Power Utility Distributor Extends Internet to Homes

The fibre to the home partnership between electricity distributor Kenya power and telecommunication services providers like Safaricom is a novel approach to cost cutting efficiency and universal access. 

On cost efficiency, apparently it costs about KSh 7,000 to bury a meter of fibre optic cable, but the cost of hanging the internet cables on power poles is significantly lower.  Kenya Power also says that it will make savings by using its existing labour force to connect fibre cables to homes. 

See more here.

Retail Distribution Services in Kenya

This is an interesting piece on the retail distribution services sector and the inflow of foreign brands into Kenya.  The growing retail sector has attracted international brands such Foshini Group, French supermarket chain Carrefour and fast-food companies like Pizza Hut, Subway and Burger King.  

Read more here.

Kenyan Crude Oil Headed to the EU?

Despite the oversupply of oil, low prices and high transport costs, Kenyan crude oil from the Turkana region is apparently headed for the EU. Civil Society is apparently calling first for the construction of a pipeline to transport the oil but seems the oil will be transported by trucks and trains which is costly.

Read more here.

Conference and Business Tourism Services in Kenya

This is an interesting piece. 

Apparently Kenya hosted 243 global and continental meetings in 2016 which attracted multi-billionaires and many Heads of State and government to the country.  In addition to conference tourism, Kenya is also seem as a business services hub by institutions seeking to access the greater EAC region and beyond.

Read more here.

EPZs and SEZs

The transformation of the policy, legal and regulatory framework of Export Processing Zones (EPZs) in Kenya will see them converted to Special Economic Zones (SEZs) and replicated in all 47 counties in the country. See more here.

The SEZ concept has evolved globally to include a wider range of economic activities with the aim of accelerating growth and development as opposed to only focusing on manufacturing for export. SEZs have been adopted in other countries such as China, Mauritius, Egypt and India and have widened the range of activities included in the economic zones to also accommodate companies with a domestic market orientation and those in the services industry. In Kenya the SEZ will widen the domestic market to include the EAC. 

The move from EPZ towards economic zones in Kenya will require the current EPZ Act to be amended. Further, there will be a need for the harmonization of the new Act with other government Acts and policies that may be hindering investment and effective investor facilitation in the zones.  A sound legal and regulatory framework is a necessary first step for a successful zone program, particularly one designed around private sector development and operations.

According to previous article found here on SEZs, China used a number of policies to ensure that technology transfer would take place domestically through the SEZ, through joint ventures between foreign investors and local firms and that strong domestic players would emerge. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China and the goverment can be applauded for a determined effort to capture and acquire domestic capabilities to build modern industries. 

According to the World Export Processing Zones Authority (WEPZA) zones have generally failed to have a catalytic effect in most African countries in part because they have been disconnected from wider economic strategies; they are often put in place and then left to operate on their own, with little effort to support domestic investment in the zones or to promote links, training, or upgrading. Unlocking the potential of zones appears to require clear strategic integration of the program as well as active government leadership to facilitate the positive impact of the zone.  According to the WEPZA, in Africa few, if any, appear to treat the zone programs as an important pillar of wider economic growth, industrialization, and trade strategy.

In addition, high-level, active government commitment to zone programs is a significant contributor to their success. This support must be consistent over the long term: The evidence from even the most successful zone programs suggests that it normally takes 5–10 years after zones launch (thus, possibly 15 years or more from when a project was first conceived) before a zone begins to show signs of success. In analyzing the East Asian successes with economic zones, the role of political leadership— in terms of both vision and active support along the path of planning, implementation, and operation—is clear. African zone programs have largely failed to secure this kind of consistent and active commitment from senior political leaders. 

 

In cclosing, successful programs such as those in Mauritius, Malaysia, and China use their zones as part of a group of instruments designed to promote wider economic policy reform, diversification, and upgrading. They also have strong governmental leadership.

For previous post on EPZs in Kenya see here

Mpesa Security Risk

According to the Ministry of Finance a technology disaster affecting Mpesa mobile transfer systems is now classified as a potential threat to the Kenyan economy (classified as a fiscal risk) causing loss of revenue- excise and corporate tax by firms running the systems. Mpesa represents a form of branch-less banking which was facilitated through a "special" license from regulators, despite concerns by regulators about non-branch banking in the interface between technology and the banking sector. This adds to the current state of financial insecurity.  Safaricom has apparently put in place several security systems to guard against such threats of disruption which could impact the Kenyan economy.

M-pesa plays a critical role in the Kenyan economy, a contribution that stands at a GDP of over 40%. For instance some Sh 2.8 trillion was transacted through mobile money last year, making it a crucial source of excise tax revenue for the government.  Other materials on Mpesa can be found on this site.

EAC Non Tariff Barriers

This is a useful statement by the H.E President Uhuru to EALA on removal of non tariff barriers (NTBs) in the EAC urging increased collaboration between EALA and the private sector.

EALA recently passed binding legislation on NTBs in the EAC, legislation which will need to be assented to by EAC Heads of State. Termed the East African Community Elimination of Non-Tariff Barriers Bill, 2015 ", it gives legal effect to Article 13 on the establishment of the East African Customs Union. The law uses the WTO categories of non tariff barriers as set out in its schedule. The Act shall take precedence over any other laws Partner States may enact affecting NTBs. The legislation can be found here.

Current Acts of the EAC Legislative Assembly can be found here.

Some thoughts on Brexit and EPA

Tanzania seems to be more or less backing out of the EAC EPA with the EU over the Brexit vote among other economic reasons. The UK as a state is a signatory to the EPA agreement in addition to the European community and other EU member states. Hence the EPA agreement is of a bilateral character in relation to the UK. However EPAs are also  mixed agreements concluded ‘of the one part’ by the EU and its Member States and, ‘of the other part’, the ACP signatory. In this regard the rolling over of EU FTA arrangements so that they continue to apply to the UK and the ACP signatory only after Brexit shouldn't be difficult for ACP signatories to negotiate with the UK. Some call it negotiating for EPA equivalence with the UK. This kind of “rolling over” of treaty obligations is a familiar process in international law and shouldn't be a bottleneck for Tanzania or the ACP Member States in the short to medium term. However it may involve and allow for renegotiation of at least some of the EPA provisions.

See previous EPA post below.

Renegotiation of NAFTA, TPP and future of US EU Trade Negotiations

Some of you may recall that President Obama's campaign called for the renegotiation of NAFTA particularly on labor and environmental issues. That was done and apparently the 12 member Trans-Pacific Partnership (TPP) represents a renegotiation of NAFTA by holding Mexico to fully enforceable labor provisions. In addition Mexico is also developing parallel labor reforms, including to better protect collective bargaining and reform its system for administering labor justice. TPP has been a signature economic objective of Democratic President Barack Obama.

However President elect Donald Trump has also called for the renegotiation of NAFTA including the scrapping of the (TPP) agreement and imposition of tariffs on China, blaming all for taking away U.S. jobs.  Some have asked ask why not renegotiate the TPP instead of NAFTA? 

Meanwhile Canadian Prime Minister Justin Trudeau has said that he is willing to reopen NAFTA while Mexico has indicated that discussion of NAFTA is OK but not renegotiation.  NAFTA was concluded in 1994 and is a well established agreement that requires member states to give 6 months notice to withdraw. If President elect Donald Trump is to keep his word, Trump’s administration will invoke the president’s unilateral trade retaliation authority as leverage to resolve problems created through negotiated settlements.

Another trade deal likely to take a backseat is the Trans Atlantic Trade and Investment Partnership between the U.S and European Union. Admittedly, negotiations are slow and were made more complicated after the UK this past summer voted to leave the EU. Given Trump’s criticism of free trade agreements, at a minimum there is likely to be a long pause for reflection before the new Administration decides to endorse negotiation of this mega-deal.

For more on Donald Trump's trade views see here.  His vision is "Negotiate fair trade deals that create American jobs, increase American wages, and reduce America's trade deficit.|"

Tanzanian MPs Vote Against the EAC EPA and Suit Filed at EACJ

Tanzanian MPs have voted against the country signing the EAC Economic Partnership Agreement. Tanzania’s reluctance to endorse the EPA, after 10 years of negotiations, is based on three issues — chinese driven industrialization policy and revenue losses in the 2016/17 national budget.  Tanzania is also concerned by Britain’s decision to quit the EU, saying Britain is its main trading partner and it makes no sense to enter into a deal with the European bloc without London. 

Apparently President Magufuli could still ignore the MPs’ advice and push for the signing of the EPA. Will see what happens.

Meanwhile a Tanzanian national has filed a civil suit with the East African Court of Justice (EACJ) to stop the EAC and remaining members  states of the EAC Burundi, Ugandan and South Sudan from signing the EPA. (Rwanda and Kenya have already signed). The EACJ's major responsibility is to ensure the adherence to law in the interpretation and application of and compliance with the EAC Treaty. Article 30 of the EAC Treaty allows the court to have reference to civil suits by natural and legal persons. The suit filed in October 2017 says that further signature will allow ratification and regional application of the agreement, which will most likely undermine industrialization policies and tariff regimes and displace EAC products from the market.

See more here.

EAC 2050 Vision

The EAC has recently concluded an EAC 2050 Vision document. The Pillars of Vision 2050 contain five chapters, each of which is a pillar on which the Vision 2050 stands. These pillars are integral to the very idea of long-term transformation, value addition and growth the overarching theme that runs through the vision, needed for accelerating the momentum for sustained growth over the long term. 

The 5 pillars are:

(a) Infrastructure development; 

(b) Industrialization; 

(c) Agriculture, food security and rural economy; 

(d) natural resource and environment management; and finally 

(e) tourism, trade and services development.

The presidents of the six countries of the East African Community have approved the regional Vision. The Heads of State committed themselves to implement the EAC vision and ensure that by 2050, the EAC will have been transformed into an upper-middle income region within a secure and politically united East Africa based on the principles of inclusiveness and accountability. The Heads of State also committed themselves to implement the vision and ensure that by 2050, the EAC will have been transformed into an upper-middle income region within a secure and politically united East Africa based on the principles of inclusiveness and accountability. 

Vision 2050 primarily focuses on initiatives that will create gainful employment and must, therefore, aim to accommodate the development pillars and enablers that would create jobs to absorb the expected expansion of workforce in the next decades. 

The implementation of Vision 2050 will be based on periodic concentration with marked segments consisting of phases of five years and addressing specific aspects of the Vision.

The EAC vision is a way of harmonizing and consolidating the visions of Partners States as well as the EAC institutions and bringing into focus the interests of the combined population of the community and alignment with the AU Agenda 2063 as well as the 2030 Sustainable Development Goals in the United Nations.

For the African Union Agenda 2063 which is both a vision and an action plan. It articulates an approach on how the continent should effectively learn from the lessons of the past, build on the progress now underway and strategically exploit all possible opportunities available in the immediate and medium term, so as to ensure positive socioeconomic transformation within the next 50 years.

Export Processing Zones in Kenya

Kenya’s Export Processing Zones (EPZs) have failed to meet expectations on wealth and job creation, the World Bank (WB) says in a new report as the government prepares to reform the model which has lagged behind what Asian and Latin American countries offered.

Incentives provided through export processing zones and special economic zones should be compatible with World Trade Organization specifically the Subsidies and Countervailing Measures Agreement including timelines on export promotion instruments; otherwise host countries may face retaliatory actions by importing countries.

According to the Kenya Export Processing Zones Act Article 9 replicated below these are the regulations that apply to EPZs in Kenya.

Subject to subsection (1) and without prejudice to any other written law, the export processing zone enterprises, export processing zone developers and the export processing zone operators shall be granted the following exemptions—

(a) exemption from registration under the Value Added Tax Act;

(b) exemption from the payment of excise duties as specified in the Customs and Excise Act (Cap. 472);

(c) exemption from the payment of income tax as specified in the Income Tax Act (Cap. 470) for the first ten years from the date of first sale as an export processing zone enterprise, except that the income tax rate shall be limited to twenty-five percent for the ten years following the expiry of the exemption granted under this paragraph;

(d) exemption from the payment of withholding tax on dividends and other payments made to non-residents during the period that the export processing zone enterprise is exempted from payment of income tax under paragraph (c);

(e) exemption from stamp duties on the execution of any instruments relating to the business activities of an export processing zone enterprise;

(f) exemption from quotas or other restrictions or prohibitions on import or export trade with the exception of trade in firearms, military equipment or other illegal goods;

(g) exemption from exchange controls on payments for—

(i) receipts of export processing zone exports;

(ii) payments for raw materials, intermediate goods, tools, and spares, supplies, construction equipment and construction materials, capital equipment, office equipment, repatriation of royalties, management fees, technology transfer fees, profits, dividends, advertising expenses, inspection fees for quality control, debt service and any other legitimate business expenses; and

(iii) capital transactions, except on capital funds raised form Kenya residents subject to exchange control in which case remittance of dividends, profits, debt service and any other returns to such capital invested shall be subject to the Exchange Control Act (Cap. 113);

(h) exemptions from rent or tenancy controls; and

(i) any other exemptions as may be granted by the Minister for the time being responsible for finance by notice in the Gazette.

See related article here on the Kenyan experience on EPZs.

Meanwhile Mauritius can be considered one of the most successful stories in the context of the African continent on EPZs. In the past Mauritius has grown on average by 6 per cent, relying on several growth engines which include export processing zone (EPZ), the sugar sector, tourism and the emerging financial services sector. The EPZ can be credited with diversifying the Mauritian economy from the traditional sugar sector and leading to the industrialization of the country.

Positioning Services Reforms and Negotiations for Development

This is dated but I thought I should post it here for my records. Positioning Services Reforms and Negotiations for Development presented in Nairobi Kenya.

A Positive Agenda for Trade Facilitation Negotiations in Africa

This paper I wrote is a little dated but the concision is still useful given the conclusion of the WTO Trade Facilitation negotiations. The paper can be assessed here.

Trade facilitation is definitely a potential source of growth promotion in Africa and African countries need to continue focus on an integrated and coherent approach. Progress achieved in such a broad approach does not, however, necessarily mean multilateral binding. It is important to provide adequate policy flexibility in the rules to enable countries commit according to own priorities and capabilities. Members should be allowed to pre-commit, with the option of linking pre-commitments to effectiveness of capacity building efforts. A multilaterally agreed monitoring framework will be necessary. Such a review needs to monitor and evaluate the commitments made, the implementation capacity and the availability of technical and financial assistance. Experience with ongoing trade facilitation programme suggests that the cost of ambitious multilateral agreement on trade facilitation will be high and certainly beyond the capability of African countries. 

There is, therefore, a need for trade facilitation fund to cater for necessary adjustment costs arising from the expected new commitments in the final WTO trade facilitation agreements. The next steps for adequate participation of Africa in these negotiations would be to document the situation in a selected group of countries that have made relatively good progress in these areas and that could provide “best practice” examples. These case could be used to design a comprehensive programme that a typical African country would have to undertake in order to comply to a multilateral agreement on trade facilitation with elements in proposals being tabled are to become binding. Additionally, submissions to the negotiating group on trade facilitation can be made specifically to address concerns of African countries and present possible positions following the needs assessment exercise.

See other comments I have made on trade facilitation here.

India Files WTO Challenge Against US Visa Fee Increases

India has has filed a dispute against the US under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) which constitutes Annex 2 of the WTO Agreement and has requested consultations with the US.

According to the dispute, under the Consolidated Appropriations Act of 2016, Washington increased fees for L-1 type visas by US$4500 and for H-1B type visas by US$4000 for companies with 50 or more employees in the US, if more than 50 percent of their employees are non-immigrants employed on such visas. It was signed into law by President Barack Obama in December 2015, with the measures in place through September 2025.

H1B is work permit for temporary specialty workers while L1 visas are issued for intra-company transfers that allows companies to relocate qualified employees to US offices.

India claims that these measures, along with earlier fee increases between August 2010 and September 2015, appear to violate the US’ commitments under its Schedule of Specific Commitments under the WTO’s General Agreement on Trade in Services (GATS) – the set of global rules involving services trade- along with being inconsistent with other GATS provisions. 

India claims that the visa fee increases: 

appear to: (i) be inconsistent with the terms, limitations and conditions agreed to and specified by the United States in its Schedule of Specific Commitments under the GATS, (ii) accord to juridical persons of India having a commercial presence in the United States treatment that is less favorable than that accorded to juridical persons of the United States engaged in providing like services in sectors such as the Computer and Related Services sector with respect to which the United States has taken commitments in its Schedule of Specific Commitments, and (iii) affect the movement of natural persons seeking to supply services in a manner that is inconsistent with the United States' commitments in its Schedule of Specific Commitments. These measures also appear to nullify or impair the benefits accruing to India directly and indirectly under the GATS. 

In its complaint, India said that the current measures (of visa fee hike) result in less favorable treatment for Indian companies with commercial presence in the US in comparison to US companies engaged in providing like services and according to the GATS Schedule. 

This violates the principle of ‘national treatment’ embedded in multilateral trade rules, which lays down that foreign companies will be treated on a par with local firms. 

The Government of India is of the view that these and comparable measures, taken by the United States are not in conformity with at least the following provisions of the GATS: Articles XVI, XVII, XX, and paragraphs 3 and 4 of the GATS Annex on Movement of Natural Persons Supplying Services. These measures also appear to be inconsistent with Articles III:3, IV:1 and VI:1 of the GAT 

Furthermore, New Delhi is also claiming that recent US changes to its numerical commitment for H-1B visas – specifically due to modifications Washington has made under FTAs with Singapore and Chile – also are inconsistent with its GATS schedule. 

According to the consultations request, the US included under its horizontal commitments regarding mode 4 – that involving the movement of natural persons – that it would permit up to 65,000 people annually on a worldwide basis under the category of fashion models and specialty occupations. 

Under the two FTAs mentioned above, these “numerical commitments” have allegedly been changed. According to India, US homeland security officials must now set country-specific limits for both countries, with these numbers taken away from the global total of 65,000 receiving H-1B visas.

BRICS Bank now operational

The New Development Bank BRICS (NDB BRICS), formerly referred to as the BRICS Development Bank is now operational. The Bank is a multilateral development bank founded by the BRICS states (Brazil, Russia, India, China and South Africa) as an alternative to the existing US-dominated World Bank and International Monetary Fund. The Bank is set up to foster greater financial and development cooperation among the five emerging markets. Unlike the World Bank, which assigns votes based on capital share, in the New Development Bank each participant country will be assigned one vote, and none of the countries will have veto power.

The five big emerging market economies (BRICS) have strengthened co-operation with a constant goal in mind: to challenge the West’s grip on the Bretton Woods institutions by creating their own monetary fund and development bank.

They chafe at their under-representation at the IMF; the voting rights of China, the world’s second-largest economy, are not even a quarter of those of the US. An IMF reform that would slightly correct the imbalance has been languishing for three years. A battle seems to have a foregone conclusion because of the composition of the IMF executive board, which names the managing director. It is dominated by Europeans and Americans.

The BRICS Bank shall in its role mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions for global growth and development.

To fulfill its purpose, the Bank shall support public or private projects through loans, guarantees, equity participation and other financial instruments. It shall also cooperate with international organizations and other financial entities, and provide technical assistance for projects to be supported by the Bank.

Even though the bank has 5 founding members, the Bank shall be open to members of the United Nations, in accordance with the provisions of the Articles of Agreement of the New Development Bank and shall be open to borrowing and non-borrowing members.

To fulfill its purpose, the Bank is authorized to exercise the following functions:

(i) to utilize resources at its disposal to support infrastructure and sustainable development projects, public or private, in the BRICS and other emerging market economies and developing countries, through the provision of loans, guarantees, equity participation and other financial instruments;

(ii) to cooperate as the Bank may deem appropriate, within its mandate, with international organizations, as well as national entities whether public or private, in particular with international financial institutions and national development banks; 

(iii) to provide technical assistance for the preparation and implementation of infrastructure and sustainable development projects to be supported by the Bank; 

(iv) to support infrastructure and sustainable development projects involving more than one country; 

(v) to establish, or be entrusted with the administration, of Special Funds which are designed to serve its purpose. 

The Bank has its headquarters in Shanghai.China and the Bank may establish offices necessary for the performance of its functions and as such the first regional office is in Johannesburg, SA.

The Bank shall have a Board of Governors, a Board of Directors, a President, Vice-Presidents as decided by the Board of Governors, and such other officers and staff as may be considered necessary. With India providing the bank’s president, the bank’s four vice-president’s come from each of the other Brics member countries (Brazil, Russia China and SA). SA’s vice-president is Leslie Maasdorp, who, as chief financial officer, will be responsible for treasury and portfolio management as well as the finance, budgeting and accounting functions.

The Bank in its operations may provide financing in the local currency of the country in which the operation takes place. 

The Bank shall possess full international personality and enjoy wide immunities.

Proposed Levy on Imports to Finance EAC Secretariat

From Business Daily. See more here.

The cost of imported goods looks set to rise as the East Africa Heads of State agreed on a new import levy to finance secretariat operations which have long been hit by unreliable donations and member subscriptions.

The Heads of State on Wednesday called for the conclusion of a more sustainable financing plan for the EAC budget.

The summit directed the council to finalise the work on the modalities required to establish a sustainable financing mechanism for the East African Community based on various options, including a hybrid of a levy and equal contribution with a commitment to increase the budget, that encompasses the principles of equity, solidarity and equality, and submit a report to the next summit for consideration.

EAC Treaty Articles 132:4 and 133 state that the EAC budget shall be funded by equal contributions by the Partner States and receipts from regional and international donations and any other sources as may be determined by the Council. Other resources shall include grants, donations, funds for projects and programmes, technical assistance and income earned from activities undertaken by the Community. 

The region’s council of ministers has previously proposed that member states should consider levying one per cent import duty on goods from non-member states.

The push for a new levy could come with pain for consumers in Kenya and other EAC countries where most of essential goods attract value added tax (VAT) after governments scrapped previous exemptions. 

Consumers in Kenya are already subjected to the recently introduced 1.5 per cent railway development levy (RDL) and the 2.5 per cent import declaration fee charged by the Kenya Revenue Authority (KRA). 

The additional one per cent levy would push up the prices for imports — including inputs for making essential commodities. 

Kenya in 2014 unsuccessfully tried to impose the RDL on all imports passing through the port of Mombasa. 

The KRA was forced to review the RDL collections after regional traders filed a complaint with the EAC Council of Ministers citing breaches to the regional common market protocol. 

A regional lobby group, the East African Business Council (EABC), argued that the 1.5 per cent levy imposed on imports was inconsistent with the EAC Customs Union Protocol, because it is a charge of equivalent effect that partner states agreed to remove. 

The customs union protocol enables goods produced within the region to be sold across the borders without duty while imports from non-EAC states are subjected to a three-band common external tariff structure. 

Raw materials attract no duty, intermediate goods are charged at 10 per cent while finished products are allowed into the region at 25 per cent tariff. 

Kenyan traders further said the RDL, which KRA imposed on top of other levies such as the 2.5 per cent import declaration fee, was tilting the competition landscape in the shared market in favour of their neighbours. 

KRA gave in to the pressure in early March 2014 and ordered all its officers to stop imposing levy on goods entering Kenya from the other four member states of the EAC.

South Sudan Admitted as Member of the EAC

At the 17th Ordinary Summit of the Heads of State of the EAC on March 2nd 2016, South Sudan was admitted as a member of the East African Community and the Treaty of Accession was signed with the Republic of South Sudan. Earlier South Sudan's membership application was put on hold after the technical team cited poor market economy structures, weak governance institutions and insecurity. It is not immediately clear whether South Sudan comes in as an observer or a full member. Articles 3.3 and 3.4 of the EAC Treaty on membership do not specify the stages of new membership into the community but instead specify that the conditions of entry are:

The EAC Partner States may, upon such terms and in such manner as they may determine, together negotiate with any foreign country the granting of member ship to, or association of that country with, the Community or its participation in any of the activities of the Community. 

The matters to be taken into account by the Partner States in considering the application by a foreign country to become a member of, be associated with, or participate in any of the activities of the Community, shall include that foreign country’s: 

(a) acceptance of the Community as set out in this Treaty; 

(b) adherence to universally acceptable principles of good governance, democracy, the rule of law, observance of human rights and social justice; 

(c) potential contribution to the strengthening of integration within the East African region; 

(d) geographical proximity to and inter -dependence between it and the Partner States; 

(e) establishment and maintenance of a market driven economy; and 

(f) social and economic policies being compatible with those of the Community. 

The granting of observer status to a country is the prerogative of the summit. 

South Sudan applied to join the EAC in 2011 following the gaining of her independence before she conducted any impact assessment studies. The EAC is now a customs union and is working on forming a monetary union. It is questionable if South Sudan is adequately stable and has the institutional capacity to function adequately in a dynamic regional economic bloc like the EAC. 

See more here and other resources on EAC's accession here.

EAC Launches E-Passport for International Travel

The East African Community (EAC) Heads of State have announced the internationalization of the EAC passport and launching of the electronic-East African passport for the region’s citizens by January 2017.

The e-passport which will apparently phase-out the national passports, will allow citizens of Tanzania, Kenya, Rwanda, Uganda and Burundi to travel across the regional and the passport will also allow international travel.

The new digitized passport replaces the old EAC travel document, which was restricted for travel within the five member states. The e-passport will ease movement within and outside the community, fulfilling the mandates of the EAC Treaty Article 104:3 and the Common Market Protocol on the free movement of people Article 8. The EAC e-passport is expected to have additional security features to protect against identity theft and data skimming. The e-passport will also have an electronic chip that holds the same information in bio metric form that is printed on the passport’s bio data page, including the holder’s name, date of birth, passport number and what the holder does for a living, among other things. It will also contain a bio metric identifier, a digital photograph of the holder and security features to prevent unauthorized reading or scanning, which will in turn reduce cases of forgery.

The African Development Bank has also just launched the first Africa Visa Openness Index, report which shows how Africa remains largely closed off to African travelers. On average Africans need visas to travel to 55% of other African countries, can get visas on arrival in only 25% of other countries and don’t need a visa to travel to just 20% of other countries on the continent.

The report highlights regional and geographical differences. Currently, 75% of countries in the top 20 most visa-open countries on the continent are in West Africa or East Africa. Already citizens from Kenya, Rwanda and Uganda can use national identity cards to travel in these states without the use of passports.

WTO Trade Facilitation Agreement and Facility

The WTO Trade Facilitation Agreement (TFA) adopted In December 2013 in Bali is the first multilateral trade agreement to be concluded since the WTO was established 20 years ago. WTO members also adopted on 27 November 2014 a Protocol of Amendment to insert the new Agreement into Annex 1A of the WTO Agreement. According to the WTO Agreement, a Member formally accepts the Protocol by depositing an “ instrument of acceptance” for the Protocol with the WTO. The Trade Facilitation Agreement enters into force once two-thirds of members of the 162 have completed their domestic ratification process, that is 108 members. As of writing, 70 countries have completed the ratification process and deposited their instrument of acceptance with the WTO.

The agreement aims to clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. Among the issues addressed in the Agreement are:

• norms for the publication of laws, regulations and procedures, including Internet publication
• provision for advance rulings
• disciplines on fees and charges and on penalties
• pre-arrival processing of goods
• use of electronic payment
• guarantees to allow rapid release of goods
• use of "authorized operators" schemes
• procedures for expedite shipments
• faster release of perishable goods
• reduced documents and formalities with common customs standards
• promotion of the use of a single window
• uniformity in border procedures
• temporary admission of goods
• simplified transit procedures
• provisions for customs cooperation and coordination.

The agreement is groundbreaking in that for the first time in WTO history, the commitments of developing and LDC's are linked to their capacity to implement the TFA. In addition the agreement states that capacity building support should be provided to these countries to help them implement the TFA provisions.

To benefit from Special and differential Treatment (SDT), a member must categorize each provision of the Agreement, as defined below, and notify other WTO members of these categorizations in accordance with specific timelines outlined in the Agreement.

• Category A: provisions that the member will implement by the time the Agreement enters into force (or in the case of a least-developed country member within one year after entry into force) 
• Category B: provisions that the member will implement after a transitional period following the entry into force of the Agreement 
• Category C: provisions that the member will implement on a date after a transitional period following the entry into force of the Agreement and requiring the acquisition of assistance and support for capacity building.

In order to assist developing and LDCs secure assistance and support to implement the provisions of the TFA, the WTO has established the Trade Facilitation Agreement Facility through which the WTO and other partners will expand its traditional technical assistance programmes to assist with matchmaking of donors and recipients.

Africa’s Limited Participation in Trade Remedy Actions

As reported by the below piece by ICTSD, Africa has limited participation in trade defense actions.

Africa’s limited participation in trade remedy actions (anti-dumping, countervailing and safeguards) is due to: the absence of national legal and institutional frameworks, the lack of expertise, the high cost of trade remedies, the availability of alternative instruments, the disorganization of the African business community, as well as political factors. 

National legal and institutional frameworks are the basic requirements for trade remedy actions but majority of African countries do not have such frameworks. Only five African countries have comprehensive national legislation on these trade remedies and only two countries – South Africa and Egypt – have fully fledged institutions. 

Putting in place national trade remedy legal frameworks and institutions can prove costly and time consuming as trade remedy investigations require a high level of expertise (well-trained specialized lawyers and economists), which many African countries can ill-afford. For instance, the WTO training programmes for poor countries have seen many beneficiaries of the programme leave government jobs to join the private sector or international institutions. This also remains a hurdle for African countries. 

Also the availability of substitute instruments such as tariff increment within WTO-bound limits, import prohibitions, and voluntary export restraint (VERs) arrangements is another reason for the low usage of trade remedies in Africa. For instance between 75 and 80 percent of African countries’ tariff lines are unbound, which means they could raise tariffs up to any rate without necessarily violating WTO law (WTO 2009). Also, though imports prohibition has been banned within the WTO, some African countries continue to resort to it with varied frequencies. 

Voluntary export restraints (VERs), which are banned within the framework of the WTO, are parts of some African countries’ trade defence strategy. In 2006, for instance, South African government struck a deal with China to restrict the latter’s textile exports to South Africa in order to relieve its beleaguered textile industry. 

Externally, African countries’ challenges also stem from the necessity to meet WTO standards and legal requirements. Many African countries do not have the economic and legal expertise, and the resources, to fully meet these requirements in carrying out investigations. Moreover, trade remedies are among the most challenged measures before the WTO Dispute Settlement Body and many African countries would have to hire international lawyers to defend their cases. In some cases, African countries producers and even trade officials have low knowledge about how to file a case, even where the laws exist. For instance, in the West African Economic and Monetary Union (WAEMU) countries, an anti-dumping regulation has existed since 2003 but only one case has been brought so far whilst many instances clearly show dumping red-flags could be raised. To avoid similar situations, Mauritius has incorporated a capacity building programme of the private sector in its trade remedy framework worth emulating in other African countries. 

Many African countries are also aid-dependent and this may influence their decision to resort to trade remedy actions against their trading partners, particularly if these partners are their main aid donors, source of investment, or former colonial powers. 

African countries also face the challenge of porous borders fraught with corrupt customs officers. Customs rules are circumvented or violated on a daily basis. 

Additionally, most African countries are part of regional economic communities. In this regard, adopting individual trade remedy schemes could be harmful to these customs unions or common markets. Indeed, the two key features of a customs union or common market are free movement of goods between the members and common external tariffs (CET) toward third countries. As a consequence, any border trade measure, such as anti-dumping or countervailing duties, has to be adopted and implemented by all the members at the same time.

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Implementation of Free Trade Agreements

To implement a Free Trade Agreement (FTA) within a national jurisdiction, one must take a number of domestic actions which include the giving of legal effect to the FTA in accordance with the constitution either through an act of parliament, amending existing legislation and/or through the proclamation of the head of state. The implementing legislation would typically contain sections on customs and the agreed tariff reduction according to the schedules of commitments, trade remedies, rules of origin, national treatment etc, as agreed under the FTA. The law would authorize the President/ parliament to proclaim the tariff modifications, amend existing legilsation and provide the rules of origin for preferential tariff treatment as provided for under the Agreement, including the setting up of new institutions/departments. The Implementation Act would also specify the general rules of origin to be used in determining if a good qualifies for preferential tariff treatment under the Agreement in addition to proposed regulatory amendments and a new regulations in the customs act.

In addition, there would be the setting in place of an implementation unit/department or focal point to manage implementation of the agreement in the relevant ministry of foreign trade. The implementation unit must not be constrained by insufficient financial and personnel resources. For a regional trade agreement, the establishing a regional implementation unit to provide direct support and to coordinate technical assistance to Member States is of utmost importance for instance in the EPAs with the EU. The regional implementation unit can work with Member States in organizing seminars, workshops and other outreach activities to address the information deficit at almost every level in the public and private sectors. The private sector in particular needs to be sensitized in simple language on the provisions of the agreement and how to take advantage of the benefits of the agreement.  Aid for trade could be an important facilitation consideration in this regard.

Thirdly, there would be joint mechanisms for engagement pertaining to the FTA such as joint trade committees, councils, summits, working groups to provide oversight to the FTA and for exchanges of information, laws and regulations including engagement among the private sector to enable them to take advantage of the benefits of the agreement. These can also include parliamentary committees, customs and trade facilitation etc.

Vietnam and Malaysia predicted to be winners of TPP agreement

The Trans-Pacific Partnership involves 12pacific rim countries but some look set to benefit more than others from the agreement, with Vietnam and Malaysia singled out as two likely winners. The Trans-Pacific Partnership (TPP) is a trade agreement concerning a variety of matters of economic policy, which was reached on 5 October 2015 after 7 years of negotiations. 

Each of the 12 countries that signed up to the landmark Trans-Pacific Partnership (TPP) agreement expects to benefit greatly from a deal that will open up a vast new market of 800 million people for their products and spans a large portion of the globe. However, none has higher expectations than Vietnam, which experts say has emerged as the big winner of the TPP agreement, with Malaysia as the runner-up, in the struggle to boost exports and attract FDI. 

The agreement’s 30 chapters cover various trade and trade-related issues, including reducing tariff and non-tariff barriers in sectors as diverse as agriculture, industrial goods, pharmaceuticals, service industries, financial services and telecommunications. 

The agreement also deals with investment, intellectual property, labour, the environment, good governance and methods for dispute settlement. Novel features of the agreement include addressing the roles of state-sponsored enterprises and e-commerce, and its commitment to assisting small and medium-sized enterprises so that they benefit from the new trade openings. It will also work towards facilitating the development of production and supply chains and seamless trade.

FDI boost

That so many countries – Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – at such different levels of development were able to reach agreement on so many complex and domestically sensitive issues is remarkable. 

The TPP, though primarily about trade, is also expected to generate a significant increase in FDI. Indeed, its chapter on investment specifically emphasises that each country’s markets and services sector will be fully open to foreign investors – unless the country has put a specific sector on a 'negative list' that is not open to foreign investment.

“The big winners on trade are likely to be the big winners on investment, especially over a 10-year period,” says Dr Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics in Washington, DC.

In percentage terms, Mr Hufbauer expects Vietnam to be a big winner in both categories because it is coming from far behind the rest of the field. In addition, its tariffs on many imports – among the highest in the TPP trade area – will be lowered or eliminated. To get the maximum benefit from the TPP, Mr Hufbauer says Vietnam will need better technology and financial services, both of which will require FDI. “If Vietnam carries through on the reforms in the TPP, it will get a ton of investment,” he says.

Vietnam’s burgeoning textile and apparel sector, which currently exports about $17.5bn-worth of goods a year, is expected to benefit most under the TPP. Its other major exports are telephones, consumer electronics, footwear and seafood.

The Nafta effect

Mr Hufbauer expects that under the TPP, Vietnam could enjoy the benefits of “the Nafta effect”, which enabled Mexico to increase the FDI it received from $3bn to $4bn a year to $15bn to $20bn annually after Mexico, the US and Canada signed the North American Free Trade Agreement. To get the full benefit of the TPP, however, both Vietnam and Malaysia will need to improve their infrastructure and tackle corruption, he says.

Dr Deborah Elms, executive director of the Asian Trade Centre in Singapore, is also bullish on Vietnam. “The consequences of the TPP for the [Vietnamese] economy are huge. A lot of the reforms they have to make are hard and challenging. By using TPP as the mechanism to get reforms done, we are more likely to see them,” she says. 

Inward FDI has already begun, she adds, with large-scale investors from China, South Korea and Indonesia already moving to Vietnam to take advantage of the TPP. Ms Elms points out that the trade benefits of the TPP are based on where the product is made, not on the country in which the corporate headquarters are located. Therefore companies with operations in other countries are likely to move those operations to locations within the TPP to benefit from zero or lowered tariff barriers on their products. 

Malaysia too has high hopes for the TPP. It sees a competitive advantage for its key exports of electrical and electronics goods, as well as chemical, palm oil, rubber, wood, textiles and automotive products. In a statement, the Malaysian government reported that a number of foreign companies in non-TPP countries were exploring Malaysia as a base for their operations to take advantage of the agreement.

Sector winners

The TPP also opens up vast new opportunities for the services sector in member countries – an arena in which the US is extremely competitive, says Ms Elms. The agreement states that member countries’ markets must be fully open to services, except those on the 'negative list'. 'Services' include professional services such as legal and accounting, as well as retail and restaurants, travel and tourism, and telecommunications. At the same time, Ms Elms expects openings to be created for domestic companies to become competitive.

Another industry she expects to benefit from the TPP is the food and agricultural sector, where markets are traditionally very protected and closed to foreign products. Tariffs will be eliminated or reduced over time, food will not have to be repeatedly tested as it crosses borders, and special rules will expedite the processing of perishable goods through customs. Ms Elms expects these advantages to attract FDI, especially in food processing. 

“If a company can figure out how to take advantage of this agreement, the upside is great. But it takes a fair amount of effort to figure out what is in it and how to harness it,” she says.

It will also take a fair amount of effort for each of the 12 governments that signed the deal to get their parliaments to go along with it. In each country there are powerful groups that see their own special interests as being damaged, whether in the agricultural, biopharmaceutical or automotive sectors. Labour groups also worry that production will be outsourced to workers in low-wage countries. US presidential candidate Hillary Clinton has announced her opposition to TPP, even though it was negotiated by a fellow member of the Democratic Party.

Expect a fierce fight on all fronts before the dust settles.

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WTO Ministerial Conference in Nairobi

The just concluded 10th WTO Ministerial Conference (MC10)  was held on 15th-19th December 2015 in Nairobi Kenya.  Four issues of interest to Africa — more favorable preferential rules of origin for LDCs,TRIPS agreement, the operationalization of the services waiver for LDCs, and elimination of export subsidies — were resolved during the 10th Ministerial Conference. The meeting also concluded the Information Technology Agreement in which tariffs on over 201 technology products will be eliminated for the benefit of participating importers all for the expansion of trade in information technology products.

The 10th Ministerial Conference has come more than 20 years after the conclusion of the Marrakesh Agreement in Morocco which led to the creation of the WTO in January 1995. The Ministerial Conference is the top-most decision-making body of the WTO. It usually meets every two years, and brings together all members of the WTO.  This is first time the meeting has been held on African soil.

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