The impact of regional integration on Nigeria’s imports: A case of ECOWAS Common External Tariff on agro-processing
There have been several attempts to foster deep integration within West Africa in times past to take advantage of the well-known gains from this regional integration. These gains include trade promotion and economic growth, but the focus of the current study is increased imports into Nigeria and the implications of these imports on trade creation and diversion, tariff revenues and welfare. West Africa has been involved with this regionalisation process, a process that has culminated in the Economic Community of West African States (ECOWAS) customs union that agreed on a Common External Tariff (CET) with Nigeria scheduled to implement it on 11 April 2015.
This study looks particularly at the impact of the ECOWAS regional trade agreement on trade and agro-processing in Nigeria. To complement this, the effect of a possible ECOWAS-European Union (EU) Economic Partnership Agreement (EPA) on trade, revenue and welfare is also examined. The Single Market Partial Equilibrium Modelling Tool (SMART) is used at a disaggregated six-digit level of the harmonised system for the product analysis.
Overall, the results indicate that a regional trade agreement with ECOWAS and the EU increases the imports of agro-processed products by Nigeria. This import growth is mostly driven by trade creation as a result of the lowering and/or the removal of tariffs. Côte d’Ivoire had the largest positive trade diversion effect among the ECOWAS partners and for the European Union (EU) it was the Netherlands. Nigerian consumers benefit from reduced prices, but the influx of new imports may not favour producers in the agro-processing sector. This is because expensive local production is substituted by cheaper imports. Though not analysed in this study, producers within the agro-processing sector may likely witness an impact of diminishing profits because of strong import competition. The analysis also indicates loss of tariff revenue for the Nigerian government but there is welfare gain in total, as expected.
The implementation of a Free Trade Area (FTA) within ECOWAS serves as a meaningful base provided trade policies are well coordinated and harmonised. The government, however, needs to come up with measures to enable producers of less competitive agro-processing sectors to remain relevant. The results show that Nigeria needs an approach to generate revenue to offset the tariff revenue losses caused by the implementation of the CET.
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