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.

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.

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.

Click here for original piece.

Tripartite FTA COMESA-EAC-SADC Launched

The Tripartite FTA has been launched and encompasses 26 Member/Partner States from the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC) and the Southern African Development Community (SADC), with a combined population of 625 million people and a Gross Domestic Product (GDP) of USD 1.2 trillion, will account for half of the membership of the African Union and 58% of the continent’s GDP.

The Tripartite FTA popularly known as the Grand Free Trade Area, is the largest economic bloc on the continent and the launching pad for the establishment of the Continental Free Trade Area (CFTA) according to the Abuja Treaty by 2017. This might be accomplished possibly by the Tripartite FTA negotiating with ECOWAS. 

The Tripartite FTA offers significant opportunities for business and investment within the Tripartite and will act as a magnet for attracting foreign direct investment into the Tripartite region. The business community, in particular, will benefit from an improved and harmonized trade regime which reduces the cost of doing business as a result of elimination of overlapping trade regimes due to multiple memberships. 

The launching of the Tripartite Free Trade Area is the first phase of implementing a developmental regional integration strategy that places high priority on infrastructure development, industrialization and free movement of business persons. Integration under the Tripartite is a developmental process with infrastructure development, industrial development and market integration as three critical, interdependent pillars. The second phase of negotiations, should address liberalization in services, movement of people, investment, as well as competition policy and intellectual property rights, and is yet to be undertaken.

For full copies of documents check here

Can Africa Feed Africa?

A new World Bank report Africa Can Help Feed Africa: Removing barriers to regional trade in food staples ―says that Africa’s farmers can potentially grow enough food to feed the continent and avert future food crises if countries remove cross-border restrictions on the food trade within the region. According to the Bank, the continent would also generate an extra US$20 billion in yearly earnings if African leaders can agree to dismantle trade barriers that blunt more regional dynamism. The report was released on the eve of an African Union (AU) ministerial summit in Addis Ababa on agriculture and trade.

According to the report “Africa has the ability to grow and deliver good quality food to put on the dinner tables of the continent’s families, however, this potential is not being realized because farmers face more trade barriers in getting their food to market than anywhere else in the world. Too often borders get in the way of getting food to homes and communities which are struggling with too little to eat.”

With many African farmers effectively cut off from the high-yield seeds, and the affordable fertilizers and pesticides needed to expand their crop production, including unpredictable weather patterns, the continent has turned to foreign imports to meet its growing needs in staple foods.

See full report here for some policy considerations.

Linking Trade Policy to Supply Chain Constraints

Since the birth of the GATT in 1947, multilateral negotiations have focused primarily on reducing barriers to trade for specific products and sectors: tariffs, subsidies, and different types of nontariff barriers. A recent report by the World Economic Forum, in collaboration with Bain & Company and the World Bank (WEF 2013), Enabling Trade: Valuing Growth Opportunities (World Economic Forum, Bain & Co. and World Bank 2013) concludes that improving border management and transport and communications infrastructure services could increase global GDP by up to six times more than removing all import tariffs.

Reducing supply-chain barriers to attain 50% of the global best practice level – as observed in Singapore – could increase global GDP by some 4.7% and global trade by 14.5%. By contrast, the global GDP and trade gains available from complete worldwide tariff elimination amount to some 0.7% and 10.1%, respectively. The gains from reducing supply-chain barriers would also be more evenly distributed across countries than those associated with tariff elimination. A less ambitious set of reforms that moves countries halfway to regional best practice (e.g. Chile in Latin America) could increase global GDP by 2.6% and world trade by 9.4%.

A pilot project implemented by eBay shows that helping small and medium-sized enterprises navigate the regulatory regimes of importing countries could expand their volume of international sales by 60 to 80%. Given that small and medium-sized enterprises account for a large share of total economic activity, this type of targeted trade facilitation could have significant positive spillover effects on employment.

Such large increases in GDP would be associated with positive effects on unemployment, potentially adding millions of jobs to the global workforce.

What could be done to realise the large potential welfare gains from an approach to policy focussed on supply chain barriers? The World Economic Forum report makes five specific recommendations:

1. Create a national mechanism to set policy priorities for improving supply-chain efficiency based on objective performance data and feedback loops between government and firms;

Governments must work with businesses and analysts to determine the policies and procedures that will help reach key tipping points. A central component of this effort should be the creation of mechanisms to collect data on factors affecting supply-chain operations. These data can then be used to identify ‘clusters’ of policies that jointly determine key supply chain barriers, identify priorities for action, and assess progress.

2. Create a focal point within government with a mandate to coordinate and oversee all regulation that directly affects supply chain efficiency;

Given the importance of tipping points, governments need to design policy with an economy-wide vision and recognition that industry-specific supply chains are affected by different clusters of policies. Improving supply-chain performance requires coherence and coordination across many government agencies and collaboration with industry.

3. Ensure that small and medium-sized enterprises’ interests are represented in the policy prioritisation process and that solutions are designed to address specific constraints that impact disproportionately on these businesses;

Because small and medium-sized enterprises’ ability to overcome supply-chain barriers is proportionally more difficult, governments should pay special attention to the needs of smaller businesses. For example, one relatively straightforward policy identified in the report is to raise levels for customs-duty collection that are too trivial to merit serious consideration in order to facilitate small-business engagement in international markets; another is to ensure that initiatives to reduce regulatory compliance costs such as ‘trusted trader’ programmes are complemented by programs that are accessible to small and medium-sized enterprises.

4. Pursue a ‘whole of the supply chain’ approach in international trade negotiations;

Greater coherence of domestic policies is important, but a key insight derived from the case studies is that coordination across countries matters as well. Joint action will increase the overall gains from lower supply-chain barriers. International trade negotiations usually take a silo approach, addressing policy areas in isolation. Lowering supply-chain barriers requires a more comprehensive and integrated approach that spans key sectors that impact on trade logistics, including services such as transport and distribution, as well as policy areas that jointly determine supply-chain performance – in particular those related to border protection and management, product health and safety, foreign investment, and the movement of business people and service providers.

Such a ‘whole of the supply chain’ approach can be pursued both at the multilateral (i.e. WTO) level and in regional trade agreements. Doing so would greatly enhance the relevance of international trade cooperation for businesses and help generate the engagement that is needed for trade agreements to obtain the political support needed to be adopted by national legislatures and to be implemented by governments. As has been argued by many observers, one lesson of the failure to conclude the Doha Round is that what is on the table is not seen to make enough of a difference from an operational business perspective. A supply-chain approach has great potential to address this failure and in the process provide a low-cost economic stimulus for the world economy in the medium term.

5. Launch a global effort to pursue conversion of manual and paper-based documentation to electronic systems, using globally agreed data formats.

Many of the inefficiencies in the operation of supply chains reflect a lack of reliability due to delays and uncertainty stemming from manual paper-based documentation, redundancy in data requirements and the absence of pre-arrival clearance and risk management-based implementation of policy. A global effort to adopt common documentary and electronic data/information standards would reduce administrative costs, errors, and time associated with moving goods across borders.

To address some these challenges, it is hoped that the WTO negotiations on trade facilitation will be succesfully concluded in Bali at the end of this year, 2013.

EAC Industrialization Policy 2012-2032

The EAC Industrialization Policy and Strategy provides general contours of policy intentions and strategic areas of focus to guide EAC towards achieving the set goals and in particular, attaining industrialized economic status by 2032. The EAC Industrialization Policy is intended to address the challenges facing the region particularly, the need to build a more diversified regional economic structure. 

The formulation of the policy was accomplished through a comprehensive and inclusive process, based on analysis and wide consultations with stakeholders in the Partner States. The policy is aligned to the relevant Articles of the Treaty in particular Article 79 and 80 which provide for regional co-operation in matters of industrial development as well as Article 44 of Common Market Protocol in which the Partner States undertake to adopt common principles to cooperate in Industrial Development in the region. 

The Partner States have set themselves ambitious targets to be met within the timeframe, of the policy as follows: 

a) Diversifying the manufacturing base and raising local value added content (LVAC) of resource based exports to 40% from the currently estimated value of 8.62 % by 2032; 

b) Strengthening national and regional institutional frameworks and capabilities for industrial policy design and implementation; and delivery of support services to ensure sustainable industrialization in the region; 

c) Strengthening R&D, Technology and Innovation capabilities to facilitate structural transformation of the manufacturing sector and upgrading of production systems; 

d) Increasing the contribution of (i) intra regional manufacturing exports relative to total manufactured imports in to the region from the current 5% to about 25% by 2032 

e) increasing the share of manufactured exports as a percentage of total merchandise exports to 60% from an average of 20%; and

f) Transforming Micro Small and Medium Enterprises into viable and sustainable business entities capable of contributing up to 50% of manufacturing GDP from 20% base rate.

To address the industrialisation challenges, the following broad policy measures will be undertaken:

1. Promoting the Development of Strategic Regional Industries/Value Chains; and enhance Value Addition

2. Strengthening national and regional institutional capabilities for industrial policy design and management

3. Strengthening the capacity of industry support institutions (ISIs) to develop and sustain a competitive regional industrial sector

4. Strengthening the Business and Regulatory Environment

5. Enhancing access to financial and technical resources for Industrialization

6. Facilitating the development of, and access to appropriate industrial skills and know-how

7. Facilitating the Development of Micro, small and medium enterprises (MISMEs)

8. Strengthening Industrial Information Management and Dissemination Systems

9. Promoting equitable industrial development in the EAC region

10. Developing supporting infrastructure for industrialisation along selected economic corridors

11. Promoting regional collaboration and development of capability in industrial R&D, technology and innovation

12. Promoting sustainable Industrialisation and environment management

13. Expansion of trade and market access for manufactured products

14. Promoting Gender in industrial development.

To exploit the resource endowment in the region and enhance the region’s industrialisation levels, the EAC Industrialisation Policy has earmarked six strategic resource-based industries, in which the region has a comparative advantage and which will be developed to facilitate productive integration (PI) through industrial deepening, diversifying, specialisation and upgrading. The strategic regional industries to be promoted include:

1. Agro processing

2. Iron steel processing and other mineral processing

3. Chemicals (fertilizers and agro chemicals)

4. Pharmaceuticals

5. Energy

6. Oil and gas processing

See the Policy and related documents here.

New Tanzanian Mining Law Requires 50% Local Public Ownership

News From The East African

A new mining law, requiring foreign-owned companies to cede a 50 per cent stake to the public in Tanzania, is threatening to cripple the thriving $500 million Tanzanite gemstone business.  One company, TanzaniteOne, has rejected a demand by the government to relinquish half of its shares to the State Mining Corporation (Stamico), setting the stage for a major dispute.

TanzaniteOne, a multinational listed on the London Stock Exchange, said it could not dispossess its investors of their shares.  Instead, the firm, which extracts Tanzanite in the Mererani Hills, about 40 kilometres southeast of Arusha, offered to offload 20 per cent of its shares through an IPO at the Dar es Salaam Stock Exchange Executive chairman Ami Mpungwe said the firm’s shareholders comprised institutions like pension funds, whose interests could not be taken for granted. They could not be dispossessed of their shares through a “simple announcement.”  But Mr Mpungwe said the company was negotiating a solution with the State.

The new Mining Act of 2010, which became effective this year, requires foreign-owned companies to cede 50 per cent of their stake to the public or lose their mining permit.  The matter is urgent for TanzaniteOne, as its licence expired in August 2012 and the government is threatening not to renew it until the firm surrenders the 50 per cent shares.  Deputy Minister for Energy and Minerals Stephen Masele told The EastAfrican that the firm must relinquish the stake to Stamico as a precondition for renewing its operating licence.  “The company wants the state to buy the shares, but our position is that the firm ought to offload the stocks to Stamico free of charge or else lose the licence,” said Mr Masele.

The new law stipulates that gemstones will be exclusively mined by Tanzanian nationals, unless the mining requires heavy investments and sophisticated technology, where foreign investors will be allowed, but on condition they offload 50 per cent of their shares to the public.  Lusekelo Mwakalukwa TanzaniteOne corporate governance manager told The EastAfrican that the company has invested heavily in its designated mining block and has just started to realise profits.  He adds that the firm has also been paying revenue, including corporate taxes, royalties and other related income to the government.

Increased production

Bernard Olivier, chief executive officer of Richland Resources, which owns TanzaniteOne, says production at the   mine is still rising at a record 2.4 million carats in 2011 with decent grades.  The firm employs 650 people and has paid $26 million in tax over the past five years.C  ash costs per carat are rising too, however, from $1.41 a carat in 2005 to $3.69 in 2010. While the company made a $6 million profit in 2008, today that figure is less than $1 million. Mr Olivier says prices are still 20 per cent below those of 2008.

TanzaniteOne, operating in an eight square km block ‘C’ tanzanite site, planned to produce and export 2.5 million carats worth $24 million in 2012.  Records show that TanzaniteOne has invested over $100 million, but analysts say the company has provided marginal contributions to the communities surrounding its area of operation.  “I don’t see a significant impact of TanzaniteOne’s investment on nearby communities,” said Dr Gasper Mpehongwa, a lecturer in development studies at Tumaini University.  However, records show that TanzaniteOne provides over 2,000 villagers and 4,500 cattle with water at Neisinyai village in Mererani Hills.

The Mauritian Economic Miracle

Geographical Indications Bill Kenya

Business Daily reports that Kenya's Industrialization Ministry along with the Kenya Industrial Property Institute (KIPI) are currently reviewing the Geographical Indications Bill (GI) which will provide a legal framework for safeguarding products like tea, coffee, and handicraft by expressly attributing them a sign or appellation of origin.

A geographical indication is a sign used on goods that have a specific geographical origin and possess qualities, reputation or characteristics that are essentially attributable to that place of origin. Most commonly, geographical indications include the name of the place of origin of the goods such as agricultural products which typically have qualities that derive from their place of growth/production and are also influenced by specific local factors, such as climate and soil. Geographical indications may be used for a wide variety of products, whether natural, agricultural or manufactured.

Meanwhile an appellation of origin is a special kind of geographical indication. It generally consists of a geographical name or a traditional designation used on products which have a specific quality or characteristics that are essentially due to the geographical environment in which they are produced.  The concept of a geographical indication encompasses appellations of origin.

Whether a sign is recognized as a geographical indication is a matter of national law and as such geographical indications are protected in accordance with international treaties and national laws under a wide range of concepts, including trademark laws in the form of collective marks or certification marks, laws against unfair competition, consumer protection laws, or specific laws or decrees that recognize individual GIs.

The GI Bill is expected to help certify Kenyan products and market them exclusively in the speciality market, a strategy that will help distinguish Kenyan goods from those of other countries.  The likely scenarios once the Bill is enacted include marketing of origin-specific Kenyan exports such as Kericho tea, Mt Kenya coffee, Maasai jewellery, and Kisii soapstone carvings.

The draft GI Bill also proposes that producers and regulatory firms can apply to be custodians of a location specific trademark. Thus, the Kenya Tea Development Agency may apply to register tea variety trademarks.  Certification trademark of Kenyan products will avoid situations where foreign parties attempt to register such goods in other countries.

GI's are protected at the international level through a number of treaties mostly administered by World Intellectual Property Organization WIPO which provides for the protection of geographical indications, most notably the Paris Convention for the Protection of Industrial Property of 1883, and the Lisbon Agreement for the Protection of Appellations of Origin and Their International Registration. In addition, Articles 22 to 24 of the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) deals with the international protection of geographical indications within the framework of the World Trade Organization (WTO).

Meanwhile Article 43 of the EAC Common Market Protocol has provisions on co-operation in Intellectual Property Rights of which geographical indications are included (Art 43.2(f)).

New Database On Global Value Supply Chains

The European Union has launched the new "World Input-Output Database" which allows trade analysts to assess the global value chains created by world trade. These added-value chains have become an essential feature of economic reality as trade is becoming increasingly globalised as today's traded products are not produced in a single location but rather are the end result of a series of steps carried out in many countries around the world. Instead of counting the gross value of goods and services exchanged, the new database reveals the value added embodied in these goods and services as they are traded internationally. The findings are significant as they change the perception of the competitiveness of certain sectors in some countries. 

In addition, policy makers and societies at large are facing increasingly pressing trade-offs between socio-economic and environmental developments. Increases in production induce growth in the use of non-renewable resources such as fossil fuels, materials, land and water. Furthermore, they generate higher levels of waste and emissions of environmental pollutants. Simultaneously, increasing global integration through international trade and technological developments creates a tension. In this regard, the database considers satellite accounts with environmental and socio-economic indicators, from which industry-level data can provide the necessary input to several types of models used to evaluate policies aimed at striking a suitable balance between growth, environmental degradation and inequality across the world.

Karel De Gucht, the EU commissioner for trade has said that the change in statistical accounting for trade applied in the database has been developed to determine the consequences of the fragmentation of supply chains. For example a third of world trade happens within firms while two thirds of European imports are not of final products but of intermediate goods and raw materials, to which EU firms add one or more layers of value before they are finally sold, often for export.  The EU trade commissioner gave the example of a Nokia smartphone, "it is listed as being made in China, but in reality 54% of its value comes from tasks that are carried out in Europe. Key components are produced in other parts of Asia and only the assembly itself actually happens in China.  Today, we measure trade by counting the total price of the good that is being exported or imported, but because we do this both for components and for final products we get a distorted picture of what is really happening.  Hence according to the database, when we look at trade in value as opposed to traditional statistics, EU trade deficit with China is reduced by 36%. In 2011, the trade deficit between the EU and China stood at EUR155.9 billion however using this new method China-EU deficit starts to look like less of a problem."

On services, interestingly when looking at trade in supply chain terms,  the classic distinction in trade policy between goods and services is increasingly artificial. This is because services represents almost 60% of the value European firms add to the products exported from Europe. 

The database covers 27 EU countries and 13 other major countries in the world for the period from 1995 to 2009. It is notable that not a single African country is included in the database which possibly says something about Africa's non-participation or rather minuscule contribution to global supply chains. In addition, all BRICS economies are included in the database with the notable exception of South Africa.  One wonders why the EU wants African countries to eliminate export taxes (under the EPAs) when in essence the contribution of African exports to global trade and supply chains is too insignificant to be in included in the database.

African countries generally export largely raw materials (e.g fuels, metals) and some agricultural products to the EU and generally lack capacity to add value domestically especially for manufactured products. Other supply capacity barriers to Africa's participation in global value chains include limited foreign ownership and lack of global networks which are a significant factor in characterizing the intensity of global exports but not necessarily for regional exports. The lack of technological advancement is also a significant barrier especially in global exports. Public infrastructure constraints, such as inferior power services and customs delays, seem to have more immediate impacts on regional exports as does customs efficiency and poor trade facilitation which is also hampers the competitive participation of African producers in global supply chain industries. 

In a related article, we saw that China overcame similar challenges by exploiting joint ventures.  China allowed foreign firms access to the domestic market in exchange for technology transfer through joint production or joint ventures. In fact, 100% foreign owned firms were a rarity among the leading players in the industry in China, unlike Export Processing Zones in Africa. China’s openness to foreign investment and its willingness to create Special Economic Zones (SEZs) where foreign producers could operate with good infrastructure and with minimum hassles must therefore receive considerable credit. However if China  welcomed foreign companies, she always did so with the objective of fostering domestic capabilities.

Nigeria's Trade Policy Reforms

Bilateral Investment Treaties Entered Into by EAC States

EAC Partner States have entered into various Bilateral Investment Treaties (BITs) some of which are in force. This information is based on the UNCTAD Investment Database and it is noted that some of the BITs may no longer be in force. Hence for most current updates it is best to contact the Partner States themselves.  

Burundi has 5 BITs, Kenya 3 BITs (all EU), Rwanda 3 BITs, Tanzania 9 BITs (all European Economic Area (EEA) while Uganda has the most at 13 of which 8 are with EEA countries.  

As indicated most of the BITs are with EU countries notably Germany, UK, Belgium and the Netherlands.  Of the 34 BITs identified, 25 are with the EU region (almost 75%). Rwanda is the only country with a BIT with the US. Uganda has BITs  with other African countries e.g. Mozambique, Egypt, Sudan and Eritrea and is the only country with a BIT with China.  Burundi is indicated as having BITs with Mauritius and Comoros.

Below is an overall compilation of the BITs and the Parties. 

Burundi: Belgium, Germany, Mauritius, UK, Comoros and Netherlands
Kenya: Germany, UK, Netherlands
Rwanda: Belgium, Germany, US
Tanzania: Denmark, Switzerland, UK, Belgium, Finland, Germany, Italy, Netherlands, Sweden
Uganda: Denmark, Egypt, France, Netherlands, Switzerland, UK, Sweden, Germany, Belgium, Mozambique, Sudan, Eritrea, China

On global trends, its useful to note that the US and Germany are the top home sources of outflows of FDI while the US and China are the top host destinations for inflows of FDI (2010 data). Meanwhile the EAC and the US have concluded a Trade and Investment Framework Agreement which is a cooperative agreement. However, as a region, the EU is the world's leading host of FDI as well as the world's biggest source of FDI outside the EU. Consequently, the EU Member States together account for almost half of the investment agreements currently in force around the world (almost 1300).  See previous related post here on the new EU approach to investment and the EPA investment negotiations.

While international investment agreements have traditionally been negotiated by the relevant government ministry, there is now an emerging trend of inter-ministerial or inter-agency coordination. This process is particularly prominent at the European level and in EU member States. To the extent that countries are reviewing their BITs or that BITs need to undergo domestic ratification processes, the call for increasing transparency and inclusiveness of BIT-related decision-making is gaining additional traction.  Sectoral investment agreements are also a viable option where there is compelling justification to consider a BIT however using a more targeted and conservative approach.

National Treatment and Kenya's Land Reform Following the New Constitution

Kenya has over time proved to be the preferred investment point in the East African region due to its strategic location and free market economy which places no significant restriction on the movement of foreign currency in and out of the market.  However there is one important change to the investment environment since the promulgation of the new Constitution of Kenya (the 'Constitution') found in Chapter Five Part 1 on Land and Environment.

The Constitution was brought into law on August 27 2010 and inter alia sets the reform agenda for better governance. In general the new Constitution will lead to the creation of new institutions that will promote good governance and in turn boost investor confidence. 

However, in one aspect, the Constitution contains articles that now limit the period that a foreigner may hold land to 99 years (Article 65 (1). This includes any company which has any element of foreign shareholding.  The Constitution also provides that any interest in land that is currently held by foreigners which is in excess of 99 years will have the term reduced to 99 years and freehold land will be converted to 99 years leasehold interest (Article 65(2)). Investors have indicated to Government that limiting the interest period to 99 years will not be conducive to foreign investors looking to invest in Kenya. There is also no provision for compensation to foreigners in the Constitution. The Constitution gives Parliament a time frame of eighteen months for the enactment of legislation relating to land and it will be interesting to see the impact the legislation will have on the business environment.

In the WTO Trade in Services context, Kenya made horizontal commitments in the Uruguay Round on market access in Mode 3 requiring that for commercial presence investors should establish their business locally.  There are however no horizontal limitations on national treatment to which limitations on foreign ownership of land would be reflected. In the sectors where Kenya has undertaken specific commitments, Telecommunications services, Financial services (including banking and insurance), Tourism & Travel related services and Transport services (air and road), mode 3 national treatment commitments are in some cases left unbound. However in the hotels and restaurants category, arguably a sub sector to which land is a determinant, Kenya has completely liberalised mode 3 both in the WTO GATs context and the EAC Common Market Services Schedule (Annex V).

Additionally, in the EAC Common Market Protocol, Article 13 on the Right of Establishment and Article 14 on the Right of Residence are relevant to the land question.  To the extent that they relate to access to and use of land premises, these provisions are subject to Article 15 which provides that land issues shall be governed by the national policies and laws of Partner States. Hence even in the common market, one could say that national treatment has not been extended to the land issue especially as it relates to establishment (investment).  

A Look at Turkey's Trade Policy and FTA with Mauritius

Turkey concluded an FTA with the first Sub Saharan African country, Mauritius, on September 9th 2011 and is expected to initiate negotiations with other EPA and EC FTA signatories.  This is because the customs union between Turkey and the EU, which entered into force on 1 January 1996, has been the main factor shaping Turkey's foreign trade policy.  In addition, the EU opened accession negotiations with Turkey in October 2005 and guidance on reform priorities is provided through the Accession Partnership, adopted in February 2008.

In the EU-Turkey customs union, the EU unilaterally eliminated all customs duties and equivalent measures for industrial products and processed agricultural products when the trade-related provisions of the Interim Agreement of the Protocol entered into force in September 1971, whereas Turkey as a developing country was accorded a transition period of 22 years.  

The EC-Turkey customs union also provides for a common external tariff for the products covered, and foresees that Turkey will align its trade-related legislation with the EU acquis in several areas essential for market access, e.g. with respect to product standards.  The customs union covers all industrial products as well as the industrial component of processed agricultural goods, TRIPS, and competition policy, but does not extend to agricultural commodities, services, or government procurement.  The EU however offers Turkey a preferential regime on imports of certain agricultural products. Negotiations on services and government procurement were launched in 2000, but are now part of Turkey's accession process. 

The customs union also provides provision for:

• free movement (elimination of customs duties and quantitative restrictions) 
• alignment of Turkey on the EC common external tariff, including preferential arrangements (even GSP), and harmonisation of commercial policy measures;
• approximation of customs law, and
• approximation of other laws (intellectual property, competition, taxation, etc.)
• the adoption by Turkey of measures equivalent to the EU's common commercial policy

The European Union remains Turkey's most important trading partner and investor.  For instance, the EU accounted for nearly 70% of total FDI inflows into Turkey during 2005-10.  Nearly 40% of its imports come from the EU, and just over 50% of exports go to the EU. Machinery and transport equipment dominate EU imports from Turkey followed by manufactured articles which account for 24.3%. Main EU exports to Turkey are machinery and transport material (45.1%), chemical products (17.1%) and manufactured goods (15.1%).Globally,  Turkey ranks 7th in the EU's top import list and 5th as an export market.  However, the dominance of the EU in Turkey's foreign trade has declined markedly over the last five years, reflecting a notable shift in Turkish exports towards growth markets in its neighbourhood, in North Africa, certain CIS countries, and in Asia. 

Other main Turkish export markets in 2010 were Iraq (5.3%), Russia (4.1 %), USA (3.4%), United Arab Emirates (2.9%) and Iran (2.7%). Imports into Turkey came from other key markets include: Russia (11.7%), China (9.4%), USA (6.7%), Iran (4.2%) and South Korea (2.6%). 

Turkey currently has about 17 FTAs in force which include one with the EFTA countries, Israel, Macedonia (FYR), Croatia, Bosnia-Herzegovina, Palestinian Authority, Tunisia, Morocco Syria, Egypt, Albania, Montenegro, Serbia, Georgia, Chile, Jordan, Lebanon and Mauritius.

The Mauritius-Turkey FTA provides enhanced duty free access on most industrial products.  All Mauritian industrial products will enter Turkey duty free with the exception of some 70 lines related to textiles which will be phased on four years.  Mauritius in return will offer duty free access to more than 80% of its tariff lines to Turkish industrial products.  In any case Mauritius is a duty free island with over 80% of applied tariffs at zero. 

Why the exclusion of agricultural products? Turkey, even though a member of the G-33 , ranks amongst the largest agricultural producers in the world and the main crop is wheat of which the country is over 90% self-sufficient. With corn, Turkey is about 80% self-sufficient and is a net-exporter of barley. Other major crops include fruit and vegetables, nuts, tobacco, cotton, and sugar. Turkey is also one of the major milk producers in the world, predominantly for domestic consumption of cheese and yoghurt.  While Turkey has specialized feed lots and dairy farms, and large-scale commercial poultry farms, livestock production is mainly extensive and small-scale.  

Useful to note that Turkish agricultural policy was adopted with a view to aligning it more closely with the EU Common Agricultural Policy.  Turkey's main policy objectives are food security and food safety, and raising the self-sufficiency level for selected net-imported products;  improving productivity and competitiveness;  ensuring sustainable farm incomes;  rural development;  and improving institutional capacity.

For comparison, by the end of 2007, the 6 ESA EPA States: Comoros, Madagascar, Mauritius, Seychelles, Zambia and Zimbabwe agreed an interim EPA with the EU. Mauritius in that agreement submitted an individual schedule which is annexed to the interim EPA and liberalises 96% of EU imports into Mauritius compared to a liberalisation of 80% with Turkey, possibly due to the inclusion of some agricultural products in the EPA.

What appears unfortunate in the Mauritius-Turkey FTA is that Turkey seems to have offered market access predominately in industrial goods, where Turkey is competitive. However few SSA African countries are neither productive nor competitive in industrial manufacturing. With Turkey being an emerging industrial exporter, the loss of revenue on the import side for African countries could be an area of concern. In agriculture, Turkey provides subsidized support which is equivalent to the EU Common Agricultural Policy.  

The EU Single Market Services Directive

The Directive on Services in the Internal Market (the Services Directive 2006/123/EC) was adopted in December 2006. The Directive liberalises the internal EC services market in that it requires Member States to abolish discriminatory requirements, such as nationality or residence requirements, and particularly restrictive requirements, such as “economic needs” tests (requiring businesses to prove to the authorities that there is a demand for their services). It also requires the review of other burdensome requirements which may not always be justified (such as territorial restrictions or minimum number of employees).

The EU member States were provided a three-year transitional period to transpose the Directive into national legislation. However, several member States missed the end-2009 deadline, and work to implement the Directive continued throughout 2010. The Directive requires the Member States to simplify procedures and formalities that service providers need to comply with. In particular, it requires Member States to remove unjustified and disproportionate burdens and to substantially facilitate: the establishment of a business, i.e. cases in which a natural or legal person wants to set up a permanent establishment in a Member State, and the cross-border provision of services, i.e. cases in which a business wants to supply services across borders in another Member State, without setting up an establishment there. 

During 2010, the Commission was monitoring the implementation by the member States, of both the new legal frameworks adopted in order to implement the Services Directive as well as their efforts to establish operational "Points of Single Contact" (PSCs), notably the online portals providing businesses with information about the requirements and procedures to be complied with, and the "Internal Market Information Systems" facilitating administrative cooperation between the authorities of the member States. The PSCs are certainly the most visible benefit of the Services Directive for businesses. They are meant to become fully fledged e-government portals allowing future entrepreneurs and existing businesses to easily obtain online all relevant information relating to their activities (applicable regulations, procedures to be completed, deadlines, etc.) with the ability to apply online and across borders. 

Although the vast majority of the member States have chosen to implement the general principles and obligations of the Directive through a single act, implementation of the general principles has been carried out through several acts in France and Germany. In addition, all member States have had to amend or abrogate existing legislation to ensure conformity with the provisions of the Directive.

The Services Directive does not harmonize national legislation applicable to the services sector, but obliges member States to screen their authorization schemes to ensure that they are maintained only if non-discriminatory, justified by an overriding reason relating to public interest, and proportionate.

The Services Directive applies to the provision of a wide range of services – to private individuals and businesses – barring a few specific exceptions. For example, it covers: 

distributive trades (including retail and wholesale of goods and services) 

the activities of most regulated professions (such as legal and tax advisers, architects, engineers, accountants, surveyors) 

construction services and crafts 

business-related services (such as office maintenance, management consultancy, event organisation, debt recovery, advertising and recruitment services) 

tourism services (e.g. travel agents) 

leisure services (e.g. sports centres and amusement parks) 

installation and maintenance of equipment 

information society services (e.g. publishing – print and web, news agencies, computer programming) 

accommodation and food services (hotels, restaurants and caterers) 

training and education services 

rentals and leasing services (including car rental) 

real estate services 

household support services (e.g. cleaning, gardening and private nannies). 

The Services Directive does not apply to the following services, which are explicitly excluded:

financial services 

electronic communications services with respect to matters covered by other community instruments 

transport services falling into Title V of the EC Treaty 

healthcare services provided by health professionals to patients to assess, maintain or restore their state of health where those activities are reserved to a regulated health profession 

temporary work agencies' services 

private security services 

audiovisual services 

gambling 

certain social services provided by the State, by providers mandated by the State or by charities recognised as such by the State 

services provided by notaries and bailiffs (appointed by an official act of government). 

The Commission has not drawn up concrete plans to cover the other excluded services. Services activities are in any event always subject to the EC Treaty provisions, notably the fundamental freedoms of establishment (Article 43) and free movement of services (Article 49). The Services Directive applies only to EU (EEA) citizens and legal entities established in the EU (EEA), and does not oblige member States to consider changes applicable to non-EU services suppliers. 

The Year in Trade 2010

A good resource for anyone working in or covering the field of international trade. The USITC’s Year in Trade 2010 is one of the US government’s most comprehensive reports on U.S. trade-related activities, covering major multilateral, regional, and bilateral developments.

The publication reviews U.S. international trade laws and actions under these laws, activities of the World Trade Organization (WTO), U.S. free trade agreements and negotiations, and U.S. bilateral trade relations with major trading partners. The Year in Trade 2010 also includes complete listings of antidumping, countervailing duty, safeguards, intellectual property rights infringement, and section 301 cases undertaken by the U.S. government in 2009.

Innovation for Growth in Africa

...there are a number of areas where Africa must quickly focus its energy to improve its productivity and accelerate growth; agriculture, health, information technology and the arts. 

Access the full speech by Dr. Ngozi Okonjo-Iweala, Managing Director, World Bank here

Global Preferential Trade Agreements Database

The World Bank has recently launched the Global Preferential Trade Agreements Database, (GPTAD) which includes trade agreements that have been notified to the World Trade Organization (WTO) and those that have not been notified to the  WTO. The database contains about 330 agreements which are indexed using a classification consistent with WTO criteria.

The WTO houses a similar database on RTAs. The WTO Regional Trade Agreements Information System includes agreements that have either been notified to the WTO or of which an early announcement has been made at the WTO. This database contains all the relevant documentation received by the WTO, following notification by a WTO member that an RTA has been established.

great tools for policy makers. 

Why Investors are Flocking to Mauritius

Foreign companies with an eye on Africa’s emerging markets are apparently flocking to Mauritius to incorporate local subsidiaries in a move that could deny more than a dozen African governments billions in corporate taxes and position the island nation as the region’s economic hub.

Possibly the the range of incentives available to foreign firms in Mauritius. This includes a 15 per cent charge on a company’s taxable income such as business or trading profits. This amount is half the almost 30 per cent rate that other countries in the region apply to  similar income.

Foreigners living in Mauritius are also apparently spared royalty taxes compared to other countries in the region who in some cases tax at the rate of 20 per cent.  In addition, Mauritius has more than 30 double taxation treaties with African countries alone and has recently entered into Investment Promotion and Protection Agreements (IPPAs) with its double taxation partners.

Finally an efficient judicial and dispute resolution mechanisms has also given Mauritius an edge over the competition in Africa, with the The World Bank’s Doing Business 2011 report, ranking Mauritius’ judicial system as the best in Africa in terms of reforms aimed at facilitating business and investment transactions.

See related full article here.