Cameroon-EU EPA: the dismantling rate of high tax yield products increases to 50% in the 9th phase

The Economic Partnership Agreement (EPA) between Cameroon and the European Union (EU) has reached a critical phase, with the dismantling rate for high tax yield products set to increase to 50% in its 9th phase. This significant step reflects the ongoing adjustments in trade relations and customs duties between Cameroon and the EU, which aim to foster a more liberalized trade environment.

The EPA is structured to gradually reduce tariffs on various goods, thereby promoting trade liberalization. It’s divided into different categories of products, each with a specific timeline and rate for tariff reduction. The agreement has been in effect since August 4, 2016, and has since undergone several phases of tariff dismantlement.

The high tax yield products, which are crucial for Cameroon’s customs revenue, include items such as utility vehicles, fuels, motorcycles, and cement. The increase to a 50% dismantling rate marks a substantial shift from previous phases and indicates a move towards more significant trade openness.

However, this progression comes with its challenges. The increase in the dismantling rate has led to concerns about the potential impact on local industries and revenue. In the first half of 2023, Cameroon experienced a considerable loss in customs revenue due to the implementation of the EPA, with a reported increase of 61% compared to the same period in 2022. This loss is attributed to the acceleration of tariff reductions under the agreement.

The EPA’s impact on Cameroon’s economy is multifaceted. On one hand, it offers opportunities for local industries to access the EU market with fewer barriers. On the other hand, it requires the local market to adapt to increased competition from European products. The government of Cameroon aims to boost local production by reducing tariffs on inputs for the food industry, machinery, and appliances, among others, to encourage local industries and protect them from the adverse effects of the agreement.

As Cameroon enters the 9th phase of the EPA, it’s crucial to balance the benefits of trade liberalization with the need to safeguard local industries and revenue streams. The government’s strategies and policies will play a vital role in ensuring that the EPA catalyzes economic growth while minimizing any negative repercussions on the country’s fiscal health and industrial development.

The ongoing dialogue between Cameroon and the EU, adjustments to the agreement, and the implementation of supportive measures for local industries will determine the future trajectory of this partnership. The EPA represents a significant step towards integrating Cameroon into the global economy, but it must be navigated with careful consideration of its economic and social implications.

On August 4, 2024, Cameroon launched the 9th phase of implementation of the Economic Partnership Agreement (EPA) with the European Union (EU) on the one hand and Great Britain on the other. This is the substance of a press release signed by the Minister of Finance (Minfi) Louis Paul Motaze.

A new development is that the 9th phase, which runs until August 3, 2025, stipulates that goods in the 3rd group eligible for the preferential trade regime will benefit from a 50% reduction in customs duties on imports, compared to a 40% exemption in the 8th phase, which ended on August 3, 2024. According to the EPAs, this reduction will increase by around 10% until August 3, 2029.

This category of so-called high tax yield products includes, among others: vehicles for public transport of people, passenger vehicles, motorcycles, fuels, cement, television receivers, tractors for semi-trailers, washbasins, dishes, tiles, cereals (sorghum, wheat, barley, rye), etc.

More than 19 billion CFA francs of tax losses in the 8th phase

Upon observation, the products of the 1st group (pharmaceutical products, fertilizers, gas, pesticides, etc.) whose dismantling began on August 4, 2016, at a discount rate of 25% per year, have been exempt from customs duties since August 3, 2019. Those of the 2nd group (wheelbarrows, goods transport vehicles, etc.) whose dismantling began in 2017, also reached 100% on August 3, 2023. According to sources contacted at the Cameroonian General Directorate of Customs (DGD), the complete dismantling of the first two groups immediately excludes additional losses except those which would be, for example, linked to the increase in activities.

On the other hand, the 50% reduction in high-yield products should cause losses in customs revenue, we learned. In a recent interview with the government daily Cameroon Tribune, Raphaël Hamadjam, head of the foreign trade statistics and data processing unit at the DGD, estimates these losses at 80.4 billion CFA francs since the start of the EPAs in 2016. These tax losses crossed the 19 billion CFA franc mark for the 8th phase against 15.6 billion CFA francs in phase 7, an increase of 3.4 billion CFA francs (+21.7%) year-on-year. The first phase had only recorded a tax loss of 0.7 billion CFA francs.

Who benefits from the dismantling?

It should be noted that it was in 2016 that the State reached an agreement with the EU (which represents one of Cameroon’s main customers with around 40% of the market share) and Great Britain, which left the economic zone in January 2020 (Brexit). Through this deal, the State wanted to preserve access to certain products on the European market; a way of returning to importers part of the duties and taxes that they would normally have to bear. The objective is to “reduce the risks of worsening the trade balance, guarantee the repatriation of foreign currency, preserve jobs and improve the well-being of the population”, Raphael Hamadjam told the government newspaper Cameroon Tribune.

However, Cameroon’s trade balance has been getting worse over the years. The National Institute of Statistics (INS) reports a trade balance deficit of more than 2,000 billion CFA francs in 2023. In addition, while it is true that the evolution of prices on the market depends on several variables, it should still be noted that the inflation rate, previously less than 3% (Cemac standard), took off in 2022 (6.3%) and increased to 7% the following year.

In the meantime, experts see what appears to be a loss for the state as a tax gain for importing companies by reducing the cost of importing from the EU. One of the expected benefits is therefore “an increase in the profitability and competitiveness of companies that are heavy users of raw materials and capital goods.”

However, in the third quarter of 2022, for example, Cameroonian employers identified more than 80% of companies that were victims of the vagaries of unfair competition that negatively impacted competitiveness. In addition, “81% of business leaders find the tax pressure rate (share of tax expenditure on turnover, Editor’s note) high,” deplores a survey conducted by the Cameroonian Ministry of Economy in December 2023.