Pressure is mounting on East African Community (EAC) partner states to agree on a fourth common external tariff (CET) band.
The EAC has conducted a full TEC review since 2018 to adopt the fourth band at 30% or 35%.
Currently, the six EAC partner states import goods at three different tariff levels of the CET; zero percent for raw materials, 10 percent for intermediate goods and 25 percent for finished products.
The CET is the tariff or import rate adopted and applied by countries within a common market. The tariff is imposed on products imported from non-member countries, with the aim of promoting industrialization in the bloc, improving the economic development of member states and liberalizing regional trade.
Within the framework of the priority value chains provided for in the industrialization policy of the EAC (2012-2032), the products to be included in the fourth tariff band are textiles, iron and steel and motor vehicles.
âIt is necessary to agree on the fourth band, after which the partner states must also agree on different tariffs. By the end of the year, we will agree on the TEC, âsaid EAC General Secretary Peter Mathuki.
The private sector prefers the 35 percent CET rate because the proposed 30 percent will only create a five percent tariff differential with the third 25 percent tariff band charged on finished goods. They say 35% will create a 10% tariff gap, which will protect sufficiently produced products in the region from similar imports at low prices.
In early 2021, Uganda and Tanzania proposed 35 percent while Kenya, Burundi and Rwanda were for 30 percent as the maximum CET rate. Then, the EAC Sector Council for Trade, Industry, Finance and Investment (SCTIFI) meeting in Arusha on May 28 proposed a medium term of 32.5% as the maximum rate.
By the July 1, 2021 deadline set by the EAC Council of Ministers, no country had agreed to change its position.
The 39th meeting of the Trade, Industry, Finance and Investment Sector Council, held in November 2021 and chaired by Kenya’s Cabinet Secretary for Commerce, Betty Maina, called on partner states to conclude the TEC review.
âI urge partner states to finalize the CET review as it is the backbone of the customs union,â said Ms. Maina, CS for Industrialization, Trade and Business Development.
âNow is the time for partner states to make compromises in order to move the initiative forward and deliver a CET that matches our industrial ambitions,â said Ms. Maina.
The private sector under the aegis of the East African Business Council (EABC) strongly supports the proposed EAC CET, which includes a fourth tranche that will impose a rate of 35% on finished products imported from non-member states, instead of 25% as is the case in the current TEC. .
âFollowing a meeting held in November 2021, we want to urge the EAC to adopt a maximum CET of 35%. This is the majority position of the region’s manufacturers association, âsaid John Kalisa, CEO of EABC.
âThe maximum tariff rate of 35% will attract investment in industrial value chains and transform the bloc into an industrialized, export-oriented economy,â Kalisa said.
According to the majority of private sector members in East Africa, a proposed tariff rate of 35 percent provides an adequate tariff differential required to encourage industrial development in the six EAC partner states.
âA 10% tariff differential is needed to safeguard and maintain existing investments that tap into the regional value chain and attract new investments to transform the industrial sector of EAC by turning secondary intermediaries into finished products,â Mr. Kalisa.
He added; âThe 30% proposal will only create a 5% tariff gap with the 3rd 25% tariff band, while the 35% will create a 10% tariff gap that will protect products sufficiently produced in the region against similar imports. at low price. “
The decision to impose a rate above 25 percent will only affect products (imports) from countries that have no trade links with the EAC region.
âThe current 25% tariff and the proposed 30% rate undermine industrialization efforts by favoring foreign imports at the expense of locally produced products,â said Phyllis Wakiaga, CEO of the Kenya Manufacturers Association.
As such, KAM believes that the region should adopt 35% as the 4th tariff band, to support the industrialization program by allowing reasonable protection to incentivize added value and to correct the anomaly in the current TEC, where inputs attract the same rate as the finished product, âshe said
Indeed, an analysis of the EABC shows that the products to which the maximum CET rate (4th tariff band) to be allocated by the Regional Working Group (RTF) are sufficiently available or produced in the EAC, hence the need to have the fourth strip.
According to the recent RTF meeting in Arusha, some of these products include textiles, iron and steel, and motor vehicles.
Regarding motor vehicles, Kenya indicated that the sector falls under its strategic sector and therefore in need of protection.
But Tanzania, Uganda, Rwanda, Burundi and South Sudan believed the region is not yet self-sufficient in the sector.
Under textiles, fabrics that are a raw material for making clothing attract the same 25 percent rate. âThe current structure places the region at a disadvantage by not promoting investments and supporting added value,â said the 39th meeting of SCTIFI held on November 21, 2021 in Arusha.
A verification mission by the EAC Secretariat in June 2021, to establish the installed and production capacities of cotton yarns, fabrics and related products produced in the region, recommended to assign clothing a rate above 25 %.
“This is for the purpose of promoting local production of clothing and to match the sector’s manufacturing value chain and 25 percent for fabrics which are inputs to make clothing,” part of the report reads. reports of the SCTIFI meeting.
More and more products are suffering from the current TEC rules.
The tax rate on cooking appliances and plate warmers for solid fuels, gas and other fuels has been reduced from 25 to 10 percent in order to promote their use and protect the environment (deforestation).
However, the proposal to increase the duty rate is contrary to regional policy aimed at promoting the alternative use of energy. The EAC has since proposed to split the tariff lines.
Salt is another commodity that suffers from the current CET rules.
Over 85 percent of raw salt comes from the region. Thus, the allocation of a lower rate will have an impact on the local salt supply.
But the region continues to suffer as the fourth band has yet to be agreed.