Host: The East African Business Council (EABC)

Speakers:

• Simon Kaheru, EABC Vice Chairperson
• Adrian Njau, Acting Executive Director of EABC
• Donald Tindamanyire, Principal Customs Officer Tariff and Valuation at the EAC Secretariat
• Josphat Karanja, Manager of Tax Consulting at RSM Eastern Africa

Attendees: Over 100 industry leaders and government officials

Venue: Microsoft Teams Webinar

Date and Time: Friday, 2nd August 2024, From 11:00 HRS (EAT)

Opening Remarks

The meeting began with an introduction by EABC Vice Chairperson, Simon Kaheru. He provided an overview of the webinar theme and objectives, emphasizing the importance of uniformly applying the East African Community (EAC) Common External Tariff (CET) to enhance intra-EAC trade, investment, and regional value chains.

Keynote Presentations

Simon Kaheru highlighted that the EAC-CET is an essential instrument of the EAC Customs Protocol, facilitating intra-trade and creating a level playing field in the EAC Customs Territory by providing a uniform tariff structure for products imported outside the EAC bloc. However, the Stays of Applications (SOAs) and Country-Specific Duty Remissions continued to be applied, diluting its effectiveness and distorting the market. He stressed the need for public-private dialogues and private-to-private partnerships to drive the uniform implementation of the EAC-CET in order to boost intra trade.

Adrian Njau, Acting Executive Director of EABC, explained the transition from the previous 3-band structure with a maximum tariff rate of 25% to the current 4-band tariff structure with a maximum tariff rate of 35%, adopted in 2022. According to EABC Analysis 2022, the EAC-CET maximum tariff of 35%, if implemented effectively, will increase intra-EAC trade by $18.9 million and create 6,781 jobs.

Donald Tindamanyire, Principal Customs Officer Tariff and Valuation at the EAC Secretariat, presented the criteria for classifying goods with a tariff rate above 25%. These criteria include end products of priority value chains such as cotton/textile, iron & steel, edible oil, chemicals, leather & leather products, and automobiles. Strategic goods contributing to revenue, employment, food security, and foreign exchange were also included. He justified the 4th band (35%) by aligning it with national and regional industrialization policies, adapting to changes in regional economic structures, and addressing the frequent use of SOAs under the 3-band structure. The benefits of adopting the 35% rate include increased revenue by 5.5%, boosted intra-regional trade, reduced importation, promoted value addition, attracted FDI, and created employment opportunities.

However, Tindamanyire noted several challenges, including non-tariff barriers (NTBs) affecting intra-regional trade, disturbance of CET as a key Customs Union instrument, denial of preferential market access despite meeting origin criteria, lack of investment predictability, smuggling issues, and unfair competition. He recommended forming a common private sector position on CET rates for economically important products, assessing the impact of EAC CET 2022 on FDI and intra-regional investment, evaluating national and regional productive capacities, and addressing challenges leading to constant SOA applications, especially in agro-processing, textiles, and apparel sectors. He also suggested assessing the rationale behind mixed duty rates and industrial/value chain development levels, and promoting regional value chains.

Josphat Karanja, Manager of Tax Consulting at RSM Eastern Africa, provided an overview of the implementation of the revised EAC CET. He highlighted disparities among member states in implementing uniform import duties through the EAC CET. These disparities create market distortions, discourage regional economic integration and value chains, and undermine the efficiency of the EAC’s intra-regional market. Legal Notice No. EAC/147/2024 introduces several key changes to the EAC rates, including adjustments of rates, applicability within EAC member states, and implementation guidelines. These changes aim to streamline trade practices and ensure consistency in regional trade policies.

The introduction of the EAC CET has affected various sectors within the EAC member states. Import-dependent businesses, manufacturers, producers, export-oriented industries, retail and consumer goods, logistics and transportation, and service industries have all been impacted differently by the changes in the EAC CET. Each EAC member state has specific reasons for diverging from the uniform application of the CET, including economic development, revenue generation, regional integration, and protection of local industries. Karanja emphasized that the lack of uniform application creates an unlevel playing field, leading to uncertainties for manufacturers and traders, thus affecting crucial business decisions.

Panel Discussions

The panel discussions focused on addressing market distortions due to inconsistent application of the EAC-CET and the need for uniform application to boost regional value chains. Stakeholders from various sectors shared their perspectives on the challenges and opportunities presented by the EAC-CET.

Stakeholder Perspectives

Insights from private sector leaders emphasized the importance of the CET as central to driving intra-trade and called for political goodwill to ensure its uniform application.

Key recommendations included building productive capacities in the region, harmonizing private sector positions on CET, protecting local industries, applying regional duty remission schemes to promote East African manufacturers, developing industrial infrastructure for priority value chains such as leather to promote value addition, and continuing to create awareness of the EAC-CET Version 2022 among both public and private stakeholders. Promoting dialogue between the private and public sectors to address emerging issues regarding the implementation of the EAC-CET, forming a common position on the rate to be applied on products of economic importance, assessing the impact of EAC-CET 2022 on FDI (Foreign Direct Investment) and inter/intra-regional investment, and assessing national and regional productive capacities were also recommended.

Way Forward

The way forward includes immediate actions such as Partner States focusing on the full implementation of the EAC CET already in place, exercising political goodwill to implement harmonization of the application of the EAC CET, hastening the ratification of cooperation agreements, and holding pre-budget consultations to align fiscal policies. Long-term strategies involve enhancing public-private dialogue, strengthening policy frameworks, promoting awareness and training, and establishing mechanisms to monitor and evaluate the impact of the EAC-CET on intra-regional trade, investment, and economic development.

Q&A Session

1. What actions are necessary to ensure uniform application of common external tariffs (CET) in East Africa? How can East Africa overcome the issue of varying rates due to individual country interests?
   A: The challenge with CET variation is that while there is a regional duty remission scheme, individual countries can opt in or out, resulting in inconsistencies. There’s a need for a stronger enforcement mechanism within the East African Community (EAC) to ensure uniform application. This involves addressing political and economic interests and possibly reforming the common tariff structure.
2. How to reconcile private sector needs with the political and economic interests of individual partner states? Is there a need for exceptions or adjustments?
   A: There’s a need to align the objectives of regional integration with the economic priorities of individual countries. The private sector should provide clear recommendations, and a unified approach needs to be established to address deviations in tariff applications.
3. How can balance be found between protecting local industries and addressing political reasons for tariff increases?
   A: Balancing local industry protection with political motives requires transparent processes and adherence to agreed-upon regional policies.
4. Why are there differences in duty remission approvals among partner states for similar products?
   A: The difference arises because duty remission can be regional or country-specific. If all partner states do not agree on a remission proposal, it may only apply to those who do.
5. Why are there differences in tariff rates, particularly in the leather sector, and what plans are there to address the challenges faced by the sector? Imposing tariffs on wet blue leather without adequate infrastructure will harm the industry. Should the CET be reduced for the leather sector while waiting for infrastructure development?
   A: There are challenges in implementing uniform tariffs due to varying capacities and standards across partner states. Efforts to introduce export levies on wet blue and promote value addition are ongoing but need better coordination and enforcement. While infrastructure development is necessary, there is a need for interim measures to support the industry. Removing or reducing tariffs on leather products could be considered while long-term solutions are developed.
6. How to resolve issues with duty remission requests where inputs are available in different partner states?
   A: The procedure requires partner states to have consensus. Ensuring that inputs available in the region are prioritized over those in individual countries can help resolve discrepancies.

Closing Remarks

The moderator appreciated the insights and responses from the presenters and thoughtful questions from participants and urged everyone to continue to work together to achieve a unified East African market.

 

The contents of this blog post are based on the meeting notes and represent our interpretation of the discussions and decisions made during the meeting. While we strive for accuracy, please note that these summaries and insights may not capture all the nuances of the actual conversations. For precise details or official records, please contact EABC for official meeting minutes or contact us directly.