CHAPTER II - IMPLEMENTATION OF THE COMMUNITY WORK PROGRAMME

104. In this chapter, I shall be updating Chapter II of my interim report of May 2000. The chapter contains a review of progress made with regard to ECOWAS programmes, and highlights results obtained since the statutory meetings held in Lome in December, 1999. The chapter is in five parts, dealing with the acceleration of the integration process in West Africa, other ECOWAS socio-economic programmes, administrative and financial issues, regional peace and security, and institutional issues.

105. The Executive Secretariat has been according priority attention to the harmonisation of its programmes with those of UEMOA. This is in implementation of the decisions taken by the Authority of Heads of State and Government at its meeting in Lome in December 1999, as well as the guidelines given by the January 2000 UEMOA/ECOWAS Bamako ministerial meeting on accelerating the integration process in West Africa. The Secretariat is also actively involved in moves to establish a second monetary zone and to create a borderless ECOWAS zone.

Harmonisation of ECOWAS and UEMOA programmes

106. At a meeting between ECOWAS and UEMOA in February 2000, the two organisations drew up a programme of action in the following areas:

1. -common market;
2. -convergence of macroeconomic policies, development financing and private sector promotion;
3. -harmonisation of sectoral policies.
 

107. Both ECOWAS and UEMOA have plans to establish economic and monetary union in their respective zones. There will then be two customs unions side by side in the same region. This is clearly an overlapping of activities and duplication of effort which will, without doubt, undermine the regional integration process. It is absolutely necessary therefore to harmonise the mechanisms and instruments put in place by both organisations for trade liberalisation and a customs union.

ECOWAS and UEMOA trade liberalisation schemes

108. A comparative table of the trade liberalisation schemes of ECOWAS and UEMOA was drawn up at the joint meeting of the two organisations which was held in March 2000. This provided the two organisations with the basis for evolving a common viewpoint at their subsequent meeting in Lome, from 5 to 9 September 2000. At the end of this latter meeting, an agreement was reached as follows:

Rules of origin

109. Both organisations need to adopt new rules of origin as the existing rules are now obsolete. In addition, there is the obligation to comply with the new rules of the World Trade Organisation in order to respond to the changes in international trade and the emergence of new technologies. UEMOA, for its part, no longer supports the adoption of restrictive lists of so-called unprocessed goods and traditional handicrafts.

110. With regard to the criterion of value added, the percentages differ in the two organisations with ECOWAS having adopted 35% and UEMOA ,40%. The definition of value added, however, is basically the same.

111. ECOWAS has agreed to adopt new rules of origin as envisaged by UEMOA, and which are based on the following:

1. the criterion of goods wholly produced locally;
2. the criterion of change of tariff position;
3. the criterion of value-added.

112. The two organisations agree to retain the standard definition of value-added, exclusive of materials obtained from the ECOWAS region.

113. The two organisations agree to adopt a value-added rate equal to 30% of ex-factory pre-tax cost price. They require, however, that these criteria be tested against current approved products in order to ascertain their suitability.

114. The adoption of the new rules of origin will be accompanied by a simplification of the approval procedure.

Approval procedure

- Application for approval

115. It has been observed that the standard application dossiers are identical on most points. However, it should also be noted that the forms need to be simplified and the information required limited to the strict essentials. In view of the amendments to the regulatory texts of the trade liberalisation mechanism, information such as the percentage of share capital held by nationals, the staff strength and export projections, are no longer relevant.

- Procedure

116. It was agreed to eliminate the formal approval procedure. However, during a transitional period of three years, approval will be required for products being considered under the criterion of value-added.

117. Following their discussions on the contents of application forms and approval procedure, the UEMOA Commission and the ECOWAS Secretariat concluded that :

1. Applications for approval should contain the following items of information:
2. -identification of the enterprise, indicating location, sector of operations, legal status etc.,
3. -name of the product and description of the manufacturing process involved;
4. -technical specifications determining ex-factory cost price and value-added.

ii) The two categories of products, namely locally produced goods and substantially transformed products with a change of tariff position, will be exempt from approval. A national committee will be set up in each Member State to ensure compliance with the criterion of ECOWAS origin, based on a prototype form completed by the applicants. The national committees will forward to the ECOWAS Secretariat and the UEMOA Commission, the documentary evidence justifying their classification of these products as being of ECOWAS origin. The Secretariat and the Commission will carry out post - verification of these products at regular intervals, on the basis of this documentation.

List of operations ineligible for classification as originating products

118. The list of such products is notably similar in the two organisations. The UEMOA Commission however is planning to remove assembled goods from its list. The Secretariat took due note and undertook to submit the issue to the appropriate authorities for decision.

d) Products manufactured in free zones or under the terms of economic arrangements

119. These two categories of goods are not considered as originating products in the UEMOA system. The issue is under consideration in ECOWAS. The two organisations will seek to evolve a common position in this regard.

Customs documents

-Single Customs Declaration (SCD)

120. The Council of Ministers approved a single customs declaration form in August 1999, effective from that date. The single form is presently in circulation in the Federal Republic of Nigeria only.

-Certificate of origin

121. In view of the proposed new rules of origin, the two organisations agreed that a single prototype certificate of origin should be adopted. The colour and content of the certificate will be decided by mutual consent.

122. The certificate of origin will be issued by an appropriate authority to be designated by each Member State.

123. The two organisations recommended that unprocessed goods and traditional handicrafts should be exempted from the requirement of carrying a certificate of origin. However, it was agreed that for certain sensitive items such as fish, it would be useful to require a certificate of origin from the exporting country would be useful.

Preferential treatment

124. The meeting agreed that the preferential tariffs applied to approved industrial products, unprocessed goods and traditional handicrafts, namely, total exemption from customs and import duties, were identical in both organisations. Except for the treatment of internal taxes under the UEMOA system, unapproved originating industrial products are granted a 5% rebate on normal taxes. However, the organisation plans to eliminate this category of product.

Compensation

125. Implementation of the ECOWAS compensation system is problematic due to the lack of own funds at the present time for payment of compensation due. Member States have been reluctant to accord preferential tariffs for fear of not receiving the expected compensation. The meeting reached agreement on the following :

UEMOA should retain its current system of reducing level of compensation until its scheduled expiry date of 2006;

ii) ECOWAS will also adopt a reducing level of compensation along the same lines as UEMOA, with an expiry date of 2008. The amounts payable as compensation would therefore be calculated as follows :

1. -100% compensation for lost revenue from 2000 to 2002;
2. -80% compensation for lost revenue in 2003;
3. -60% compensation for lost revenue in 2004;
4. -30% compensation for lost revenue from 2005 to 2008;
5. -0% as from 1^st January 2009.

iii) It was also agreed that, in order to simplify the existing procedure, ECOWAS should adopt the UEMOA procedure and decide on payment of compensations, and submit a report to the Council of Ministers on its decisions.

iv) ECOWAS proposes to align itself on the UEMOA example and reduce the deadline for submission of applications for compensation from 3 years to 3 months as from the end of the current financial year.

v) The ECOWAS Secretariat is to draft the enabling texts which will facilitate implementation of the recommendations contained in items ii, iii, and iv above, and submit them to the ECOWAS authorities for approval.

h) Community levy

126. The UEMOA solidarity community levy is fully functional within the union and the proceeds are earmarked primarily for compensation of revenue loss. Payment of contributions to the community levy is guaranteed, as the amounts due in this regard are deducted at source from any account held by the member countries with the BCEAO.

127. The ECOWAS Community levy is not yet being properly applied. Failure by all Member States to apply the mechanism has made it difficult to fund the system which has hitherto been dependent on contributions from the States. The meeting recommended the speedy and effective establishment of the Community levy within ECOWAS, and the introduction of measures to guarantee the proceeds.

1.2 Customs Union

128. UEMOA has already achieved customs union, with a common external tariff in which four rates apply: 0%,5%, 10% and 20%. Both organisations agreed that the study which should provide the guidelines for introduction of the ECOWAS common external tariff must include the following:

-an inventory of the different duties and taxes in existence in the Member States and their classification according to type and tariff;

1. -a comparative table showing the above information;
2. -harmonisation of tax structures and tariffs;
3. -different scenarios for CET, to be analysed to ascertain their impact on the economy of Member States;
4. -identification of the sectors of the economy which will be affected by the reform;
5. -provision for support measures for the sectors particularly affected .

129. The ECOWAS Executive Secretariat will begin studies on its CET, over a four month period as from early January 2001.

Convergence of ECOWAS and UEMOA economic and financial policies

130. Each of the two organisations already has a programme to harmonise economic policies, primarily by achieving macroeconomic policy convergence.

131. In the case of UEMOA, provision is made for the application of a multilateral surveillance mechanism aimed at reorganising the macroeconomic structure of the Member States and strengthening their common currency.

132. In ECOWAS, convergence of the macroeconomic policies and performances of its Member States is a pre-condition for the creation of a single currency. Convergence also has to precede the creation of the ECOWAS monetary zone.

133. Adoption of the multilateral surveillance procedure in the two organisations calls for the following measures to be taken:

-definition of convergence criteria and standards, which presupposes the harmonisation, ready availability and accuracy of statistical aggregates;-harmonisation of the legal framework, accounting procedure and statistics for public finance;

-definition of an institutional framework for the application of the multilateral surveillance procedure.

134. The convergence criteria applicable in the UEMOA zone and in ECOWAS may be summarised as follows:

1. -in the two convergence systems, criteria are classified as primary and secondary according to their importance;
2. -the selected indicators in the two systems do not necessarily coincide;
3. -some indicators common to the two systems are classified differently and are therefore not always accorded the same degree of importance;
4. -the target dates for convergence are different : 2002 for UEMOA, and 2003 for ECOWAS.

Primary Indicators

135. The indicators of budget deficit/GDP and inflation rate are convergence criteria in both systems.

136. In the UEMOA system, the ratio of primary budget balance to nominal GDP, should be higher than or equal to 0% by 2002. In the ECOWAS system on the other hand, the ratio of budget deficit excluding grants, to GDP, should be equal to or less than 4% by 2003.

137. The UEMOA system adopts a maximum average annual inflation rate of 3%, while the ECOWAS target is a rate of 5% by 2002, calculated at an annual sliding rate.

138. The UEMOA system retains indebtedness as an indicator, the level of indebtedness measured as the ratio of current public domestic and external debt to nominal GDP is equal to or below 70%. This criterion is not explicitly applied by ECOWAS. However, during the preliminary stages of work on the definition of the reference value of the ratio of budget deficit (excluding grants) to GDP, a maximum indebtedness ceiling of 80% was adopted, corresponding to the average public debt of the ECOWAS Member States for the period from 1995 to 1997.

139. With regard to variation of domestic and external arrears of payment, UEMOA has adopted the indicator of non accumulation of current domestic and external arrears of payment. Member States are required to liquidate arrears outstanding as at 31 December 1999 by 2002. The ECOWAS indicator on arrears of payment differs from that of UEMOA in two respects:

-arrears of external payments are not included in the ECOWAS convergence system;

-variation on arrears of domestic debt payments is classified as a secondary criterion in the ECOWAS system whereas it is considered as a primary criterion in the UEMOA system.

140. Central Bank financing of budget deficit is not one of the indicators included in the UEMOA system. In the ECOWAS system however, it is classified as a primary criterion, and must not exceed 10% of the previous year's tax revenue. Member States are to comply by 2003. It should be noted, however, that a decision of the UEMOA Council of Ministers, dated September 1998, provides for the gradual reduction of statutory financing, culminating in its total abolition by the end of 2002.

141. In the ECOWAS system, the indicator of gross reserves, equal to or higher than 6 months of imports, is classified as a primary criterion. UEMOA has not adopted this indicator. However, there is no contradiction between the systems in this regard, since the very strict compliance with the budget deficit indicator (primary budget balance/nominal GDP equal to or above 0%) demanded of the UEMOA states is designed, among other things, to consolidate foreign reserves.

Secondary criteria

142. The criteria relating to wage bill/tax revenue ratio and capital expenditure/tax revenue ratio are identical in both convergence systems.

143. Both systems have a ratio of tax revenue/nominal GDP as one of the secondary criteria, although the target figures differ. In the ECOWAS system the target is 20% by 2003, while in the UEMOA system, it is 17% by 2002. This difference is of no real importance since the figures are arbitrary, and based on the present level of fiscal levies in most ECOWAS and UEMOA member states.

144. The criterion concerning external accounts is limited to UEMOA, which has set the ratio of current external deficit (excluding grants) to GDP at 5% by 2002. This criterion is not in the ECOWAS system.

145. Real exchange rate and real interest rate are secondary criteria in ECOWAS.

146. In sum, the only problem that could arise from the coexistence of the two systems would be in regard to the balancing of the budget.

147. To ensure the harmonious coexistence of the two systems, due account must be taken of the objectives of both organisations, and the progress already achieved on the ground, particularly as concerns monetary integration. In this regard, efforts at the harmonisation of the two systems should focus primarily on statistics, the legal framework, public accounts, harmonisation of institutional arrangements, and multilateral surveillance.

148. Harmonisation of convergence criteria must be completed before the creation of a West African Monetary Union. ECOWAS and UEMOA need to agree to harmonise the following areas of statistics:

1. -definition of the selected statistical aggregates for convergence indicators;
2. -national accounts;
3. -consumer prices.

149. At a meeting between the ECOWAS Secretariat and UEMOA Commission in Lome on 20 and 21 July 2000, the Observatoire Economique Africaine (AFRISTAT) presented a proposal for a programme of assistance to ECOWAS in respect of multilateral surveillance. The programme focuses:

1. -in the short term, on consumer price indices and the harmonisation of GDP based on work already done by UEMOA;
2. -in the medium term, on nomenclature of activities and products, national accounts (methods of preparation, SNA 93 and ERETES), preparation of a repertoire of enterprises, and development of an indicator for industrial production, informal sector;
3. -in the long term, on improving the quality of databases(data on agriculture and livestock, and on household consumption).

150. The Executive Secretariat agreed with the contents of the programme but asked that forecasting modelling be added explicitly to the short term activities. The possibility of country tours by AFRISTAT was also raised, to enable an assessment of the situation on the ground in the Member States concerned (Nigeria, Ghana, Liberia, Sierra Leone, Gambia, Mauritania, Guinea and Cape Verde). This study has already been done for the UEMOA countries. The results of the missions will be useful in the preparation of terms of reference, and for assessing the cost of various actions envisaged within the programme. The Executive Secretariat is to prepare the terms of reference for these tours and evaluate the cost.

Harmonisation status of the legal framework, accounting procedure and statistics in ECOWAS and UEMOA.

151. The UEMOA authorities have adopted Community texts in this regard, which are currently in force in all its member countries. These texts provide for the harmonisation of budgetary nomenclature and accounting plans, and the preparation of a uniform UEMOA Table of Financial Operations (TOFE).

152. ECOWAS is yet to elaborate harmonised texts in this regard. The terms of reference for the studies are ready and have been sent to the UEMOA Commission and the IMF for comments. Meetings are scheduled to take place between the two organisations in the first quarter of 2001, with a view to formulating harmonised texts in this domain.

Harmonisation status of the ECOWAS and UEMOA multilateral surveillance mechanisms.

153. The UEMOA multilateral surveillance mechanism for macroeconomic policy within UEMOA is operated by the following institutions:

1. -the organs established for the purpose by the UEMOA Treaty, namely, the Council of Ministers and the UEMOA Commission;
2. -the BCEAO (Central Bank of West African States)
3. -the National Economic Policy Committees (NEPC) created in each Member State;

The functions of the NEPC include:

1. -management of a statistical data base;
2. -preparation of situation reports on the evolution of the economy;
3. -monitoring of economic policy and transmission to the Commission and to the BCEAO of statistical data on the specific areas identified; as well as preparation of reports on the evolution of macroeconomic indicators.

154. The NEPCs comprise the heads of the ministerial departments involved in the formulation of macroeconomic policy.

155. The BCEAO works together with the UEMOA Commission to ensure the compatibility of the common monetary policy with the national economic policies and especially, budgetary policy.

156. The functions of the UEMOA Commission, which is the operations centre of the multilateral surveillance mechanism, include the following:

1. -management of the statistical data base;
2. -preparation of a quarterly report on the international environment;
3. -preparation, for submission to the Council of Ministers, of bi-annual activity reports on the multilateral surveillance mechanism. The reports are examined in June and December of each year.

The economic policies of the members of the Union are coordinated by the Council.

157. The institutions are also responsible for the following:

1. -convergence programmes;
2. -modalities for their implementation;
3. -handling of exceptional situations.

158. In the ECOWAS system, the multilateral surveillance mechanism is operated by the following organs:

1. -the Convergence Council, composed of the Ministers of Finance and the Governors of Central Banks of the Member States, which will carry out surveillance of macroeconomic policies and performance;
2. -the Technical Monitoring Committee composed of Directors of Studies of Central Banks, and representatives of the Finance Ministry. The committee will prepare bi-annual reports on the operation of the surveillance mechanism, for submission to the Convergence Council;
3. -the West African Monetary Agency, (WAMA) which is jointly responsible, with the ECOWAS Executive Secretariat, for ensuring coherence of all long-term convergence programmes elaborated by the Member States;
4. -National Coordinating Committees, whose function is to support the work of WAMA in collecting and processing the data provided by the Member States.

159. The ECOWAS National Coordinating Committees are not yet operational. The ECOWAS Secretariat has prepared a study on the organisation of the multilateral surveillance system which sets out the composition of the committees, their functions, and the frequency of data transmission.

160. ECOWAS and UEMOA should organise consultation meetings to work out a common framework.

Development financing and private sector promotion

161. The President of BOAD and the ECOWAS Executive Secretary and their advisors, as well as the Acting Managing Director of the ECOWAS Fund, held a meeting in Abuja on 27 and 28 February 2000, to consider the feasibility of the request from the BOAD President that BOAD should be assimilated into the ECOWAS Fund which is to become the ECOWAS Investment Bank within a holding company.

162. Both institutions recognise that this is a relevant issue at this time when the regional integration process must be reinforced so that our region may become an effective player in the world economy. It was agreed, however, that the issue required to be studied in minute detail in order to assess the merits and disadvantages.

Common sectoral policies

163. The two institutions are currently moving towards developing common sectoral policies that would serve as a blueprint for programme implementation. They have therefore called for greater cooperation between ECOWAS and UEMOA, to avoid duplication of efforts.

ESTABLISHMENT OF A SECOND ECOWAS MONETARY ZONE AND SYNERGY WITH THE SINGLE MONETARY ZONE

164. The twenty-second ECOWAS summit having adopted a double- track approach to integration, six non-UEMOA Member States took the decision to establish a second monetary zone by 2003. This second zone will then be merged with the CFA zone to form a single ECOWAS monetary zone in 2004. Considerable progress has been made in this regard since the mini-summit held in Accra on 20 April 2000 which was attended by the ECOWAS Chairman and the six countries concerned: Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone.

165. An evaluation meeting of the Convergence Council was held in Conakry on 5 July 2000. A Work Group was established last May, made up of representatives of the six Central Banks and the Secretariat, (acting as coordinator). It will prepare the technical documents after consultations with and working visits to the relevant institutions within and outside the sub-region, mainly BCEAO, BCE, European Union and EDF. The experts' group has prepared the following documents for consideration by the technical Committee of the Convergence Council which is scheduled to meet in Banjul in November 2000:

1. Draft Agreement of the West African Monetary Zone (WAMZ);
2. Statutes of the West African Monetary institute (WAMI);
3. Statutes of the single central bank, the West African Central Bank (WACB);
4. provisions relating to the Stabilisation and Cooperation Fund;
5. West African Monetary Institute project document;
6. Convergence report for 1999;
7. Enlightenment programme.

166. To increase the chances of success of the second monetary zone, there must be synergy between the measures taken in this regard and the actions planned with respect to the single monetary zone. The Committee of Governors of Central Banks, in this connection, adopted a plan of action at their meeting in Dakar in May 2000, designed to accelerate establishment of the single monetary zone. The forty-sixth session of the Council of Ministers held in Abuja on 24 and 25 May 2000 approved the programme of action, notably the adoption of an indicator for evaluating convergence quality, such as relative exchange rate stability in relation to the West African Unit of Account (WAUA), equivalent to the Special Drawing Rights (SDR) of the IMF.

167. Council also endorsed the recommendation that the Convergence Council (Governors of Central Banks and Ministers of Finance) should be the organ empowered to carry out multilateral surveillance of Member States' economic policies. The Convergence Council will however notify the Council of Ministers of its decisions. The Executive Secretariat was invited to look into the practical modalities for the implementation of this recommendation. In addition, Council approved the following three phases of the implementation of the ECOWAS single monetary zone:

Phase 1: Harmonisation of rules governing economic and financial management, revitalisation of the WAMA clearing mechanism and review of eligible transactions

Phase 2: Review of economic adjustments and harmonisation of domestic taxation system

Phase 3: irrevocable fixing of parities and establishment of the single Central Bank

ESTABLISHMENT OF A BORDERLESS ECOWAS ZONE

168. Following the adoption of the fast track approach by the twenty-second summit of Heads of State and Government of ECOWAS, held in Lome on 9 and 10 December 1999, seven Member States- Benin, Burkina Faso, Ghana, Mali, Niger, Nigeria and Togo - held a mini-summit Heads of State and Government in Abuja on 27 March 2000, to discuss the creation of a borderless zone between their countries. Pursuant to the mini-summit, a series of meetings was organised at expert and ministerial levels on the subject of the free trade area. The meetings assessed implementation of the decisions adopted at the various summits, particularly those pertaining to the establishment of a free trade area by 30 April 2000. It was noted that considerable efforts had been made with respect to certain aspects of free movement of persons.

169. However, for the borderless zone to succeed, the Member States concerned must have a common external tariff and they must also find solutions to the problem of transit of goods between their countries. The Executive Secretariat is taking necessary measures towards the speedy introduction of the ECOWAS CET.

170. Two meetings were held on inter-State transit, one involving national guarantors of transit operations, and the other for heads of departments involved in implementation of the ISRT. The meetings took place in Lome from 12 to 13 April 2000 and on 14 April 2000 respectively. The countries concerned, Benin, Ghana, Nigeria and Togo were in attendance. The two meetings reviewed the implementation of the ISRT convention so far. It was noted that difficulties were still being encountered in respect of vehicle specifications, the amount of contributions to the guarantee fund, and the formalities at customs offices along the way.

171. The national guarantors coordination bureau met in Bamako in May 2000 and adopted a draft rules of procedure for national guarantors.