3 December 2007

East Africa: New EU Trade Deal Tips EAC Industries

Nairobi — East African Community (EAC) states signed an interim trade pact with the European Union (EU) last week in Uganda to allow trade in key export sectors of fisheries, dairy products, horticulture among others duty-free entry into Europe.

The deal allows East African industries a grace period of 25 years within which to grow their industries before opening up to industrial goods from Europe. It also promises lavish aid for trade assistance to help East African industrialists grow their small industries.

The two parties concluded negotiations on the framework agreement, which will guarantee duty free and quota free access to the EU market of goods exported by EAC states with the only significant transition arrangements being for sugar and rice.

"This is a truly historic day as it is the first international agreement concluded by the EAC as a bloc, as well as the first trade agreement concluded by the EU with another customs union," said Mr. Harvey Rouse, the European delegation's head of trade, based in Nairobi.

The agreement includes a simplification of rules of origin for apparel products. Clothing companies established in the EAC will be able to source fabrics from all over the world and export their products to the EU free of duties and with no quota restrictions.

The agreement is a first step towards an Economic Partnership Agreement (EPA), which the EU says will establish what it calls a strategic trade and development partnership to promote regional integration and also the integration of the EAC in the global economy.

EU Trade Commissioner Mr. Pater Mandelson described the deal as good news for the countries of the East African Community.

Kenyan industrialists hailed the signing of the trade accord, saying it was important that trade between the EAC and the EU continues into the year 2008.

"The government has demonstrated strong leadership throughout the negotiation period in ensuring that the country gets a deal despite all odds and last-minute hitches and challenges from the EAC neighbours," said Kenya Association of Manufacturers (KAM) Vice Chairman, Mr. Vimal Shah.

The negotiations will continue next year, with a view to concluding a comprehensive EPA not later than July 2009.

The EU said in order to ensure that the agreement complies with both Parties' commitments in the World Trade Organisation (WTO), the EAC will also gradually open their markets to goods from the European Union over a period of 25 years.

After 15 years, 80% of the exports from the EU will enter the EAC market duty free. This covers mainly industrial inputs and capital goods. About one fifth of EAC trade will be completely excluded from any market liberalisation requirements, the EU said.

Rouse said the deal fosters structural transformation of the industries in the region to improve their competitiveness while also increasing production.

East African producers have previously slammed the EU for blocking imports from African countries, especially if they are packaged as finished products.

Africa's increasing poverty, especially among coffee and tea farmers has been attributed to the export of raw materials which are then processed in Europe and re-exported to Africa as finished products with prices above the reach of African consumers.

The European Commission is providing a Euros 3 billion kitty to increase industrial productivity in Africa.

At the signing, the European Community was represented by Ambassador Vincent de Visscher, head of the Uganda Delegation of the European Commission while EAC partner states were represented by respective ministers for trade and the EAC Secretary General Ambassador Juma Mwapachu.

The deal however came amid complaints from the civil society, who claimed the European Commission had used "arm-twisting tactics" to force Kenya and the other four EAC states of Uganda, Tanzania, Rwanda and Burundi to sign the pact.

Addressing a news conference in Nairobi last Friday, Mr. Peter Aoga of EcoNews Africa, a trade watchdog, said the EC imposed conditionalities on African negotiators, including linking the funding of development projects to signing of the pact.

"Dirty tactics including things like withdrawing civil-society organization from the debate, threatening to hike tariffs on imports into the EU unless Africa signed the Economic Partnership Agreement (EPA) all influenced the process negatively," he said.

Burundi and Rwanda have a two-year break effective January 2008 to allow them implement the EAC common taxation regime, which includes zero tax for all raw materials, 10% tax on semi-processed goods and 25% for finished industrial goods.

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