Standoff as regional import tariff talks drag on for months

Ugandan traders cross with goods at the Busia border on September 9, 2017. Kenyan authoritiess do not charge duty on goods ferried in small consignments. [Harold Odhiambo, Standard]

Negotiations on the common tariffs for goods entering the East African region are expected to stretch to the end of the year.

This is as partners continue to squabble over fair tax treatment.

The overhaul of the Common External Tariffs (CET) is expected to solve most of the EAC problematic trade disputes on rules of origin and value addition.

This month, Kenya will be meeting Tanzanian officials to argue for preferential treatment of assembled Scania vehicles, British American Tobacco cigarettes, and confectioneries.

Tanzania has denied duty-free access for Kenya’s confectionaries, cigarettes, and assembled products into its market over claims that the said products from Kenya do not meet the set criteria for preferential treatment.

“Such Non-Tariff Barriers (NTBs) have a negative economic impact on the international trade in the goods in question and they often limit market access,” Kenya Association of Manufacturers (KAM) Chairman Sachen Gudka said.

The Cabinet Secretary for East African Community and Regional Development Adan Mohamed said talks to sort out the CET are likely to delay past the June deadline.

“There has been a lot of abuse across the region and all countries have allegations against each other. We are hoping the complete overhaul of the CET will be completed by the end of the year,” Mohamed said.

The CET was set up to promote access to raw materials and semi-processed inputs that are not available in the region while protecting raw materials and semi-processed inputs available in the EAC region. It also sought to promote and protect locally available finished products within the EAC Region from cheaper alternatives outside the region.

However, the biggest contention on the current programme stems from its structure that consists of three bands - where goods produced by local raw materials are not charged duty such as shirts made by local cotton.

If you import yearn and manufacture a shirt, then exporting it to the region will attract a 10 per cent tax on intermediaries but if you import a complete shirt then exporting it to other EAC member States will attract a 25 per cent charge on finished products.

Kenya wants the triple band reviewed to make it a four-band structure, a proposal that Uganda is opposed to.

Local manufacturers say the three bands do not encourage value addition to products, thus curtailing the growth of the manufacturing sector.

Raw material

KAM argues that in practice, raw materials, intermediaries and or finished products have been clustered together and charged the same duty.

“For instance, importation of both fabric (raw material) and garment (final product) is charged 25 per cent import duty thus discouraging value addition whilst encouraging trade,” Gudka said.

“Not only does this discourage value chain growth and expansion, but it also hampers the growth of local industries, which is key for job and wealth creation.”

CS Mohamed said the tendency to have too many exemptions on the list is blunting the effectiveness of the CET.

Kenya is pushing for an end to the frequent tendencies of other member States to seek stays of application for products coming into the region - something the country blames for the problems facing the local industry.

“After we agree on the CET, you will find that line by line, Uganda will come with its list of exemptions, Kenya will come with its list, Tanzania will also come with its list to the extent that the entire framework loses meaning,” the CS said.

The effectiveness of the common tariffs is hampered by the powerful private interest which has captured the process. According to CS Mohamed, lobbying is the biggest drive on the list of exemptions rather than what is good for the consumers and the region’s economy.

“The private sector for selfish reason will go to their respective minister and create an uneven playing field in their favour, which is a big challenge,” he said.

The trade CS said that parties needed to agree on what is of interest to the region’s consumers and industry and any exemptions should be extremely negligible. Mr Gudka said the private sector’s tendency to request for exemptions over the years, through their respective governments in the form of either Stay of Application or Duty remissions remains a huge problem.

“The increased number of exemptions has therefore made it impossible to realise the effectiveness of the EAC CET,” he said.

On sensitive goods such as wheat, rice, milk, and sugar, Kenya and Tanzania want strict enforcement of duties that have been set at a rate of more than 25 per cent to discourage importation.

KAM wants the review to consider the region’s current State of development when it comes to assigning tariff rates in order to protect locally made products from imports.

“For instance, Kenya’s manufacturing sector has grown and there are products we now manufacture sufficiently that need to be protected,” Mr Gudka said.

Parties are however skeptical of the framework as EAC suffers from an acute trust deficit.

Mr Mohamed now wants the EAC to stick to the rules, harmonise local laws to be in line with the regional rules and deal with customs officials who have had a tendency of opposing the rules.

The CS said that for cheap egg imports, for instance, is difficult to deal with without strict enforcement of rules of origin at border points which have allowed the CET to be abused.

The CS said some products are imported into East African countries without duty then they are sneaked back into the common market at a cheaper price distorting the regional market.

“The eggs, allegedly from South Africa may come into EAC through other countries without paying duty. At the border how can we know which eggs have been hatched in Uganda and which have been brought in, how do you block,” CS Aden said.

He said his ministry is pushing for a lot more controls to understand legitimate EAC products where origins are clearly understood beyond doubt.

Manufacturers say CET Kenya may turn its eyes to the continent since the CET may lose significance in the face of a continental trade area without tariffs.  

“It is important to note that tariff protection is not sustainable especially with the upcoming Free Trade Area Agreements that Kenya has ratified. It is time that as a country we focus on making our products competitive in the global market. This means having the right products at the right price,” Gudka said.

Mr Mohamed said that the Cabinet last month pushed a resolution to ensure that Kenyan teams headed for talks in Arusha cement a common front when negotiating for country outcomes.

Presently the process has been disjointed with Treasury, EAC, Industrialisation, Central Bank of Kenya and the Kenya Revenue Authority all pushing their side of the bargain that has led to incoherent policy positions.