Obstacles to trade liberalization and economic cooperation among west African states

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  • Journal of International Development: Vol. 5, No. I, 79-92 (1993)

    OBSTACLES TO TRADE LIBERALIZATION AND ECONOMIC

    COOPERATION AMONG WEST AFRICAN STATES

    YILMA GEBREMARIAM Department of Economics and Finance, Southern Connecticut State University, USA

    Abstract: Does the formation of a customs union reduce and eventually eliminate tariffs among member countries to provide mechanisms or regional institutions for social, economic and political development? The literature examined suggests that, although many problems of trade liberalization continue to occur, greater benefits could be obtained by reducing tariffs on a non-discriminatory basis, or by removing protection from domestic enterprises altogether, and by importing domestic requirements of the products of displaced industries from outside at world market prices. The literature also provides a valid case for protecting certain activities in ECOWAS - particularly trade and industrial enterprises - either for the purpose of increasing income or the rate of economic growth, or in order to achieve certain non-economic objectives. The implica- tions of economic integration in these terms can best be examined within a broader theoretical framework of developmental theory of trade liberalization.

    1 INTRODUCTION

    During the past two and a half decades, questions of cooperation in trade and development among the less developed countries have generated a growing body of analysis and prescription. One approach to formulate a broader framework of developmental theory of integration is its explicit recognition of trade and coopera- tion, through the development of adequate systems of transportation and communi- cation networks, industrialization and the structural transformation of economies of member countries of ECOWAS. This entails that the benefits from integration of each of the above sectors must be exploited on a mutual basis, by the exchange of market and non-market activities within a free trade area (FTA) or common market or some other preferential mechanisms, so that they can be achieved without endangering the structural developmental objectives of individual member countries of ECOWAS. This paper develops an argument on the relevance of trade liberalization (hereafter abbreviated as TL) policies which are currently promulgated as a means to measure economic development through integration among the participating states.

    0954- 1748/93/010079- 14$12.00 0 1993 by John Wiley & Sons, Ltd.

  • 80 Y. Gebremariam

    2 THE BASIS FOR TRADE LIBERALIZATION POLICIES IN ECOWAS

    The problems and prospects of trade liberalization policies and their limitations within the ECOWAS subregion and outside of the union are recurring problems. In an attempt to understand these problems a number of issues will be analyzed, including: (1) Why trade liberalization? (2) Can the movement to free trade area (FTA) yield benefits to the whole of West Africa? (3) How can this be implemented?

    Trade and development are seen as two sides of the same coin, which means that trade brings development, and development in turn promotes or boosts trade. Consequently, the patterns of production consumption and trade have a very important but varying impact (for example, inward-looking trade policies) on the questions of trade liberalization for development and regional integration and cooperation in West Africa. Ezenwe, in Trade and growth in West Africa in the 1980s, echoes the more generally accepted view which suggests that development through trade is partly the result of internal as well as external factors as follows:

    For West Africa, the internal and external factors have combined to thwart recent efforts at trade expansion and growth. On the domestic front, the structural problems associated with over-extended and insufficient public-sector institutions, the neglect of export-oriented industries, the continuing biases in the incentive systems against agriculture, and the improper mix of economic policies have militated against modernization. Similarly, an unusual bunching of unfortunate events in the external sector which started in 1973 with the oil-price increases, seriously hampered the post-independence drive towards consolida- tion and transformation (Ezenwe, 1982: 305-322).

    One salient characteristic of the production and trade patterns of West African countries is that the levels of exports and imports and the relative position of the member countries of ECOWAS in over-all subregional trade vary widely. By and large, this variation can be attributed to their past colonial legacy as well as their current relationships.

    Onyemelukwe (1984: 133-138) in particular, and a significant amount of the trade literature in general, suggest that it is this export-oriented development together with other associated problems of low-capacity-to-import, a structural but intractable phenomenon among African countries, which impose excruciating constraints on trade liberalization policies and the coordination of trade and development activities within the subregion. One of the major obstacles has been attributed to the effects of colonial rule with direct and indirect control of the exports and imports of the dependencies in a manner that tended to perpetuate dependency relations in favour of the colonial powers (Onyemelukwe, 1984: 133). Onyemelukwes empirical study indicates the dire profiles of the intra-regional trade that exists today. More specifically, Onyemelukwe observes the following:

    Two forms of international or external trade are engaged in by West African countries. One is trade with countries outside the African continent; the other is with other African countries. While the former has over the years developed on a very large scale and has been the economic nerve centre of each West African country, the latter has been on a very small scale. In 1970, for instance, only 5.5 percent of Africas international trade was intra-African. By 1975 the percentage had declined to 4.3 percent which can be compared with 10 percent internal trade

  • Obstacles to Trade Liberalization and Economic Cooperation 8 1

    in Latin America and 18.3 percent in Asia over the same period. A considerable part of this intra-African trade has been in crude oil. The bulk of the remainder comprises trade between land-locked countries and their coastal neighbours. The main reason for low-level intra-African trade is the generally poor state of the industrial (manufacturing) economy in most of Black Africa, particularly West Africa (Onyemelukwe, 1984: 131).

    Aside from the preceding, intra-regional and subregional trades have one more characteristic. The West African countries are not major trade partners. In fact, during the 1980s the degree of trade interaction between them has not increased in any significant way. Using the International Monetary Funds publications, Direction of Trade Statistics (1980-90, various pages), a simple calculation suggests that the share of their mutual trade in total external trade is insignificant, a mere 4.0 per cent for the subregion as a whole since independence. It is argued that the forces that have conditioned the patterns of intra-regional and subregional trade are mainly of two types: (1) traditional, that is, climatically induced specialization in the production of tropical foodstuffs and certain agricultural products; and (2) the existence of preference systems and monetary arrangements (that is, between the Anglophone and the Francophone) among groups of West African countries (Ezenwe, 1983: 28). Such arrangements primarily serve as sources of raw materials for the factories of the various metropolitan centres of Western Europe (Rodney, 1973: 165-181). The attainment of political independence by the West African countries since the early 1960s has not considerably altered their production and trade patterns.

    The geographic and economic structure of contemporary West African countries is also shaped by two sets of additional factors that are responsible for the comparati- vely low level of subregional trade interactions. The first includes factors that currently act as a resistance to subregional trade. These include the non-complemen- tary production structures of the member countries of ECOWAS. The literature examined provides three broad categories of impediments to intra-ECOWAS trade: structural rigidities; administrative restrictions; and inadequate financing (Owo- sekun, 1986: 162-169). While all of these classifications are considered to be important factors in the making of trade liberalization policies, it is worth mentioning that some elements of structural rigidities as relate to this paper. Owosekun observes that:

    Perhaps the most important significant determinant of the low level of intra- ECOWAS trade is the production profile of the countries in the subregion - the high dependence on one or a few primary exports and the lack of manufactured exports. Closely related to this factor is the difference in the consumption patterns in the various countries in the subregion - a situation which leaves very little scope for complementarity in production and consumption. Whereas in the southern zone of the subregion, the diet is based principally on starchy root and tuber crops, in the northern zone, the diet comprises mainly cereals. The result is that food produced in each zone either must be consumed locally or must be exported outside the region. This aspect of the economies of the countries in the subregion has to a very large extent constrained ECOWAS member countries from reaping the benefits of economic integration (Owosekun, 1986: 162- 169).

    As indicated earlier, the economies of the subregion are heavily concentrated in the production of primary products which constitute a significant part of member countrys exports. The absence of complementarity between the products of each

  • 82 Y. Gebremariam

    member country suggest that they are highly competitive even for foreign markets, and the effective demand for each others primary products within the subregion is limited. A free trade agreement such as in ECOWAS can begin to reap the benefits of integration only when the member countries are making headway in the development of a complementary production structure. For example, labour-intensive production may be instituted in Niger or Mauritania and more complex, research-intensive production may be instituted in Nigeria or Ghana to give investors the choice to move to the location deemed efficient for the production contemplated and still give assurance of access to the combined market.

    Second, the most formidable factor that has limited the intra-regional and subregional trade development has been the inadequacy of transportation and communication networks. The pre-eminence of trade relations between ECOWAS member countries and the advanced countries of Western Europe and North America during the past three decades has increased interest in the efficiency and effectiveness of the transportation and communication systems between Western Europe and ECOWAS member countries. However, the transportation and communication systems within the subregion of ECOWAS have been, by and large, ignored until very recently. One of the goals of the Communitys trade liberalization process is to promote cooperation and development of schemes or projects for joint ventures in transport, communication, energy and other infrastructural facilities as well as the evolution of a common policy in these fields, evident in the ECOWAS Treaty with its protocols enshrined in Articles 40-47. What has slowed down the integration process is the absence of political will to drive home its collective intention to achieve these various goals. Apart from the sovereign character of member-countries, the obvious division of the subregion into French- and English-speaking zones, an offshoot of past colonial domination, continues to pose major constraints. Many researchers, includ- ing this one, emphasize that in the absence of such infrastructural networks the efforts of trade liberalization for economic development of the subregion remain a mockery.

    Even if these major impediments were mitigated, there is still another set of factors that will be more significant as disincentives to intra-regional as well as subregional production, consumption and trade. This includes trade barriers such as tariffs, export taxes, and quantitative restrictions. Although the main thrust of trade liberalization policy of ECOWAS has been towards the lessening of this problem and the removal of internal barriers to trade in such areas as capital and labour mobility within a customs union, rather than joint planning and implementation of regional projects, the level of economic integration achieved is limited, and already has given rise to political tensions between unequal partners of the subregion (West Africa, 30 June 1987: 1427).

    There is still another impediment to the removal of internal trade barriers. Most member countries of ECOWAS, as is the case in most LDCs, depend heavily on customs receipts as a source of government revenues or fiscal expediency (Owosekun, 1986: 163-164; Asante, 1985: 98-99). Clearly, then, when the government is imposing high tariffs to generate revenues, among other reasons, it must take into account a number of potential effects: (a) the change in the quantity of imports (the import effect); (b) the revenue per unit - a high tariff may generate a significant amount of revenue per unit, but if the government allows fewer imports to enter the country, then little revenue will be generated (the revenue effect). This, combined with the desire to protect domestic industries, results in significantly high levels of tariffs. However, according to the literature (Cooper, in Finger and Olechowski, 1987: 25) examined,

  • Obstacles to Trade Liberalization and Economic Cooperation 83

    there is a conflict of objectives between a revenue duty, where it is acceptable that domestic demand for imports be inelastic, and a protective duty, where the purpose is to substitute domestic production for foreign goods in the domestic markets. In both situations there are associated costs: the distortion of consumption decisions that arises from having protected import-competing goods to expensive (consumption cost); (production cost) the distortion of production decisions that arises from having the production of protected goods too remunerative (Bhagwati, in Finger and Olechowski, 1987: 29). Until alternative sources of government revenue are found within the subregion the current tariff structure of each member country is unlikely to provide a special incentive to import from other member countries. Therefore, the task of ECOWAS as an institutional force in operation must be to reduce or possibly remove the conditions of dependencies to stimulate not only subregional trade but also intra-regional and international trade. P...

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