The East African Community is set to review border passage rules for goods, paving the way for more Kenyan exports to access the regional market. The bloc’s custom and trade division has invited consultants to align the rules of origin with changes in manufacturing to facilitate intra-regional trade in the region.
“We expect the reviewed rules of origin to capture as many changes including transport costs that have grown in importance for firms,” Peter Kiguta, EAC’s director-general in charge of trade and custom said in a telephone interview.
Mr Kiguta also said the review would prepare the region for an eventual merger with Comesa and SADC. The rules will also be phased out once a single EAC revenue collector is set up.
Trade Mark East Africa has floated the tender asking consultants to simplify the rules of origin so that they can be implemented easily.
The present rules of origin only allow goods produced wholly from local inputs to cross national borders without attracting custom taxes.
Goods produced from imported raw materials also enjoy duty-free treatment where the exporter can prove that at least 35 per cent of the ex-factory value was added within the region.
The proof is usually that the local transformation process has moved the product to a tariff category different from that of imported parts or inputs.
The application of this rule has been controversial, with traders claiming it is selectively applied by customs officials to bar Kenyan products from entering Tanzania, Uganda, Rwanda and Burundi.
The partners phased out duties on Kenyan goods that meet these rules from January after the end of the transition period. Some of the vehicles from the Nairobi-based General Motors East Africa and CMC Motors are among products affected by the rules of origin.
While assemblers stake their claim to the regional market on the number of jobs and operations involved, border officials have maintained that the process entails very little transformation on the completely knocked down vehicle parts.
The beauty products sold by Inter-consumer Products Ltd; Nido, Milk and Nescafe produced by Nestle Kenya; television sets manufactured by Aucma Digital Technology Africa; and lubricants manufactured by Kenol/Kobil have also encountered similar restrictions at border posts.
“Our market share has grown significantly in the region since the EAC’s verification mission cleared our products last year with Uganda becoming our largest market,” Charles Njogu, KenolKobil’s spokesman, said on Tuesday.
Kenya Revenue Authority officials said the rules of origin are now outdated because of rapid changes that have taken place since they were conceived more than six years ago.
The officials said they are encountering cases where genuine goods are being locked out simply because the rules are blind to their unique circumstances. The use of technology and other cost-efficient production techniques has rendered the 35 per cent value addition threshold irrelevant, KRA said, adding that a change in tariff heading alone would be more objective.
“Use of total cost to determine local value addition is not objective,” an official who could not be named under KRA protocols said yesterday. “An operation that contributed 35 per cent to total cost six years ago may have fallen to 20 per cent due to cost cutting. The RoO does not factor in investments that contribute to efficiency
Lately, Kenyan edible oil firms such as Kapa Oil and Bidco Oil have been fighting to defend their markets from custom officials who maintain the refining of imported crude palm oils does not meet the value addition threshold.
The firms import crude palm mainly from Asia to manufacture products such as cooking fats and soaps which they export to EAC and Comesa countries.
“In this case, refining process is the huge but hidden investment that must be recognised for the rules of origin to make sense to exporters,” said the KRA official.
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