Top officials from regional ministries in charge of trade, industry, finance and investment on Monday, March 21, could not reach consensus over the EAC maximum Common External Tariff (CET) rate, sources say.
The matter was thus forwarded to the six-member bloc’s Council of Ministers which, sources say, is set to be held sometime mid next month.
The senior officials were meeting to deliberate on the analysis done by the EAC Secretariat on the implications of maximum CET rates of 30%, 33% and 35%.
Countries have maintained their divergent positions.
Kenya and Tanzania propose the regional common external tariff rate be set at 33 per cent, while Rwanda and Burundi want 30 per cent and Uganda wants 35 per cent. South Sudan – which is not yet integrated into the bloc’s Customs Union – has not been involved in the discussion yet.
A ministerial discussion could also not be held on Monday, March 21.
The regional business body recently urged East African Community partner states to adopt the proposed 35% as the maximum CET rate and commence its implementation in the financial year beginning July 1.
On Monday, John Bosco Kalisa, CEO of the EABC who attended Monday’s virtual meeting, told The New Times that: "EABC has also maintained its position of 35% in view of promoting industrialisation and growth of intra-regional trade as the only avenue to generate prosperity and create meaningful and sustainable jobs for our young generation.”
"The meeting for the Council of Ministers didn't happen because two partner states were not present. We only had senior officials and permanent secretaries.”
Earlier this month, Kalisa noted that prior engagements from both the private sector and government agencies were "excellent and we believe by 21st March a consensus will be reached” so that the implementation commences the first week of July.
Last month, the EABC insisted on the position that partner states adopt a 35 per cent maximum Common External Tariff (CET) rate as it, among others, will promote industrialization as well as boost intra-EAC trade by $18.9 million.
The current maximum CET is 25%.
According to EABC, the proposed 35% maximum CET rate will provide an adequate tariff degree of difference required to incentivize industrial development in the EAC region; by safeguarding products that are sufficiently produced in the region against similar cheap imports.
As noted, the 10% tariff difference is needed to safeguard and sustain existing investments in the prioritized regional value chain of textiles, automotive, agro-processing, wood, iron and steel, mineral processing, energy, fertilizers, 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%, the partner states stand to benefit most through increased revenue generation by 5.5% and employment generation is estimated to increase by 0.03% (6,781 people) under the maximum rate of 35%.
The analysis further shows that Burundi will benefit from increased trade creation by $1,363,749 while Rwanda by $3,714,495 if the maximum CET rate of 35% is adopted.
As noted, non-metallic minerals, printing, products of wood, furniture, paper, crops; horticulture are among the industrial sectors in Rwanda and Burundi will benefit from 35% maximum CET. According to the analysis, the average potential net welfare loss effects under the proposed 35% 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, as well as create employment opportunities from production switch sustain regional food security and rural development.
The EABC’s preferred 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%, 33% and 35%.
The regional CET is currently structured under three bands of 25% for finished goods, 10% for intermediate goods and 0% for raw materials and capital goods.
It was last reviewed in 2010.
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), recently told The New Times that the maximum CET rate proposed by the EABC 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-centered EAC needs to focus more on the average consumer by avoiding taking decisions to which they have no benefit,” Mbidde said.