Pressure is mounting on the East African Community (EAC) partner states to agree on a common external tariff (CET) fourth band.
The EAC has been carrying out a comprehensive review of the CET since 2018 to adopt the fourth band at either 30 percent or 35 percent.
Currently the six EAC partner states import goods at three different CET tariff levels; at zero percent for raw materials, 10 percent for intermediate goods and 25 percent for finished products.
CET is the import tariff or rate adopted and applied by countries within a common market. The tariff is imposed on products imported from non-member countries, with the intention of promoting industrialisation in the bloc, enhancing the economic development of member states, and liberalising regional trade.
Under the priority value chains as provided for in the EAC Industrialisation Policy (2012-2032) products to be included in the fourth band tariff are textiles, iron and steel and motor vehicles.
“There is a need to agree on the fourth band, after which partner states have also to agree on different tariffs. By yearend we are going to agree on the CET,” said EAC Secretary-General Peter Mathuki.
The private sector prefers the 35 percent CET rate because the proposed 30 percent will create just a five percent tariff differential with the third tariff band of 25 percent charged on finished goods. They say that 35 percent will create a tariff differential of 10 percent, which will safeguard products that are sufficiently produced in the region against similar cheap imports.
Early 2021, Uganda and Tanzania proposed 35 percent while Kenya, Burundi and Rwanda were for 30 percent as a maximum CET rate. Then the EAC Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) meeting in Arusha on May 28, proposed a middle ground of 32.5 percent as a maximum rate.
At the July 1, 2021 deadline by the EAC Council of Ministers no country had agreed to change its stand.
The 39th meeting of the Sectoral Council on Trade, Industry, Finance and Investment held in November 2021, and chaired by Kenya’s Trade Cabinet Secretary Betty Maina, called on partner states to conclude the review of CET.
“I urge partner states to finalise the review on CET because it is the backbone of the Customs union,” said Ms Maina, CS for Industrialisation, Trade and Enterprise Development.
“It is now time the partner states make compromises in order to progress the initiative and deliver a CET that befits our industrial ambitions,” Ms Maina said.
The private sector under the East African Business Council (EABC) strongly supports the proposed EAC CET, which includes a fourth band that will impose a 35 percent rate on imported finished products from non-member states, instead of 25percent as is in the current CET.
“Following a meeting held in November 2021, we want to urge the EAC to adopt a 35 percent maximum CET. This is the majority position for the manufacturer association in the region,” said John Kalisa, CEO at the EABC.
“The 35 percent maximum tariff rate will attract investments in industrial value chains and transform the bloc into an export-led, industrialised economy,” Mr Kalisa said.
According to the majority of private sector members within East Africa, a proposed 35 percent tariff rate provides an adequate tariff differential required to incentivise industrial development in the six EAC partner states.
“A 10 percent tariff differential is needed to safeguard and retain existing investments which operate the regional value chain as well as attract new investments to transform the EAC industrial sector by transforming secondary intermediates into finished products,” Mr Kalisa explained.
He added; “The proposal of 30 percent will create just a 5 percent tariff differential with the 3rd tariff band of 25 percent while the 35 percent will create a tariff differential of 10 percent which will safeguard products that are sufficiently produced in the region against similar cheap imports.”
The decision to impose a rate higher than 25 percent will only affect products (imports) from countries that do not have trade ties with the EAC region.
“The current tariff of 25 percent and the proposed 30 percent rate undermines industrialisation efforts by favouring foreign imports at the expense of locally manufactured goods,” said Phyllis Wakiaga, CEO Kenya Association of Manufacturers.
“As such, KAM holds that the region should adopt 35 percent as the 4th tariff band, to support the industrialisation agenda by allowing a reasonable protection to incentivise value addition and to correct the anomaly in the current CET, where inputs attract the same rate as the finished product,” she said
Indeed, an EABC analysis shows that the products to be assigned maximum CET Rate (4th tariff band) by the Regional Task Force (RTF) are sufficiently available or produced in EAC hence the need to have the fourth band.
According to the recently held RTF meeting in Arusha, some of these products include textiles, iron and steel and motor vehicles.
With regard to motor vehicles, Kenya reported that the sector falls under their strategic sector and hence the need for protection.
But Tanzania, Uganda, Rwanda, Burundi and South Sudan were of the view that the region is not yet self-sufficient in the sector.
Under textiles, fabrics which are a raw material to manufacture garments attract the same rate of 25percent. “The current structure puts the region in a disadvantaged position by not promoting investment and supporting value addition,” the 39th SCTIFI meeting held on November 21, 2021 in Arusha heard.
A verification mission by the EAC Secretariat in June 2021, to establish installed and production capacities of cotton yarn, fabric and related products manufactured in the region recommended that garments to be assigned a rate above 25 percent.
“This is in order to promote local production of garments and correspond to the manufacturing value chain of the sector and 25 percent for fabrics which are inputs to manufacture garments,” the SCTIFI meeting reports read in part.
More products are suffering under the current CET rules.
The duty rate on cooking appliances and plate warmers for solid fuel, gas and other fuels was reduced from 25 percent to 10 percent in order to promote their use and protect the environment (deforestation).
Yet the proposal to increase the duty rate is contrary to the regional policy to promote alternative use of energy. EAC has since proposed to split the tariff lines.
Salt is another commodity suffering at the hands of the current CET rules.
Over 85 percent of raw salt is from within the region. Thus assigning a lower rate will have an impact on sourcing of salt locally.
But the region continues to suffer because the fourth band is yet to be agreed upon.