EAC dis­cord over EU trade deal poses snags

East African Business Week - - EDITORIAL -

Last week, Tan­za­nian leg­is­la­tors ad­vised Pres­i­dent John Magu­fuli’s ad­min­is­tra­tion not to sign the pro­posed Eco­nomic Part­ner­ship Agree­ment (EPA) with the Euro­pean Union (EU) be­cause many of the pro­vi­sions of the new trad­ing ar­range­ments are not in the best fu­ture in­ter­ests of the country.

This was soon af­ter some aca­demi­cians from the Univer­sity of Dar es Salaam pre­sented a case that ba­si­cally said sign­ing and rat­i­fi­ca­tion of the EPA will jeop­ar­dize Tan­za­nia’s in­dus­tri­al­i­sa­tion vi­sion.

The prob­lem for the EU is that World Trade Or­gan­i­sa­tion no longer ap­proves of ex­clu­sive trade deals that it used to have with the African Caribbean and Pa­cific (ACP) coun­tries. Con­se­quently EPA is based on the con­cept of rec­i­proc­ity. You scratch my back and I scratch yours mean­ing a bal­anced trad­ing regime with­out tar­iffs on ei­ther side. But EU is giv­ing up to nearly 15 years be­fore all tar­iffs must go.

The other prob­lem for the EU is that it would like to fin­ish once and for all with the EPAS so that it can con­cen­trate on the more con­vo­luted task of Bri­tain’s exit from the EU.

Rwanda and Kenya have al­ready signed the EPA, but to make the deal bind­ing, the rest of the East African Com­mu­nity mem­ber states must fol­low suit.

The com­pli­ca­tion for Kenya is as a de­vel­op­ing country, its ex­ports to the EU will be taxed un­less the EAC sign as a bloc. How­ever as least de­vel­oped coun­tries (LDCS), Bu­rundi, Rwanda, Tan­za­nia and Uganda can still ex­port to the EU duty-free un­der the ‘Ev­ery­thing but Arms’ (EBA) pro­vi­sions that en­sure pref­er­en­tial treat­ment. EBA is part of EU gen­er­al­ized sys­tem pref­er­ence which en­tered in 2001 and has no time limit.

The other com­pli­ca­tion for Kenya is that its lu­cra­tive hor­ti­cul­tural in­dus­try may lose its com­pet­i­tive ad­van­tage be­cause South Africa, (along with Botswana, Le­sotho, Namibia, and Swazi­land) have al­ready signed. In fact, lob­by­ing by Kenya’s hor­ti­cul­ture and flori­cul­ture rep­re­sen­ta­tive was in­tense in the run-up to the sign­ing the agree­ment in Brussels in Septem­ber.

The loss of im­port du­ties and ex­port taxes will also re­duce the gov­ern­ments’ rev­enue since these trade taxes are a large part of their in­come.

Ac­cord­ing to the Euro­pean Com­mis­sion (EU Sec­re­tariat) in Brussels, the EU-EAC EPA cov­ers trade in goods and devel­op­ment co­op­er­a­tion. It also con­tains an ex­ten­sive chap­ter on fish­eries – aim­ing mainly to re­in­force co­op­er­a­tion on the sus­tain­able use of re­sources - and pro­vides fur­ther ne­go­ti­a­tions on ser­vices and trade-re­lated rules in the fu­ture.

The Com­mis­sion be­lieves the pro­posed deal is bal­anced and fully in line with the EAC Com­mon Ex­ter­nal Tar­iff. It bans un­jus­ti­fied or dis­crim­i­na­tory re­stric­tions on im­ports and ex­ports, which con­trib­utes to the EAC’S ef­forts to erad­i­cate non-tar­iff bar­ri­ers (NTBS) in in­tra-eac trade. It sup­ports the EAC’S am­bi­tious re­gional in­te­gra­tion project and has what it takes to foster devel­op­ment.

Ex­ports to the EU from East African Com­mu­nity are dom­i­nated by cof­fee, cut-flow­ers, tea, to­bacco, fish and veg­eta­bles while im­ports from the EU into the EAC are dom­i­nated by ma­chin­ery and me­chan­i­cal ap­pli­ances, equip­ment and parts, ve­hi­cles and phar­ma­ceu­ti­cal prod­ucts.

The Euro­pean Com­mis­sion has em­pha­sised that 20% of do­mes­tic African prod­ucts will re­main pro­tected in the long-term. In re­turn the EPA spells out the need for African coun­tries to open up to 83% of their mar­kets to Euro­pean im­ports. At the same time tar­iffs and fees are planned to be grad­u­ally elim­i­nated mostly on the part of the EAC.

Still re­gional man­u­fac­tur­ers in­sist they can­not com­pete with the fi­nan­cial clout and pro­duc­tion scale of Euro­pean firms in­ter­ested in sell­ing to the EAC even if re­gional gov­ern­ments are al­lowed to im­pose im­port duty up to an­other 10 or 15 years ahead.

Un­der the EPA, the EAC mem­bers will also have to open up their ser­vices, fi­nan­cial, in­vest­ment, and gov­ern­ment pro­cure­ment regimes.

Since many lo­cal man­u­fac­tur­ing in­puts are im­ported the other sen­si­tive is­sue is Rules of Ori­gin. These de­ter­mine the ex­tent to which a country can use im­ported parts, ma­te­ri­als or in­gre­di­ents in its ex­ports with­out fac­ing higher tar­iffs. This is a time when EAC una­nim­ity has to be gen­uine.

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