EAC Customs Union Achievements and Challenges Kenneth Bagamuhunda

EAC Customs Union: Achievements and Challenges Kenneth Bagamuhunda Director Customs

Scope of Presentation Theory and Scope of Regional Integration and CU Background and objectives of EAC CU Legal and institutional Framework Implementation Mechanism Achievements Challenges

Theory and Scope of CU is stage of Regional Integration process CU is conceptualised as a key pillar of Regional Economic Integration RI is a phenomenon that eludes specific definition and this state of ambiguity is echoed by various scholars of RI Some define RI as ◦ “a form of collective action among countries to attain a certain goal” (Feng and Genna, 2003) ◦ ‘any policy designed to reduce trade barriers between a subset of countries, regardless of whether those countries are actually contiguous or even close to each other’ Winters 2003

◦ portrayed in the context of geographical proximity and this may explain the usage of the terms ‘trading blocs’ Theory and Scope of CU ◦ a series of voluntary decisions by previously sovereign states to remove barriers to the mutual exchange of goods, services, capital, or persons’ (Smith, 1993). Regional integration have been explained under the economic and political disciplines

Stages of RI

Theory of CU What is a Customs Union? A legally binding voluntary commitment/ agreement of cooperation by neighboring countries to dismantle trade barriers amongst themselves and adopt harmonized trade regimes amongst themselves and apply common trade regimes to third parties

Surge of RI Initiatives There has been a surge of Regional Integration Agreements since 1990 s. as of 15 May 2011, some 489 RTAs, had been notified to the GATT/WTO. ◦ 358 RTAs were notified under Article XXIV of the GATT 1947 or GATT 1994; ◦ 36 under the Enabling Clause; and ◦ 95 under Article V of the GATS. ◦ At that same date, 297 agreements were in force

Background and objectives of EAC CU History of EAC integration stretches back to 1900 when a single customs collection point at Mombasa for Kenya and Uganda A CU was established in 1917 which was later joined by then Tanganyika in 1919

Background EAC integration is among the oldest initiatives in Africa dating back to the beginning of the 20 th Century Collapsed in 1977 due some factors Cooperation was rekindled in mid 1990 s through a cooperation agreement The Agreement was upgraded into a Treaty that came into force in 2000 Scope of cooperation covers economic, social, cultural and political areas Degree of integration is progressive with Customs Union (CU) as the entry point followed by Common Market (CM), Monetary Union (EAMU) and Political Federation (PF)

The EAC CU Provided in the Treaty that EAC will establish a Customs union as the first stage of integration followed by a Common Market, subsequently a Monetary Union and ultimately a Political federation A Protocol establishing the Customs Union is part of the Treaty and was negotiated in 4 years commenced on 1 st January 2005

Objectives of EAC CU liberalization and promotion of Intra EAC trade for mutual benefit of all Enhance production efficiency Promote domestic, cross-border and foreign investment Industrial diversification – import substitution leading to Economic development

Expectations § § § § Create more trade (trade creation) Promote production and consumption of locally manufactured goods (Import substitution) welfare gains – price reduction and stability greater opportunity to exploit economies of scale lock-in effects of economic reforms thrust for economic growth promoting competition and economic efficiency, and promoting regional integration into the global economy

Legal and Institutional Framework of the EAC CU The customs Union is administered under the customs law of the Community comprised of: § § § Relevant provisions of the Treaty Regulations and directives made by the Council Acts of the Community enacted by the Assembly Decisions made by the EAC Court of Justice Relevant provisions of the international law

Institutional Framework of CU Specifically the administration of the CU is provided for in the: EAC Customs Management Act EAC Customs Regulations Decisions and directives of the Council

Implementation Decentralized framework with the centre at Arusha in the transitional period of 5 years Structures 1. The Council 2. The committee on Customs 3. Directorate of Customs 4. The Customs/Revenue Authorities

Implementation of the CU Adoption of the Common External Tariff with three tariff bands of 0%, 10% and 25% Sensitive rates on specific products Internal Tariff elimination Common Rules of Origin Common Customs law- EAC CMA Common Competition policy Common SQMT Law and Protocol

Implementation Adopted a mechanism for elimination of NTBs In process of operationalization a trade dispute settlement system Established a regional legislative body which enacts necessary laws Have in place an active regional court that deals with matters relating to implementation of the Treaty Development of private sector linkages, organisation and participation at the regional level In process of establishing a Single Customs Territory as a strategic initiative to consolidate the CU Project to interconnect customs systems is on-going Building supranational institutions to drive the integration process Extra EAC trade cooperation under the COMESA-EAC and SADC Tripartite FTA, EPA with EU, TIFA with US and trade cooperation with China

Achievements Trade performance Total intra- trade grew from $1. 6 billion in 2005 to $3. 8 billion in 2010 which is more than 100% increase. Percentage of intra trade to total trade has increased from 7. 8% in 2006 to 11. 4% in 2010 Total EAC exports grew from $6. 4 billion in 2006 to 11. 1 billion in 2010 hence 73% increase Intra EAC exports to total exports was 20. 2% in 2010 compared to 14% in 2006 Intra EAC imports to total imports averages to 5% Cross border investment and FDI

Revenue perfomance Revenue and Investment Average total revenue growth in the 5 partner states was 11% in 2010 compared to 2009 The overall growth in revenue since 2006 for the first three states of the EAC has grown by 42% Rwanda and Burundi's revenue has grown by 20% between 2008 and 2010 The Revenue/ GDP ratio has stagnated over the period in all the partner States between Kenya at 22%, Tanzania 18%, Uganda and Rwanda at 12. 5%

Investment In 2009, EAC attracted total FDI of US$ 3, 732 million which was 2% of Africa’s total FDI inflows Uganda, Tanzania and Rwanda have been registering growth in FDI inflows over the last 5 years FDIs accounted for 61%, local investment 36% and portfolio investment at 3% in 2009 investment has been in capital intensive sectors such as oil exploration, mining and telecommunication Banking and Insurance has also attracted both Foreign and cross border investment.

Challenges Attainment of free circulation of goods is hampered by retention of internal borders Some key tax and trade related regimes and policies are not yet harmonised Multiple membership which may create grounds for trade deflection Limited awareness NTBS Dependency on Customs taxes as source of revenue

Challenges Inter governmentalism approach vs supra nationalism Interconnectedness between the centre and the executing level is weak Weak regional institutional mandate to drive the regional programmes