March 3, 2004

TANZANIA: Breakthrough as East African Community Customs Union signed

The three East African Presidents Mwai Kibaki (Kenya), Yoweri Museveni (Uganda) and Benjamin Mkapa (Tanzania) have signed the East African Community Customs Union. The signing of the Common External Tariff was a major breakthrough in establishing the region as a single market and investment area. The event was preceded by protracted haggling, which at one time brought fears that the plan would fail. Previous attempts in November last year and January 16, this year failed to bear fruits.

The leaders agreed on the 25 per cent protectionist duty rate, which Uganda had earlier disputed as the highest threshold for the CET regime. Uganda, which at the time argued in favour of a 20 per cent, however, did not lose out as the three countries agreed to review the rate after five years. Sources said top government officials from the countries met until late without any success after Uganda came up with a long list of goods it wanted exempted from duty. It was only during a follow-up meeting in the wee-hours of the following day that the three groups managed to reduce the number of goods in the list and reach a final agreement. By December, last year, at least some 20 per cent (53 product categories) of EAC tariff lines from among the three countries remained unresolved. Among them being metal, paper and paper products, edible oils, barley, wheat, milk and sugar.

The CET is the first move towards the formation of a Customs Union, leading to the region's economic integration, which started 10 years ago. The EAC treaty provides that a Common Market, then a Monetary Union and subsequently a political federation shall follow the Customs Union. While the objectives of the of EAC are broader and cover almost all spheres of life, the main objective of the Common Union is formation of a single trading territory in which a partner countries freely trade without paying duties. The draft protocol, issued by Arusha early last month, 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 most punitively taxed at 25 per cent.

Other provisions of the protocol bind the EAC states to remove existing non-tariff barriers to trade towards the eventual institution of a tariff-free trade regime in five. While the protocol envisages a tariff-free trade regime among the three countries, Uganda and Tanzania have been allowed to put surcharge on goods from Kenya, due to perceived differences in levels of development and industrialisation among the partners. In return, Kenya will pay for its relatively industrialised state by giving duty free access to imports from the two EAC partner states with the implementation of the Customs Union protocol on July 1, 2004. Tanzania's President Mkapa assured that its implementation would be done to ensure healthy competition. (The East African Standard, Nairobi)

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