EAC NTBs Act Likely to Revitalise Regional Trade

The East African Community Legislative Assembly (EALA) recently passeda legislation to effectively eliminate non-tariff barriers to trade (NTBs) among East African Community (EAC) Partner States. Known as the East African Community Elimination of Non-Tariff Barriers Act, 2015, the law will likely contribute to increased intra-EAC trade once ratified nationally by each of the five EAC Partner States of Kenya, Burundi, Rwanda, Tanzania and Uganda. NTBs are partly to blame for the limited intra-EAC trade, estimated at US$ 5,805.6 million in 2013 according to data from the EAC Secretariat.

Historically, regional integration has led to increased trade over the years. Here in the EAC, the entry into force of theEAC Customs Union in 2005 saw the implementation of the Common External Tariff for goods imported into the region in three bands (0% for raw materials, capital goods, agricultural inputs etc.; 10% for intermediate goods and other essential industrial inputs;and 25% for finished products). Goods on the ‘sensitive list’, however, have higher tariffs applied,some as high as 75% as is the case with rice. By 2010, EAC Partner States agreed to eliminate all internal tariffs. Goods from any EAC Partner State are therefore meant to be charged 0% customs duty when traded with any of the other four Partner States.That is the good news.

The bad news is that with the fall of tariffs, NTBstend rise, with the impact of further restricting international trade. NTBs are trade-restrictivemeasures other than ordinary customs tariffs that States apply with the intention of restricting international trade in goods, and that usually have a negativeeconomic impact on the internationaltrade in the goods in question.NTBs often limit market access, changing the quantities of goods traded, or increasing the prices of goods. They come in various forms such as restrictive sanitary and environmental protection measures,import or export restrictions, price controls, arbitrary application of rules of origin and other trade-restrictive measures. States sometimes use NTBs as a way to shield local businesses from international competition. Unfortunately, this also takes place between States that are part of a Regional Economic Community like the EAC. Some studies have asserted that the impact of NTBson the final price of goods to consumers sometimes exceeds the impact of customs tariffs on the same goods.

Although there are no quantitative studies on the impact of NTBs in the region, the most recent Business Climate Index Survey in 2011 by the East African Business Council showed that business feel that NTBs have continued unabated in the EAC. Perhaps even worse, the general public seems to lack awareness of NTBs and their negative impact on the public’s general economic circumstances.Imagine for a minute that you are a commodity farmer in one of the EAC Partner States, large-scale or small-scale. You lease land, buy the necessary farm inputs, pay for labour, and have a bountiful harvest to show for all of your effort. Meanwhile, across the border, there is a prolonged drought and demand for your commodity is at its peak. As a producer, you could not have timed the market better. But your government suddenly bans the export of your commodity. Consequently, local market prices plunge. Across the border, consumer prices for your commodity are sky-high, but you have no access to that market. You lose as a supplier, and the consumer in the second Partner State loses out on reasonable prices dictated only by supply and demand in a trading environment that is conducive tocompetition. That is the economic and human toll caused by just one NTB.

The importance of theAct cannot be overstated.Itprovides the business community the opportunity to report NTBs and see to their final resolution through the formal channels of the EAC Secretariat, with a clearly defined elimination framework. Before that, businesses could report NTBs to their respective National Monitoring Committee (NMCs) representatives, who would in turn report them during the regional forums of NMCs, usually held on a quarterly basis, sometimes after longer intervals. The reported NTBs would then be inserted into the Time-Bound Matrix on the Elimination of NTBs. The matrix is a tool that was developed in 2007 to track reported NTBs and their elimination. However, one of its weaknesses is that resolution was strictly dependent on the political will of the concerned parties to eliminate reported NTBs, with no consequence for non-elimination, and no retribution for the aggrieved parties.

Additionally, although the matrix was meant to be ‘time-bound’, deadlines were regularly extended if no action was taken on reported NTBs. The most longstanding NTB in the matrix is Uganda’s restriction of beef imports from Kenya, in place since 1996. Most recently, a Ugandan company reported the restriction of supply of electric cables by a Kenyan parastatal, whose tendering procedures restricted bidding to Kenyan companies only. This is despite Article 13 of the Protocol establishing the EAC Customs Union, where Partner States bound themselves to remove all existing NTBs and refrain from introducing new ones. Currently, aggrieved parties may also report NTBs online through the tripartite-wide reporting system commonly owned and used by the EAC, the Common Market for Eastern and Southern Africa (COMESA), and the South African Development Community (SADC).

The recently passed NTBs Act therefore gives aggrieved parties the opportunity to pursue NTBs elimination to their conclusion, including compensation for affected parties on the financial loss suffered as a result of an NTB. It gives the EAC Council of Ministers the power to implement it. Once ratified, it takes precedence over EAC Partner State laws that may relate to NTBs issues. While the process under the new Act is long in that an NTB has to go through the NMCs and the EAC Secretariat all the way to the Council of Ministers, it does bring finality in resolving reported NTBs.

The next steps involve assent by the respective EAC Heads of State, and ratification by the national Parliaments of each of the EAC Partner State. Implementation is critical in any system governed by consensus, and the political will to enforce regulations aimed at easing trade barriers is gaining pace. In fact, the EAC Summit held in Nairobi in February 2014 issued a 30 July 2015 deadline for assent to all bills passed by the EALA. It is hoped that ratification and implementation of the Act will greatly benefit business by reducing the cost of doing business. Similarly, the trickle down beneficial effect will be felt by consumers when reduced business costs translate into reduced prices for goods. A regional trade environment that enhances competition is also likely to be more attractive to foreign investors, thereby creating jobs and further economic growth in the region.