Ideas & Debate

Non-tariff barriers the top obstacle to regional trade

Number of possible barriers globally is almost
Number of possible barriers globally is almost infinite, have continuously changed. FILE PHOTO | NMG 

Non-tariff barriers (NTBs) remain a key challenge to east African integration since the establishment of Custom Union (CU) Protocol in 2005. It is clear that trade liberalisation is the central objective of East Africa Community (EAC) and it cannot be achieved with the continuous persistence of old and emergence of new NTBs.

NTBs are restrictions that result from prohibitions, conditions or specific market requirements that make importation or exportation of products difficult and/or costly. The EAC Elimination of NTB Act, 2017, also defines NTB as laws, regulations, administrative and technical requirements other than tariffs imposed by a partner state, whose effect is to impede trade. The objectives of EAC Elimination of NTB Act, 2017, are to provide a legal framework for removal of NTBs, provide a process for identification and monitoring the removal of NTBs. The removal of all restrictions to trade will create a truly single market in the region with a market of close to 184 million people.

There are several initiatives in place to address NTBs in the EAC. First, the main instrument was the EAC Time-Bound Programme for Elimination of Identified NTBs (EACS, 2009). The strategy of EACS, 2009, was to come up with a list of NTBs reported by partner states and update them during quarterly NTB review meetings. During the meeting new NTBs are reported and the resolved ones are moved to the end of the list. However, the report does not explain how the NTBs have been resolved or how to ensure that the resolved NTBs do not recur.

NTBs generally fall under four broad categories, namely, (1) measures having equivalent effect to custom duties and tariff, (2) quality and safety standard issues, (3) direct import ban and (4) custom and trade facilitation measures. According to the EAC Common Market Scorecard 2016, the unresolved NTB were distributed as follows: Measures having equivalent effect to custom duties and tariff were 40 percent, customs and trade facilitation measures were 28 per cent, quality and safety standards were 24 percent and direct import ban were eight percent.

The EAC CU Protocol came into effect throughout the EAC territory in July 2009, having been ratified by Kenya, Tanzania and Uganda in 2004, and later by Rwanda and Burundi in 2008. The EAC CU is the first stage in the four-step EAC regional integration process and it is envisaged that a fully operational CU will consolidate East Africa into a single market with uniform policies and a market of 184 million people and a GDP of $ 187 billion as per 2018 estimates.

The objectives of the EAC CU Protocol as captured by article 3 are: the formation of single market territory, elimination of internal tariffs and NTBs, and harmonisation of external tariff by establishment of a Common External Tariff (CET) for imports from third countries. The current CET rates are: zero percent for raw material, 10 percent for intermediate products and 25 percent for finished products. Currently EAC partner states are engaged in renegotiating new CET and I hope that the new CET will be aligned with the region’s industrialisation agenda and vision.

It is also envisaged that the CU will promote efficiency in production and offer EAC consumers a variety of products at competitive prices due to economies of scale, enhance domestic, cross-border and foreign investment, harmonise trade processes and custom procedures with the net effect of increased trade and poverty alleviation. Hence the elimination of NTBs is properly anchored in the EAC CU Protocol.

Globally, when tariff levels went down after coming into force of the General Agreement on Tariff and Trade (GATT 1947 and GATT 1994), the NTBs went up and have remained a challenge even in the global arena since then. The number of possible NTBs globally is almost infinite and have continuously changed over time.

Notable examples

Global NTBs are no different from the ones faced in the EAC. However, some notable examples included the voluntary export restraints (VERs), such as the “multi-fibre arrangements (MFA) of 1974 under which the USA and the EC (EU) forced developing countries to limit textile exports and growth rate to an annual target. The subsidies offered to agricultural farmers in the US and EU is another serious NTB to developing countries in addition to measures such as tariff escalation and continuously changing product standards and requirements.

The second group of global NTBs involve misuse of customs procedures for protectionist purposes. Some examples include when France once directed that all Japanese electronic products to be imported only through a single small port and when Japanese customs authorities processed their own airlines’ freight more quickly than that of other national carriers.

The third group entails distortion of administrative practices and technical standard for protectionist purpose. There are several examples globally; 1) at one-time foreign baseball bats would only be admitted if tested and certified in Japan, but could not be admitted without a test certificate,2) Japan classified a brand of imported potato crisps as confectionary, which attracted higher duties, 3) some drugs could only be admitted in Japan if accompanied by health certificate by all company executives and 4) South Korean Revenue Authority frequently threaten purchasers of foreign cars with a tax audit.

The writer is Regional and Global Director, Beyond Borders Limited.