EAC: Sticking Non-Tariff Barriers slow down integration

Tuesday April 16 2019

The four heads of State, Kenyan Pr

The four heads of State, Kenyan President Uhuru Kenyatta, Tanzanian President John Magufuli , Uganda President Yoweri Kaguta Museveni and South Sudan President Salva Kiir interact shortly after the Joint EAC Heads of State Retreat on infrastructure and development at the Speake Resort Munyonyo last year. FILE PHOTO  

By Dorothy Nakaweesi and Sam Ssetumba

Over a month and half since Rwanda closed off its Katuna/Gatuna border with Uganda on February 28, the status quo is still cagey for many to discuss.
The dispute between East African member states has led the business fraternity operating along this route into losses. Deals have been cancelled and products bungled.

Earlier, Burundi issued a ban on food exports to Rwanda and closed down the offices of bus companies operating between both countries. Bujumbura officials accused transport companies of being used by armed groups to destabilise Burundi.

Counter accusations such as these led to the dissolving of the 1967-1977 East African Community (EAC). The idea was brought back in the 1990s to revive EAC by the three original member states of Uganda, Kenya and Tanzania and this successfully came to fruition in 1999.
Later, other member countries such as Rwanda, Burundi and the newest regional member South Sudan acceded to the treaty.

Because the original EAC was mainly driven by politics, in the revived EAC economic factor through the private sector as the engine of growth ruled the game.

When the partner states signed the protocol, they undertook to establish a Customs Union among themselves; a Common Market; subsequently, a Monetary Union; and ultimately, a Political Federation.

The cardinal rule for this treaty was to boost co-operation in economic, social and political spheres for their mutual benefit. This meant that the six member states were to enjoy each other’s market believed to be over 172 million people.

EAC 20 years later
In November this year, the EAC will commemorate 20 years since the signing of the protocol but progress has hit a dead end as the regional bloc takes one step forward and two steps backward.
This trade dispute in the eyes of law expert Mr Francis Gimara, the past president of Uganda Law Society in an interview with Prosper Magazine said the framework of EAC treaty on disputes would have handled this.

“If any person had an accusation against a partner stage within the framework of the treaty, this should be solved,” Mr Gimara shared.
For instance, if a partner state under the treaty refers another partner state to the EAC Court of Justice citing that the actions of that particular partner state infringed the treaty, this will be resolved through reference.

Mr Gimara says: “In this case, this mechanism has not been used. But it underscores the fact that the integration is not taken seriously. If these countries want the EAC integration to work, this dispute should have been subjected to the framework of the EAC.”
Mr Gimara says the failure to use the dispute settlement mechanism provided for by the EAC treaty is a big failure to both states.

He said this is counterproductive to the common man who needs to cross the border to work, interact and do business. Unfortunately, the common man is the one suffering at the expense of this dispute.

The row between Rwanda and Uganda has exposed the never-ending Non-Tariffs Barriers (NTBs) that EAC member countries have been subjected to.

The Secretary General Ambassador Liberat Mfumukeko is not shy to admit that besides the multiple achievements registered; several challenges still linger, hindering the EAC integration agenda.

“… The crucial hurdle for the Community is non-compliance to signed Protocols by partner states,” Mfumukeko shared.
Adding: “In July 2019, we shall be marking nine years since the Common Market Protocol came into force. Unfortunately, some partner states are yet to approximate or harmonise their national laws, policies and systems.”

As a result, the full implementation of the Common Market protocol hangs in balance.
“Subsequently, the free movement of persons and factors of production anticipated to spur regional economic growth remain restrained,” Mfumukeko said.

Private sector
Mr Peter Mathuki, the chief executive officer East African Business Council (EABC) admits that the challenges are many.
“The fact that we still see NTB existing is something we need to work on seriously in the next phase so that these obstacles are completely eliminated,” he said.

Mr Mathuki says these NTB are still a challenge to regional integration. A case in point a citizen of one member country crossing to another country and movement of goods from another country still takes a lot of time.

“The rules of origin where goods from one country are subjected to double taxation is still a challenge especially where goods from one country are charged 18 per cent VAT and yet when they go to another country they are charged 16 percent VAT,” he shared.

Customs Union
Under the Customs Union (CU) –a pillar whose principle objective is to deepen the integration process through liberalisation and promoting intra-regional trade; promotion of efficiency in production in response to intra-regional competition among businesses.

The CU is further mandated to enhance domestic, cross-border and foreign investment, as well as promote industrial diversification, with a view to enhancing economic development.

To achieve all the above, a customs authority at regional level must be created. But this is still missing.
“Establishment of a CU authority is a long-term process that cannot be achieved in the five-year period this has paused a big challenge,” EABC’s Mathuki shared.

Repeated Customs-related Non-Tariff Barriers (NTBs) arising from administrative and procedural processes is the other challenge that was identified in this pillar.

Lack of harmonised domestic tax laws and that Rules of Origin are yet to be aligned to FTA and existence of different national Customs systems that hinder seamless sharing of information and integration of cross-border processes.

Common Market
Numerous barriers remain in the Common Market Protocol.
Mr Moses Ogwal, manager policy advocacy at Private Sector Foundation Uganda (Psfu) in an interview with Prosper Magazine said, “Several national laws are yet to be amended to conform to the Common Market Protocol provisions.”

By 2018, more than 100 laws in the six partner states’ national legislations had not yet been reviewed to conform to the EAC Common Market Protocol.

The concerned laws relate to the provisions of the protocol, namely: free movement of goods; free movement of persons; free movement of labour; free movement of capital; free movement of services; right of establishment, and right of residence.

Monetary Union
The East African Monetary Union - the third pillar towards regional integration is expected to promote financial stability that will facilitate financial integration in the Community.

Under this pillar, the EAC members have agreed on four primary convergence criteria, which all partner states have to attain and maintain for at least three years before joining the MU.

The criteria are headline inflation of eight per cent ceiling, reserve cover of 4.5 months of import; ceiling on overall fiscal deficit of three per cent of GDP, including grants; as well as ceiling on gross public debt of 50 per cent of GDP in net present value terms.
However with exception of South Sudan, current annual headline inflation in all countries is below eight per cent. All EAC partners, except Kenya, have debt to GDP ratios of below 50 per cent.

Other issues
The other significant ones according to Mr Mubiru, have involved Tanzania. On sugar as reported last year when there was an allegation that Uganda has no capacity to export sugar.
“This is work in progress. Currently, sugar exports are going to Tanzania,” he said.

Way forward
So, how can NTBs be resolved decisively?
Mr Mubiru believes the answer is in strengthening the EAC Secretariat to be modeled like the European Union Commission
“Once this is realised, deterrent sanctions would ensue against partner states that breach EAC commitments. Equally, the intermittent unilateralism that undermines free movement of goods and services can then be eliminated,” Mr Mubiru explained.

Varying border levies
Mr Hussein Kidede, the chairperson of the Uganda Freight Forwarders Association, said one sticking challenge was the unharmonised border levies.

“I classify this as non-tariff barrier,” he said.
For example, for a Ugandan registered cargo truck on Tanzania roads pays $500 (Shs1.8m) for every 100 kilometres travelled in Tanzania while in Uganda for a Tanzania registered truck, only $100 (Shs373,000) is paid in total.

Rwanda was suffering the same problems with Tanzania. But in tit for tat, Rwanda also resolved to levy $500 (Shs1.8m) for Tanzanian trucks. Because of this, in just a space of 48 hours, Tanzania slashed the charges to Rwandan trucks to $162.

“Government is not negotiating strongly enough. Our government officials should go to these meetings to do real work,” he said.

He cited how serious the problems would get giving the example of the oil logistics system. Uganda is scheduled to transport 7.5 million tonnes of oil related cargo with each truck estimated to carry 28 tonnes, Uganda would have to pay $133 million (Shs497b) in levies alone in Tanzania.
“If we don’t address these issues urgently, Uganda will lose much,” he said.

Resolving non-tariff barriers in East Africa

Mr Richard Mubiru, the chairperson of Uganda Manufacturers Association (UMA) technical and policy committee notes that most issues on NTBs have been with Kenya. Some of the issues with Kenya that UMA has been presenting to President Museveni, were ably presented to H.E. President Uhuru Kenyatta during the recent Joint Permanent Commission (JPC) that was held in Nairobi from March 21 to 25. As a result, the following were agreed upon.

1) Uganda will increase its sugar exports to Kenya from the current 36,000 metric tonnes to 90,000 tonnes annually.
2) Uganda to resume its poultry exports to Kenya that had been banned.

3) The bureaucracy faced by Ugandan dairy exporters to Kenya will significantly be reduced.
4) Kenyan Standard agencies and their Ugandan counterparts will conduct a joint verification on the quality of tiles made in Uganda to expedite the process of exporting them to Kenya.

5) The long standing ban on Kenyan beef on the Ugandan market will also be lifted immediately.
6) Agreements on security, immigration, work permits and visas were also concluded.
7) Uganda to stop packaging alcohol in plastic sachets by May.
8) Kenya offered Uganda land in Naivasha to construct a dry port that would be aimed at reducing the costs of importation.

NTBS to business across borders
Traders who mostly transact business within the region through their umbrella organisation Kampala City Traders Association (Kacita) think that some member countries are freely allowed to establish businesses in Uganda with 100 per cent ownership yet it’s not the same case in Tanzania and Kenya.

Mr Everest Kayondo, the Kacita chairman in an interview with Prosper Magazine said: “Ugandan businessmen have been forced to give up to 30 per cent of their equity to Kenyans if they want to be allowed to establish businesses in Kenya or Tanzania. We think this is a NTB.”
Mr Kayondo further said Uganda’s sugar and milk not being readily accepted contesting their quality after being verified and ticked by Uganda National Bureau of Standards to enroute to Kenya is another sticking NTB.

“Some protectionism practiced in these countries especially when they see a product that will compete with their locally produced products,” he added.