Attempts to shield local firms fuel trade disputes among EAC States

Saturday July 12 2014

Cargo trucks line up at the Malaba border awaiting clearance. EAC members are locked in trade wars that are blocking movement of goods within the market. Photo/FILE

East African Community members are locked in trade disputes that are blocking movement of goods within the regional market.

An assessment done by a key organ of the community in May reveals that Kenya, Uganda, Tanzania, Rwanda and Burundi are struggling to balance the spirit of the Customs Union launched four years ago with shielding local businesses from competition.

The disputes were highlighted last week by complaints that Burundi had introduced taxes on alcohol, wine, tobacco, spirits like whisky, gin, vodka, beauty products and cotton clothes in contravention of the EAC Customs Union Protocol. The move appeared to be aimed at protecting the Burundi Tobacco Company and Afritextil, while raising BIF480 million ($306,163) in revenue.

But the complaining states are themselves not innocent. The report by the EAC Sectoral Council on Trade, Industry, Finance and Investment shows that the other four countries have introduced taxes that are inconsistent with the Customs Union Protocol.

The taxes and other non-tariff barriers appear intended to discourage exports, with accusations of rules of origin being breached by manufacturers reselling imports without any significant value addition. Vehicle assembly, tobacco, beer, sugar, rice, beef, dairy and metal are among the industries at the centre of the disputes.

Kenya accuses its EAC partners of last month suspending the common external tariff (CET) of 25 per cent on vehicle imports from outside the region, to the disadvantage of its assemblers who include GM, Futon and Tata. The suspension of CET by Burundi, Rwanda Uganda and Tanzania means buses and trucks assembled in Kenya will compete for the regional market with imported varieties.


General Motors East Africa general manager Rita Kavashe said the installed capacity of 30,000 units per year was adequate to meet the regional new vehicle demand, and therefore the CET suspension was unnecessary.

“This rendered locally produced vehicles uncompetitive. The suspension has hurt the industry,” she said.

Kenya has also reported Tanzania for discriminating against East Africa Breweries products. A joint verification of the claim is expected to be finished by the end of the month.

Uganda accuses Kenya of discriminating against its sugar by demanding its exporters be licensed by the Kenya Sugar Board. Kenya has defended the position, saying it applies to all exporters and is meant to curb smuggling.

Under EAC laws, members should subject their local industries to the taxes levied on imports from Community partners with an external tariff shielding the bloc from goods from other countries.

This was the cause of the uproar over Burundi’s decision to exempt its domestic sector from an excise tax of $0.25 per cent per pack of imported cigarettes. “In Rwanda, the same tax is applied to all goods, imported or locally produced,” a taxation expert based in Burundi said.

He said Burundi would have to remove the tax or apply it uniformly because the anticipated revenue was not forthcoming after importers bulked at the taxes that would make their products less competitive.

Uganda and Tanzania, however, are under the spotlight for imposing a higher local content requirement for tobacco exports. They demand that 70 and 75 per cent respectively of the inputs into tobacco exports must be from the exporting state.

The requirement is inconsistent with EAC laws that require 35 per cent of local inputs for goods to qualify as originating from a member state.

The rules of origin are also at the heart of the dispute pitting Tanzania against Rwanda and Uganda. Tanzania claims that the two neighbours are applying a CET on its Nguvu Kazi and Safari Elly rice.

Uganda counters that Tanzania has imported a lot of rice, making it difficult to extend preference to rice. Though the EAC verified that the rice exported from Tanzania to Uganda and Rwanda was home-grown, it faulted Tanzania for waiving duty on 55,532 tonnes of rice without seeking the Secretariat’s approval.

A revision of the rules of origin is now underway with the draft proposing that the threshold be reduced to 30 per cent and ex-works price replace ex-factory costs in determining compliance. This would see more goods qualify to access the regional market duty-free.

Rules of origin

The rules further propose inclusion of specific manufacturing processes to include assembly from completes knocked down kits in the case of motor vehicles. In fishing, vessels will qualify as originating from a partner state if they are 20 per cent owned, instead of the current requirement of 70 per cent.

Away from rules of origin, concerns over physical barriers linger.

Although Tanzania has taken steps to cut the number of roadblocks between Dar es Salaam and its border town of Rusomo, Rwanda still says there are too many police checks along the route.

Kigali estimates that there are at least 30 police checks along the stretch, which is increasing the time it takes to move goods. Uganda and Rwanda have also taken issue with the four weighbridges on the Kenyan side. The EAC allows for only two.

Kenya has also taken issue with Uganda National Bureau of Standards officials, who it accuses of rubbing the shelf life and batch numbers off certain imports — specifically naming products by spiceManufacturer Tropical Heat — and thereafter rejecting them as substandard.

Kenya has also taken issue with Tanzania’s decision to re-introduce the requirement of a yellow fever certificate at the Kilimanjaro airport and the Namanga border. But Tanzania says the decision is a health requirement targeted at all foreigners entering the country.

The other EAC member states also took issue with a decision by Tanzania requiring manufacture wishing to export to the country to label their products as required by the Tanzania Food and Drug Authority (TFDA). Member states agreed to meet and discuss the issue.