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Study on Revenue implications of Economic Partnership Agreement (EPA) for Ethiopia and alternative sources of compensating revenue loss
RFP 39/2009 2009PROC021
Deadline: 16 November 2009 5:30 PM
Agency: UNDP
Download Study on Revenue implications of Economic Partnership Agreement (EPA) for Ethiopia and alternative sources of compensating revenue loss

TERMS OF REFERENCE (TOR)
RFP/039/2009


Study on Revenue implications of Economic Partnership Agreement (EPA) for Ethiopia and alternative sources of compensating revenue loss

1.    Background

Ethiopia is currently involved in a number of trade liberalization negotiations whose aim includes import tariff reductions or removal. For instance, the country is in the process of negotiating an Economic Partnership Agreement (EPA) with the European Union (EU) as part of the Eastern and Southern Africa (ESA) configuration, acceding to World Trade Organization (WTO), and is taking part in other regional and bilateral trade negotiations with key economic partners.

The progressive and gradual liberalization of trade, especially of goods in the ESA region for products originating from the EU bloc, as envisioned in the current EPA negotiations, is premised on the provision of duty free market access for imports from the latter region on substantially all trade (imports) into the ESA region. The same argument underpinned the establishment of the Common Market for Eastern and Southern Africa’s (COMESA) free trade area (FTA) in 2000. The main assumption is that trade reform, in the form of lower (or zero) import tariffs (among other measures), is one of the many policy instruments which can be instituted to achieve economic development and poverty reduction in developing countries like Ethiopia.

However, since Ethiopia, like many low-income developing countries, is highly dependent on import taxes, trade liberalization becomes a cause for concern given its potential negative fiscal consequences on the country. Specifically, import duties contributed approximately 38 percent of Ethiopia's government revenues in 2006/07 (NBE, 2007/08), implying the importance of this source of revenue to the country. Experiences in other developing countries show that trade liberalization can have a significant adverse impact on government revenues, though the impact also depends on a number of other factors such as a given country’s particular economic structure, trade regime, political economy, and the relative mix of protective and revenue motives in trade interventions.

It is within this context that the solicited impact assessment study will, among other things, investigate the revenue implications of reducing Ethiopia's import duties for products originating from EU member countries under the envisioned FTA following conclusion of a full and comprehensive EPA, and in the case the country decides to join the already existing COMESA FTA. The study should also propose possible alternative sources of revenue that the country can institute or utilize to compensate for the import tariff revenue losses likely to be incurred following the implementation of both EPA FTA and COMESA FTA trade regimes.

This Terms of Reference (TOR) provides for a study on the quantification of tariff revenue loss and the identification of an appropriate response mechanism to the revenue consequences of trade liberalization in Ethiopia, especially in light of joining both the COMESA FTA and EPA trade agreements. Specifically, the assessment study will investigate the impacts  of the reduction, both actual and planned, of tax charged in respect of international trade, whether charged in the form of Value Added Tax (VAT), or in the form of Fiscal or Customs duties, or in the form of import/export tax, or otherwise. The outcome of the study must ultimately guide the decision of the government to take appropriate policy measures.


2.    Objectives of the study

The overall objectives of the Study are to:

i)    Provide an analysis of the revenue implications to Ethiopia and quantify the potential revenue losses from trade taxes as a consequence of entering into an Economic Partnership Agreement (EPA) with the European Union (EU) and joining the COMESA FTA;

ii)    Investigate possible alternative sources of revenue compensating mechanisms available to the country for the import tariff revenue losses following the implementation of the EPA trade regime and COMESA FTA, considering equity implications of these alternatives and taking into account the social, economic and political environment of the country.

iii)    Design a program for appropriate fiscal reforms that the country needs to undertake in order to ensure that alternative revenue measures are effectively put into place to compensate for the potential revenue losses from trade taxes.

iv)    Undertake a gap analysis to identify areas of capacity building in the implementation of recommended fiscal reforms and to recommend a proper sequencing of the various components of the reforms taking into consideration social, political and economic environment of the country.


3.    Scope of the work

For the purposes of clearly defining the objectives of the solicited impact assessment study as well as the expected outputs, the study will specifically focus on, but not limited to the analysis and review of the following:

1.    Tax policy and tax administration practices in light of international best practice;

2.    Customs administration practices in light of international best practice i.e. WCO and WTO compliant customs administrations regimes;

3.    Revenue policy focusing on distortions through exemptions, concessions, subsidies, etc. and identify potential revenue foregone from such distortions;

4.    The composition of total tax revenue i.e. direct and indirect taxes for the past five years;

5.    Tax revenue as per cent of total government revenue over a five year period;

6.    Trade tax revenue as per cent of total tax revenue over a five year period. The study should demarcate trade taxes revenue according to whether they were earned from trade with EU members, trade with COMESA members and trade with other countries.

7.    Tax revenue and  trade tax revenue as per cent of GDP over a five year period including the country’s main import (and export) sectors/products in which the country collects a larger portion of the import duties (and export taxes);

8.    External financing including aid and loan financing, expenditure policy and fiscal deficit/surplus over a five year period. The long term sustainability of fiscal deficit should also be examined;

9    The country’s major import sources, with imports grouped along major import sectors, major product lines and also categorised into capital, raw material, intermediate and finished goods;

10    Import and export sectors which are likely to be negatively affected as a result of implementation of EPA and COMESA trade regimes with regards to their revenue contribution;

11    Empirically or quantitatively investigate (using suitable methodology) the revenue implications to the country of reducing or removing import duties on products originating from the EU and COMESA at HS-8 digit. Particular attention should be given to major import revenue product lines or sectors that will be mostly affected.

12    The quantitative analysis should assume different scenarios that envisage reduction of tariffs by 70%, 80%, 90% and 100%.

13    Identify possible strategies that Ethiopia has in place or can consider implementing in order to broaden the economic activities and there by  broaden or enlarge the tax base;

14    Identify, analyse and propose alternative sources of compensating revenue loss available to the country, taking into account the specific nature of Ethiopian economy/tax system;

4    Reporting Arrangements

1.    The consultants will submit an inception report, a mid-term report and a final draft report for comments to both the Ministry of Trade and Industry (MoTI) and the UNDP country representative in Addis Ababa, Ethiopia. The inception report will include details about the methodological approach to be used by the consultant to undertake the study.

2.    The Foreign Trade Relations Department of MoTI in partnership with UNDP will coordinate the study and keep abreast of the mission’s activities during the consultants stay.  The study team will work closely with the Foreign Trade Relations Department and submit all draft reports to this Department and UNDP; and  

3.    Once the final draft of the report is produced, the document will be shared with relevant stakeholders for comments. The study will be validated at a national workshop in order to obtain feedbacks on the study;

4. Only after incorporating and/or responding to all the comments at the validation      workshop shall the consultants produce and submit a final report to MoTI and UNDP.

5.    Qualifications/Experiences of the Consultants

The consultants should have the following qualifications:
 
    Post graduate level degree, in international finance, economics, trade law and/or development studies;

    Knowledge of the challenges and opportunities of regional integration in developing countries;

    Familiarity with the Eastern and Southern Africa region.

    Experience in assessment studies and excellent knowledge of regional integration process in Africa, Economic Partnership Agreements between the EC and ACP regions, and the WTO system.

    Good interpersonal skills, ability to work well in international, multi-disciplinary teams, a flexible approach and the ability to multi-task and meet tight deadlines.

    Demonstrated knowledge of report writing, proficiency in English language and computer-literacy (MS Office).

•    Demonstrated familiarity with the social and economic conditions of the country;

•    Proven ability to write in a clear and concise manner and to communicate orally; and
•    Proven ability to meet strict deadlines.

6    Reporting Arrangements

1.    The consultants will submit an inception report, draft report and a final draft report for joint comments to the Ministry of Trade and Industry (MoTI) and United Nations Development Programme (UNDP).

2.    The Foreign Trade Relations Department of MoTI in partnership with UNDP will coordinate the study. The study team will work closely with the Foreign Trade Relations Department and submit all draft reports to this Department and UNDP.  

7.  Evaluation Criteria

Technical proposals will be rated as per the following matrix. A firm will have to score a minimum of 70% to be considered for the next step. Financial evaluation will be conducted for the qualified and responsive technical proposals (i.e 70% and above). The responsive and qualified firm with the lowest financial proposal will be issued a contract.

1.    Expertise of Firm / Organization submitting Proposal
(relevance of experience, reputation of firm, general organization)    
30%    
30 points

2.    
Proposed Work Plan and Approach
(understanding of TOR, scope of task, clear presentation,    
50%    
50 points

3.    
Personnel
(General qualification, specialized trainings, professional experience, knowledge of region)    
20%    
20 ponits


Submission of Technical & Financial proposals

Qualified and interested Firms should submit their Technical and Financial proposals in separate sealed Envelopes to the following address no later than 16 November 2009:


UNDP Ethiopia
Procurement Specialist
ECA Compound Old Buld.
Vacancy No: RFP/039/2009
Fax: 251 11 5514599 / 5515147
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