Customs union protocol finally signed
The three presidents – Mwai Kibaki, Yoweri Museveni and Benjamin Mkapa signed on behalf of Kenya, Uganda and Tanzania respectively. The signing ceremony was also witnessed by presidents Paul Kagame of Rwanda and Domitien Ndayaziye of Burundi. The two neighbouring countries have already applied to join the east African Community [EAC] but their applications are yet to be accepted. However, the EAC treaty provides for an extended trading bloc.
The signing of the protocol was originally scheduled for 30 November2003. But due to unresolved issues between the three countries, it was postponed to 16 January this year and again to 16 February and finally to 2 March.
Speaking at the ceremony, president Kibaki observed that the union epitomized the will of the East African people to unite in strength and realize the transformation of the region into a single market and investment area. He added that regional co-operation played a role in responding to opportunities and challenges posed by globalisation.
“Four years ago, we committed ourselves to establishing a customs union as an entry point to the EAC. We have put our signatures on the protocol establishing the East African Customs Union today, to affirm our commitment to the establishment of an East African common market”, said Kibaki.
On his part, president Museveni hailed the signing of the pact as a significant event in the history of the region, while president Mkapa assured that its implementation would be done to ensure healthy competition.
The signing of the Common External Tariff [CET] is a major breakthrough in the establishment of the region as a single market and investment area. It is the first move towards the formation of a customs union, leading to the region’s economic integration, which started 10 years ago. The respective East African countries will ratify the protocol in April while a Customs Union will be launched in December.
The objective of the union is to inter alia liberalise intra-regional trade in goods, promote efficiency in production, enhance cross-border trade and foreign investment and promote economic development and diversification as well as industrialization.
The EAC treaty – signed in November 1999 - provides that the Customs union will be followed by a common market, then a monetary union and subsequently a political federation. While the objectives of the EAC are broader and cover almost all spheres of life, the main objective of the customs union is the formation of a single trading territory in which partner countries freely trade without paying duty.
The Arusha protocol envisages a three-band 0-10-25 per cent CET regime for the next five years. This means that raw materials from outside EAC would be zero-rated, intermediate goods would attract a 10 per cent levy, while finished goods would be punitively taxed at 25 per cent.
Other provisions of the protocol bind the three EAC states to remove existing non-tariff barriers to trade towards the eventual institution of a tariff-free trade regime in the next five years.
But whereas the protocol envisages a tariff-free trade regime among the EAC member countries, Uganda and Tanzania have been allowed to put surcharge on goods from Kenya, due to perceived differences in levels of development and industrialization. In return, Kenya will pay for its relatively industrialized state by giving duty-free access to imports from the two EAC partner states.
However, it is noteworthy that the signing of the protocol, was preceded by protracted haggling, which at one time threatened to scuttle the plan. Previous attempts in November 2003 and 16 January this year failed to bear fruits.
But the three leaders finally agreed on a 25 per cent protectionist duty rate, which Uganda had earlier disputed as the highest threshold for the CET regime, preferring 20 per cent instead. In the final analysis, Uganda did not lose out as the three leaders agreed to review the rate after 5 years.
Yet, the night prior to the signing of the pact, disagreements arose when Uganda came up with a long list of goods it wanted exempted from duty. But in the morning of 2 March, the three leaders agreed to reduce the number of goods in the list and managed to reach a consensus.
By last December, at least some 20 per cent [53 product categories] of the EAC tariff lines from among the three countries still remained unresolved. Among them were metal, paper and paper products, edible oils, barley, wheat, milk and sugar.
Unlike the defunct EAC, which centred on a joint ownership and management of common services, the new strategy for co-operation emphasizes the role of the private sector and civil society. The strategy singles out the development of regional infrastructure and technological capacities as important aspects in the realization of a single market investment goal.
The protocol underscores the recognition by three countries that they have much to gain through co-operation among themselves in their enlarged and integrated market with about 80 million people and a combined GDP of US$25 billion.
To coincide with the signing of the protocol, the German government has given KES 760 million [US$10 million] for the construction of the EAC headquarters in Arusha. The EAC secretariat is currently hosted at the Arusha International Conference Centre [AICC].