Bridges Weekly Trade News Digest • Volume 10 • Number 36 • 1st November 2006
East African Community Review Calls For Improving Multilateral Commitments
The WTO Secretariat’s Trade Policy Review of the East African Community (EAC) lauds the continuing economic reform programme in the EAC. At the same time, the Review calls on the customs union — comprising Kenya, Tanzania and Uganda — to improve its members’ multilateral commitments on both goods and services in an effort to increase its attractiveness for business and investment. While the Review recognises regional trade agreements as one of the drivers of trade and investment liberalisation, it also raises concerns with regard to the membership of EAC countries in multiple and sometimes overlapping regional arrangements.
The original EAC is a regional intergovernmental organisation that dates back to 1917 and collapsed in 1977 due to various political and economic reasons. The present EAC was established in 2000 with the aim of become an economic area (including customs and monetary unions, with harmonised macroeconomic policies, and ultimately a political federation). However, no overall timetable has been established for this process.
Calls for greater integration and harmonisation among EAC countries
The Review notes that full integration of EAC members would provide a strong foundation for their participation in the world economy. To date, however, the EAC members are yet to fully implement some of the provisions within the legal framework of the EAC, such as the harmonisation of customs procedures, other duties and charges on imports, internal indirect taxes and fees on production.
The Review also reveals differences in implementation capacity among the various EAC members. For instance, it states that Kenya is the only EAC country with a certain capacity to enforce its technical regulations and sanitary and phytosanitary (SPS) measures.
The report also points out that the free-trade area component of the EAC customs union is being established through asymmetrical liberalisation. While imports from Tanzania or Uganda are duty-free, tariffs on some selected items from Kenya to the other EAC countries remain in place and will be phased out by 2010.
Moreover, the Review cites tariff escalation (i.e. higher tariffs on value-added products) and supply-side constraints — including high production costs, limited access to financing and low quality of products — as major obstacles to the development of EAC manufacturing. In services greater commitments in sectors such as telecoms, energy and transport would help tap export potential and improve competitiveness in general.
Commenting on the Review, an African trade diplomat remarked that harmonisation should be a "continuous" exercise and different circumstances of Members should be taken into account. Another delegate stressed the need for EAC Members to "move together".
Membership in multiple trade agreements problematic
Kenya, Tanzania and Uganda participate in different regional trade agreements. For instance, Kenya and Uganda are members of the Common Market for Eastern and Southern Africa (COMESA) while Tanzania is a member of the Southern African Development Community (SADC) and a signatory to the Agreement on the Global System of Trade Preferences among Developing Countries (GSTP). Tanzania is also considering re-entering COMESA after its withdrawal in 2000.
The Review notes that while each country is free under the provisions of the EAC to negotiate bilateral agreements provided they notify the other two members, in practice, overlapping membership has created problems. For instance, the agreements use different types of rules of origin, i.e. the criteria used to define where a product was made to determine whether it is eligible to benefit from liberalised trade within a regional trade agreement. The terms of entry of goods into the EAC can also vary for different importing countries since SADC and COMESA are governed by different protocols of trade.
Further steps to improve predictability and credibility of trade regime needed
The Review calls for the simplification of the EAC tariff structure through, among others, the reduction of rates on agricultural commodities. This would reduce the need for concessions and introduce more transparency in the tariff regime, thus making it less distorting.
Also recommended are further improvements of multilateral commitments through the reduction of bound rates, enlargement of the scope of bindings on goods and services, elimination of applied compound tariffs (all bound duties are ad valorem) and removal of other duties and charges as a means to ensure predictability and credibility of the EAC trade regime. The Review also calls for greater attention to be paid to non-tariff barriers in the full establishment of the EAC customs union (both free trade area and common trade measure components).
Commenting on the Review, an African trade diplomat stressed that liberalisation needed to be managed and that liberalisation, per se, could not always be equated with development. Agricultural tariff protection, for instance, was at times essential for food security, rural development and livelihood concerns, he pointed out.
Addressing supply-side constraints
The Review highlights the importance of technical assistance to address supply-side constraints. In response, one African trade delegate stressed that ‘aid for trade’ should be independent of the state of the negotiations at the WTO. Another delegate added that ‘aid for trade’ needed to be comprehensive, i.e. addressing all trade-related problems, and effective in its operationalisation and implementation, thereby responding to the ‘development’ concerns enshrined in the ‘Doha Development Agenda’. Finally, as also stated in Review, the delegate stressed that trading partners needed to enhance market access for EAC goods and services.
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