# Policy Options

The key to export diversification and facilitating a competitive tradable sector is to refine the incentive structure defined by trade, tariffs and non-tariff barriers. Such policies would help MCNG countries better identify and exploit economic diversification opportunities, while also creating sustainable employment opportunities and promoting an active role for the private sector in both domestic and international markets. Therefore, an active trade policy should be an integral part of the strategy. As the current trade regimes are excessively protected, an adequate sequencing should be done, in parallel with actions oriented to simplify the tariff structure, eliminate cumbersome NTBs, improve Customs procedures, while introducing other reforms and regulations that deal with perceived constraints to the business environment. The following paragraphs summarize the key policy options.

- Explore means of refining CEMAC and WAEMU CET closer to peers as means of reducing distortions and stimulating trade diversification. Restoring the WAEMU CET to four bands (e.g., 0, 5, 10, and a luxury goods rate of 20 percent) is recommended as a means of reducing welfare costs as well as reducing anti-export bias as a step towards bringing them closer to more competitive incentive structures in peer regions. A recent DTIS (2015) also recommended CEMAC CET adopt the four-band regime as proposed above.

- Phase out exemptions. Recent estimates on Niger suggests that Customs collects one-third of what it should, due to tax exonerations and smuggling. Phasing out exemptions while improving revenue significantly reduces incentives for rentseeking and improves transparency.

- Eliminate para-tariffs. Eliminate all para-tariffs with a phase-out period of 2-3 years or integrate levies such as statistical fees into existing tariff bands to reduce costs and improve transparency. Anything less than 2 percent is considered nuisance tariff as their implementation cost generally tends to exceed the benefit and should be eliminated in the short run.

- Eliminate import and export restrictions. Import restrictions have affected crops such as maize, wheat flour, cassava, sugar, vegetable oil, rice, frozen and chilled fish, beef and poultry. Export restrictions are mostly applied to cereals, particularly maize, millet and rice. Important reasons for governments to impose them are short-term food security concerns, in periods of (expected) food shortage. Indeed, a large number of countries in the region banned exports during the 2007/2008 food crisis. However, while it allows food to stay in the country in the short run, it can negatively affect investment decisions of value chain actors and thus have an adverse effect in the long run.

- Promote implementation of regional standards. Traders in agricultural products would profit from a clean implementation of WAEMU/ECOWAS rules on agricultural products, allowing tax-free transit for local products and regional recognition of product standards.

- Promote a bilateral free trade agreement with Nigeria. When countries like Chad and Niger (small, landlocked, undiversified economies) share borders with Nigeria (a more diversified coastal country) to an extent the incentive regimes deviate i.e. higher consumer goods tariffs create sufficient rents for informal arbitrage both for bilateral and third country trade as seen from recent diagnostics where large

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