Marking 5 years of EAC Customs Union

On 1st January 2010 the East African Community (EAC) will make 5 years as a Customs Union. A defined path for deepening and widening the integration of EAC was adopted and encapsulated in the Treaty. The path comprises of four pillars starting with the Customs Union, the Common Market, the Monetary Union and ultimately the Political Federation. The Customs Union was considered as an appropriate entry level of the integration process. Although a Customs Union is ideally an advanced stage of integration that requires elaborate and functioning legal and institutional mechanism, EAC was not reinventing the wheel as it had been a fully operationalised Customs Union under the first East African Community that collapsed in 1977. The region was therefore not a learner in the game hence was not necessary to start swimming from the shallow end of the pool. In any case, by 2005, an Institutional framework of a functioning Secretariat, an active East African Legislative Assembly and the EAC Court of Justice were already established and therefore provided a backbone for the entry at a Customs Union level. Indeed the Customs Union involved negotiations of the Protocol from 2000 to 2004 which task was co-ordinated by the Secretariat and subsequently the enactment of the enabling Customs Laws by the East African Legislative Assembly. One fundamental question that emerges at this time as we approach 5 years of Customs Union and 10 years of the re-birth of the EAC is whether the initial pillar is yielding any tangible benefit to the region. In dealing with this question, it is critical to take into account the objectives of the EAC Customs Union which are the parameters for assessing the performance. It is also worth noting that integration is a process where the outcomes are realizable in the medium and long term. Short term benefits mostly manifest in form of unfolding opportunities for future positive outcomes. Turning back to the objectives, under the Customs Union, EAC set its self to attain a number of objectives far beyond what is ordinarily prescribed in the theory of integration. In addition to intra-trade liberalization and promotion, EAC envisions promoting production efficiency, promotion of local, cross-border and foreign investment, and industrial diversification for economic development. These objectives set the EAC Customs Union unique in purpose and comprehensive in design. Trade promotion is one underlying driver of the EAC Customs union. In assessing this aspect, the trend of intra-EAC trade since 2005 provides a yardstick for measuring the performance. Since 2005 the intra EAC trade, which is an aggregate of exports and imports within the region, have been registering remarkable increases every year. From 2005 to 2008 EAC intra trade has rose by 49% with value of trade having increased from US$ 1,847 to US$ 2,715. A conspicuous positive performance has been registered by Tanzania and Uganda whose export growth to the region has more than doubled since 2005. Likewise Kenya has continued to register increases in total trade with the other Partner States which stood at 25% in 2008. The increase in intra trade is attributable to the tariff liberalisation within EAC. A free tariff regime on most of the internal trade was adopted alongside a progressive tariff reduction programme on some products from Kenya imported into Tanzania and Uganda. The dismantling of the tariff is now in a final phase down stage which will reach zero tariffs on 1st January 2010. This smooth transitional process has to date not caused any negative impact to any Partner State’s economy. To the contrary there is evidence of steady and substantial growth of revenue yields by the Partner States since 2005. Likewise cross border investments inflows has been substantial particularly into Uganda, Tanzania and RwandaAnother reality that the EAC Customs Union presents is the adoption of harmonized customs tariff and legal regimes. A common external tariff of harmonized customs duty rates apply uniformly to trade with third parties. The uniform East African Custom Act and Regulations have created stability and predictability in the business environment in the region. No Partner State can unilaterally amend the tariff or the law to suit its interest. Any changes are jointly decided on by all the Partner States taking into account the interests of the whole region. This means that discretional powers that were vested with some authorities at national level have been removed by the regional custom laws. For example, the power of granting exemption was removed from the Ministers of Finance through adoption of a harmonized list of incentives and exemptions which can only be amended by the Council of Ministers. EAC has also made a fundamental milestone in evolving as a unified bloc in multilateral and international negotiations. Currently EAC as a bloc is negotiating with European Union an Economic Partnership Agreement. This phenomena strengthens EAC position in negotiations as a single entity rather than each Partner State going it alone against a giants. Commonality has been further attained through a harmonization of quality standards applicable on products traded in the region. So far, 1100 standards have been harmonized as EAC standards which replace the national standards. It is worth mentioning that the joining of Rwanda and Burundi in July 2007 and subsequent commencement of implementation of Customs Union in July 2009 has bolstered the EAC market and further unleashed the opportunities of the expanded market to the people of EAC. To ascertain their commitment to the EAC integration Rwanda and Burundi have adopted the EAC tariff and legal regime. Rwanda has migrated to the EAC financial year while Burundi is set to adjust hers in the 2010 / 2011 financial year. This means that all the five countries will be reading their national budget on the same day, an achievement which so far covers four Partner States of Uganda, Rwanda, Tanzania and Kenya. It is, however, important to give a reflection on some of the impediments that have been encountered. One of the barriers is the re-occurrence of non tariff barriers that manifest in form of administrative and legislative measures coupled with infrastructure bottlenecks to the movement of goods. This is an area of focus as we move to the consolidation level of Customs Union. It has also been reported that the EAC Customs Union has not yet reached the ordinary citizens. The ordinary citizens have not yet seen the benefits of the union in terms of welfare gains and seamless movement of goods and services for small scale cross border trade. As the EAC transforms from a transitional to a full fledged phase, it is critical that the path is defined in terms of a systems, legal framework and institutions appropriate for making the Customs union consolidate on gains made so far and address the challenges along the way. Free movement of goods is a fundamental pillar of a customs union. The establishment of the Common Market slated to commence in July 2010 should build on a fully functioning Customs Union devoid of any impediments likely to deviate the process. There is light at the end of the tunnel so far and EAC has no alternative but to steer the course. The author is the Director of Customs EAC