EAC tariff loopholes create uneven playing field in trade

Activities at Malaba border on July 1, 2015. [Benjamin Sakwa/Standard] In the next one year, a mobile phone will be cheaper in Uganda than in Kenya, if the latest review of the Common External Tariff (CET) by countries in the region is anything to go by. The review applicable for the financial year 2025/2026, shows that countries continues with the trend of stays of application in a bid to protect their nascent industries, Kenya included. For example, Kenya has applied to stay the application of the East African Community's (EAC) CET rate of 35 per cent and instead apply a duty of 45 per cent for one year on furniture. The CET is an agreed rate of duty that countries in the region will charge for imports coming outside of the economic bloc. This is meant to ensure that countries only import what is not available within the EAC so as to increase trade within the region. However, countries have been applying for stays of application, thereby distorting trade within the region which still stands at 15 per cent. When the stays are applied, some countries lower the set rate or increase it depending on the level of development of their respective industries. It is an issue the East African Business Council (EABC), the private sector lobby body for the region, has repeatedly criticised. However, the private sector has also been under fire for lobbying for these stays through their respective ministers in charge of trade. EABC Vice Chair (Kenya) Jas Bedi singled out this matter during a recent private sector roundtable detailing how these stays are not favourable for trade. He referenced the recent changes on the tariffs, pointing out that Uganda has the most (132 pages), followed by Tanzania (79 pages) while Kenya has 32 pages. Distorting trade "Kenya is largely playing by the book, nobody is a saint, but we are only reacting to people who are trying to distort trade in the region," he said. "I think that is something President William Ruto need to pick up in your chairmanship of the EAC." The agreed tariff is a four-band structure that applies rates depending on the level of processing a product is, how sensitive it is for the sector in question, its availability in the other EAC markets and stabilisation of food security in the region. Raw materials have a CET rate of zero per cent, intermediate goods 10 per cent, finished goods 25 per cent and sensitive items are charged 35 per cent to 100 per cent or specific duties. However, since different countries in the region are at different stages in terms of market and industry development, a section may opt to apply for stays in order to shield their industries. As such, this makes the playing field in the region uneven yet EAC is envisioned to operate as a bloc, economically. Kenya, being the only economy with a middle-income status, tends to be on the losing side when stays are applied. In the latest review of the rates, Kenya has applied to stay the application of the EAC CET of zero per cent and apply a duty rate of 25 per cent instead for one year for mobile phones. For the same tariff line, Uganda has also applied for a stay on the same and instead implemented a duty of 10 per cent for one year. This means a mobile phone in the period will be cheaper in Uganda compared to buying it locally, even if it was imported from the same destination. In the list, Rwanda has applied to stay the application of EAC CET of 35 per cent or Sh52 ($0.4) per kilogram, whichever is higher, for secondhand shoes; and apply a duty rate of Sh650 ($5) per kg for one year. "Kenya to stay application of the EAC CET rate and apply a duty rate of 35 per cent of Sh26 ($0.20) per kg whichever is higher for one year," reads the document containing the tariff rate update. On television sets, Kenya has applied to stay the application of the EAC CET rate of 25 per cent and instead apply a duty rate of 35 per cent for one year. Hit on foodstuffs Uganda, known for its robust groundnut farming and processing, has applied to stay the EAC CET rate of 35 per cent and applied a duty rate of 60 per cent for one year. The same has been applied to bread spreads. "Kenya to stay application of EAC CET rate of 75 per cent or Sh44,850 ($345) per metric tonnes whichever is higher and apply a duty rate of 35 per cent or Sh26,000 ($200) per tonne whichever is higher for one year," the document says on rice in the husks, husked brown rice, semi-milled or wholly milled rice and broken rice. Kenya has also stayed the application of the EAC CET rate of 35 per cent on tomato paste and other preserved tomatoes and will instead apply a duty of 35 per cent of Sh52,000 ($400) per tonne whichever is higher. According to a presentation made during a private sector meeting by EABC on the publication of the stays of application, the need to limit the period the stays can be applied. "Advocate for clear regional guidelines and time frames on stays of applications, for example, maximum three years with a gradual phase-out as a way to protect the predictability of the CET," the EABC presentation reads in part. The presentation notes that Kenya's stay on tomato paste is meant to protect the local agro-processing, while the 35 per cent rate applied on trailers against the EAC CET of 10 per cent is targeted to promote local assembly. EABC says in the presentation that, while the EAC CET framework aims to harmonise tariffs and foster regional industry, the 2025/26 measures show continued use of country-specific "stays" to address domestic economic concerns. "While this flexibility helps protect sensitive sectors and encourages local value addition, it also risks undermining the uniformity of the customs union and may increase costs for businesses relying on imports," it says. "Frequent 'stays' of CET rates reduce predictability, complicating long-term business planning."

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