SECTIONS

There’s need to review EAC’s common external tariff

By Gabriel Kitenga

In 2005 the then East African Community Partner States signed a protocol establishing the EAC Customs Union. The protocol established a Common External Tariff (CET), which had been negotiated for close to nine years.

A task force was created and it agreed to have a three band tariff whereby goods were assigned rates of import duties based on whether they were primary raw materials, industrial inputs, capital goods or finished goods. 

The negotiation process, however, left some cracks that have now destroyed the fence that was the CET. These include country lists, the exemption regime, duty remission schemes, trade arrangements with third parties, and discretionary actions by partner states.

The earliest distortion of the CET arrangement occurred when Uganda distorted the list of industrial inputs, which consisted mainly of semi-processed goods. It was understood at that time that the list would operate side by side with the gradual elimination of internal tariffs and expire with the realisation of a fully-fledged Customs Union. 

Uganda was to later negotiate for an extension of the operation of this list long after the region became a common market. Rwanda and Burundi followed suit with their own list even after joining the Customs Union meaning that out of the five countries, only two partner states do not have a country list of goods exempt from application of the CET.

Discretionary action by some states has contributed to erosion of the CET. Each year during pre-budget consultations, partner states come with requests for stay of application of the CET for various products.

Over the years the list of derogations has become long and indeed the current CET exists only in book form as each country is now operating its own external tariff albeit with substantial similarity with those of other partner states.

Analogous to these derogations are paratarriff measures in the form of import fees, and levies. Import declaration fees, withholding tax and standards levies are good examples of these. They serve as charges equivalent to that of import duties and are not uniform across the region.  Without harmonisation of paratarriff measures, the region cannot boast of having a functional CET.

The cornerstone

A more complicated challenge is the dual membership of the partner states in more than one economic grouping. While Kenya, Rwanda and Burundi are members of Comesa, Tanzania is a member of SADC.  The import of this is what each partner is applying, the EAC CET and another uncommon external tariff.

The preferential treatment granted to third parties reduces the expanded market that the EAC is supposed to offer regional industries. It is however encouraging that the EAC, COMESA and SADC are negotiating a Free Trade Area arrangement, which is expected to remove intraregional trade distortions in the three regional groups.

 The EAC Sectoral Committee on Finance and Fiscal Affairs should go back to the drawing board and prioritise review of both   the CET and   duty exemption regime to ensure that they are harmonised and applicable across the board.

In the absence of a robust CET, implementation of the single customs territory and common market will remain part of the dream of an integration that will not come. There is wide consensus that a common external tariff, the cornerstone of a common commercial policy, is one of the single most important drivers of regional integration.

Indeed, it should be reviewed and implemented uniformly if EAC is to consolidate the benefits so far realised in the integration process. Among the benefits of an effective CET is trade diversion from the rest of the world to the block and a more efficient allocation of resources.

The writer is a member of the Trade and investment Committee of the East African Business Council.