raw materials comprising them originated in the ECOWAS region

(Art. 2, Protocol A/P1/1/03). This rule principally applies to products farmed for food. The products

of sufficient working or transformation (Art. 4, Protocol A/P1/1/03) apply to non-wholly obtained

products that can (as option 1 of 2) be classified under a different tariff heading than their inputs

("change of tariff heading" criterion). In this case, the raw materials used must not fall into the

same category as the transformed product, according to the 4-digit Harmonised System20. Or

(option 2), the raw materials represent an added value of at least 30% of the ex-factory price:

• Determining the Added Value 21(AV) criterion

AV = [(Ex-factory price of the goods) – CIF value of the foreign-origin raw materials used

– CIF value of the foreign-origin consumables used – CIF value of the foreign-origin

packaging used for the products] / (Ex-factory price of the transformed goods) in %, with

AV ≥ 30%. Other, additional conditions also have to be met: processing and salaries must

not exceed 20% of the cost price; external works, supplies and services must not exceed

10% of the cost price and must be directly linked to production; financial charges must

not exceed 3% of the cost price.

19 Note that the ECOWAS and WAEMU procedures are not yet fully harmonised, because in the WAEMU area certificates of origin fall within the scope of the Community Preferential Tax. 20 Regulation C/REG.1/07/04 of 17 July 2004 specifies a number of exceptions to the tariff heading criterion, in which a change of heading is not the determining factor in a product receiving community origin status. 21 "Train the Trainers" course on the ECOWAS Trade Liberalisation Scheme, (11–15 July 2016, Hôtel Fleur de Lys, Dakar, Senegal), Customs Division, ECOWAS Commission


38

The compliance-upgrading cost to maintain TLS approval

The operations necessary to obtain community-origin status for a product, described previously,

stem from the fact that movement of goods within ECOWAS does not currently follow free practice

principles. Even though goods are circulated under the Common external tariff (CET), the

conditions of their movement within the area depend on what is decreed on the basis of

community origin. Free movement of goods, the key vehicle for regional integration, is

standardised in this way by Supplementary Protocol III/2003 on the rules of origin. The rules of

origin are intended to prevent trade deflection22. As such, the TLS preference seeks to limit transit

of non-community origin products across internal borders within the free trade area23. The system

for approving companies so they can benefit from the TLS preference may serve the interests of

individuals whose aim is to prevent competitive intra-regional trade. The ECOWAS rules of origin

may also obstruct the use of community preference24. Our interviews with companies and the

private sector during this project (especially in the case of LDCs) indirectly support this vision of

the TLS (and of the way the rules of origin work) by casting the Scheme in the role of a safety net

against a situation where free practice would prevail.

Although the procedure for obtaining approval of companies and products is free of charge, the

necessary administrative formalities and obligations to renew the certificate of origin regularly

represent implicit costs of ensuring continued compliance. A report by the United Nations

Conference on Trade and Development (UNCTAD)25 deems the process of obtaining the

certificate of origin to be long and cumbersome, causing excessive delay. In addition, according

to the WTO this time26, use of certificates of origin can be tainted by unfair checks and corruption,

which together with the complexity and cost of obtaining them could be a major reason that

informal trade persists27. With the goal of alleviating these problems, the WAEMU Commission

set up a pilot project in 2015: a platform for exchanging electronic certificates within the WAEMU

area. The initial phase of electronic management of certificates of origin was rolled out between

Senegal and Ivory Coast.

In the framework of this discussion of the implicit costs of the rules of origin and the TLS, we ran

simplified modelling28, to see what determines companies' choice of whether or not to use the

TLS. Unsurprisingly, it emerged that the choice depends on how much duty will have to be paid

on the transformed products on the intra-regional market. Companies are unlikely to decide to

use the TLS (Inset 1) for their transformed products that are subject to 5% duty (non-significant

variable and negative sign). Conversely, the TLS will be the favoured option for products subject

to 10, 20 and even 35% duty (significant effects and positive sign). In addition, companies are

less likely to opt for the TLS if exports represent a small sum (significant size effect and negative

sign). Once this formalisation is complete, we can estimate the cost of upgrading to compliance

(administration for obtaining approvals, proof of meeting product origin regulations,

22 Without rules of origin, the countries with the lowest external tariffs or the weakest monitoring capabilities would function as a port of entry for the whole area, depriving other countries of customs duties. 23 Southern African Development Community (SADC) members with wheat assets allegedly negotiated strict rules of origin, in order to prevent intra-bloc trade that could generate competition (Flatters, F. and Kirk, 2004, "Rules of Origin as Tools of Development? Some Lessons from SADC", mimeo) 24 One work in the literature clearly shows that generally speaking, the rules of origin are obstacles to the use of preferences and to market access et al. (eds), 2004, The origin of Goods: Rules of Origin in Regional Trade Agreements, Oxford University Press) 25 Regional integration in Western Africa, 2018, UNCTAD. 26 Examination of WAEMU's trade policies, WTO, 2017, (WT/TPR/362) 2 et al. (2018), "Informal Trade in Benin, Togo and Nigeria: determinants and impacts on price transmission". Journal of African Economies, vol 29, 01/2019 28 OECD (2005), "Preferential Trading Arrangements in Agricultural and Food Markets: the case of the European Union and the United States", book by , OECD publication, 183p.


39

inconvenience, etc.) associated with the TLS: 5% for all products, except products farmed for food

(5.6%). This cost of continued compliance is far from insignificant, and represents a barrier to the

use of community preference.

Inset 1: Decision on whether to use the Trade Liberalisation Scheme (TLS), and cost of maintaining compliance To test whether or not exporters in the Ivory Coast and Ghana decide to use the TLS, we adopted a Probit model to define the probability of occurrence of an event, such as the expectation that a given exporter will opt to use the TLS.

)()0Pr( jjj xxy = where is the distribution function. The model adopted

expresses the likelihood that the event will occur (1=jy

if TLS is used, 𝑌𝑗 = 0 if not) conditional on the influence of the exogenous variables:

Pr(𝑌𝑗 = 1) = Φ(𝛼.𝑚𝑎𝑟𝑔𝑒𝑗 + 𝜀. 𝑆𝑖𝑧𝑒𝑗 + 𝛽. 𝐴𝑔𝑟𝑖𝑗 + 𝜇. 𝑐𝑜𝑛𝑠𝑡)

The independent variables selected to explain this choice are, on the one hand, the TLS preferential margin (margin in relation to the CET); the bigger this margin, the more it will encourage use of the TLS. When applying the model, we differentiate between the margins based on the different tariff brackets (0, 5, 10, 20 and 35%) that products may fall in. On the other hand we consider a size variable, which has the value 1 for all import flows smaller than 1 million $US, and 0 for all other flows. This size variable is designed to reflect to what extent the size of the operation influences use of the TLS. Lastly, an indicative variable assigns products a code based on whether or not they come from agricultural/food-producing activity.

The cost of upgrading to compliance is estimated based on the previous model, but the dependent variable (TLS) is limited to situations where the TLS represents 100% of use (TLS = 1). The estimation utilises the coefficient applicable to the margin in situations between the highest and the lowest cost.

TLS (0-1) Coef. Std. P>z

tec35 5.751759 .301 0.000

tec20 4.330218 .445 0.000

tec10 6.396638 .907 0.000

tec5 -1.325807 1.84 0.471

size -1.143557 .046 0.000

farmed for food .129057 .028 0.000

_cons -.3838811 .098 0.000

Costs of upgrading to compliance for TLS

All products 5,0 %

Products farmed for food 5,6 %


40

Appendix 5: Intra-regional safeguarding measures

The ECOWAS safeguarding measures are mostly geared towards imports from third-party

countries. They align with the scheme of supporting implementation of the CET. The 1993 revision

of the ECOWAS Treaty, securing the commitment of West Africa's 15 Member states,

nevertheless comprises two articles relating to intra-regional trade: article 39 concerning trade

imbalance, and article 49 on the safeguarding and exception clauses29. This article may well

subscribe to the idea of having safeguarding measures, but it is not easy to see how it could be

applied insofar as the procedure lacks precision. An increase in imports of a given product does

not in itself constitute an imbalance while the thresholds of this increase have not been clearly

expressed (on this subject, see SPT conditions with regard to third-party countries). In addition,

beyond the question of proof and assessing the harm done, the measures likely to be adopted

have not been put forward.

The intention behind Article 49 also fits the rationale of having safeguarding measures, but again,

one struggles to see how it could be applied without a clearer definition of how the phrase "serious

disruption of the economy" should be understood, and also what comprises the scope of the

"appropriate safeguarding measures" that could be deployed30.

Within the region's forward focus of maintaining open markets, a good medium-term plan would

be to specify the detail of Articles 39 and 49 of the ECOWAS Treaty to make them more operable.

There may be scope to produce an extension about the practicalities of triggering and applying

the safeguards, as was done for the texts providing the framework of the Supplementary

Protection Tax (SPT).

The SPT (applicable to third-party countries) is a tax additional to the CET, applied if there is an

unusual increase in imports entering a Member state's territory, i.e. imports of said product exceed

the average (established over the last three years for which data are available) by 25% or more.

The SPT may also be applied if, in a given month, the average CIF price (in the national currency)

for importing a product drops below 80% of the average CIF import price of said product,

29 Article 39 (on trade imbalance) stipulates: 1. For the purposes of this article, trade is imbalanced if: (a) the imports of any particular product by a Member State from another Member State increase significantly: (i) due to a reduction or removal of duties and charges on this product; (ii) because the duties and charges imposed by the exporting Member state on imports of raw materials used to manufacture the product concerned are lower than the equivalent duties and taxes imposed by the importing Member state; (b) this increase in imports causes or could cause serious damage to production which is carried on in the territory of the importing Member State. 2. The Council examines the issue of trade imbalance and its causes. It takes the necessary decisions aimed at tackling the causes of the imbalance. 3. If a Member State suffers from a trade imbalance resulting from improper reduction or elimination of duties and charges levied by another Member State, the Council takes charge of the question and examines it to seek a fair solution. 30 Article 49 (Safeguarding and exception clauses) stipulates that: 1. In the event that serious disruption occurs in a Member state's economy as a result of applying the provisions of this Chapter [Chapter VIII, Trade, Customs...], the Member state concerned may, after informing the Executive Secretariat and the other Member states, take appropriate safeguarding measures pending a Council decision. 2. Such measures can remain in force for no more than one (1) year. They may only be extended beyond this period if the Council so decides. 3. For as long as the safeguarding measures are active, the Council examines the way they are applied.


41

established over the last three years for which data are available. The tax may be imposed for a

maximum of either one or two years, depending on the case.

The ECOWAS safeguarding measures are mostly geared towards imports from third-party

countries. They align with the scheme of supporting implementation of the CET31. To ease the

transition to the CET, ECOWAS has taken two additional protection measures via regulatory

means: the Import Adjustment Tax (IAT) and the Supplementary Protection Tax (SPT) applicable

to goods from third-party countries. The IAT (very similar to the "Taxe Conjoncturelle à

l’Importation", a former safeguard tax on imports) is the difference between the MFN law applied

by a Member state, and the ECOWAS CET. It is applied when the MFN law specified in the

ECOWAS CET is outranked by the MFN law applied by a Member state. The IAT is temporary,

and may not exceed a maximum of 20% except where the prohibition on the import of certain

products is modified, in which case the maximum IAT is exceptionally 35%.

As regards intra-regional trade, the only provisions that are connected to possible import control

actions and/or expressly introduce safeguarding measures occur in Articles 39 and 49 of the

aforementioned ECOWAS Treaty, and in Protocol A/P1/1/03 relating to the definition of products

originating from ECOWAS Member states. Regarding the Protocol, we have already mentioned

Article 7 concerning transformed goods that are TLS-approved, and contain raw materials

benefitting from a trade preference and could, in the case of the IEPA, be seen as receiving a

form of exemption.

A product's origin may henceforth be contested by drawing on Articles 13, 14 and 15 of the

Protocol, about settling disputes between Member states32. In this case, Ivory Coast and Ghana

would be responsible for providing evidence of the product's origin, based on the applicable texts

relying on the validity of the certificate of origin (see discussion in the previous section). However,

this situation does not deny the item the advantages granted to originating products and therefore

the community preference, provided that the importer pays a deposit corresponding to the duties

levied in the importer state. On the other hand, mobilisation of this procedure beyond the

transaction costs it incurs would weaken the regional integration achieved thus far.

31 For measures associated with third-party relations, see also the following: Regulation C/REG.4/06/13 of 21 June 2013 on safeguard measures Regulation C/REG.5/06/13 of 21 June 2013 on Anti-Subsidy and Countervailing Measures Regulation C/REG.6/06/13 of 21 June 2013 on Anti-Dumping Measures Regulation C/REG.1/09/13 of 30 September 2013 on Supplementary Protection Measures, SPM Regulation C/REG.16/12/16 of 16 December 2016, amending articles 1, 2, 3, 4, 5 and 6 of Regulation C/REG.1/09/13 of 30 Sept. 2013

32 Article 13 stipulates that: In the event that the origin of a product is contested, the Member State contesting the Community origin of the product shall, on its own initiative or that of any other party concerned, bring the issue to the attention of the competent authority in the certificate-issuing country. The exporting Member State shall, within a period of forty-five (45) working days, furnish all necessary information on the conditions under which the contested certificate was issued. Products whose origin is in dispute shall not be denied the advantages granted to originating products, provided that the importer deposits an amount as guarantee for the duties and taxes payable in the importing Member State. Articles 14 and 15 specify that: Disputes which remain unresolved by the Member States concerned within the time-limit prescribed in Article 13 above, shall be brought before the Commission by any of the parties concerned through the intermediary of the Executive Secretariat. The Commission shall determine the merits and demerits of the case at its next session, and transmit the case dossier to the Council of Ministers which shall take a decision thereon and inform the parties concerned accordingly.

Documents

Personal data in this document have been redacted ...€¦ · DEU Delegation of the European Union to Abidjan FOB Free on Board GH Ghana CR Company registration number MIAIE Ministry