AU heading for world trade body conflict over membership levy
• Secretariat hopes its goal of generating $1.2bn from a range of imports will make it independent of foreign donors providing largest part of its budget
The AU and World Trade Organisation (WTO) could soon lock horns as the pan-African organisation prepares to implement its recently ratified new means of membership dues collection that directly flouts WTO rules.
The AU secretariat wants to harvest 0.2% of the cost insurance and freight value of a specified range of imports, reaping about $1.2bn. It hopes the income will make it independent of the 65% of its budget provided by foreign donors.
“They can’t do that,” says South African director of the International Chamber of Commerce Pat Corbin. “It is in direct conflict with [the] WTO trade facilitation agreement, which is committed to simplifying and reducing the transaction cost of trade, not increasing it, as this new tax will do,” Corbin says.
“In addition, a further disproportionate portion of the AU budget will be met by SA — in this instance by consumers.”
The AU says the 0.2% levy is in line with practice elsewhere, although it does not identify where such taxes are levied.
“This type of tax is already operational in several regional economic communities and intergovernmental organisations, whereby imports for final consumption are levied through customs administration,” it says in a statement.
The AU secretariat has been seeking alternative funding sources. It relies on the US, UK, EU and China for two-thirds of its annual budget ($417m in 2017), with additional help from the World Bank.
“Another option, an oil levy, was earlier rejected by oil-producing countries,” says Gerhard Erasmus, associate at Trade Law Centre. “Hospitality levies on hotel accommodation, on text messages and on air travel were also previously considered but discarded,” Erasmus says.
Of the cash-strapped body’s 55 member nations, only six — SA, Nigeria, Algeria, Angola, Egypt and Libya — regularly pay their annual dues. “On average about 30 member states default annually either partially or fully, creating a significant funding gap,” says Erasmus.
The AU imposes sanctions on member countries that default twice on their annual contributions but avoids naming and shaming them. Serial nonpayers can be barred from voting on AU decisions.
The AU did not respond to a list of questions. A WTO spokesman in Paris said the situation was too sensitive for public comment.
The AU’s total budget of $416.8m comprises $150.5m for its operating costs and $266.3m for programmes. Member states are asked to contribute $169.8m while $247m is secured from international donors.
The new collection system will apply to the cost, insurance and freight value of imports at the port of discharge for goods arriving by sea and road and the customs value at the airports of disembarkation for goods arriving by air.
The revenue will be collected by local authorities and held in central bank accounts, from where it will be paid to the AU.
The levy will be used to finance the operations of the AU as well as its programmes and peace support operations.
Corbin questions the legality of the plan. “Before anything can be passed by the AU it has to be passed [through] national legislation; in other words the AU secretariat cannot tell national governments that they must pay 0.2% on certain imports.
“It is also hard to understand how the vote was taken to ratify the agreement when as many as 49 of the 55 member states were not paid up and, according to the AU rules, may not have been eligible to vote.
“Anyway, it is not capable of being implemented because it would mean customs tariffs will have to be amended, or there must be an overriding selective VAT and the customs entry forms will have to be restructured,” Corbin adds.
The first real steps to implement the collection programme were scheduled for 2017, and although the groundwork has been two years in the making, implementation has been postponed for a year, with much remaining to be done.
“Practically, it can’t work,” says Corbin. “It is too cumbersome and complex.”
However, deputy chairman of the AU Commission Erastus Mwencha says instituting the levy is possible.
“After the [levy] agreement, all heads of state and government asked ministers of finance to implement the project. They met governors of the central bank and have agreed on the account to be opened with the central bank,” Mwencha says.
The levy will be charged on the value of imported goods from nonmember states.
When the levy kicks in, member states will no longer have to pay membership fees to the AU.
Mwencha notes 2017 will be the “transitional year, but those countries that are ready, which have the capacity to implement the levy, may go ahead”.
Ethiopia, Kenya and Chad are reportedly in the starting blocks to start collecting the levy.
However, a confrontation between the AU and the WTO over the lawfulness of the new levy seems unavoidable. It would be “discriminatory in nature and a violation of mostfavoured nation principles”, Erasmus says.
“Since the AU levy will apparently be implemented as a new tariff, bindings under WTO schedules will be affected. Some African countries could have zero tariffs for the affected imported goods.
“WTO rules, in addition, require that any fee connected to the importation of goods must be a fair reflection of the cost of a related service and must not amount to a taxation for fiscal purposes,” Erasmus says.