On July 1, 2007 Rwanda and Burundi started implementing the East African Community (EAC) Customs Union pact, two year after they were integrated into the region’s economic bloc.
Implementing the EAC Customs Union protocol means that the two countries have started applying a common external tariff.
The EAC protocol on the establishment of the Customs Union came into force on January 1, 2005 in the three founding member states of Tanzania, Uganda and Kenya.
Its main objective is to promote intra EAC trade, enhance production and industrialisation, and promote investment in the region.
However, it has been debated on different fronts that as the EAC member sates continue to integrate economically, emerging private sector in weaker economies like Burundi and Rwanda will be kicked out of business.
Actuality a friend of mine, a Rwandan businessman, who imports ceramic materials, compared it to putting an armature swimmer before Michael Phelps, an American professional swimmer who has 14 career Olympic medals in his cabinet.
The argument has always been that countries like Kenya that have large industries that experienced the largest increases in regional trade orientation have ……comparative advantages.
It should be noted that there will be more trade diversion when intra-regional trade increases in industries with weak comparative advantages.
The trade diversion effect exists because countries within the trading bloc, protected by trade barriers, will find they can produce goods more cheaply than countries outside the trade bloc.
Production will be diverted away from those countries outside the trade bloc that have a natural comparative advantage to those within the trading bloc.
Weaker firms in the medium term will overcome lack of competitiveness, through additional investment in newer production technologies, specialisation in activities where they have a competitive advantage, re-training of human resources and mergers with strategic partners.
Hategeka said this week that Rwanda’s private sector has already “tasted” the competition under the Common Market for Eastern and Southern Africa (COMEASA) Free Trade Area’s (FTA) competitive regime.
Under the COMESA FTA, Kenya has been exporting goods to Rwanda under a duty free regime since 2004 while Uganda originated goods have been attracting six percent import duty. Kenya and Uganda are Rwanda’s major trading partners in EAC.
However, President Yoweri Musveni of Uganda does not subscribe to such a notion that the economic disparities that exist amongst the five member states are a big challenge.
In fact he sees no economic differences amongst these countries saying its like comparing five pigmies trying to find out which was taller. That was during last year’s first EAC investment conference.