EABC Trade and Policy Brief as at 10 February 2017

The EAC Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) held its ordinary meeting from 30th Jan to 3rd Feb. 2017 at the EAC Headquarters in Arusha, Tanzania. In the course of the meeting the issues pertain to trade, customs, industry and investment which form the bedrock of EAC integration were thoroughly discussed and agreed upon.

In brief form some of the policy related issues which were deliberated during the meeting include:

• Implementation of the Single Customs Territory (SCT)

• Rules Of Origin with regard to Edible Oils of Chapter 15 of the Revised EAC Rules of Origin

• Denial of Community Tariff Treatment to Edible Oil Made From Sim Sim, Sunflower, Soya Beans and Maize

• Denial of Duty Free Market Access of Wheat Flour from Tanzania to Kenya

• Progress Report on the Comprehensive Review of the EAC CET and EAC Rules of Origin

• Consideration of the Draft Regulations on Motor Vehicle Assemblers

• Solar Spare Parts and Accessories

• Trade in Services

• Report of the EAC Experts on the EAC-EU EPA

• Progress Report on Modalities for Promotion of Textiles and Leather Industries in the EAC Region

• Study on the Modalities for the Promotion of Automotive Industry in the Region

• Progress Report on the Implementation of the EAC Regional Pharmaceutical Manufacturing Plan of Action (EACRPMPOA)

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Progress made in the implementation of the Single Customs Territory (SCT)

In considering the report of the Committee on Customs which met in November 2016, the SCTIFI was informed that Partner States had not implemented the agreed roll out of product due to financial constraints and insufficient officers to be deployed at the respective entry points of the Partner States. To address this challenge the Customs Committee considered and adopted the EAC guidelines for the deployment of staff to other Partner States. The Committee on Customs also agreed that the deployment guidelines will facilitate officers of the host Partner States to act on behalf of the other Revenue Authorities in the verification of goods to be transferred.

On the implementation of SCT processes and ICT enhancements the meeting was informed that during the period May to October 2016, the team developed, tested and deployed the ex-warehousing and transfer of duty paid goods still under Customs control (re-export) modules, developed the SCT Export process; developed a concept paper for implementation of a Centralized SCT Proof of Concept platform and bilateral meetings between URA/TRA and KRA/TRA that resolved intra-trade, ex-warehousing and re-export issues between TRA and URA/KRA. On overall, out of 37 (thirty seven) processes targeted under SCT, only ten (10) have been implemented. Although modules are fully developed, Partner States decided to roll-out different products at different times depending on risk levels. So far, only Rwanda has put 100% of the products under SCT. Uganda, Burundi, Kenya and Tanzania committed to have a 100% roll-out by July 1st 2017 as per the directive of the Committee on Customs. Burundi is yet to complete implementation of the warehousing modules for both imports and intra-trade. OBR has so far started the piloting of warehoused goods under the COMESA RCTG bond system.

On compliance and enforcement it was reported that the relevant TWG met and developed operational instruments for the smooth implementation of the SCT. However The Republic of Kenya observed that under the SCT, goods were being declared under the warehousing regime. They further noted that goods which can be prescribed by the Commissioned not to be warehoused are not harmonised across all the Partner States. This may cause a risk in regard to diversion of such goods if not monitored. The Republic of Kenya therefore proposed that a compliance and enforcement mechanism be instituted to manage goods declared for warehousing under the SCT.

The Secretariat reported that warehousing is a legitimate regime under customs and the matter of compliance and enforcement is being handled by the Committee on Customs. The initiative to manage warehousing includes regionalisation of the electronic cargo tracking system and interconnectivity of customs systems to enable seamless exchange of information. To address this challenge the SCTIFI directed the Secretariat that a regional warehousing management mechanism be developed and implemented to mitigate the risks.

Regarding the progress report for the development of a framework for EAC Customs Bond it was reported by the EAC Secretariat, with the support of Trademark East Africa, acquired the services of a consultant to provide consultancy services for the development of a draft framework for a Regional Customs bond.The Consultant commenced the assignment in January 2016 and submitted the final report to the EAC Secretariat on 20th September 2016.

The Secretariat had submitted the report to Partner States for internalization and comments.

The meeting urged Partner States:

1. To submit their comments before the meeting of stakeholders is convened to deliberate on the reports and develop the implementation roadmap.

2. The SCTIFI directed the Secretariat to convene a meeting of stakeholders to discuss the way forward for the implementation of the EAC Customs Bond.

Progress Report on the Comprehensive Review of the EAC CET and EAC Rules Of Origin

The Meeting noted that the 34th Meeting of the Council of Ministers directed the Secretariat to undertake a comprehensive review of EAC CET and Rules of Origin and report to SCTIFI by September, 2017 (EAC/CM 34/Directive 60). In implementing this directive, the Secretariat organized a Regional Task Force Preparatory meeting from 12th to 16th December, 2016 in Kampala, Uganda. The meeting discussed and deliberated on a numbers of item including Methodology, Scope of Work and Road Map for undertaking the comprehensive review of CET and EAC Rules of Origin and Criteria for Review of the EAC Common External Tariff.

After deliberating the report the SCTIFI directed the following:

1. The Secretariat to hold a meeting of Tariff Experts to transpose the EAC CET 2012 to 2017 HS Version in February, 2017;

2. The Secretariat to convene a Video Conference (VC) to finalise the draft data collection instruments;

3. That the comprehensive review of EAC Rules of Origin should await the finalisation of the comprehensive CET Review; and

4. The Secretariat to find within the entire budget of the Secretariat areas in which a re-allocation can be done to raise USD 230,750 needed for completion of the exercise.

Update on trade in services

In line with reviewing the Partner States’ Schedules of Commitments on Trade in Services as provided for in the EAC Common Market Protocol, it was reported that the Experts considered and revised the draft Guidelines for reviewing the Partner States’ Schedules of Commitments on trade in services. However, the Experts did not agree on the proposed modalities on approach for scheduling the Partner States’ commitments on trade in services. The Republic of Burundi, Republic of Kenya, Republic of Rwanda and Republic of Uganda were of the view that the hybrid approach with benchmarks should be used while the United Republic of Tanzania was of the view that the positive list approach should continue being used. The United Republic of Tanzania further observed that the technical committee had no mandate to extend to other five (5) service sectors. Under the proposed hybrid approach, Partner States would continue scheduling commitments for the already scheduled seven (7) sectors using the positive list approach and would adopt a negative list approach for the remaining five (5) sectors.

On Draft Regulations on Free Movement of Services and Services Suppliers the Meeting was informed that the Experts considered and revised the draft Regulations on Free Movement of Services and Service Suppliers. The Experts agreed to broaden the scope of the Regulations in order to focus on services and services suppliers rather than narrowing the focus on services suppliers.

However during the Experts meeting the Partner States had divergent positions on whether to include Intra-Corporate Transferees, and Trainees in the categories of services suppliers. The Republic of Burundi, Republic of Rwanda, Republic of Kenya and Republic of Uganda were of the view that the categories should explicitly include intra-corporate transferees and trainees given that their free movement is not provided for under the Common Market Protocol (CMP).The United Republic of Tanzania was of the view that Intra-Corporate Transferees and the “Graduate trainees” should not be included as categories of service suppliers. Tanzania is of the view that Intra-Corporate Transferees according to the definition of the service supplier are workers and “Graduate” Trainees are neither workers nor services suppliers.

In addition, the Partner states had divergent positions on whether to include National Treatment regulation. The Republic of Burundi, The Republic of Rwanda and the Republic of Uganda and the United Republic of Tanzania were of the view that we maintain the Common Market Protocol provision on National Treatment.

The Republic of Kenya was of the view that national treatment with a list of limitations should be explicitly included in the regulations.

During the Meeting, the Republic of Kenya noted that listing all National Treatment limitations would be an onerous task and that the National Treatment provision in the Common Market Protocol effectively defines the spectrum of a national treatment violation. In this regard, the meeting agreed that the National Treatment provision in the Common Market suffices and therefore there is no need to include National Treatment in the Regulations

The SCTIFI after thorough discussions directed the Secretariat to:

1. Submit the finalised concept paper on the approach for scheduling the Partner States’ commitments on trade in services by 7th February 2017;

2. Urged Partner States to consider introducing Horizontal Commitments to cater for Inter corporate transferees and graduate trainees during the process of developing their respective schedules of commitments;

3. Directed Secretariat to submit to Partner States the finalised terms of reference for development of a mechanism for the removal of trade in services restrictions by March 2017;

4. Directed the Partner States to further revise their respective schedules of commitments; and

5. Directed the Partner States to submit their revised Schedules of Commitments to the Secretariat by 31st March 2017.

Report of the EAC experts on the EAC-EU EPA

The Meeting was informed that on 19th to 22nd December 2016, an EAC Experts meeting was convened to explore the way forward on implementing the Summit directives on the EAC-EU EPA negotiations. On the concerns about the EPA, Partner States reported as follows:

1. Republic of Kenya and Republic of Rwanda had no concern in relation to the signing of the EPA.

2. On the side of the Republic of Burundi her main concern was the decision of EU to unilaterally suspend direct partnership with the Government of Burundi.

3. The Republic of Uganda had no concern with EAC EU EPA but has an interest for the Partner States to move to sign the Agreement as a bloc; and exploring available options in the event that some EAC Partner States sign the EPA and others do not.

4. The United Republic of Tanzania had several concerns which include:

• Effects of EPA on EAC industrial development;
• Effects of the EU subsidies and domestic support to their farmers on EAC farmers accessing EU market;
• Bridging the gap of revenue losses resulting from substantial trade liberalization;
• Effect of BREXIT while UK is one of the major trading partners of EAC countries;

Other Concerns raised, worth consideration by EAC Partner States

5. What is the rationale of Burundi signing EPA while the EU has imposed embargo on her exports? How will EAC Partner States avoid such scenarios of EU to unilaterally put embargos on trade under the EPA while Article 136 of the EPA still refers to the same agreement which EU has used to put embargo to Burundi;

6. How will the EAC Partner States operationalize Article 13 (2) on movement of goods while there is no free circulation of goods in the region and no refund mechanism for customs duty paid to another Partner State;

7. What is the effect of Most Favoured Nation clause under EPA to the future EAC engagement with third parties;

8. How will the bilateral and multilateral safeguards assist the EAC countries in protection of any economic injury to domestic industries while the EPA has already put limitation before the injury is even known?

9. How can individual EAC Partner States denounce the EPA if it feels that her interests are infringed;

10. What lessons can the EAC Partner States learn from the review made by CARIFORUM on the implementation of EPA;

11. How does EPA strengthen regional integration in ACP States while EU is segregating ACP states on the ground of those who will sign and those who will not sign EPA in cumulation under Article 4 of the Rules of Origin;

12. How can EAC Partner States can have the same priviledges as provided under Article 5 of the Rules of Origin on cumulation in EU?

13. What is the legal implication of having an agreement which binds third Parties who are not privy to the agreement as it is under article 147 of the EPA which introduces a Joint Declaration which binds the EAC with unknown third parties? How will EAC Partner States hold the EU Party liable as one Party in case of failure to implement any of the EPA provisions while Article 132 (1) of the EPA does not define the EU as one Party when it comes to the definition of parties and fulfilling of their obligations?

14. How will the EAC Partner States bridge the gap in their balance of trade with EU while continuing trading with raw materials, taking into account that EPA has limited EAC policy space in instituting duties and taxes on exports?

15. Explore how to proceed in the event that some EAC Partner States sign the EPA and some do not sign.

After discussions the SCTIFI directed:

• The Secretariat to finalise the study on the issues raised above and convene a dedicated session of experts to consider the study report;

• The Secretariat to convene an extra-ordinary SCTIFI on the sidelines of the 35th Council to consider the report of the dedicated session in (b) and make recommendations to the 35th Council on the way forward on the EAC-EU EPA matter.