END TRADE WARS FOR EAC INVESTMENT

September 9, 2008
Commentary
The Satandard

A stand-off between local milk processors and the Tanzanian authorities over exports to the country once again highlights the need for the East African Community (EAC) to sort out trade policy disputes once and for all, for the long term benefit of all the members.

This milk dispute adds to a long list of outstanding trade matters yet to be agreed upon among EAC countries, as well as among the members of the wider East and Southern Africa region governed by the Comesa treaty. Sugar imports into Kenya is one other such matter, that has now prompted the Minister for Trade to set up a ‘safeguard’ committee. In the milk issue, the Kenyan processors exporting diary products to Tanzania are faced with a number of non-tariff trade barriers that have the potential to force them to review their operations and investment plans.

This has arisen from decisions by the Tanzanian authorities to issue new trading guidelines to protect its nascent diary industry.

Tanzanian authorities argue the presence of Brookside Diaries and New Kenya Co-operative Creameries is crippling development in its dairy sector. Their decision run counter to the letter and spirit of regional cooperation and integration under the EAC treaty.

There is a six-year agreement on gradual tariff reduction on dairy products. This agreement, which is in its fourth year, has seen the tariff levied on exports of dairy products from Kenya to Tanzania reduce gradually from 25 per cent in 2005 to ten per cent this year. It is expected to be zero-rated in 2010. Dairy exports to Uganda were charged a ten per cent duty in 2005, but the tariff is now four per cent. Milk products from Tanzania and Uganda enter the Kenyan market duty free.

The agreement was intended to give the two countries sufficient time to develop their milk processing capacity.

Thus, as much as there is a basic understanding and agreement on the need to integrate regionally, the road leading to the ‘Promised Land’ of economic growth and prosperity seem to be strewn with numerous boulders and potholes. Protectionist and nationalistic policies (including both tariff and non-tariff measures) are part of these hindrances. Not to mention political suspicions and disagreements.

All these have the negative impact of slowing down business and trade expansion by the private sector players. As a result, the EAC economies may not grow as fast as would otherwise been.

Consensus

Although all five EAC members have a common consensus that the region is ripe for a single internal market in the model of the European Union, differences continue on many fronts, not least on the extent to which the partner states are willing to open their borders to free trade.

The differences are particularly acute between the three original members, pitting Tanzania against Kenya and Uganda with Rwanda and Burundi torn in between. They emanate from the understanding that a common market would benefit regional powerhouses and subjugate other nations. Tanzania is uncomfortable and suspicious of free trade with Kenya and is demanding a re-look at many issues to do with the principles of the common market, imbalances of trade, tax harmonisation, free movement of goods, persons, workers/labour and right of residence and establishment.

A key element of any free and enabling trade regime is giving businesses that depend on imports or exports the legal standing to voice their views in policy setting. Further, regulations and procedures should be consistent and predictable.

Implementation of the same would also be greatly facilitated by an independent body. This would be the role of the EAC Secretariat, if it is given authority and resources to do it. However, this has not been the case so far.

Though having a Trade and Customs Directorate, it does not have enough muscle and resources to ‘beat’ member governments into line. This needs changing. Without sustained political will and commitment, mutual suspicion will continue to hamper progress in regional integration.