On the optimality of common external tariffs in Africa: Evidence from the EAC customs union

We study the determination of a common external tariff for African customs unions, using the case of the EAC. We use trade and tariff data at the HS6 level and a multi-sector multi-country computable general equilibrium model with the consistent tariff aggregator. We assume that the optimal common external tariff will keep three tariff bands and the same distribution of HS6 lines in these three bands as the current distribution. The availability of detailed data allows us to keep detailed information to feed the model, and thus to make more accurate estimates. Compared to the current tariff bands, the optimal common external tariff implies less tariff dispersion and a higher average tariff. This common external tariff maximizes the total welfare of the region. The common external tariff that maximizes the welfare of each member of the region is different: larger for Kenya, the largest country in the zone, and smaller for the other countries, including Rwanda, the smallest country in the zone. The adoption of this common external tariff is a Pareto-superior reform. However, if there is perfect mobility of factors between countries in the zone, divergence of interest about optimal trade policy is larger: if the optimal common external tariff which maximizes regional welfare is implemented, the GDP increases in the largest country, but it decreases in the smallest countries.