Following Rwanda and Burindi’s full accession to the East African Community (EAC) in June last year, the five-member-state economic bloc is still undergoing a number of evolvements. Everything has to move so fast because there are deadlines to beat. But, it is important to note that such issues of integration in Rwanda are not by coincidence.
In Rwanda’s Vision 2020, it is clearly spelt out as the sixth pillar that the country will embrace regional and international economic integration. On international scene, a team from the Commonwealth just visited early June to assess Rwanda’s readiness to become a member.
On the regional scene, after accession last year, negotiations for the East African Community (EAC) Customs Union and Common Market started, and are ongoing. But not much will be revealed to the media though, until these negotiations are over, perhaps to avoid destructions here and there.
John Bosco Kanyangoga, the Private Sector Federation Trade and Policy Advocacy Director says Rwanda’s accession to the EAC and implementation of the EAC’s Customs Union meant that it had to adopt the trade bloc’s Common External Tariff (CET) and also allow free trade to prevail in its territory.
In other wards, it had to subscribe to the EAC Customs Union. With the CET, Partner States agree to impose uniform import duties, meaning Rwanda has to adjust its current four-band tariff structure; 0 per cent on raw materials and capital goods, 5 per cent on goods of economic importance, 15 per cent on intermediary or semi-finished goods and 30 per cent on finished goods, and adopt the EAC standard three-band structure of; 0 per cent on raw materials, 10 per cent on intermediary goods and 25 per cent on finished goods.
The CET is a very essential and basic element of the Customs Union. Adopting the CET amongst the five Partner States means they will all be applying the same tariff structure to goods coming from outside the EAC. However, some Partner States have to clarify certain pertinent issues in order to comply with the requirement of aligning their tax regimes to the CET. For instance, what is regarded as a raw material or intermediate commodity in one country may not necessarily be in another.
In the EAC framework, Uganda, Kenya and Tanzania already subscribed to the EAC Customs Union, but the new entrants, Rwanda and Burundi are yet to. Although these new entrants attained full accession in June 2007, they still had to conform to EAC Customs Union requirements and regulations and more specifically had to align their domestic tax laws and regulations to that of EAC Customs Union Management Act (EACCUMA).
In effect, a roadmap and timelines for Rwanda and Burundi to implement the EAC Customs Union were set. They have until June 2009 to have completed this entire process. To expedite this process, Rwanda formed a negotiating team called the National Negotiating Technical Team (NNTT) composed of experts from relevant stakeholders, including; government institutions, private sector, civil society and academia. The private sector is represented by their apex body; Private Sector Federation (PSF).
NNTT is supervised by the Regional Integration Committee (RIC) at policy level that is based in the President’s Office, which reports to the Cabinet through the Ministry of EAC Affairs. Currently, NNTT is doing all the necessary groundwork such as; reviewing, keenly, the current Rwanda’s tax policy in comparison with the other EAC, looking at what is needed to implement EACCUMA, and sensitizing Rwanda’s citizens, especially business community about various aspects of integration into EAC.
For instance, Kanyangoga says the EACCUMA will be translated to the local dialect; Kinyarwanda to ensure effective communication. Further, the negotiating team is looking at how Rwanda’s economy will be affected when it adopts the EAC Customs Union. And, will then propose recommendations on what Rwanda should do to overcome challenges and also what should be done to harness, optimally, the opportunities in the EAC.
There are some people who have been worried about Rwanda’s competitiveness in the region, citing the relatively lower production capacity of the manufacturing and industrial sectors. However, if the NNTT does its job pretty well, the country will benefit from the list of sensitive goods to protect the sectors and products that genuinely deserve protection. Sensitive goods are goods of economic importance to a given economy, and will not be affected by the trade liberalisation that comes with the adoption of Customs Union.
With the Customs Union up and running, all commodities produced within the trade bloc cross borders freely (zero import duty) and are only subjected to domestic taxes like VAT, withholding tax, profit tax, and so on. So, everyone in Rwanda, especially importers, is looking out for a moment when this will happen.
To Kanyangoga, the impact will not be so big, reasons; “if you look at Kenya, which is the biggest Rwanda’s trade partner in EAC with about 50 per cent trade volume, its goods enjoy duty free entry; because Kenya has fully subscribed to COMESA’s Free Trade Area (FTA)”.
Uganda, apparently, has not yet subscribed to COMESA’s FTA and thus cannot benefit this way, but her goods already enjoy reciprocity with Rwanda’s, meaning both countries agreed to change tax regimes by the same margin.
Tanzania’s trade volumes with Rwanda are very minimal, recently reported at around 10 per cent and Burundi’s is quite negligible. Thus, as PSF’s Kanyangoga reasons, subscribing to the EAC Customs Union may not enhance any bigger impact in terms of trade volumes than what is witnessed today.
If Rwanda adopts the CET and also subscribes to the EAC Customs Union, won’t this greatly reduce revenues collected by Rwanda Revenue Authority (RRA)? And, won’t the many infant industries in Rwanda be suffocated?
Kanyangoga says there should be no worries if the negotiating team comes up with a studied comprehensive list of sensitive goods. This list will comprise commodities of high economic importance to Rwanda—justifiably fetching high revenues to the economy.
In some form of protectionism, prospective local industrial commodities will also be included on the list of sensitive goods. A country is allowed to impose an import duty outside the CET rates on a sensitive commodity. But this is temporal, and how long the commodity is considered sensitive is agreed on by the negotiating team and their regional counterparts.
Recently, a team composed of RRA and PSF experts was on a regional [EAC] survey, trying to come up with an exhaustive list of sensitive goods that is evidence based and justifiable.
Kanyangoga says if all goes according to plan, the list of sensitive goods would be ready by August this year and a stakeholders’ validation workshop will subsequently be organized.
Negotiating for Common Market
The EAC Common Market is another important aspect that member states have to agree on, which comes at such a moment when; integration has got quite deeper, trade policies pretty harmonised and member states have gotten closer in terms of economic ties.
Unlike Customs Union, Common Market negotiations go beyond trade in goods to factors of production such as labour, capital and entrepreneurship. Negotiations of the EAC Common Market are based on article 76 of EAC treaty which provides for the establishment of a common market.
For the Common Market to come in place, EAC made the timetable for the technical negotiations to ensure that the Common Market requirements are in place by at least 2009 such that it is implemented by 2010.
Pursuant to the EAC council decision of August 2007, the EAC ministers urged member states to designate experts who will constitute a High Level Task Force (HLTF) that will handle all aspects of Common Market protocol as specified in article 76 of the EAC treaty.
Rwanda’s HLTF was formed to articulate the country’s position in all issues and areas covered in the negotiations. It is also supervised by RIC, which reports to EAC Affairs ministers that in turn also reports back to Rwanda’s cabinet on the progress.
Rwanda’s HLTF is composed of public and private sector organisations, civil society and academia. The task force is also composed of various sub committees such as legal, trade and investment, monetary and financial committees.
Meanwhile, the taskforce has drafted a position paper that stipulates Rwanda’s offensive and defensive interests in these negotiations.
Common market negotiations were launched in April this year here in Kigali at Serena Hotel and preliminary negotiations were held on, among other issues; free movement of goods, workers and self-employed, right of establishment, and right of residence.
Tanzania did not attend the negotiations though. But this did not stop the four member states represented to carryon with the launch and the negotiations.
Tanzania was however sent a report on what transpired. The original plan was to hold negotiation sessions every month, rotated in all member states.
The May negotiations were to be held in Nairobi but were called off at the request of Tanzania because it could not again afford to attend.
Came June, negotiations were again not held because Tanzania said it could not participate until August. This has halted the Common Market negotiations and there are growing fears that, unlike otherwise, the 2010 deadline may be hard to beat. According to Kanyangoga, PSF will ensure that the interests of Rwanda’s private sector are catered for in all the EAC negations.
For instance, the federation has carried out a comprehensive study on how the Customs Union will impact on Rwanda’s business community and the findings were submitted to relevant authorities such as EAC Council of Ministers, negotiating teams and government institutions, for appropriate action.
And, to ensure thorough representation of interests of the private sector, PSF created a special team to negotiate on behalf of the business community, called Private Sector Trade Negotiations Team (PSTNT).
Everyone is now looking up to the negotiating teams to beat the deadlines, and also come up with the best for Rwanda that the business community will not stand to regret in future.