EAC customs union yet to be implemented 14 years later

Thursday October 11 2018

Movement of goods and services is still a major

Movement of goods and services is still a major non-tariff barrier among East Africa member states. FILE PHOTO  

By DICTA ASIIMWE

Kampala. Fourteen years ago the East African Community Customs Union was operationalised. However, its implementation has been postponed thrice.
The region was expected to achieve implementation of the Customs Union in 2010, but has postponed the deadline indefinitely as issues such as harmonisation of internal and joint collection of taxes are yet to be handled.

According to Subash Patel, the Confederation of Tanzanian Industries chairman, even though the Common External Tariff had been fully achieved, partner states have chosen to go it alone because of slow implementation at the regional level.
He cites the case of Uganda and Kenya, which have gone ahead to implement the 35 per cent external tariff on steel products to protect their industries.

Tanzania, on the other hand, has failed to do so, something that Patel says is hampering growth of its steel industry, as substandard and cheaper products flood the market.
In its current form, experts say, the EAC Customs Union is benefiting a handful of people in the region and a larger number in India and China.
This is out of sync with the premise that the EAC integration is pro-East Africans. Currently, Customs Union implementation benefits politically connected traders importing goods into the region.

Nicholas Nesbit, the East African Business Council (EABC) chairman, says the increase in imports and policies whose net effect is keeping East Africans in poverty can be blamed on partner states ignoring the voices of manufacturers and innovators and choosing to listen to importers
The failure, according to Nesbit, who is also the managing director of the Nairobi-based IBM, is because EAC states listen to traders and not manufacturers and innovators.
“EABC has not been as strong as it should be,” he says, noting that a strong EABC would solve disputes and establish a way forward.

Trade disputes
National business associations, Nesbit notes, take disputes to respective Trade, which fuels protectionism, since discussions at that level are usually inward looking.
However, according to Alex Mugire, the Rwanda Revenue Authority deputy commissioner, EABC would do little as it has no capacity to solve tendencies that favour imports.

Trade facilitation that covers common external tariff, the non-trade barriers and the ability of importers to pay their taxes and clear goods before reaching East Africa, is easier to implement. The sections of the Single Customs Territory on the construction of one-stop-border posts, ability to track goods and the interlinking of customs systems are easier to implement when dealing with imports.

As a result, Mugire says, about 70 per cent of the Single Customs Territory has been implemented since 2014 and this is largely on account of imports. The implementation of a SCT targeting exports in Uganda started for a few selected goods in August. In Rwanda, the Single Customs Territory for selected exports started in September.
EAC has also failed to come up with a deal on internal taxes such as Value Added Tax, Excise Duty and Income Tax.
This, Nesbit says, has fuelled disputes over sensitive products such as sugar, cooking oil and rice.
Different experts agree that the EAC has failed to harmonise internal taxes because these can be used to block products from the region at the slightest excuse.

“Each country is protecting its revenue. This makes trading in the region difficult,” says Businge Rwabwogo, the Mukwano Group of Companies general manager in charge of operations.
Mukwano is one of the companies currently importing palm oil from India for refining, because of the war in South Sudan.
However, a previous blockade by Rwanda and currently by Tanzania has affected the company’s ability to expand its sunflower cooking oil and fat manufacturing business.

Arm-twisting

Currently, Mukwano spends about Shs80b ($21m) in northern Uganda to provide advisory services, seeds, post handling advice and purchase of sunflower and soya seeds for their cooking business.
The company, he adds, would be happy to expand to Tanzania, if the quantity of sunflower produced and market size of resulting oil was right.

Instead of allowing local companies to expand, make enough capital to expand naturally into the region, EAC partner states prefer to arm-twist companies by imposing tariffs.
Ben Usaje, the Tanzanian Commissioner for Customs, calls this introduction of tariffs by some as being co-operative while at the same time remaining competitive.

“We are co-operating but we have never ceased to compete. It is survival for the fittest,” he says.
According to Rwabwogo, Mukwano has been reduced to importing palm because they are competing for investors or protecting existing ones.
In the process, this fragments the EAC into small markets instead of allowing companies to enjoy economies of scale that would come with selling to the region’s 170 million population.

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