The business leaders urged the partner states of the East African Community (EAC) to adopt the proposed rate of 35% as the maximum Common External Tariff (CET) rate and begin its implementation in fiscal year beginning July 1.
According to the East African Business Council (EABC), this is the majority position of the regional private sector consultative meeting held on March 9 in Nairobi, Kenya, which brought together captains of industry and executives industrial confederations.
John Bosco Kalisa, CEO of EABC, said The new times that: “Commitments from the private sector and government agencies have been excellent and we believe that by March 21 a consensus will be reached for implementation to begin the first week of July.”
Regional Ministers of Trade, Industry, Finance and Investment are due to meet on March 21 to deliberate on the analysis carried out by the EAC Secretariat on the implications of the CET maximum rates of 30%, 33 % and 35%.
The development comes after the EABC last month urged partner states to adopt a maximum CET rate of 35% to boost industrialization and boost intra-regional trade.
The current maximum TEC is 25%.
“The proposed rate will provide an adequate degree of tariff differential necessary to encourage industrial development in the EAC region; by protecting products sufficiently produced in the region against similar cheap imports,” reads a statement from the EAB.
The 10% tariff difference is necessary to preserve and support existing investments in the priority regional value chain of textiles, automotive, agro-industry, timber, iron and steel, transformation of minerals, energy, fertilizers, pharmaceuticals and attracting new investments to transform the EAC Industrial Sector, in particular, transforming secondary intermediates into finished products.
The latest analysis of proposed CET rates by the EAC Secretariat also shows that under a maximum CET rate of 35%, Partner States stand to benefit the most from an increase in revenue generation of 5, 5% and job creation is expected to increase by 0.03% percent.
The analysis further shows that Burundi would benefit from increased trade creation of $1,363,749 while Rwanda would benefit from $3,714,495.
He adds that non-metallic minerals, printing, wood products, furniture, paper, crops; horticulture is among the industrial sectors in Rwanda and Burundi that would benefit from the maximum CET of 35%.
According to the analysis, the average potential net welfare loss effects under the proposed maximum rates of 35% of the CET are estimated at $25.5 million, a one-time effect.
According to the regional trade body, the proposed maximum rate will strengthen national and regional policies on the development of priority value chains, develop intra-regional trade, enhance product diversification, create job opportunities from the change of production, support regional food security and rural development, and reduce use suspension of applications (SOA) on products that are sufficiently available or can be produced in the region.
Justifying the proposed rate, last month Kalisa highlighted the reduction in the use of demand suspension to support the development of national and regional value chains.
Kalisa noted that the bloc cannot provide enough sugar, for example, and therefore calls for the sugar tax to be lowered as locally produced sugar is more expensive. He noted, “Rwanda would, for example, have the right to import from outside the EAC and this is called deferment. But if the EAC demonstrates the required capability to produce such items, there is no need for new SOA requests.
The CET preferential rate, as noted, is key to enhancing the competitiveness of East African manufactured goods on the continent and globally.
The analysis also shows; industrial production is expected to increase by $12.1 million (0.04%) if the highest rate at 35% of the maximum tariff rate is adopted by the EAC Sector Council of Ministers.
Partner states have so far not agreed on the proposed maximum CET rate with diverging opinions of 30%, 33% and 35%.
The regional CET is currently structured in three bands of 25 percent for finished products, 10 percent for intermediate goods and 0 percent for raw materials and capital goods.
It was last revised in 2010. However, each year, Partner States, as part of the EAC’s pre-budget consultations of Finance Ministers, undertake annual reviews on specific outputs.
As noted, this has resulted in: frequent suspension of applications on final products, especially products falling under the sensitive list, and non-uniform application of the regional CET, due to numerous requests for country-specific duty rebates.
“As a result, customs duties on several products such as paper, sugar, edible oils, iron and steel, cement, motor vehicles, transport and telecommunications equipment and agricultural products have been very unstable. In addition, products finished with inputs benefiting from a country-specific duty rebate do not enter the EAC market at preferential tariff rates,” the EABC states.
As noted, country-specific duty rebates and suspension of applications distort intra-EAC trade and create unequal conditions of competition due to the unilateral application of different tariff rates by partner states. In 2021, 231 of the 462 products classified in the fourth band were suspended.
This represents 50 per cent of all tariff lines falling under band four products assigned a rate above 25 per cent.
In 2021, Uganda applied a 60% tariff on 100 products, while Tanzania applied 35% on 135 products and Kenya 30% on 24 products.
“This clearly shows that EAC partner states need higher tariffs for products available in the region and protect them against similar cheap imports from Asia.”
Legislator: focus more on the average consumer
But MP Fred Mukasa Mbidde, a longtime member of the East African Legislative Assembly and former chairman of its Communications, Trade and Investment (CTI) Committee, said The new times that the maximum CET rate proposed by the business community is not good for consumers in the region.
Mbidde said: “The decision to increase the CET beyond 30%, to 35%, at a time when interventions have not resulted in an EAC industrialization policy is only meant to benefit the traders who expect a price increase due to commodity scarcity when that scarcity results in a higher market equilibrium where a convergence between demand and supply must be at a higher equilibrium than the Ordinary EAC consumers cannot afford”.
“It benefits the businessmen who were members of this meeting under the auspices of the East African Business Council and the tax collectors represented by the ministers, but the consumer was not represented by EALA.”
The legislator noted that when it comes to stocks, “only arbitrageurs intend to profit” from the current buying of stocks in anticipation of price volatility.
An arbitrageur is an investor who attempts to take advantage of market inefficiencies.
“A people-centric EAC needs to focus more on the average consumer by avoiding making decisions where they have no benefit,” Mbidde said.