Assessment of the Impact of WAEMU Common External Tariff (CET) in Senegal

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.