East African countries could lose out on TFTA benefits from June

Saturday February 13 2016

Workers loading imported products at the Mombasa port. PHOTO | FILE

Workers loading imported products at the Mombasa port. PHOTO | FILE 

By CHRISTABEL LIGAMI

The East African region is likely to face stiff competition from Southern Africa countries after members of three trade blocs that merged last year agreed to disregard sensitive products in order to ensure fair competition.

The 26-member states forming the Tripartite Free Trade Area have agreed that 80 per cent of tariff lines will be liberalised upon implementation of the agreement in June and the remaining 20 per cent will be negotiated over five to eight years.

TFTA brings together members of the East African Community, the Common Market for Southern and Eastern Africa and the South Africa Development Community.

This is a reversal of the earlier agreement of having restrictions on the entry of the sensitive goods until 2017 to allow industries to adjust to the competition expected from cheaper products. This effectively opens the door for stiff competition for EAC goods from South Africa and Egyptian exports.

Among the products earlier listed for protection were sugar, maize, cement, wheat, rice, textiles, milk and cream, meslin grain and flour, cane and beet sugar, khangas, kikois, kitenges, second-hand clothes, beverages, spirits, plastics, electronic equipment and paper materials. All these will be subject to duty and quota restrictions.

“With an agreement to liberalise up to 80 per cent of the goods to other countries, each country or trading bloc like EAC will agree on what goods to liberalise and which ones not to,” said Mark Ogot, senior assistant director at Kenya’s Ministry of East African Affairs, Commerce and Tourism and a tripartite expert, adding that the goods that will not be liberalised will be imported into the countries under strict quota and duty provisions.

“For EAC countries, sensitive goods like sugar, maize, cement will not be liberalised although they will not be treated as sensitive goods as before. The other TFTA countries will also provide a list of their goods that will not be liberalised.”

According to Vimal Shah, chairman of the Kenya Private Sector Alliance, the main challenge will occur when countries repackage goods like sugar, electronic equipment and paper from other countries, and export them into the region as their own goods when they do not meet the rules of origin threshold. The goods are then sold at a cheaper price at the expense of locally manufactured goods.

“Liberalisation of trade in all the goods in the FTA agreement is necessary and unavoidable since duty and quota-free movement of goods is always a key aspect of any FTA,” said Mr Shah.

“It is important to have a competition policy in the TFTA for fair competition that is mutually beneficial to business. EAC partner states have a competition policy but implementation has been slow due to limited awareness of its importance.”

“The real advantages should be broader, including an improved business environment, more foreign direct investment, enhanced economic development in general, and, most importantly, bringing impetus to the realisation of the continental free trade area,” said Mr Shah.

The TFTA aims to liberalise  100 per cent of tariff lines, taking into account the usual general, specific and security exceptions. s and subject to reciprocity.  

Competition policies

At the time of the TFTA launch, not all tripartite countries had finalised their tariff offers. The Third Tripartite Council of Ministers meeting held in Sharm-el-Sheikh in Egypt has given countries until June this year to finalise their offers.

The World Trade Organisation does not have any policies on competition. However, through its principles of non-discrimination, monopoly, national treatment and others as enshrined in the multilateral agreements on trade, competition is indirectly covered.

So far, EAC partner states have agreed to liberalise 63 per cent of their tariff lines to the other TFTA partners and 37 per cent of tariff lines are to be liberalised and further negotiated.

On rules of origin, members have agreed that where rules are common (including wholly originating), 35 per cent ex-works costs (distribution and logistics) should be retained as an interim option. If enacted, such a move would mean that products on which the value-added criterion of 35 per cent ex-works cost applies could gain duty-free regional market access.

“The agreement is also on product- specific rules of origin,” noted Mr Ogot.

Rules of origin clarify which goods are considered to have originated in a given state; whether they have been wholly produced in that state, or whether a process of substantial transformation of materials, imported from outside that state, has been undertaken.

Although the provisions of the tripartite agreement favour a single value-added rule as in the EAC and Comesa regional agreements, negotiations are now moving from a percentage-based approach towards a product-specific approach, which will involve defining specific rules for numerous product categories.

However the TFTA members are yet to agree on trade remedies and dispute settlement. TFTA Agreement provides for the application of anti-dumping measures.