Shield tariff talks from vested interests


Tariff protection is crammed with lessons for emerging economies. FILE PHOTO | NMG

How well are we prepared as a country for the new common external regime that is expected to kick in on July 1? A commentary I did in these pages recently attracted a deluge of responses from manufacturers seeking updates on the latest developments and progress on the ongoing overhaul of the existing common external tariff.

Some of them enquired: Do you believe that these negotiations will be concluded ahead of the budget for the next financial year? The anxiety and sense of uncertainty is understandable. How do you plan when you don’t know what the intermediate goods you use will cost you next year?

Compounding the sense of uncertainty that has swept through sections of the manufacturing sector are lingering doubts and the widely held perceptions that entities leading negotiations for us namely, the ministris of Trade and Industry, East African Community and Regional Development and the Treasury are yet to reach a consensus on a number of critical issues.

Methinks we must now open the subject of the ongoing overhaul of the common external tariff and the ramifications for both industry and consumers to a more robust and wider public debate. We must define our interests as a country more concretely and move the discussion beyond what bureaucrats and government officials at both the Ministry of Trade and the Treasury think and want.

It is foolhardy to leave pace and direction of policy in such a critical area to the so-called trade technocrats sitting in some smoke-filled room in government offices in Nairobi or in Arusha.

Wide and robust public debate is how we can insulate these critical negotiations from being captured by the politically influential and well-connected manufacturers that want to perennially circle government offices to cut deals on tariffs with ministers and principal secretaries.

Indeed, the stakes in these negotiations are very high because decisions made will carry far-reaching implications for the major value chains in the region especially the big-ticket industries and investments in cement manufacturing, paper and paper products, steel manufacturing and sugar milling.

The EAC common external tariff went through a minor review in 2010 which maintained the three bands, namely, 0 percent for raw materials, 10 percent for intermediate goods and 25 percent for finished products. In addition, there was a limited number of products under the sensitive list that attracts rates above the maximum rate of 25 percent.

But the common market has been dogged by exemptions, bans and non-tariff barriers. The practice has been that every budget cycle comes with requests by countries for stay of applications, unilateral exemptions by member states and frequent application by countries for duty remissions.

This culture of poor adherence to the CET tariff regime and frequent derogation of the rules by trading partners ended up creating a very unstable tariff regime.

A truly functioning common external tariff could not be achieved because the habit for finance ministers has been to introduce changes and derogations on the CET every time they are in Arusha for the annual pre -budget consultations.

A successful overhaul of the CET is urgent for the region because it is coming at a time when the signal is that the strength of East African Community is waning.

After the new CET has been concluded, partner states of the community will need to go back to the drawing board to rethink how to strengthen the powers of the Arusha-based bureaucracy. Arusha needs to be made stronger and less dependent on the personalities and whims of presidents of partner states.

Under the treaty, the most powerful body is the Summit of the presidents of the countries that usually acts on the recommendations of the council of ministers. But experience has shown that the Summit rarely exercises its powers to sanction member states for non-compliance, especially on trade disputes.

How many times and how often are scheduled meetings of the Summit postponed? Igad, which is a much younger economic grouping holds more frequent Summits than Arusha.

Success in implementing a new CET for East Africa will send a strong signal that the commitment by members states to the East African economic integration project has not waned.