The East African Community (EAC) member States are moving closer to reviewing the Rules of Origin (RoO) for products traded within the region’s customs territory and which qualify for preferential tax treatment, with eyes on facilitating trade and attracting investments after an outcry from businesses.
The Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI), in a meeting held in Arusha in November last year, recommended a complete review of these rules rather than piecemeal changes on various contentious products, such as refined sugar for industrial use.
“The Sectoral Council on Trade, Industry, Finance and Investment took note of the analysis and observations made and directed that the proposal to review origin criteria for sugar for industrial use be discussed during the comprehensive review of the EAC Rules of Origin, 2015,” says a report of the meeting seen by The EastAfrican.
The proposed review follows concerns by the business community that existing rules, which have not been reviewed in the past decade, have failed to respond to the changing business environment brought about by new free trading areas, such as the African Continental Free Trade Area (AfCfTA) and the Tripartite Free Trade Area (TFTA).
Origin criteria
In August 2024, Kenya wrote to the EAC secretariat proposing initiation of the comprehensive review of the EAC Rules of Origin, 2015, with a further proposal on the importation of raw sugar to manufacture sugar for industrial use.
“There is a need to review the origin criteria for all products as a package and avoid piece meal amendments. Furthermore, the review will address challenges faced by some of the products while implementing the Rules of Origin, aligning the Rules with the agreed criteria under the AfCFTA and TFTA agreements,” the report says.
The EAC Rules of Origin are a set of criteria that are used to distinguish between goods produced within the EAC Customs Territory and which are eligible to the community’s preferential tariff treatment and those produced outside, which attract import duties specified in the common external tariff (CET).
For goods to qualify as originating in the EAC, they must be wholly produced in the EAC or must undergo sufficient working or processing in EAC using materials imported from third countries under the region’s duty remission scheme. Materials imported from third countries are regarded as non-originating materials.
The meeting considered the proposal by Kenya on importation of raw sugar to manufacture sugar for industrial use but observed that sugar for industrial use is among “sensitive” products attracting a duty of 100 percent or $460 per metric tonne, whichever is higher.
In the case of industrial sugar used in the manufacture of sweets, biscuits and syrups, the current RoO provide that the raw sugar used in its manufacture should be wholly sourced from the region.
Currently, regional confectionery firms import industrial sugar duty-free under the EAC duty remission scheme but, under the EAC Rules of Origin, they could export the end product to other EAC member states if the raw sugar used in the manufacturer of industrial sugar were sourced locally.
The protocol for the establishment of the EAC Customs Union provides that goods whose inputs have benefited from duty waivers be sold outside the EAC and, in the event that such goods are sold in the EAC Customs Territory, they should attract duties, levies and other charges provided for in the CET.
It also provides that the sale of goods in the territory be limited to 20 percent of the annual production of a company, and that these goods attract duty as provided in the CET.
Under the region’s four-band CET, imports of finished products from countries outside the bloc attract a duty of 35 percent duty; 25 percent for intermediate products available in the EAC region; 10 percent for intermediate products not available in the EAC region and 0 percent import duty on raw materials and capital goods attract.
EAC has been faces an annual refined sugar deficit of 9,583 metric tonnes on average in the past four years (2020-2023), with an average annual production of the sweetener standing at 25,155.75 metric tonnes, against an average demand of 514,774.75 in the period.
Average annual imports of refined sugar in the EAC region stood at 427,578.25 compared to exports of 4,100.25 metric tonnes during the period under review.
Members of the East African Business Council say that existing rules, which have not been reviewed since 2015, have denied a number of products duty-free access to the EAC markets, arguing that the main challenge identified in the current EAC RoO is rigidity, citing products such as edible oils, cement and fruits, which do not qualify for the EAC-originating criteria and accorded preferential tariff treatment.
While the rules are expected to be reviewed every five years, the current ones were last updated in 2015.
Some businesss say that some of the rules need to be updated to respond to the changing business environment, especially the coming into force of the AfCFTA
In 2016 the SCTIFI directed that the review of the RoO 2015 be undertaken after completion of the comprehensive review of the CET. The revised four-band CET took effect on July 1, 2022.
Subscribe to continue reading this premium articleSubscribe to continue reading this premium article
