TITLE:
Assessment of the Impact of WAEMU Common External Tariff (CET) in Senegal
AUTHORS:
Ibrahima Thione Diop
KEYWORDS:
Common External Tariff, WAEMU, Fiscal Simulation, Economic Integration
JOURNAL NAME:
Modern Economy,
Vol.6 No.12,
December
17,
2015
ABSTRACT: The adoption of the
common external tariff (CET) by ECOWAS member countries is a further step
towards the realization of the Customs Union and to the harmonization of trade
programs. Senegal has joined the CET in 2000 to boost its trade with
neighboring countries and the rest of the world. At the WAEMU level, the CET
establishes a delicate equilibrium between member countries with divergent
interests on certain products. However, it is criticized for being unable to
provide sufficient protection to production branches and promote the emergence
of a real community market. A key challenge of the ECOWAS-CET is to manage to
reconcile the concerns of countries that require modifications in some elements
of the WAEMU-CET. It is thus important to assess the implementation of the
WAEMU-CET in Senegal, to bring out its strengths and weaknesses, in order to
better tackle the negotiations on the ECOWAS-CET. The main objective of this
study is to engage in such an exercise by focusing on the impact of the CET on
public finance. In this paper, we examine the impact of recently implemented
Common External Tariff (CET) by ECOWAS on the Senegalese economy. Using a
partial equilibrium framework, we have undertaken simulations of CET application
on key macroeconomic variables. Our results suggest very strong negative impact
on fiscal revenue, inflation, but a dramatic change in tax structure,
mainstreaming consumption taxes and VAT at the detriment of collected duties.
Our conclusion calls for structural reforms beyond external tariff alignment in
order to increase competitiveness and boost exports. A forecasting and
simulation model has been developed to measure the impact of the CET on some
key macroeconomic variables. Simulations show that a decrease in customs duty
rate had a depressive effect on fiscal revenues. The estimated decline in
fiscal revenues amounted to nearly CFA F 41 billion and 51.75 billion
respectively in 2007 and 2013. However, overall, the positive effect of VAT and
consumption taxes outweighs the depressive effect of lower customs duties on
fiscal revenues. Thus, the overall impact of the reforms on total fiscal
revenues is positive and amounts to 63.78 billion in 2007 and is expected to
rise to 79.9 billion in 2013. Regarding price simulations, the findings show
that the increase of indirect taxation subsequent to WAEMU reforms led to inflation.
Compared to the baseline (unchanged fiscal legislation), consumer price indices
and the manufacturing sector price indices grew faster. This upward effect
increased over time. In terms of consumer prices, the estimated gap amounted to
5.70% in 2002, 5.71% in 2007 and 6.92% in 2013. Regarding prices of
manufacturing sector, the differences are more important because they amounted
to 6.09% in 2002, 6.19% in 2007 and 6.56% in 2013. While the introduction of
the CET has led to a change in the structure of fiscal revenues, it also
allowed the realization of fiscal and customs translation in favor of the share
of taxes in total fiscal revenues. For a better balance among economic,
financial and social functions of taxes on Senegalese economy, the following
two recommendations are made: a) improvement of collection performance of
direct taxes through a series of actions (increase of human and material
resources of fiscal administration, increase of the taxable base through tax
compliance promotion strategy that should be especially through improving the
quality of public service and the gradual formalization of the informal
sector); b) the use of other trade policy instruments (non-tariff measures such
as standards, strengthening of the repressive arsenal against fraud,
counterfeiting and piracy) to safeguard the national economy.