Apply higher tariffs on non-EAC goods to grow industries

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Apply higher tariffs on non-EAC goods to grow industries


cargo-ship

A cargo ship arrives at the Mombasa port. FILE PHOTO | NMG

Summary

  • The establishment of an effective Common External Tariff in the East Africa region will lead to the exponential growth of the manufacturing sector.
  • TheEAC is reviewing its CET that, if adopted, will steer manufacturing as we grapple with Covid-19.

The establishment of an effective Common External Tariff in the East Africa region will lead to the exponential growth of the manufacturing sector.

A Common External Tariff (CET) is an import tariff or rate adopted and applied by countries within a common market. This tariff is ideally imposed on imports from non-member countries, with the intention of promoting industrialisation in the common region, enhancing the economic development of member States and liberalising regional trade.

TheEAC is reviewing its CET that, if adopted, will steer manufacturing as we grapple with Covid-19.

It is important to highlight the progress made through trade agreements with the EAC. First is the establishment of the EAC Single Customs Territory to facilitate faster clearance and movement of cargo from the port of entry to destination.

Second is the implementation of One-Stop Border Posts (OSBPs) aimed at facilitating cross-border movements through reduction of clearancetime. The third is the removal of several Non-Tariff Barriers (NTBs).

However, the laxity to implement the EAC CET is straining the competitiveness of the sector and the economic growth.

In essence, the current tariff undermines industrialisation by favouring imports or subsidising importation costs, resulting in reduced competitiveness of local manufacturers. This leads to a few job opportunities and decreased development and, ultimately, increased cost of living.

The current CET tariff stipulates that the EAC Partner States may import at different levels with the following duty rates: raw materials at zero percent, intermediate, 10 percent, and finished products at 25 percent.

In short, imports from outside of the EAC are enjoying lower rates (25 percent) for products that are or may be produced within the EAC.

This is not only derogatory to the objectives of the EAC, which include building the prosperity, competitiveness, and stability of the region, but it also undermines industrial growth.

For the region to industrialise, it is necessary that we impose a higher duty rate on the importation of finished products from countries outside the EAC. This will result in strengthened linkages between the EAC, advanced value chains, and increased competitiveness and sustainability of the region.

A 35 percent tariff rate on the importation of finished products could not come at a better time.

The competitiveness of the sector is being deterred by transport and logistics, excessive levies, increased cost of power, and the effects of the pandemic. In fact, adopting this tariff band may be the policy response we need to protect the country from import surges and unfair trade practices.

Though Uganda, Tanzania, Kenya, and South Sudan support the reviewed EAC CET rate on finished products, a non-conclusive EAC entity will result in delayed implementation and continued impaired progress.

KAM supports this newly reviewed EAC CET, which includes afourth band that will impose a 35 percent rate on imported finished products from non-member States.



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