EAC businesses fault lengthy tariff talks for slow uptake of trade under AfCFTA

Saturday August 12 2023

Kenya National Trading Corporation Business Development Manager Hussein Fayo (R) explaining to a client about their products during the African Continental free trade area conference at Safari Park Hotel in Nairobi, Kenya on May 30, 2023. PHOTO | LUCY WANJIRU | NMG


East African partner states are yet to take full advantage of the African Continental Free Trade Area agreement (AfCFTA), a result of prolonged discussions on tariff offers for agricultural and sensitive goods.

Members of the East African Business Council (EABC), supported by the German Technical Cooperation (GIZ), met on August 7 in Kampala to discuss the progress of developing the EAC Tariff Offer under AfCFTA for sensitive products and the exclusion list. The conclusion was that it will take some time for intra-trade regional to take off fully under the continental pact.

African countries officially began trading under the AfCFTA on January 1, 2021. But more than two years later, trade remains as low as before the AfCTA — just 14.4 percent of total African exports.

Read: Here is the biggest hurdle to AfCFTA take-off

“The main objective of the liberalisation of tariffs under AfCFTA is to boost intra-Africa trade, which is currently very low, and this can be realised if liberalisation achieves the threshold of seven percent for sensitive products and an exclusion list of not more than three percent of tariff lines. It also means not more than 10 percent of intra-Africa imports,” said Simon Kaheru, vice-chairperson of EABC.

“I wish to appeal to our members in the private sector to put aside national interests and focus on regional interests so that they can come up with regional harmonised proposals to resolve outstanding tariff lines.”


Tax policies

Sensitive products are mostly staple foods such as maize, rice, sugar, milk and wheat. Consumed daily, they are also triggers of various socio-economic and political policies in the countries of origin, including regulation on exports and sanitation.

Members are initially required to remove tariffs from 90 percent of goods per AfCFTA tariff modalities, eventually allowing free access to at least 97 percent of goods and most of services across Africa.

The EAC Tariff Offer currently stands at 85.86 percent against the AfCFTA provision of 90 percent.

Tariffs, as customs duties on imports, give a price advantage to locally produced goods over similar imported goods, and they raise revenues for governments. But they can also be a trading barrier.

Read: AfCFTA calls for removal of visas to ease logistics

They are used to restrict imports as well as increase the price of goods and services purchased from another country, making these less attractive to domestic consumers.

Raw material trade

EABC Chief Executive John Kalisa argues that even though tariffs pose a barrier to continental trade, the EAC is already trading with the rest of the continent under Category A of goods, which have already been liberalised up to 90 percent under the AfCFTA.

Category A goods are mainly raw materials.

However, the region is yet to begin trading for goods under B and C, which he says are mainly sensitive goods as well exclusion goods.

“We have started trading. Trading is happening because we made the threshold required for category A, which is almost 90 percent of the goods that we opened up for total liberalisation,” Kaila explained.

“However, what we are talking about are goods under category B and C. Category B and C fall under seven percent and three percent respectively,” he said.

“Seven percent is what we call sensitive lists of goods. They are goods that a country decides are goods for food security, so they don’t want to liberalise. So those are the goods that we are coming up with the list, some of which are mainly products that need to be protected.”

He said the EAC partner states need to come up with their own list, a move that informed the Kampala meeting.

Read: Powering trade through AfCFTA: A People-driven wholesome development agenda

“What are those goods in Rwanda, South Sudan, Kenya and Tanzania for example, that you want them to fall under category B in each EAC partner state?” posed Kalisa.

“Category C goods are exclusion goods. These are goods that we may exclude from liberalisation completely.”

So far, the EAC partner states have agreed on 308 tariff lines under category B, hence they are remaining with 90 tariff lines that have not been agreed upon.

Under Category C, the EAC states have agreed on 75 tariff lines, remaining with 96 tariff lines that are yet to be agreed upon.

However, tariffs are not the only reason why intra African trade is still low.

“Non-tariff barriers like sanitary and phytosanitary measures are a very significant barrier as you have seen with the trade wars in EAC,” said Prof James Gathii, the Wing-Tat Lee chair in International Law at Loyola University in the US.

“For instance, when one day chicks from Kenya were burned by Tanzania; the longstanding chicks-bull semen trade row between Kenya and Uganda, for example,” said Gathii.

African trade integration has long been constrained by deteriorating border and transportation systems, as well as a patchwork of unique legislation in dozens of markets.

Governments frequently create trade barriers to protect their home markets from regional competition, making trading with close neighbours more expensive than trading with nations considerably further away.

Read: Intra-EAC trade down by $1.8bn on barriers, taxation

“Most Intra African trade is inhibited by prohibitive transport costs. Paradoxically, it is cheaper to bring imports from overseas than to buy from neighbouring countries,” said Prof Gathii.

“Having failed to invest in intra-regional trade chains within Africa, the path dependency of colonial era legacies under which there were well established routes between Africa to Europe for extraction of wealth continues to date.”

Furthermore, the AfCFTA is the continental free trade agreement with the highest levels of income inequality.

Many nations, particularly the 32 least developed nations, struggle to diversify their economies, create new jobs and expand their industrial sectors.

Conflicts, such as ones occurring in Sudan, Ethiopia and the coup in Niger for example, still pose threats to the agreement’s implementation in some nations while inadequate infrastructure and slow technological adoption are other impediments.

Segments of the population have also spoken of a generalised fear of losing identity and control.