Business Daily (Nairobi)
George Omondi
12 November 2009
East Africans will have to wait until July next year to start enjoying the fruits of the common market, trade experts said, citing the turbulent path of ratification that the protocol establishing it has to go through in each member state.
Expectation has been high that the common market, due to be officially launched in January, would bear fruits with the immediate opening of national borders to allow the free movement of goods and services.
But in a twist that may keep business waiting for the fruits of integration till July next year, senior government officials said the signing of the common market protocol later this month will only have the effect of taking the work from the hands of the technical team that has been crafting it to the secretariat to kick-start the political process of its adoption by national governments.
"The secretariat is expected to send the signed protocol to national governments for ratification according to their national laws," David Nalo, the permanent secretary in the Ministry of East African Cooperation, said at a press briefing on Wednesday.
Each member state has different procedures for adopting changes of constitutional nature into their national laws.
In Kenya, for instance, the government must refer the document to the National Assembly and may also seek public endorsement through a national referendum.
Member states will have six months to ratify the common market protocol after its signing by the heads of state.
That makes July 1 the earliest date by which East Africans could enjoy the fruits of the common market.
Though the business community may see that time frame as pull-back on the journey to closer integration, trade experts said the six month window would be critical to countries like Rwanda and Burundi that have been running a crash integration programme since they joined the bloc two years ago.
The two countries were admitted to the EAC in July 2007 - seven years after Kenya, Tanzania and Uganda revived the integration project - on condition that the proceed at the same pace as other member states.
"While the region has a defined roadmap for incorporating the two, Rwanda has proved that it can run with the old boys and is even ahead," said Mr Nalo.
Kigali's interest in the integration project is seen to be driven by the hope that it will help Rwanda address the human resource challenges to its economy.
Unlike the three founder members that are English speaking, Rwanda and Burundi speak French adding language barrier to the many challenges they have with the integration project.
Even more challenging has been the fact that EAC is gearing up for a common currency at a time when the new entrants are still propping up their institutions to bring them to a level where they could integrate with their counterparts in key areas of revenue collection, movement of capital and monetary policy management.
A recent study commissioned by the EAC secretariat to evaluate the impact of the customs union indicates that Burundi is the only member state that lost revenue with its entry into the customs union.
Motorists, especially long distance haulers also hope that Rwanda, the only EAC member state that "keeps right" on its roads will have harmonised its traffic regulations with the rest.
The six month period also offers national governments an opportunity to review bilateral agreements they have signed with non EAC states and stimulate mass production to satisfy local demand.
Rapid inflow of products that can be produced locally has been a frequent source of friction among member states since the launch of the customs union in 2005.
That has raised doubts over the community's preparedness for intense intra regional trade under the common market regime.
Economic experts reckon that the fact that the business community still prefers imports from outside the bloc points to a possible erosion of the benefits of a common market.
EAC trade data indicates that importation of products already designated as sensitive has continued to grow hitting the 96 per cent mark last year.
Used clothing, primary cells and rice top the list of the sensitive products imported last year.
"Rising cases of requests for a stay in the application of the CET are bound to distort trade and encourage smuggling in the free trade area," said Dr Evarist Mugisa, a trade economist.
East Africa has designated as sensitive all goods and services that can be produced internally and whose importation is restricted by common external tariffs (CET) of more than 25 per cent. EAC has designated 58 products as sensitive.
The list includes barley and malt, sugar, wheat, textile, maize, and rice.
But Kenya, fearing trade reprisals from Pakistan, a major importer of its tea - has succeeded in getting the Council of Ministers' approval of a bilateral agreement that allows it to import rice from Pakistan at a much lower tariff than the 75 per cent recommended under the CET.
Two successive crop failures have also forced Kenya to zero rate maize imports instead of levying the CET rate of 50 per cent.
The move came after Tanzania banned maize exports to neighbouring states in October last year.
Tanzania has also succeeded in pushing for the inclusion of yarn in the list of sensitive products despite the fact that it is not in a position to produce enough yarn to satisfy demand from Kenya's textile industry.
Last week, the Council of Ministers accented to the Draft Agreement on Avoidance of Double Taxation (DTA), another prickly issue that national governments may enter the common market without resolving.
Private sector firms - the main thrust behind the DTA - want member states to stop levying income and other forms of taxes on their branches once the country of establishment has levied similar taxes.
Finance ministers have however only adopted fixed rates for withholding tax at five per cent on dividends, and 10 per cent on interest, royalties, management and professional fees under the DTA and agreed that Partner States should not negotiate with Third Parties rates lower than those in the EAC DTA.
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