Consumers across East Africa will start paying more for basic commodities after partner states agreed to close a window that allowed for duty-free imports during shortages.

Technically known as the stay period, the window allowed countries to waive the application of the common external tariff for items such as sugar, wheat, maize, and rice for up to six months, cushioning consumers from supply-driven price increases.

Under the regime, a partner state would request the secretariat to be allowed to import sensitive goods duty-free to plug deficits in domestic output. The motivation was to help the affected country manage inflation and keep the cost of essential goods from going out of the reach of the common consumer during scarcity.

These benefits, however, appear to have been weighed against the persistent abuse of the regime that saw importers repackage the goods for sale at lower prices during periods of glut, getting an edge over genuine suppliers on retail counters. 

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The reviewed common external tariffs regulations scrap the stay period application but retain the current CET rates. East African Business Council executive director Andrew Luzze said some partner states used stay period to bring into the region products that are repackaged and sold to the other partner states without paying duty.

“Application of stay period by partner states has on many occasions caused market distortions for a particular commodity and as a result become a non-tariff barrier,” said Mr Luzze, giving the example of the yet to be resolved sugar dispute between Kenya and Uganda.

However, he said, the stay period was necessary because partner states faced unforeseen challenges of production for a particular product such as the maize shortage that hit Kenya in 2011 following a prolonged drought.

“In this case, it is important to have that window to import that particular good but under strict control measures,” he said.

In the reviewed regulations some of the products on the sensitive goods list could be dropped because of increased production in partner states that has pushed prices down. The proposal will be considered by the EAC Council of Ministers before it is approved by the Heads of State.

“We have proposed that goods like cement be removed from the list as their prices have been dropping with time and the CET has in the event gone down from 75 per cent to 45 per cent,” said Mr Luzze.

Savannah Cement managing director Ronald Ndegwa, however said that cement should be retained on the sensitive products lists because the local producers are suffering from a high cost of production.

“We have been engaging the EAC stakeholders on this and have requested the EAC to  consider our proposal,” said Mr Ndegwa.

Vimal Shah, Cchairman of the Kenya Private Sector Alliance (Kepsa), said the phasing out of the products should be accompanied by incentives for value addition. He said the list of sensitive goods would change from time to time depending on the local cost of production and the world market production cost.

“The challenge is not having more goods on the sensitive list but duty being charged and companies not honouring it,” said Mr Shah, adding that the sensitive list is another way of encouraging local companies to become competitive. The stay period is usually applied where the world prices of a commodity are such that loading duty on them would make the goods prohibitively expensive in the importing country.

Rwanda has already pledged to remove sugar from its sensitive list beginning this year.

The EAC partners agreed under the Customs Union to review the common external tariffs in order to protect manufacturers in the region.

In the reviewed CET, the Parties agreed to retain the three-band CET as agreed upon under the Customs Union of zero per cent for raw materials, capital goods, agricultural inputs, certain medicines and certain medical equipment; 10 per cent for intermediate goods and other essential industrial inputs; and 25 per cent for finished products. Rules of origin have also been agreed upon to accord preferential tariff treatment for goods originating in the EAC.

The CET rates on the sensitive products will however continue to be substantially higher than the 25 per cent maximum rate for non-sensitive products. In this case, rice will continue attracting a CET of 75 per cent in Uganda, Tanzania and 35 per cent in Kenya; wheat will attract between 60 and 35 per cent CET in both countries and sugar 100 per cent.

Tariffs on wheat and maize flour have so far not been targeted for revision even in times of severe shortages. Instead, governments have supported existing milling capacity by importing raw grains for processing.

There is a widely held view that the region has the potential to significantly expand rice production and that tariff protection is essential for this. Although the CET on wheat has been adjusted more frequently than that on maize, rice and sugar, there is a sense of convergence in national positions on having a low tariff.

“This reflects a very high import dependency as well as concerns over the full utilisation of the processing industry,” said Samwel Nyandemo, an economist at the University of Nairobi, adding that the recent spikes in the world price have further supported this position.

“The determination of appropriate CETs for sensitive products is always a challenge ,especially when partners are at different stages of development with diverse objectives in areas such as food security. The CET can limit the policy space of individual members,” said Dr Nyandemo.

Rwanda and Burundi’s current list of raw materials and industrial inputs exempt from CET expires in June 2014, after a five-year period. The two partner states joined the Customs Union in 2009 and the exemption was allowed to cushion their industrial base from competition from established firms of other partner states.

Uganda too has a list of exempted goods — known as “the Uganda List.” The Uganda List was to expire in June 2013 but it was extended by a year after manufacturers argued that local factories were still in their infancy, and that entrepreneurs were still paying bank loans.

Kenya, on the other hand, has an upfront duty remission scheme for exports, benefiting about 400 exporters.

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