Free trade still a pipedream: Non-tariff barriers push up cost of doing business in the region

Saturday January 05 2013

Business executives said that non-tariff barriers were hurting trade among EAC countries.

Businesses in the region will have to wait longer to reap the fruits of free trade, thanks to non-tariff barriers.

According to a new report by the East African Community Secretariat, rather than do away with non-tariff barriers by December 2012 in accordance with the EAC plans, some countries have even introduced fresh ones — about 10 — while 35 remained unresolved. Only 36 have been resolved.

According to the Secretariat’s findings, all the countries expressed frustration with the barriers.

The Secretariat also found that differences over elimination of the barriers had deepened, denying the region larger markets, economies of scale, and promotion of local, regional, and global trade — the benefits envisaged with free trade among the nations.

This means businesses will have to continue incurring huge costs arising from the NTBs — mainly weighbridges, roadblocks, poor infrastructure, unnecessary delays at border posts, and lack of harmonised import and export standards, procedures and documentation.

READ: Trade barriers, high transport costs keep investors away from EA region


The sad state of affairs is blamed on the absence of a legally binding framework that has left businesses at the mercy of individual countries.

A draft law meant to punish countries that fail to implement agreed upon mechanisms to eliminate trade barriers was submitted to the regional parliament in November 2012.

EAC Secretary-General Dr Richard Sezibera said a legal framework has been developed and is awaiting comments from member states.

Business executives said that NTBs were hurting trade among EAC countries, a situation that has, for example, contributed to the decline in Kenya’s export trade in the region.

READ: Kenya’s export growth slowing down – new study

A new report commissioned by Kenya’s Ministry of East African Community shows that the country’s exports, compared with those of other EAC member states, had been growing at a slower rate over the past five years, although the volumes were higher.

Vimal Shah, the chief executive of regional edible oils manufacturer Bidco, blamed unending NTBs for the shifts in regional trade.

“Countries like Tanzania have become very harsh about what is sold within their borders, to the extent that they reject even the packaging of some goods that were earlier allowed into the market but which they now say are substandard,” said Mr Shah.

The Kenya National Bureau of Statistics recently stated that inadequate government structures, erratic application of rules and the lengthy customs administration documentation procedures were some of the barriers to trade in the region.

According to KNBS, the other EAC partner states exported goods worth Ksh26.9 billion ($320 million) into Kenya last year, but India and China accounted for the largest share of Kenya’s imports at 22 per cent of the Ksh1.3 trillion ($15 billion) worth of goods.

Uganda has severally raised concerns following the re-introduction by Kenya of a cash bond on vehicles above 2000cc and sugar transiting from Mombasa to Uganda.

Although the Kenya Revenue Authority (KRA) claims that it cancelled the cash bond in September last year, umbrella business organisation Kampala City Traders Association (Kacita) insists the bond is still on.

READ: KRA continues to impose cash bond on Uganda cargo

“The cash bond is too expensive; it is an addition cost for transit goods from the port of Mombasa,” said Kacita chairman Everest Kayondo.

Uganda also complained that the requirement by KRA that tea from Uganda destined for Mombasa auction market should be stored at the Customs bonded warehouses was hurting trade for it has raised the cost of transactions due to the additional expenses incurred and delays often experienced in deliveries.
Patrick Obath, the chairman of the Kenya Private Sector Alliance, a business lobby, said entrenched national interests were frustrating the elimination of NTBs.
“Countries need not complain much about NTBs. For example, Uganda is still under the contentious exemption scheme – the Ugandan List – which allows its businesses to import some goods without paying the 10 per cent common external tariff that other member states apply on such goods,” said Mr Obath.
“This was meant to lapse as the region began to implement the Custom Union protocol in 2005, but Uganda successfully lobbied for its extension for five years up to 2010 and yet it has not ended,” he said.
The progress report also shows Kenya Ports Authority has signed a service level agreement with Maersk Ltd and other private cargo handlers known as container freight stations (CFSs), where transit cargo is transferred upon arrival at the port. This has angered Uganda since businessmen are incurring a cost of over $300 for transferring these containers to the CFSs.

“The CFSs are privately contracted by KPA for clearing local cargo at the port to help decongest the facility and operate under Customs control and other governmental agencies because the port’s cargo handling capacity is currently,” said Lawrence Mangarunyi, divisional manager Signon Global Logistics.

“However, once the construction of the second terminal that was commissioned last year is complete, the CFSs will likely be phased out.”

Construction of the $327 million terminal will be completed in 2016 and is expected to increase Mombasa’s container handling capacity from the current 771,000 containers to 1.2 million containers, and help reduce the clogging that has forced some port users to move to Dar es Salaam.

Kenya and Uganda are also concerned that Tanzania has re-imposed a visa charge of $200-$250 on Kenyan and Ugandan business people.

According to the report, Tanzania said the fee was for a pass issued to persons entering the country on temporary assignment and short-term business activities. However, the fee had been abolished for EAC citizens.

Tanzania complained that Kenya is still imposing a levy of Ksh2 ($0.024) per kilogramme on the agricultural products imported from Tanzania.

Two, that Kenya is still restricting cut flowers from Tanzania for re-export to European and Russian markets.

Kenya also complained that Tanzania is still insisting on the requirement that cigarettes manufactured in Kenya should have 75 per cent local tobacco extract content.

Among other NTBs raised by Kenya that are yet to be resolved are beef and pork products from Kenya Farmers Choice are charged 25 per cent CET by Tanzania; refusal by the Tanzania Revenue Authority to recognise the EAC certificate of origin for furniture manufactured in Kenya.

Kenya reported other new NTBs including the requirement by Tanzania Food and Drug Authority for registration certification and testing of products in Tanzania before they are imported into their country despite certification by Kenya Bureau of Standards.

Kenya also complained that Tanzania is imposing general duties imposed on products originating from Kenya, which are assumed to have benefitted from duty drawback.

Uganda is blamed of imposition of 75 per cent CET/$ 200 per metric tonne for rice wholly produced in Kenya and exported into the country, a matter that the Ugandan Revenue Authority is yet to respond.

Rwanda, in the report, raised concerns on the requirement for payment of cash bonds on high valued goods by KRA, requirement for original documentation at the port of Mombasa and Dar es Salaam for clearance of goods and the ban of import of fresh fruits from Burundi to Rwanda.

Burundi on the other hand complained of the delays in the clearing of goods at the Ports of Mombasa and Dar es Salaam and the requirements for cash bonds by the Kenya Revenue Authority prior to clearance of certain goods.

Rwanda is the only EAC country that has made progress in the region to abolish the NTBs.

Last year the country threatened to take its neighbours to court over the continued existence of non-tariff barriers in the East African Community, which it says increase the cost of doing business for its industries, making them uncompetitive.

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