EAC bloc has come a long way since birth of Customs Union

Rules of origin are integral part of the EAC Customs Union. Application of rules of origin has seen several milestones. Partner states have adopted simplified rules of origin in a bid to make it easier for small business persons to engage in cross-border trade.

Currently, there are two criteria applicable in EAC namely, wholly obtained and substantial transformation. The former refers to products which are wholly produced in one partner state, while the latter refers to products whose processes of production constitute a substantial transformation.

In the EAC context, substantial transformation refers to value of the materials not exceeding 60 per cent of the total cost of the materials used in the production of the goods, value addition resulting from the process of production accounting for at least 35 per cent of the ex-factory cost of the goods and when goods are classified or become classifiable under a tariff heading other than the tariff heading under which they were imported.

Other purpose

The other purpose of the EAC rules of origin is to distinguish between goods produced within the EAC for purposes of eligibility for preferential treatment against those produced outside the EAC customs territory that attract duties specified in the Common External Tariff.

The EAC partner states adopted a set of rules of origin under which goods qualify for EAC tariff treatment if they originate in the partner states. This means that all goods that meet the requirements of the EAC rules of origin qualify for EAC tariff treatment when they are traded within the region.

But issues have been raised with regard to the application of the rules of origin. The understanding and interpretation of the rules of origin is limited in most partner states, particularly for companies which produce for the local market. Limitations in access and efficiency in issuance of certificates tend to encourage fraud, where importers present fake certificates of origin for goods which would normally not qualify for preferential treatment.

At the same time, there also seems to be negligence on the part of some authorities who do not necessarily abide by the manual for application of the rules of origin. Value-added Criterion also poses a challenge in the implementation of the EAC rules of origin. Its computation which is very complex renders it difficult to apply not only to the exporters/manufactures but also to the implementing authorities.

This criterion is seen as a NTB to Intra-Regional Trade other than a tool of protection against trans-shipment. Other implementation challenges include; complexity of the processes in the schedule for some customs officers; need for familiarisation with manufacturing processes; variation in the interpretation of rules of origin by different competent authorities and the need to understand the entire rules of origin criterion.

But despite these challenges, where eligibility for preferential treatment of goods is in doubt, a verification mission is usually mounted and carried out to ascertain whether or not, the goods in question meet the criteria.

Some of the verification missions currently in process include those of motor vehicles, products manufactured by Nestle Kenya, lubricants manufactured by Kenol/Kobil, beauty products manufactured by Inter-consumer Products and televisions manufactured by AUCMA Digital Technology Africa Limited. When such missions are conducted, the outcome and final verdict must be approved by the relevant Sectoral Council and the full Council of Ministers.

The purpose of the EAC rules of origin is to determine the tariff treatment as provided for under the World Trade Organisation (WTO). Partner states have continued to improve on their compliance to the rules of origin to ensure that they are transparent and do not in any way restrict, distort or disrupt trade.

In an attempt to ensure that the rules are developmental in nature, precise, transparent, predictable and stable as well as minimise scope for interpretation and administrative discretion, the partner states have identified provisions on the manual on the application of rules of origin that pose implementation challenges and make proposals for their review and this is to be considered by the Committee on Customs for adoption.

It is, therefore, important to appreciate the role played by rules of origin in promoting industrial development in the EAC region, employment creation and the various steps that the Community has undertaken towards the achievement of freer flow of goods in the region

Important factor