Egypt rule of origin export plan rattles Comesa rivals

Comesa member states are lobbying the bloc’s council of ministers to block Egypt from raising the bar for their goods to qualify for duty free treatment by Cairo.

Egypt, which is also a member of the trading bloc, wants to impose a rule of origin criteria that would bar export goods not meeting a 45 per cent local raw material content from preferential access to its markets.

The other 18 Comesa member states apply a 35 per cent local raw material content threshold.

Following failure by the Comesa Trade and Customs Committee extraordinary meeting held in Lusaka last week to persuade Egypt to drop the plan, the members have forwarded the proposal to the upcoming council of ministers meeting for resolution.

“Some member states appealed to Egypt to start using the 35 per cent condition that the rest of Comesa uses,” a statement from Comesa that followed the Lusaka meeting said in part, confirming the emergence of dissenting voices ahead of a meeting of Comesa council of ministers set for August 24-27 in Swaziland.

The Lusaka forum was aimed at finalising outstanding issues such as tariff lines that had slowed the integration of the market, and provide recommendations to the Comesa council of ministers.

Egypt has for several years enjoyed a provisional preferential treatment in which goods entering her market from other Comesa member countries must bear a minimum value addition of 45 per cent on a reciprocal basis compared to the 35 per cent demanded by other partners.

Though seen as a strategy to fortify its domestic market against external forces of competition, Egypt has argued that most Comesa countries exported raw material, a position that leaves them unaffected by the 45 per cent tariff on value addition.

Highly industrialised

The country mainly exports manufactured goods to other African countries and currently commands about 13 per cent of intra-Comesa exports and 45 per cent of imports.

“It is reciprocal, but difficult for other countries in this region to achieve because Egypt is highly industrialised.” Kenya Association of Manufacturers CEO Betty Maina said: “Egypt has always operated this way on derogation, but we don’t know what Comesa would rule this time round.”

Export goods fully originated from Comesa attract zero tariff when entering markets of other partners within the 19-member bloc.

Comesa members opposed to Egypt’s stand, however, said the high threshold on portions of raw materials discouraged value-addition.

Most Comesa members, including Kenya, mainly export raw agricultural produce thus making the value addition rule largely irrelevant.

“It is a good idea for Africa, but the timing is not right given that we are yet to fully develop our manufacturing sector in EAC,” David Nalo, the permanent secretary at the East African Community Affairs ministry said.

“By raising the threshold which most African countries cannot achieve, Egypt is able to fortify its market against exports.”

Tea is the single most important Egyptian import from Kenya.

Egypt also takes up tobacco, tyres, chemicals, oils, sisal, as well as fruits and vegetables from Kenya.

Fresh cut flowers, dried flowers printing inks also form part of the shipments to Egypt.

The country, on the other hand, brings into Kenya sugar, molasses, iron and steel products, tires and car batteries, paper products, chemicals, detergents, cables and connectors.

Other imports from Egypt include electrical transformers, pharmaceutical products, engineering equipment, insulation material, rice, house appliances, rugs and carpets, petroleum oils, wax, and paraffin.

Air conditioning appliances ,furniture, telephone exchanges, plastics and paints and ceramics also form part of the imports.

But with growing competition in the international markets the quest for value addition is growing.

Analysts said the impasse posed by Egypt could also slow down the proposed merger of Comesa, EAC and the Southern African Development Community (Sadc) by 2012.

Market data shows that the threshold on value addition is uniform across the Sadc, EAC and Comesa at 35 per cent and forms part of the Rules of Origin (ROO) that grant only goods wholly produced or substantially transformed within the region to enjoy the free trade tariff regime.

For instance, across the three blocs the ROO recognises goods produced wholly or partially from materials imported from outside partner states as long as the value of the imports does not exceed 60 per cent of the total cost in production of the goods and the value added accounts for at least 35 per cent of the ex-factory cost.

Advanced economies

But simple operations such as packaging, mixing and assembly where the costs of the imported ingredients, parts and components used in any processes exceed 60 per cent of the total cost of the final product are not recognised under the rules of origin.

In 2008, Sadc, the EAC and Comesa agreed to form a free trade area (FTA) covering a population of more than 527 million people with an estimated combined GDP of about $624 billion.

Egypt’s push for the 45 per cent value addition threshold is also expected to trigger concerns on the impact the relatively advanced economies under the proposed Sadc/EAC/Comesa merger are likely to have on the rest.

Kenya, South Africa and Egypt’s economies are relatively advanced and are considered threats to the merger of the three trading blocs in that overlapping products in the region means that the more developed economies are in a better position to market their exports.

This could also trigger polarisation as investment may be attracted towards these economies.