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Overview

The current EAC regional integration initiative has its origin in the Mediation Agreement for Division of Assets and Liabilities of the East African Community which collapsed in 1977.

In that Agreement, signed on 14 May 1984, there was a provision that the three East African countries (Kenya, Tanzania and Uganda), could explore areas of future co-operation. It was on that basis that the then three Heads of State held a Mini – Summit on the sideline of the Commonwealth Heads of Government and States (CHOGS) Summit held in Harare in November 1991, during which they announced their intention to re-launch the East African Co-operation.

On 30 November 1993, the three Heads of State signed an Agreement on the establishment of the Permanent Tripartite Commission for East African Co-operation.  However, full fledged co-operation took root after the launching of the Secretariat in Arusha on 14 March 1996.

At the on-set, East African Co-operation generally viewed itself as a fast track for regional integration in the Eastern and Southern African region, particularly as fast tracking the COMESA integration initiative.

This was out of the fact that the 3 Member states - Kenya, Tanzania and Uganda, were also members of COMESA and at that time were trading under the COMESA trade regime. Within the COMESA trade regime, Kenya by 1999 had reached a tariff reduction of 90 per cent while both Tanzania and Uganda were at 80 per cent.  Therefore, Kenya was granting the other two sister states preferential market access at 90 per cent tariff reduction.

However, following issuance of a withdrawal notice from COMESA by Tanzania in September 1999, the three EAC Partner States agreed within the framework of the Treaty for the Establishment of the East African Community, signed on 30 November 1999 and came into force on 7 July 2000, to continue trading preferentially along the trade regime applicable at the time of signing of the Treaty.

A Protocol for the Establishment of the East African Community Customs Union was signed by the three East African Heads of State on 2 March 2004 in Arusha, Tanzania.

The Republics of Rwanda and Burundi joined the Customs Union in 2008 and started applying its instruments in July 2009.

 

OBJECTIVES OF THE CUSTOMS UNION

The objectives of the EAC Customs Union are:

a) To further liberalize intra-regional trade in goods on the basis of mutually beneficial trade arrangements among Partner States;

b) To promote efficiency in production within the Community;

c) To enhance domestic, cross-border and foreign investment in the Community; and

d) To promote economic development and diversification in industrialization in the Community.

 

SCOPE OF CO-OPERATION

Co-operation will apply to any activity undertaken by the Partner States in the field of Customs Management, and includes the fol­lowing:

a) Customs administration;

b) Matters concerning trade liberalization;

c) Trade related aspects including the simplification and harmonization of trade documentation, customs regulations and procedures;

d) Trade remedies;

e) National and joint institutional arrangements;

f) Training facilities and programmes on customs and trade;

g) Production and exchange of customs and trade statistics and information; and

h) The promotion of exports


CONTENTS OF THE PROTOCOL

The Protocol consists of nine parts as follows:

Part A: Interpretation

Part B: Establishment of the East African Community Customs Union

Part C: Customs Administration

Part D: Trade Liberalization

Part E: Trade Related Aspects

Part F: Export Promotion Schemes

Part G: Special Economic Zones

Part H: Exemption Regimes

Part I: General Provisions.

 

 

CUSTOMS ADMINISTRATION

The Protocol provisions on customs administration cover the fol­lowing areas:

i) Communication of customs and trade information

Partner States shall exchange information on matters relating to customs and trade. A harmonised system to facilitate the sharing of information will also be operated.

ii) Trade facilitation

To facilitate trade, Partner States shall reduce the number and complexity of the documents required in respect of trade among the Partner States. Common standards of trade documentation and procedures within the community will be adopted.

iii) Simplification, standardization and harmonization of trade in­formation

Partner States agreed to design and standardize their trade information in accordance with internationally accepted standards, including statistics.

iv) Commodity Description and Coding System

Partner States adopted the Harmonized Commodity Description and Coding System.

v) Prevention, Investigation and Suppression of Customs Offenses

Partner States agreed to cooperate in prevention, investigation and suppression of Customs Offenses thorough according each other mutual assistance, exchange of information, and consultations on establishment of common border posts.

TRADE LIBERALIZATION


Trade liberalization refers to the removal of obstacles to free trade.

With the coming into force of the Customs Union Protocol, Partner States agreed to eliminate all the internal tariffs and other similar charges on trade between themselves. It was further agreed that the establishment of a Customs Union would be progressive in the course of a transi­tional period of five (5) years.

Partner States immediately agreed that goods to and from Uganda and Tanzania shall be duty free. Goods from Uganda and Tanzania into Kenya shall be duty free; however goods from Kenya into Uganda and Tanzania were grouped into two categories.

Category A goods were eligible for immediate duty free treatment.

Category B goods from Kenya into Uganda and Tanzania had the then present tariffs phased out over a five year period. Annex 11 of the Protocol provides the internal tariff elimination schedule.

A 3-band Common External Tariff (CET) was also established with a mini­mum rate of 0%, a middle rate of 10% and a maximum rate of 25%. Partner States undertook to review the maximum rate of the common external tariff after a period of five years from the coming into force of the Customs Union.

Partner States agreed to remove all non-tariff barriers, and that no new non-tariff barriers would be imposed. They also undertook to formulate a mechanism for identifying and monitoring the removal of all these non-tariff barriers. This mechanism is currently in place.

TRADE RELATED ASPECTS


a) Rules of Origin
Rules of Origin are the laws, regulations and administrative proce­dures which determine a product’s country of origin. The Protocol provides that trade within the EAC will be conducted in accordance with agreed East African Rules of Origin. The EAC Rules of Origin form Annex 111 of the Protocol. A manual to guide the application of the EAC rules of origin has been developed. (Refer: EAC Rules of Origin)


b) National treatment

This is the obligation that each nation must give imported goods the same treatment that they give to domestic or “national” products, i.e. there should be no discrimination. In this respect, Partner States agreed not to enact legislation, or apply administrative measures, which directly or indirectly discriminate against the same or similar products of other Partner States.


c) Anti-dumping measures
Dumping occurs when imported merchandise is sold in the domestic market (or exported) at less than the normal value of the merchandise, i.e. a price that is less than the price at which the merchandise is sold in its home market. Partner States recognized the challenges dumping imposes on the domestic market. Anti dumping measures regulations form Annex IV to the Protocol. (Refer: Anti-Dumping Regulations)


d) Subsidies
Partner States that grant any form of subsidy that directly or indirectly distorts competition are required to notify the other Partner States in writing. (Refer: Subsidies & Countervailing Measures Regulations)


e) Countervailing measures
For purposes of offsetting the effects of subsidies, a countervailing duty may be levied on any product of any foreign country imported into the Customs Union. (Refer: Subsidies & Countervailing Measures Regulations)


f) Safeguard measures
Partner States agreed to apply safeguard measures to situations where there is a sudden surge of a product imported into a Partner State, under conditions which cause or threaten to cause injury to domestic producers.

They undertook to cooperate in detection and investigation of dump­ing, subsidies and sudden surge of imports, and in imposition of agreed measures to curb such practices. (Refer: Safeguard Measures Regulations)


g) Competition
The Partner States agreed to prohibit any practice that adversely affects free trade, including any kinds of agreement (undertaking or practices that involve working in concert) that prevent competition.


h) Restriction and prohibitions to trade
Partner States may introduce or continue with restrictions or prohibi­tions involving the following;

- the application of security laws and regulations

- the control of arms and ammunition

- the protection of human life, the environment and natural resources, public safety, public health and public moral­ity

- the protection of animals and plants

It was agreed that goods to be restricted and prohibited from trade be specified in the Customs Law of the Community. (Refer: Prohibited & Restricted Goods)


i) Re-exportation of goods

Partner States agreed to ensure that re-exports from their countries shall be exempt from the payment of import or export duties.


j) East African Community Committee on Trade Remedies
The Protocol established the above committee. This committee handles any matters relating to the rules of origin, anti-dumping measures, subsidies and countervailing measures and any safe­guarding measures that are provided for under the East African Community Customs Union. The committee is composed of nine members, three from each Partner State and its functions are clearly provided in the Protocol.

 

EXPORT PROMOTION SCHEMES

Partner States agreed to support export promotion schemes in the community for the purposes of accelerating their development, promoting and facilitating export-orientated investments, producing export competitive goods, and attracting foreign direct investment. Goods benefiting from export promotion schemes shall be primarily sold for export. In the event that such goods are sold in the com­munity, the goods attract the full duties, levies and other charges provided for in the common external tariff. The sale of these goods within the Customs Union is subject to the authorization by a com­petent authority, and such sales will be limited to 20% of the annual production of the company.

Other export promotion schemes provided for in the Protocol in­clude:

a) Duty drawback scheme
Upon the exportation of goods to a foreign country, the drawback of import duties may be allowed in such amounts and on conditions prescribed in the Protocol.


b) Duty and VAT remission schemes
Partner States agreed to support export promotion by facilitating duty and value added tax (VAT) remission schemes. (Refer: EAC Duty Remission Regulations)


c) Manufacturing under bond schemes
This scheme allows imported goods to be used within the EAC territory for processing or manufacture. Duty and taxes are subse­quently payable on compensating products at the rate of import duty appropriate to them. (Refer: Manufacture Under Bond)


d) Export processing zones
This scheme allows for the total relief from the payment of duty on imported goods used directly in the production of goods for export. Such firms are specifically authorized to carry out these activities in the zones.

The Protocol allows for the approval of other export promotion schemes that may be deemed necessary. (Refer: Export Processing Zone Regulations)


SPECIAL ECONOMIC ZONES

Freeports
The protocol provides that Partner states may provide for the estab­lishment of freeports for the purpose of facilitating and promoting international trade and accelerating development within the Customs Union. Functions of the freeports are provided.

The provisions further state that goods entering a freeport shall be granted total relief of duty and any other import levies except where the goods are removed from the freeport for home use. An authority to manage freeports will be established.

The Protocol further provides for the establishment of other special economic arrangements for purposes of development of the econo­mies of the Partner States. (Refer: Freeport Operations Regulations)

EXEMPTION REGIMES

Partner States have agreed to harmonize their exemption regimes in respect of goods that are excluded from the payment of import duties. A harmonized list of exemption regimes was adopted as specified in the Customs law of the Community.

GENERAL PROVISIONS

Among these include:

a) The Customs Union shall be administered by the Customs law of the community

b) The Council shall approve measures to address imbalances that may arise from the establishment of the Customs Union

c) Necessary safe guard measures shall be taken in the event of serious injury occurring to the economy of a Partner State

d) Partner States shall honour their commitments in respect of multilateral and international organisations to which they belong.

CUSTOMS LAW OF THE COMMUNITY

The Protocol expounds on what constitutes the Customs Law of the Community and provides that the Customs Law shall apply uniformly in the Customs Union.

DISPUTE SETTLEMENT

Partner States affirmed their adherence to the principles for the administration and management of disputes. Annex IX provides the EAC Customs Union Dispute Settlement mechanism. (Refer: Dispute Settlement)

AMENDMENT OF THE PROTOCOL

The Protocol provides for its amendment by the Partner States in accordance with the provisions of Article 150 of the Treaty.

ANNEXES TO THE PROTOCOL

Annex I: EAC CET

Annex II: Internal Tariff Elimination schedule

Annex III: EAC Rules of Origin

Annex IV:  EAC Anti Dumping Regulations

Annex V: Subsidies and Countervailing measures Regulations

Annex VI: Safeguard Measures Regulations

Annex VII: EPZ regulations

Annex VIII: Free Port Operations Regulations

Annex IX: Dispute Settlement Mechanism Regula­tions.

PROGRESS OF IMPLEMENTATION OF THE CUSTOMS UNION BY THE DIRECTORATE OF CUTOMS

The Directorate of Customs derives its mandate from Sections 3 and 4 of the East African Customs Management Act 2004. The directorate is mainly responsible for initiation of policies on Customs and related trade matters in the Community and the coordination of such policies in the Partner States. The following are the Directorate's achievements:

1. Administration of the Common External Tariff (CET)

The EAC Common External Tariff (CET) is based on the international classification of goods also known as the Harmonized System (HS). In line with World Customs Organization (WCO) changes to the Harmonized System (HS), the EAC CET was also updated and the EAC CET Version 2007 adopted. Implementation of the 2007 version commenced on 1st July 2007. Internationally, amendments to the HS arose from changes in technology, patterns of international trade and environmental concerns which result in creation and/or deletion of some tariff lines.

In an effort to ensure that the EAC CET as a tariff policy support the objectives of liberalizing intra-regional trade in goods and promoting efficiency in production within the Community, the Council, in exercises of powers conferred by article 13 of the Protocol reviewed CET rates on some of the tariff lines as shown in Table 1 below. The review was based on recommendations from research and analysis undertaken by the Secretariat and experts from Partner States to analyze demand, production capacity, potential supply in the region and price competitiveness.


Table 1: Selected products where the CET rate has been reviewed

S/N

Tariff line

Change to the EAC CET

1.

4805.50.00
Felt materials

CET rate was reduced from to 25% to 10% because it is an input for the manufacture of oil and air filters for motor vehicles.

2.

5911.32.00
Textile fabric and felts, of a kind used in paper making machines.

CET rate was reduced from 10% to 0% because it these are parts of paper making machines and are used by a local paper manufacturer.

3.

6804.10.00
Millstones and grindstones for milling, grinding or pulping.

CET rate was reduced from 25% to 0% because these are inputs used in the paper making industry.

4.

Heading 7415
screws, bolts, nuts, washers and other articles

CET rate was reduced to 10% to bring the rate of screws bolts, nuts and washers of copper attract to attract the same duty as those made from steel.

5.

HS Codes 8517.11.00
(Line telephone sets with Cordless handsets) and

8517.12.00.

(Telephones for cellular networks or for other wireless networks)

CET rate was harmonized at 10% for both tariff lines in order to support the ICT policy and development of the telecommunications industry.

6.

Hs. Code 1511.90.20
Palm stearin, fractions

CET was increased from 0% to 10% because these are intermediary products and not raw materials

7.

Hs. Codes 2833.19.00
for Sodium sulphate and

2833.22.00
for Aluminium sulphate

CET rate was increased from 0% to 10% because these products are available in the region

8.

Various articles under Heading 72.16 (Iron and steel)

CET rate was reduced from 10% to 0% because these vital inputs for the construction sector

9.

Hs. Code 8201.30.00
Hand hoes

CET rate was increased from 0% to 10% because they are locally manufactured in the region

10.

Hs. Code 2523.29.00
Portland cement

This product is regarded as sensitive and therefore attracted rates above 25%. TheCET rate was reduced from 40% 25% because of the shortages that the region was experiencing.

11

Hs. Codes 8443.31.00 and
8443.32.00
Machines which perform two or more of the functions of printing, copying or facsimile transmission, capable of connecting to an automatic data processing machine or to a network

The CET rate was reduced to support the regional policy for the growth of the ICT sector

12

Hs Code 8517.69.00
Other apparatus for transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network)

The CET rate was reduced to support the regional policy for the growth of the ICT sector


2. Internal Tariff Elimination Programme

The programme of elimination of internal tariffs has progressed well since its implementation in 2005. The third round of the elimination of internal tariffs was effected in 1st January 2007. Since implementation of this round, the 426 products in Uganda’s offer to Kenya now attract duty rate of 6% when the goods are imported from Kenya. In the case of goods imported into Tanzania from Kenya, 146 items attract 15%, 15 attract 9%, 20 attract 6%, and 516 attract 3%, 112 products attract 1% and 54 products have moved to 0%. The Directorate continued to monitor its application and to provide the necessary guidance. In January 2008, the tariff were further reduced as indicated in Table 2 below.


Table 2: Five Year Internal Tariff Elimination

Year

UGANDA

TANZANIA

426

146

15

20

516

112

54

2005

10%

25%

15%

10%

5%

3%

2%

2006

8%

20%

12%

8%

4%

2%

1%

2007

6%

15%

9%

6%

3%

1%

0%

2008

4%

10%

6%

4%

2%

0%

0%

2009

1%

5%

3%

2%

1%

0%

0%

2010

0 %

0 %

0 %

0 %

0 %

0%

0%

 

3. Enforcement of the Customs law of the Community

Implementation of the East African Community Customs Act and Regulations continued without difficulties in Kenya, Uganda and Tanzania. With coordination of the Directorate, the process of review of provisions to make them more trade facilitating commenced. The purpose of the review is to improve the law so that it is more responsive to the environment in which it applies. The provisions that were reviewed include section 24 which is intended to reduce port congestion by requiring the master of a vessel to submit manifest at least twenty four hours before arrival. Other sections are generally introducing flexibility in various processes, for example, section 42 on notice of customs auctions which may be advertised in newspapers instead of a gazzette whose circulation is limited. Other sections are intended to facilitate clearance through the use of Information Technology, and others to allow the Commissioner to exercise discretion. The proposed provisions have been approved by the Attorneys General, and are awaiting approval by the Council for submission to the East African Legislative Assembly.

During the period under review, Duty Remission Regulations were finalized and gazetted for implementation by the Partner States. A number of manufacturers were also gazetted vide various legal notices to enable them to utilize the EAC investment incentive schemes.


4. Trade facilitation as provided for in Article 6 of the Protocol

Among other provisions, Article 6 provides that Partner States shall regularly review the procedures adopted in international trade and transport facilitation with a view to simplifying and adopting them for use by the Partner States. In addition, the simplification and harmonization of customs and processes is inbuilt in the EACCMA and regulations. In this regard therefore, the Directorate supported by the ADB/World Bank funded project commenced development of harmonized and simplified Customs procedures. Consultations between Partner States’ customs experts on simplification and harmonization of customs procedures were held during the year and proposals for review of the procedures were made. With the African Development Bank support, a consultant will be procured in the course of the next financial year to assist in the development of simplified business processes and a simplified Customs procedures manual.


5. Administration of the Rules of Origin

Implementation of the EAC Rules of Origin commenced on 1st July 2007. Prior to commencement, the Directorate of Customs carried out training on the EAC Rules targeted mainly at Customs officials, Government officials, Clearing agents, and exporters.

In order to facilitate cross border trade, the EAC developed a simplified EAC Certificate of origin to be used by small scale cross border trades. In the period under review, lists of common traded goods for the small scale border traders were exchanged among Partner States to further ensure speedy clearance of these goods. In carrying out its coordination role, the Directorate of Customs also circulated names and specimen signatures of authorized signatories to the EAC Certificates. Copies of the EAC certificate of Origin were also made available to Partner States, and printing of subsequent certificates will now be undertaken by the Partner States.

In the same period, the Directorate of Customs coordinated meetings of Rules of Origin experts to commence review of the Change in Tariff Heading (CTH) criterion as directed by the Council of Ministers. Substantial progress has been achieved in the review. To clearly define workings and processes in complex areas, sectoral analysis will be undertaken for example Chapters 87 and 39 of the harmonized system.


6. Compilation and dissemination of trade statistics

The directorate of Customs participated in preparation of the EAC Trade reports as indicated under the report from the Directorate of trade. The trade reports provide an analysis of performance of revenue, investment and intra EAC trade and trade with the rest of the world.


7. Application and interfacing of information technology in Customs administration

During the financial year, the Directorate of Customs held consultations with Partner States Customs administrations to push forward the interconnectivity of Customs Systems in the Union. The Directorate also commenced the procurement of consultancy services to assist in the identification of a suitable system for interconnectivity of customs systems. The objective of the consultancy shall be to develop an Integrated Regional Customs ICT Interconnectivity for the EAC in line with international best practice and to create a flexible solution that will enable seamless flow and exchange of information irrespective of the various customs systems being used in the Union.


8. Training in Customs related matters

To strengthen the human resource capacity in the region, the Directorate undertook a number of activities in this area. A summary of these activities is given here below:

i) Harmonization of Customs Curriculum
During the year under review, the Directorate of customs in collaboration with training experts from the Partner States prepared a draft harmonized Customs Curriculum. The curriculum when complete will be used by customs administration to train customs officers. In order to help the experts to refine the curriculum, develop a training strategy and draw an implementation roadmap, the Directorate received funding to procure a consultant for this purpose.

ii) Sensitization of Rwanda and Burundi.
During the period, a lot of attention was focused on Rwanda and Burundi who are expected to commence implementation of the Customs Union in July 2009. Consultations were held with key stakeholders including top and middle management of the Ministries of Finance and customs in Rwanda and Burundi to agree on a plan of action and prepare a roadmap to guide the implementation process. Some of the key activities that were undertaken include training and sensitization workshops. Meetings were also held with representatives of private sector organizations to discuss and explain the key changes that should be expected in July 2009.

iii) Training and Sensitization programs
The Directorate of Customs organized training workshops for customs officials and private sector practitioners in the Partner States to discuss key technical aspects and instruments of the Customs Union. Participants were drawn from the Revenue Authorities, Ministries of Finance, and Trade private sector Organizations. Sensitization workshops were held for farmers and other stakeholders in Kenya Uganda and Tanzania.


9. Quality control in Customs operations and enforcement of compliance

The process of developing regulations on suppression, investigation and prevention of Customs offences commenced with support from experts of the Partner States. A draft was prepared. Funding has been secured from African Development Bank to enable the Directorate finalize the regulations with the use of a consultant with expertise in this area.


10. Customs related negotiations

In November 2007, the EAC and EC initialed a Framework on Economic Partnership Agreement (FEPA) in Kampala Uganda. Attached to the FEPA was the market access offer indicating the tariff phase down based on the EAC CET. On scrutiny by the Partner States and EC, it was observed that the market access contained errors and omissions that needed to be corrected before final endorsement and signing by the parties. The Directorate coordinated the process of reviewing and correcting all the errors and omissions in the market access offer and eventual finalization of the offer. The final market access offer was approved by the technical officials of the EC and EAC and is awaiting final signature.


11. Activities of the Commissioners in the implementation of the EAC Customs Management Act (CMA).

The EAC Customs Management Act (CMA) under Section 4 provides for the establishment of a Committee charged with facilitating the Directorate's formulation of policies and programmes on Customs management and administration, exchange of information between the Directorate and the Commissioners; and any other matters on working arrangements between the Directorate and the Customs. Accordingly, the Committee on Customs was established and it is composed of Commissioner Generals of the Revenue Authorities, Commissioners of Customs and Ministries of Finance. Meetings of this committee were coordinated and various progress reports on activities of the Directorate considered and adopted for consideration by the Sectoral Council on Trade, Finance, Industry and Investment. Regulations to guide the working relationship between the Director of Customs and Partner States Customs Administrations were completed.