Disputes push countries into bilateral deals to ensure seamless flow of trade

Sunday December 29 2019

Kenya and Uganda have has a trade dispute over milk imports. PHOTO | FILE | NATION MEDIA GROUP

Kenya and Uganda have has a trade dispute over milk imports. PHOTO | FILE | NATION MEDIA GROUP 

The EastAfrican
By The EastAfrican
More by this Author

The milk imports row between Kenya and Uganda capped a year of simmering trade disputes between East African Community (EAC) member countries, undermining free movements of goods and services in the region.

Kenya and Uganda last week reached a deal on taxation of pharmaceuticals, juices, and milk products, which had threatened to push the two neighbouring countries into a collision course.

The EastAfrican has learnt that Uganda has agreed to abolish the 13 per cent excise duty charged on Kenyan juice and removed 12 per cent verification fees payable on Kenyan pharmaceuticals by June 30, 2020 as part of a string of measures aimed at averting further trade disputes with Kenya.

Uganda had introduced the discriminative excise duty on Kenyan juice and verification fees on pharmaceuticals under the Excise Duty Amendment Act 2017.

Although Kampala had committed to address discriminative excise duty and verification fees by June 30 this year, it did not.

The agreement was reached during a bilateral meeting held in Kampala between trade officials from the two countries led by Kenya’s Principal Secretary in the Ministry of Trade Chris Kiptoo and his Ugandan counterpart Grace Choda.

Advertisement

Kenya, on its part, has lifted the recent ban on exports of poultry products to Uganda that was imposed on February 14 this year and also committed to increase market access for Ugandan sugar to 90,000 metric tonnes from 30,000 metric tonnes, subject to a verification mission by Kenya in February next year.

Kenya also lifted the long-standing ban on export of beef and beef products to Uganda. The two countries also agreed that Kenya imposes 16 per cent value added tax (VAT) to control excessive influx of Ugandan milk into the Kenyan market and protect local dairy farmers.

“What we need is harmony in the region. We have decided that the year 2020 will be a year of harmony and free trade in the region. We need to live within the spirit of a Customs Union. We are seeing a situation whereby countries want to look for domestic reasons not to allow regional trade to flourish,” Dr Kiptoo told The EastAfrican.

The deal between Nairobi and Kampala comes after Kenya and Tanzania in May announced that they had resolved 75 per cent of the non-tariff barriers (NTBs) that had affected trade between them, sparking persistent trade wars.

“We need to have a fully-functional Customs Union for us to think of participating in other regional and continental trade blocs such as the Tripartite free trade area and the African Continental free trade area,” added Dr Kiptoo.

The EAC Customs Union, the first pillar of EAC integration, which came into effect in 2005, provides for a free trade area where partner states reduce or eliminate taxes on goods originating from within the bloc and impose common tariffs on goods imported from other countries.

However, goods moving freely within the EAC must comply with the trading bloc’s rules of origin.

Under the Customs Union Protocol, member countries also committed to remove with immediate effect all the existing NTBs to trade and, thereafter, not to impose new ones.

East Africa’s intra-regional trade, however, has been hampered by persistent trade disputes among partner States over rules of origin, safety and quality of products traded in the region.

This year, Uganda, Kenya and Tanzania have been embroiled in several trade disputes, with experts warning that unless these conflicts are resolved the on-going regional integration efforts would be undermined.

In February, Tanzania started subjecting Kenyan products to quality verification after Nairobi did the same for three consecutive months, going against a mutual agreement on the standards of goods traded within the region.

Spirits and tiles are among products that were subjected to quality verification before entering Kenya despite having a Tanzania Bureau of Standards quality mark.

Tanzania claimed that the Kenya Bureau of Standards had been taking samples of the products for verification in Nairobi through a process that takes as long as 30 days.
As a result, Tanzania retaliated by confiscating Kenyan products on its borders, pending quality verification.

Kenya’s metal and automotive sectors were heavily affected by the double-testing standoff between the two countries

Last year, Tanzania imposed a 25 per cent import duty on Kenyan confectioneries such as juices, ice cream, chocolate, sweets and chewing gums, claiming Kenya had used zero-rated industrial sugar imports to produce them.

On its part Kenya banned Tanzanian tour vans from accessing the Maasai Mara game reserve, arguing that Tanzania had also banned Kenyan operators from accessing Serengeti national park. The dispute is part of what was resolved in the bilateral meeting held in May.

“We have been dealing with Tanzania in a very structured way,” said Dr Kiptoo.
In February, EAC heads of state directed partner States and the Council of Ministers to resolve the NTBs stalemate hindering free trade in the region.

***

Business in the region
The value of intra-EAC trade increased to $5.98 billion in 2018 from $5.46 billion in 2017, a 9.4 per cent growth, according to an EAC trade report (2018) by the EAC Secretariat. But the intra-EAC trade is still low at a paltry 20 per cent compared with other regional economic blocs such the South African Development Community that stands at 58 per cent and the European Union at a high of 68 percent.

Experts say trade between the East African Community partner states is projected to grow by between five to eight per cent annually if countries fully implement joint policies and regulations, exploit individual competitive edge and eliminate non-trade barriers.

Protectionism at national level as a hindrance to competitiveness in sectors across the region have been cited as threats to free trade among EAC member states. Experts recommend value chain collaboration between manufacturers to exploit each country’s competitive advantage.