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Challenges of the Customs Union

While the Customs Union is generating major benefits, it has also brought about greater competition among domestic firms. In the short run, the firms that stood to gain most were those that were already competitive. It is with this consideration that the principle of asymmetry was adopted in the phasing out of internal tariffs, in order to provide firms located in Uganda and Tanzania with an adjustment period of five years. Nevertheless, such firms have in the medium term overcome lack of competitiveness, through:

(a) additional investment in newer production technologies;

(b) specialization in activities where they have a competitive advantage;

(c) Re-training of human resources; and

(d) Forming strategic alliances with their competitors

Another implication of the Customs Union is that it is minimizing discretionary powers earlier enjoyed by Partner States, and which sometimes had created uneven playing ground for firms. Such powers, in particular, related to granting of exemptions from customs duties. The Partner States have undertaken harmonization of their exemption regimes which shall be administered regionally. In some cases, this has been viewed negatively as reduction of national sovereignty.

In view of the current global trend where trade negotiations are increasingly being carried out under regional blocs, formation of a Customs Union in East Africa was not a matter of choice but a necessity. It would have been difficult for Partner States to negotiate a Free Trade Area (FTA) with other regional blocs unless they had liberalized trade among themselves. Due to the multiple memberships of the Partner States in other regional organizations, the EAC Customs Union could enter into a FTA with other trading blocs, or in the extreme circumstance, merge with them to make a larger trading bloc.

It is worth noting that countries which on their own have strong competitive economies such as Germany, France and the United Kingdom are strong supporters of the European Union (EU), which is still expanding, taking on board former less developed countries of Eastern and Central Europe. The USA together with Canada and Mexico have come together under the North American Free Trade Agreement (NAFTA), and want to expand taking on board countries of Central and Latin America.  In Asia, the countries of South East Asia are revolving around Japan.  Therefore, it will be difficult for small countries such as those of Africa to negotiate with such giants on their own.

The process of regional integration as stipulated in the Treaty for the Establishment of the East Africa Community aims at creating opportunities for the East African people.  However, it will be difficult for the East Africans to realize such opportunities without deepening economic integration through formation of a Customs Union.  Therefore, formation of the EAC Customs Union is a necessary step towards translating provisions of the Treaty into economic opportunities for the East Africans.