Customs Union: Barriers come down, intra-trade to rise to 14pc

Sunday January 03 2010

Detergents from Kapa Oil Refinery, Kenya, being reloaded into a Tanzanian registered truck at the Namanga border crossing. Kenyan manufactured goods are likely to flow into the regional market following the implementation of the zero tarriff regime. Picture: Anthony Kamau

Efforts by East African countries to integrate their economies have borne the first tangible fruits, putting to rest concerns by sceptics that the drive would run out of steam long before member states realised any meaningful benefits.

Last week, the region ushered in a fully-fledged Customs Union thus setting the stage for increased trade among the member states.

All goods trading across the region are now duty-free following the expiry on December 31, of the five-year transition period of the Customs Union, in what is being touted as the first major breakthrough of the East Africa Community’s integration process.

Trade officials at the EAC Secretariat said last week said they expect intra-regional trade to move to 14 per cent by the end of the year, up from 12 per cent when the Customs Union was launched on January 1, 2005.

Kenya’s manufacturers and the East African Business Council, the apex body of the private sector in the region, have welcomed the liberalisation move saying it will stimulate intra-trade in the 126-million people regional economic bloc.

During the first stage of the Customs Union, goods from Kenya — considered the region’s dominant economy — entering Uganda and Tanzania attracted duties on a reducing basis. Goods from Uganda and Tanzania — and now Rwanda and Burundi (which joined the Customs Union in July last year) — have been entering the Kenyan market duty-free.


This five-year transition period was aimed at addressing the economic development imbalances that existed among the three original partner states — Kenya, Uganda and Tanzania — by allowing producers in Tanzania and Uganda sufficient time to restructure their operations so they could face increased competition from Kenyan imports.

Last week, the EAC director-general in charge of Customs and Trade Peter Kiguta confirmed that a fully-fledged Customs Union had indeed become reality.

“I have sent notices to member states to prepare for free trading starting January 1,” Mr Kiguta told The EastAfrican in a phone interview.

Vimal Shah, the chairman of the Kenya Association of Manufacturers, said last week that most local manufacturers were already expanding their production capacity.

“Companies are looking for new sales and marketing opportunities. The increase in intra-trade is not going to be major but it will certainly be significant,” he said, lamenting that high power costs, which have increased the costs of production, will make it difficult for Kenyan manufacturers to fully gain from the new opportunity.

Surveys have shown that Kenya trades more with other EAC partner states than with the outside world. 

Uganda’s advantage

According to Mr Kiguta, the coming into force of a fully-fledged Customs Union has also ended the existence of the much-talked-about “Ugandan List” — a list of 135 raw materials and industrial inputs that Uganda was allowed to import duty-free from outside the region.

The exceptions would ensure that such third country imports were not immediately substituted by possibly more expensive and/or lower quality inputs (primarily produced in Kenya).

“This provision has come to an end. All industrial inputs and raw materials coming into the region will now attract a 10 per cent duty. Industries producing such products in the region will now be protected when selling to Uganda. We now have a level playing ground among all member states,” Mr Kiguta told The EastAfrican.

Charles Mbogori, the executive director of the East African Business Council, said that the coming of age of the Customs Union was testimony that EAC integration was unstoppable.

“Regional integration is a journey. But when handled well, it finally benefits everybody,” Mr Mbogori said.

He said the business community in the region, especially traders from Kenya, were ready to take advantage of a fully-fledged Customs Union.

“As far as I am concerned, the Customs Union has been working. There may have been challenges here and there, but the private sector is ready for the next stage,” he said.

It is estimated that intra-EAC trade has grown by over 40 per cent in the period of the implementation of the Customs Union. The Customs Union has also been credited with helping the region to attract more foreign direct investment.

For instance, inflows of foreign direct investment almost tripled from $692 million in 2002 to $1,763 million in 2007, with Uganda and Tanzania receiving the largest proportion.

“We have succeeded in creating free circulation of goods in the region. We expect better intra-EAC trade in 2010,” said Mr Kiguta.