OPINION : Private sector view on fully fledged EA Customs Union

On January 1, 2010, East African Community (EAC) started implementing a fully fledged Customs Union where goods originating within the region attract no Import Tariff among EAC Partner States. The EAC Customs Union as an entry point of the EAC integration process commenced on 1st January 2005 with three EAC Partner States; Tanzania, Uganda and Kenya. Burundi and Rwanda joined EAC in 2007 but started implementing the Customs union in July 2009. The EAC Customs Union had an initial transitional period of 5 years starting in January 2005 and ending in December 2009 before it become a Fully Fledged Customs Union in January 2010. The end of transitional period in December 2009 which paved way for the commencement of the Fully Fledged Customs Union on January 1st 2010 has impact on the following customs union instruments: Elimination of Internal Tariff The successful elimination of internal tariffs among EAC Partner States ushers in a new era where goods started to be traded duty free among EAC Partner States. Tanzania and Uganda accorded 0 per cent import duty to Kenya following the end of the elimination of internal tariff on 31st December 2009. Kenya, Rwanda and Burundi had already accorded 0 per cent import duty to other Partner States. EAC Community Tariff The commencement of a fully fledged Customs Union implies that goods originating in the EAC territory shall attract zero tariffs (zero import duty) once traded among EAC Partner States. Domestic taxes such as Value Added Taxes (VAT) and Excise duties shall be paid to the consuming/importing countries. Although a fully fledged Custom Union ushers in a single customs territory, goods traded within the community will still be subjected to domestic taxes. Meanwhile harmonisation of the domestic taxes initiatives such as signing and ratifying the agreement on avoidance of double taxation and developing model for Double Taxation Agreement (DTA) need to be hastened to discourage smuggling in the region. Disparities in domestic taxes are likely to encourage smuggling in the Customs territory EAC rules of origin and free circulation of goods Ideally, under a fully fledged Customs Union, member states do not apply rules of origin as goods manufactured in one member state are supposed to move freely. Also goods imported into Customs Union from the rest of the world are supposed to circulate freely. However, this will not be the case for EAC since modalities for collection and accounting for customs revenue are not in place yet. Also complexity raised by multiple memberships of EAC Partner States in other Regional Economic Communities such as Southern Africa Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA) brings difficulty in the removal of the application of Rules of Origin. Therefore, in order to avoid trade deflection as well as promote industrialisation in the Customs Union, EAC will continue applying EAC Rules of Origin. The goods qualifying for EAC Rules of Origin are the only ones which will qualify for community preferential tariff treatment i.e zero import duty. Treatment of export processing zones goods In a fully fledged Customs Union, EAC will be treated as single customs territory. Since Export Processing Zones (EPZs) are part of the customs territory, the goods within EPZs do not qualify for community tariff treatment (zero import duty) once sold within EAC Customs Union. This is because goods introduced are generally regarded, for purpose of import duties and taxes, as being outside the customs territory. Therefore, once EPZ goods are sold in the Customs Union, they shall be considered as exports into the customs territory and shall, among other things, be subjected to payment of all applicable import duties (at CET rate), levies and other charges. EAC Common External Tariff (CET) The commencement of a fully fledged Custom Union implies that EAC Partner States will be more committed in the uniformity of the application of an EAC CET rather than opting for stay of application. Although EAC integration process recognises that the Partner States might be engaged in other Regional Economic Communities (RECs) such as SADC and COMESA, it is keen not to let the different CET in SADC and COMESA have a negative impact on EAC CET. EAC Partner States should work towards a more harmonised CET for three RECs i.e. SADC, COMESA and EAC which is currently being addressed through the Tripartite Agreement. The on-going comprehensive CET review shall among other things take into consideration the need of industrialisation of the region, degree of processing & value addition and level of development of the region. EAC Duty Remission Scheme The beginning of a fully fledged Customs Union fortify the need and importance of the EAC Partner States to apply uniformly EAC Duty Remission Scheme and refrain from using national ones or granting different exemptions and remissions which are outside the EAC Custom region. Granting exemptions often creates unfair playing field for the competition in the region. Continuous use of national duty remission schemes or granting of exemptions outside the EAC custom regime by individual EAC Partners States will undermine the importance and effectiveness of EAC CET as well as the EAC Customs Management Act. Elimination of Non Tariff Barriers (NTBs) With the commencement of a fully fledged Customs Union raises fears that cases of NTBs may increase due to the application of the zero import duty on the intra trade. That is why there is need for a more pragmatic approach in the elimination of the Non Tariff Barriers (NTBs) in the region. It calls for adoption of an instrument for enforcing removal of NTBs. EAC organs should be empowered to deal with persistent cases of NTBs at regional level especially those emanating from administrative and legislative measures by Partner States such as uplifting value of imports, imposing taxes and levies of equivalent effect to tariffs, ban of imports based on quality and standards. CONCLUSION Since integration is a process, the private sector in the region believes that the commencement of a fully fledged Customs Union is a process which offers both opportunities and challenges. It is our expectation that a fully fledged Customs Union will ease free movement of goods in the region. Zero tariff, geographical proximity, similar consumer tastes and easy customs procedures will make intra- regional trade more lucrative compared to trading with the rest of world. However, for intra-regional trade to significantly increase, EAC Partner States should be committed to the EAC integration process and refrain from protectionist practices which tend to frustrate trade. This will encourage private sector to fully take advantage of opportunities offered under a fully fledged Custom Union as well as the envisaged Common Market. The writer is the Executive Director of East African Business Council