What you need to know:
- Last year, the East African Business Council put its weight behind the adoption of a 35 percent tariff as the fourth and maximum common external tariff for EAC members on grounds that it found favour with the majority of its members. But as Derrick Kiyonga writes, critics of the decision say it is the final consumers of the goods who will feel the pinch.
A lot has changed in the nearly 10 years since Mr Dan Wandera-Ogalo left the East African Legislative Assembly (Eala) after serving two terms.
During that decade, the East African Community Common External Tariff (CET) has ballooned from 25 percent to 35 percent.
“That’s a lot and the effects are going to be felt by the consumers, who are battling inflationary pressures,” Mr Wandera-Ogalo told Saturday Monitor in an interview, adding, “It seems those who made the decisions are out of touch with reality.”
On May 6, the East African Community (EAC) ministers and cabinet secretaries in-charge of trade and finance adopted 35 percent as the fourth band of the EAC CET.
The reviewed EAC CET that commenced at the start of this month was the product of what the EAC described in a statement as a “comprehensive review”.
It was further agreed that there should be “flexibility in implementation of the revised CET, particularly on products currently affected by the current global economic realities.”
Ms Betty Maina, the chairperson of the EAC Council of Ministers, who also doubles as cabinet secretary, Ministry of Trade, Industrialisation and Enterprise Development of Kenya, opined that the revisions “will address the requests for stays of application, which distort the EAC CET.”
The meeting defended the tariff band of 35 percent as “the most appropriate rate.”
Dr Peter Mathuki, the EAC Secretary General, hailed the move as one that will “spur intra-regional trade by encouraging local manufacturing, value addition and industrialisation.”
Mr Wandera-Ogalo, however, insists that the development indicates how out of touch the EAC is with popular feeling. He also holds that the powerlessness of Eala in the face of these developments is telling.
The mission of the assembly is to legislate, do oversight and represent the people of East Africa in a bid to foster economic, social, cultural, and political integration. There is a consensus view—at least from Mr Wandera-Ogalo—that a disconnect from the common man is obvious. The veteran lawyer finds it odd that when the EAC was revived a little over two decades ago, the assembly—which was supposed to give people political representation—was instructed not to have a say in the outlook of the community’s taxation regime.
“We all know that tax regimes are determined by the parliament,” Mr Wandera-Ogalo says, adding, “But with Eala, the leaders—who understand what people go through—are blocked out from deciding these taxes and this is why governance in Africa is still problematic.”
The CET, one of the key instruments of the Customs Union, is meant to foster regional integration through uniform treatment of goods imported from third parties. Its advocates say it will shield local manufacturers against competition from similar goods imported from outside the region. Its effect is that all EAC partner states are supposed to levy a 35 percent tariff on goods manufactured outside the community and yet they can be produced locally.
“If implemented, as intended, the fourth band will only affect finished products that have sufficient quantities of supply within the region,” Mr Simon Kaheru, the vice chairperson of the East African Business Council (EABC), says of the CET, adding that it in fact “protects manufacturing within the community and grows employment and trade right here at home.”
Mr Kaheru further reasons that “the idea is to not be excessively protective of economic growth and integration.” He insists that the CET increment won’t increase the retail price of targeted goods such as dairy and meat products, cotton and textiles, iron and steel, edible oils, soaps, beverages and spirits imported from outside the EAC.
Other goods such as furniture, leather products, freshly cut flowers, fruits and nuts, sugar and confectionery, coffee, tea and spices, textiles and garments, headgear, ceramic products, and paints won’t also be affected as per Mr Kaheru.
Kenya and Uganda have, however, already protested that the tax is pushing the cost of importation high. The high cost, the two EAC partner states add, is trickling to basic commodities. In fact, the main plank of Kenya’s complaint is that it has been importing wood from EAC countries—including the Democratic Republic of the Congo—after Nairobi barred logging.
With the coming into force of the new CET band, imported wood is said to be fetching the same price as finished furniture already on the market.
Kenyan furniture manufacturer PG Bison Kenya Limited has already made it abundantly clear that the cost will be passed on to the end user.
“Due to these policy decisions, and along with the recent increases in fuel-related logistics and a rapidly depreciating local currency, our prices will change effective Friday, July 8. A revised price list will be issued and distributed accordingly,” the company told its customers in a notice.
For Uganda, there have been reports that it’s facing challenges exporting surplus industrial sugar within the region, yet Rwanda and Burundi are facing a shortage.
“The two countries will have to retain their stay of application for sugar imports,” Mr John Bosco Kalisa, the EABC’s chief executive, recently told The East African newspaper, adding that it was “still too early to tell the full impact of the new import taxes.”
In bullish mood
Authorities in Uganda are, however, bullish about the impact of the CET.
“Putting the fourth band was to protect domestic industries. We don’t have surplus industrial sugar and industrial sugar is not under that regime of taxes,” Mr Emmanuel Mutahunga, the acting commissioner for external trade in the Trade and Cooperatives ministry, told Saturday Monitor in an interview.
The politicians insist that they have no input yet this will ultimately lead to an increment in the prices of goods in East Africa.
“The tariffs are determined by the East African Business Council and the bilateral meetings of the councils of ministers of Trade and Finance from the region. I don’t agree with the external tariff going beyond 32 percent because the ultimate end is an increment in prices of goods in East Africa,” Mr Fred Mukasa Mbidde, an outgoing Eala lawmaker, told Saturday Monitor.
Mr Mbidde said the justification for increasing the CET to protect local industries doesn’t cut it.
“They want to supplant imports with local industries but I would have wanted, personally, that a schedule of common external tariffs produced is accompanied by a list of industries producing the line commodities,” he reasoned, adding, “That way, I would personally rest assured that production will not be hampered because clearly, there are no such industries.”
With raw materials that are used to make various household commodities such as vegetable cooking oil and soap becoming scarce due to Russia’s war in Ukraine, Mr Mbidde insists that a hike in the CET was wrongly timed.
“Given the prevailing raise of prices in commodities due to the [war] between Russia and Ukraine, one would shudder that the business council would then seek to adopt common external tariffs of again increasing prices,” he noted, before concluding that “the effect is on the people, the consumers.”
Mr Mbidde, who has served two terms in Eala, insists that people who revised the CET don’t factor in the interests of consumers.
“My worry is when the East African Business Council sits with the Council of Ministers, there are two people they are looking at: You are looking at tax collectors sitting with profit-oriented people. Now those two have nothing to do with the plight of consumers,” he said, adding, “So, the only representatives of consumers are Members of Parliament (Eala). However, we can only make some recommendations.”
Elite club or not?
Although the EABC and the Council of Ministers have been accused of being an elite club that comes up with tariffs without looking at the bigger picture, they roundly dismiss such accusations.
“The governments of the EAC consulted the private sector on the fourth band and as the EABC. We have been at the forefront of discussions going back many years,” Mr Kaheru said, adding, “We all agreed it was high time we settled on a joint position on the Common External Tariffs bands to avoid disparities between the countries and to protect the benefits we wanted to achieve for the region as a whole.”
He proceeded to note thus: “The intricacies of the products to be placed under the fourth band, however, still need to be ironed out within each country and, especially by the National Duty Remission Committees to ensure the intended benefits are achieved and to avoid any disruption to trade and manufacturing within the region.”
Last year, the EABC put its weight behind the adoption of a 35 percent tariff as the fourth and maximum common external tariff for EAC members on grounds that it found favour with the majority of its members. While both Uganda and Tanzania were in support, the pair differed with Kenya, Burundi, and Rwanda, who wanted 30 percent as the maximum CET rate.
Just like the case is now, the EABC rationalised the adoption of the 35 percent maximum tariff rate on grounds that it incentivises industrial development, protects blossoming industries exposed to unfair competition, and safeguards industries against cheap and subsidised imports and jobs.
“The 35 percent maximum tariff rate will attract investments in industrial value chains and transform the bloc into an export-led, industrialised economy,” Mr Kalisa reasoned last year.
“The proposed 35 percent tariff rate provides an adequate tariff differential required to incentivise industrial development in the EAC region.”
Before the hike to 35 percent, CET on the fourth band was agreed upon last year. The CET tariff stipulated that the EAC members may import products at different levels with triple band structure duty rates. These included raw materials at zero percent; intermediate goods at 10 percent; and finished products at 25 percent.
Under the priority value chains as provided for in the EAC Industrialisation Policy (2012-2032), some of the products to be included in the fourth band tariff are textiles, iron and steel, and motor vehicles.
“There is a need to agree on the fourth band, after which partner states have also to agree on different tariffs. I believe by the end of this year, we are going to agree on the CET,” Dr Mathuki said.
Back and forth
The East African Business Council (EABC), according to records, preferred the 35 percent East African Community Common External Tariff (CET) rate, rejecting the proposed 32.5 percent proposed by Kenya and Rwanda. It insisted that a 35 percent rate will create just a five percent tariff differential with the third tariff band of 25 percent charged on finished goods.
The EABC further contended that 35 percent will create a tariff differential of 10 percent, which will safeguard products that are sufficiently produced in the region against similar cheap imports.
“The 35 percent CET rate will offer the necessary effective protection the region requires to drive regional value chains and drive industrialisation through these products,” Mr John Bosco Kalisa, the EABC’s chief executive explained.
“Some of the products have a long value chain and face unfair competition from cheap imports from Asian countries hence need higher rates to safeguard their production in the region.”
That said; the confidence exuded by businesspersons and manufacturers isn’t shared with politicians, who insist that agreeing to the fourth band is premature.
“In East Africa, we’re close to a market of 300 million people, but these are people who are withdrawn from the calculated economy,” Mr Mbidde said, adding, “And they are going to adopt a method that has nothing to do with what’s being calculated by nations.”
Mr Fred Mukasa Mbidde, an outgoing Eala speaker, instead said he “would have wanted for an industrial basis established first so that whatever decisions are taken to control imports are accompanied by substantial production capacity that can ensure prices are maintained as low considering the principle of market equilibrium.”
He, however, admits that East African Legislative Assembly (Eala) members can’t do much when it comes to taxation not just because of the treaty but also express orders from their respective countries that favour a position of calculated silence.
“Very few Eala members can talk of external tariffs because they fear recursions from their respective countries,” Mr Mbidde revealed, adding, “Members need to forget that they are sent by certain countries and pay allegiance to East Africa.”
Veteran lawyer and former Eala MP Dan Wandera-Ogalo concurs, adding thus: “When I was there, I saw signs that Eala members were being held back by their countries. If signs started to appear back then; what about now?”
The CET is a limb of the Customs Union that—much like the Common Market and Monetary Union—has not been implemented. All three are key to the EAC realising its ultimate dream of becoming a political federation.
“We have not really achieved anything after all these years. Countries have come up with excuses not to implement the Customs Union and that’s why we have all these trade wars,” Mr Wandera-Ogalo said.
Ugandan goods have recently run into strong headwinds whilst trying to access the Kenyan market. A trade tiff has seen Kenya impose new taxes on Ugandan products like poultry, eggs, milk, and sugar.