EAC: First make customs union work

Daily Monitor’s editorial of October 31 titled, ‘EAC trade debates must include more than milk,’ sheds some light on the difficulties of implementing a regional trading arrangement for the seven-member East African Community.

The roots of the operational problems bedevilling EAC are very deep. You need to go back to the time the customs union was negotiated among the then three partner states – Uganda, Kenya and Tanzania. I have keenly followed this story from 1999 when the treaty reviving the EAC was signed. 

In the new customs union, partners were required to: abolish all intra-state tariffs and non-tariff barriers, adopt a common external tariff, integrate all national customs services into one custom service, establish uniform national customs procedures and legislation, effect collection of duties at the first points of entry, and set up mechanisms for sharing such common revenue.

Other requirements were to: simplify and harmonise trade documentation and procedures, establish rules of origin with respect to products originating in partner states, enhance movement of persons, and establish common requirements for transit goods within the customs territory and re-exportation of goods from third countries.

Unfortunately, some of these things were not even attempted. Instead, Uganda and Tanzania, fearful of being overwhelmed by goods from the more industrially advanced Kenya, came up with a long list of Kenyan goods for which a duty rate of 10 percent would temporarily apply. This was to give protection to infant industries in Uganda and Tanzania.

There was so much at stake. If the arrangement was to succeed in the spirit of give-and-take, it had to be given adequate time to mature. Trade policies needed to be well thought-out. There was no such luck. Quickly, a customs union came into force in 2005. Uganda’s optimism for regional competitiveness before that year was based on the country’s potential. 

For instance, Uganda hoped to have comparative advantage in the region for production of hydro-electric power. But unsavoury controversies over Bujagali and Karuma power projects left Uganda limping as a near-captive market for Kenyan goods.

Throw in high transport costs and taxes because of being landlocked, and you see why Uganda stood to make less economic gains from EAC. But Uganda has demonstrated steely resilience. Over the years Uganda managed to boost its productivity and competitiveness, resulting in some of its products being targeted for blocking – via tariff and non-tariff barriers – in a dysfunctional customs union. 

Monitor’s editorial noted: “Kenya has this year imposed new taxes on poultry, eggs, milk, sugar and other Ugandan products in contravention of EAC regulations.” 

That’s the reality, yet EAC partners agreed on free trade (zero taxes imposed) on goods and services among themselves and a common external tariff. That’s what should happen in a functional customs union.

It is difficult to establish a customs union partly because it entails surrendering some national sovereignty to supranational institutions. No regional bloc is rock solid. Even the mighty European Union cracked with Brexit.

EAC hurriedly launched a customs union. To complicate matters, politicians quickly started a campaign for racing past the common market and monetary union to a political federation. This should stop. 

EAC should first make the customs union work properly before attempting full implementation of the common market. And it should keep political federation on the back burner.

Mr Okodan Akwap (PhD) is an associate consultant at Uganda Management Institute.