National interests delay Customs Union, even as technology kicks in

Tuesday October 9 2018

Mombasa port

The port of Mombasa: The Customs Union has many facets to streamline trade among member countries. PHOTO | NMG 

By DICTA ASIIMWE
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Fourteen years since the East African Community's Customs Union became operational, the Community has postponed the thrice the date of its full implementation.

The region was expected to achieve full implementation of the Customs Union in 2010, but has postponed the deadline indefinitely as issues such as the harmonisation of internal and joint collection of taxes are yet to be thrashed out.

Subash Patel, chairman of the Confederation of Tanzanian Industries, says that even though the Common External Tariff had been fully achieved, partner states are now choosing to go it alone because of slow implementation at the regional level.

He cites the case of Uganda and Kenya, which have gone ahead and implemented the 35 per cent external tariff on steel products to protect their industries.

Tanzania, on the other hand, has failed to do so, something that Mr Patel says is hampering the growth of its steel industry, as substandard and cheaper steel products from Asia flood the market.

In its current form, experts say, the EAC Customs Union is benefiting a handful of people in the region and a larger number in India and China. This is out of sync with the premise that EAC integration is pro-East Africans.

Currently Customs Union implementation benefits politically connected traders importing goods into the EAC.

Nicholas Nesbit, chairman the East African Business Council, says the increase in imports and policies whose net effect is keeping East Africans in poverty can be blamed on partner states ignoring the voices of manufacturers and innovators and choosing instead, to listen to importers whose business depends on failing locally produced goods and service.

Mr Nesbit who is also the managing director of the Nairobi-based arm of tech firm IBM, blames the EAC partner states tendency to listen to traders and not manufacturers and innovators for the EAC’s failure on its mandate.

“EABC has not been as strong as it should be,” he says. A strong EABC would force national business associations to bring trade disputes to their regional apex body.

Trade disputes

He says that national business associations take their trade issues to their ministers of trade and the EAC, which fuels protectionism, since discussions at that level are usually nationalistic and inward looking.

But Alex Mugire, deputy commissioner at Rwanda Revenue Authority, says a fully functional EABC wouldn’t solve East Africa’s tendency to favour implementation of sections of the Customs Union that encourage imports.

Mr Mugire says that trade facilitation that cover common external tariff, the non-trade barriers and the ability of importers to pay their taxes and clear goods before reaching East Africa’s ports of entry Dar es Salaam and Mombasa is an easier process to implement.

The sections of the Single Customs Territory on the construction of one-stop-border posts, ability to track goods and the interlinking of Customs systems are easier to implement when dealing with imports.

As a result, Mr Mugire says about 70 per cent of the Single Customs Territory has been implemented since 2014 and this largely on account of imports.

The implementation of a SCT targeting exports in Uganda started for a few selected goods in August. In Rwanda the Single Customs Territory for selected exports started in September.

EAC has also failed to come up with a deal on internal taxes like value added tax, excise duty and income taxes.

Mr Nesbit says failure to agree on internal taxes has fuelled the disputes over sensitive products like sugar, cooking oil and rice.

Different experts agree that the EAC has failed to harmonise internal taxes because these can be used to block products from the region at the slightest excuse.

“Each country is protecting its revenue. This makes trading in the region difficult,” said Businge Rwabwogo the general manager in charge of operations at the Mukwano Group of Companies.

Mukwano Group is one of the companies currently importing palm oil from India for refining, because of the war in South Sudan, a previous blockade by Rwanda and a current one by Tanzania has affected their ability to expand their sunflower cooking oil and fat manufacturing business.

By importing palm oil from India, Mr Rwabwogo says East Africans are losing out on jobs.

Arm-twisting

Currently, Mukwano spends about Ush80 billion ($21 million) in northern Uganda to provide advisory services, seeds, post handling advice and the purchase of sunflower and soya seeds for their cooking business.

He adds that the company would be happy to expand to places such as Shinyanga in Tanzania, if the quantity of sunflower produced and market size of resulting oil was right.

Instead of allowing local companies to expand, make enough capital to expand naturally into the region, EAC partner states prefer to arm-twist companies by imposing tariffs.

Ben Usaje the Tanzanian Commissioner for Customs calls this introduction of tariffs by some as being co-operative while at the same time remaining competitive.

“We are co-operating but we have never ceased to compete. It is survival for the fittest,” he says.

Mr Rwabwogo says Mukwano has been reduced to importing palm from India, because their competing for investors or protecting existing ones.

In the process, this fragments the EAC into small national markets instead of allowing companies to enjoy the economies of scale that would come with selling to the region's 170 million population.

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