Business leaders have urged East African Community (EAC) partner states to adopt the proposed 35 per cent as the maximum Common External Tariff (CET) rate and commence its implementation in the financial year beginning July 1.
According to the East African Business Council (EABC), this is the majority position of the regional private sector consultative meeting held on March 9, in Nairobi, Kenya that convened industrial captains and leaders of manufacturers’ confederations.
John Bosco Kalisa, CEO of the EABC, told The New Times that: "The engagements from both the private sector and government agencies have been excellent and we believe by 21st March a consensus will be reached so that the implementation commences the first week of July.”
Regional ministers of trade, industry, finance and investment are scheduled to meet on March 21 to deliberate on the analysis done by the EAC Secretariat on the implications of maximum CET rates of 30 per cent, 33 per cent and 35 per cent.
The development comes after, last month, the EABC insisted that partner states adopt a 35 per cent maximum CET rate to drive promote industrialisation and boost intra-regional trade.
The current maximum CET is 25 per cent.
"The proposed rate will provide an adequate tariff degree of difference required to incentivise industrial development in the EAC region; by safeguarding products that are sufficiently produced in the region against similar cheap imports,” reads part of an EABC statement.
The 10 per cent tariff difference is needed to safeguard and sustain existing investments in the prioritised regional value chain of textiles, automotive, agro-processing, wood, iron and steel, mineral processing, energy, fertilisers, pharmaceuticals plus attract new investments to transform the EAC industrial sector, in particular, transforming secondary intermediates into finished products.
The latest analysis on the proposed rates of the CET by EAC Secretariat also shows that under a maximum CET rate of 35 per cent, partner states stand to benefit most through increased revenue generation by 5.5 per cent and employment generation is estimated to increase by 0.03 per cent.
The analysis further shows that Burundi would benefit from increased trade creation by $1,363,749 while Rwanda by $3,714,495.
It adds that non-metallic minerals, printing, products of wood, furniture, paper, crops; horticulture are among the industrial sectors in Rwanda and Burundi would benefit from the 35 per cent maximum CET.
According to the analysis, the average potential net welfare loss effects under the proposed 35 per cent maximum CET rates is estimated at $25.5 million, a one off effect.
According to the regional business body, the proposed maximum rate will reinforce national and regional policies on developing priority value chains, expand intra-regional trade, strengthen product diversification, create employment opportunities from production switch sustain regional food security and rural development and reduce the use stay of applications (SOAs) on products sufficiently available or can be manufactured in the region.
Giving justification for the proposed rate, last month, Kalisa pointed to reduction in the use of stay of applications to support development of national and regional value chains.
Kalisa noted that the bloc cannot supply enough sugar, for example, and as such requests that tax on sugar be lowered as locally produced sugar is more expensive. He noted: "Rwanda would, for example, be allowed the right to import from outside the EAC and that’s what is called stay of application. But if the EAC demonstrates the required capacity to produce such items then there is no need for further requests of the SOAs.”
The preferred CET rate, as noted, is central to boosting the competitiveness of East African manufactured products in the continent and the globe.
The analysis also shows; industrial production is set to increase by $12.1 million (0.04%) if the highest rate at 35% maximum tariff rate is adopted by the EAC Sectoral Council of Ministers.
Partner states have so far not agreed on the proposed maximum CET rate with divergent views of 30 per cent, 33 per cent and 35 per cent.
The regional CET is currently structured under three bands of 25 per cent for finished goods, 10 per cent for intermediate goods and 0 per cent for raw materials and capital goods.
It was last reviewed in 2010. However, each year, partner states through the EAC pre-budget consultations of the Ministers of Finance undertake annual reviews on specific products.
As noted, this resulted in: frequent stay of applications on final products, especially the products falling under the sensitive list, and non-uniform application of the regional CET, due to numerous applications of country-specific duty remissions.
"Consequently, tariffs on several products such as paper, sugar, edible oil, iron and steel, cement, motor vehicles, transport and telecommunication equipment and agricultural commodities have been very unstable. Furthermore, the final products with inputs granted country-specific duty remission do not access the EAC market at preferential tariff rates,” states the EABC.
As noted, country-specific duty remissions and stay of applications distort intra-EAC trade and create an unlevelled playing field due to unilateral application of different tariff rates by partner states. In the year 2021, 231 out of the 462 products classified in the fourth band were under stays of applications.
This represents 50 per cent of all tariff lines under the fourth band products assigned to attract a rate of above 25 per cent.
In 2021, Uganda applied a 60 per cent tariff on 100 products, while Tanzania applied 35 per cent on 135 products and Kenya 30 per cent on 24 products.
"This clearly shows that EAC partner states need higher tariffs for products that are available in the region and safeguard them against similar cheap imports from Asia.”
Lawmaker: focus more on the average consumer
But MP Fred Mukasa Mbidde, a long serving member of the East African Legislative Assembly and former chairperson of its Committee on Communication, Trade and Investment (CTI), told The New Times that the maximum CET rate proposed by the business community is not good for the region’s consumers.
Mbidde said: "The decision to increase the CET beyond 30 per cent, to 35 per cent, at a time when interventions have not resulted into an EAC industrialisation policy is only intended to benefit traders that expect increased prices due to commodity scarcity when such scarcity results into a higher market equilibrium where a convergence between demand and supply shall be located at a higher equilibrium that ordinary EAC consumers shall not afford.”
"It benefits business people who were members of that meeting under the auspices of the East African Business Council and the tax collectors represented by the Ministers but the consumer was not represented by EALA.”
The legislator noted that in terms of stocks, "only arbitrageurs intend to enjoy” the current purchase of stocks in contemplation of price volatility.
An arbitrageur is an investor who attempts to profit from market inefficiencies.
"A people centred EAC needs to focus more on the average consumer by avoiding taking decisions to which they have no benefit,” Mbidde said.