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ECOWAS CET will reduce many of Ghana’s agricultural tariffs

20 July 2014

A comparison in the latest WTO Trade Policy Review (TPR) of Ghana’s current tariffs with the agreed ECOWAS common external tariff (CET) shows that tariffs on for many agricultural goods will fall. The Ghanaian average applied tariff for agricultural goods in 2013 was 17.3%. Under the ECOWAS CET, which comes into effect on 1 January 2015, the figure is 15.6% (Table 3.4). But there will be bigger changes for specific commodities. Tariffs will fall on cotton (from 10 to 5%), cereals and cereal preparations (from 16.2 to 13.5%), dairy products (from 20 to 16%), and coffee/tea (from 20 to 12%). Meanwhile, tariffs for meat products and sugar/confectionery will rise, leading to a modest overall increase in the average tariff for all agricultural goods.

Because the tariffs on a range of industrial products will increase when Ghana’s current regime is replaced by the CET, the relative treatment of agriculture versus other areas of economic activity will deteriorate. The TPR reports that “average tariffs on non-electrical machinery and transport equipment would nearly double, with obvious consequences for user industries. Similarly, tariffs on petroleum would also nearly double.”

The CET will not affect Ghana’s other consumption taxes. Agricultural inputs are zero-rated for value-added tax (VAT), which is important for the government’s plans to increase the application rate of fertiliser, which is “one of the lowest in the world, and lower than in neighbouring countries”. The government is also promoting greater mechanisation of agriculture. In 2010, according to the TPR “Ghana had an estimated 11 tractors per 100 square kilometres of arable land, compared to 43 and 25 tractors in South Africa and Kenya, respectively.” Excise duties are set at 50% for beer and 140% for tobacco products.

Although obligated to offer duty-free treatment to imports from ECOWAS partners, the TPR reports that “few tariff preferences are actually granted. Instead, there are reports that Ghana sometimes applies the panoply of tariffs” and other charges on “all imports including from ECOWAS neighbours”.

This is in part attributed to ECOWAS’s rules of origin. To be accepted as an ECOWAS originating product (and, hence, eligible for a preference), a good must either be classified under a different tariff heading to any imported inputs (“a change in tariff subheading”) or at least 30% of its value must be provided by local content. Possibly more problematic, though, for agricultural goods (which would tend to have a high local content) are the administrative procedures which the TPR describes as “particularly cumbersome”. This involves “a lengthy, two-staged approval process”, which starts within a national committee, and is subsequently forwarded for approval at a regional committee level. In addition, “registration is needed for every individual product a company intends to export under the scheme.” 

Editorial comment

The primary goal of a customs union is to foster trade between member states. Because all members share the same external tariff, there should be no tariffs on the generality of goods traded between them. In theory it does not matter whether they have been produced within the region or imported from outside. If a good being imported into Ghana from, say, Togo is an extra-regional import, it will have paid the same tariff on entry into Togo as would have been the case if imported directly into Ghana. And if it has been produced in Togo, it should automatically receive duty-free access to fulfil the goal of regional integration.

But practice and theory often diverge. The TPR points out how few imports from other ECOWAS states enter Ghana duty-free. If there is no boost to intra-regional trade, this is a potential benefit foregone. A CET is the result of compromise between the members of the customs union. As the TPR details, Ghana’s tariffs once the CET comes into effect will be significantly different than they are now. On the assumption that the current pattern reflects accurately the government’s deliberate choices, it follows that replacing the autonomous regime with the CET has caused the government to accept changes that it might not otherwise have introduced (see Agritrade article ‘ Government of Ghana to review poultry and rice sector trade policies’, 17 May 2014).

Such “costs” should be more than compensated by the growth of intra-regional trade. But this will happen only if ECOWAS overcomes the administrative problems that seem to be hampering intra-regional trade.


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