East African traders will have access to a wider market following the adoption of a uniform value addition regime by three economic blocs in Africa.

Twenty-six African countries, that are members of the Common Market for Eastern and Southern Africa (Comesa), the South African Development Community (SADC) and the East Africa Community (EAC), adopted the EAC benchmark required for goods to qualify for duty-free access to the combined free trade area during a recent tripartite negotiation meeting in Malawi.

This effectively opens the doors for EAC goods that could not access markets such as South Africa, Egypt, Ethiopia and Eritrea. The countries will in June combine to form the Tripartite Free Trade Area (TFTA) – Africa’s biggest trading bloc.

The 26 countries are home to 625 million people and boast a GDP of $ 1.2 trillion — about 58 per cent of Africa’s economy.

Under the revised EAC rules of origin, goods on which 35 per cent of the ex-works price is raised locally qualify to access the market of member countries duty-free. The rules are yet to be gazetted to gain legal force. Unlike ex-factory price, ex-works price allows more goods to benefit because it includes distribution costs.

The TFTA will be launched at the third Tripartite Free Trade Area Summit scheduled for Egypt in June. The partner states have been debating whether to use ex-works or ex-factory as the interim entry point into the TFTA.

Ex-works price includes distribution costs like transport and logistics to the shop yard — which increases the local input that is required for finished products to be considered TFTA goods. The ex-factory price looks at the value added on the factory floor only.  

Andrew Luzze, the executive director of the East African Business Council, said the ex-works cost is a fairer benchmark because it incorporates the actual costs incurred by traders and manufacturers. It will make harmonisation of trade policies within the partner states easier.

“Ex-works takes into account charges and expenses of getting products to the market, which works well for the traders,” said Mr Luzze.

However, the EAC Director General in-charge of Customs and Trade, Peter Kiguta recently hinted that taxes on all EAC exports would be based on ex-factory prices in order to minimise disputes between EAC traders and Customs officials. 

The major dispute has been on the valuation of goods produced and sold within EAC, with some states insisting that value added tax (VAT) should be pegged on the final cost of products, including cost of transport, insurance and handling.

Willingness basis

The Tripartite (Grand) Free Trade Area brings together the EAC, Comesa and SADC on a willingness basis, while allowing others to enter into bilateral arrangements.

It is expected to serve as the basis for the completion of a Continental Free Trade Area by 2017, with the aim of boosting trade within Africa by up to 30 per cent in the next decade, and ultimately establishing an African Economic Community.

According to the tripartite report, the member countries are also expected to liberalise their tariff lines with all the partner states, which will show how products produced within and outside the tripartite regions should be treated.

“The main aim of this is to resolve the challenges of different trade regimes brought about by the multiple memberships that are hindering regional trade processes,” said Mark Ogot, a tripartite expert at Kenya’s Ministry of East African Affairs, Commerce and Tourism.

The EAC will have three categories of tariff offers for Comesa, SADC, and the Southern African Customs Union and with other states who are not members in either of the blocs negotiations.

According to the report, the Comesa countries that are already fully liberalised will maintain the existing tariff lines but those without an FTA arrangement will need to harmonise their rates with other EAC states over a predefined time frame.

“The period for the phase down of the sensitive products like sugar and rice to both FTA and non-FTA member countries will be five years,” said Mr Ogot.

The TFTA members also agreed that food aid will be considered outside the rules of origin among partners.

“We are yet to agree on a common rule applicable to the full TFTA given that the current EAC rules of origin are substantially different from the regimes employed by Comesa and EAC,” said Mr Ogot, adding that negotiations are underway on permanent enforcement criteria.