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.

For the full article please click here.

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.

Click here for original piece.

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.

For related documents see here.

Made in Africa

November 20th marked yet another “Africa Industrialization Day” by the United Nations. There have now been 25 such events, and they seem to have come and gone with relatively little notice. This year may be different: Africa’s failure to industrialize has come to the attention of a growing number of observers, noting with some alarm at the fact that many African countries are de-industrializing while they are still poor, raising the worrying prospect that they will miss out on the chance to grow rich by shifting workers from farms to higher-paying factory jobs.

By any measure Africa’s failure to industrialize is striking. In 2013 the average share of manufacturing in GDP in sub-Saharan Africa was about 10 percent, half of what would be expected from the region’s level of development. Moreover, it has not changed since the 1970s. Africa’s share of global manufacturing has fallen from about 3 percent in 1970 to less than 2 percent in 2013. Manufacturing output per person is about a third of the average for all developing countries and manufactured exports per person, a key measure of success in global markets, are about 10 percent of the global average for low income countries.

This lack of industrial dynamism is a growing matter of concern to Africa’s political leaders, as well. Historically, industry is the sector into which resources have first moved in the course of economic development. Industry is the pre-eminent destination sector at early stages of development because it is a high productivity sector capable of absorbing large numbers of moderately skilled workers. Between 1950 and 2006, about half of the catch-up by developing countries to advanced economy levels of output per worker was explained by rising productivity within industry combined with labor moving out of agriculture into manufacturing. 

The objective is clear—Africa needs more industry—but the path forward, remains 'more a marathon than a sprint'. One of the major constraints to Africa’s industrial development is a lack of the “basics”—infrastructure, skills and institutions. While industrialization cannot succeed without these, they are not enough. Three closely related drivers of firm-level productivity—exports, agglomeration and firm capabilities—have been largely responsible for East Asia’s industrial success, and their absence goes a long way toward explaining Africa’s lack of industrial dynamism. For example, in Tanzania, special economic zones (SEZs), which are export-oriented industrial clusters, contain about 40 firms, employing around 10,000 people. Vietnam on the other hand has 3,500 firms in its export processing and industrial zones, employing 1.2 million workers. Putting policies in place that promote manufactured exports, encourage the development of industrial clusters and attract more capable foreign direct investors outside of the natural resources sector are essential first steps in reversing Africa’s industrial decline.

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