17 September 2012

East Africa: Single Customs Territory Delayed

Arusha — Although it is meant to make it faster to clear goods and reduce on the cost of doing business, members of the East African Business Council (EABC) will have to wait longer than expected for the region to attain a single customs territory.

A high level task force has been formed on the single customs territory and is expected to submit a report to the 14th Heads of State Summit by November this year about one and half-month to come.

However the major deliverable in the report by the task force is to develop pre-conditions' for the destination model of clearance of goods where assessment and collection of revenue is done at a first point of entry.

But this is not all for the full implementation of a single customs territory under the Customs Union protocol.

A report presented by the EABC consultant working with Nairobi based Ameyogutoetole and Company Advocates Mr. Dan Ameyo said while implementation of the Protocol and its annexes has been steady over the transitional period, a single customs Territory in a fully fledged customs union has not been attained due to lack of strong institutional and legal framework.

He says people of East Africa should start thinking as a region and not country since it is crucial to the attainment of a single customs territory, and is going to be crucial to the success or failure of the EAC Customs Union.

Ameyo notes regional integration is a deeply political process and the implementation of a single customs territory has important political aspects.

"Regional integration in general and the realization of a single customs territory in particular, will be achieved when the states and the elected leaders show leadership often against fierce domestic resistance," he stressed at a two day regional private sector consultative workshop on attainment of single customs territory organised by the East African Business Council (EABC) held last week at East Africa hotel in Arusha, Tanzania.

The objective of the meeting was to sensitize the business community and consolidate their views on the attainment of the singe customs territory with a view of providing input to the on-going preparatory meetings of the high level task force on the territory at the New Arusha hotel in Arusha, Tanzania.

The task force that was launched by the EAC on September 3, is expected to provide a progressive report on the territory for submission to the 14th Ordinary Heads of State Summit to be held in November this year.

Ameyo criticized the multi-membership of the EAC partner states saying that it is to dilute the common external tariff.

He explained Burundi is a member of COMESA, COMESA FTA, EAC, and ECCAS, Kenya is a member of COMESA, COMESA FTA, EAC and IGAD, Rwanda is a member of COMESA, COMESA FTA, EAC and ECCAS, Tanzania is a member of SADC, EAC while Uganda is a member of COMESA, EAC and IGAD.

"Implications of this membership is that it is costly to organizations and members in terms of financial and human resources, it breeds conflicts in jurisdiction and policies and results into legal uncertainties where more than one agreement applies," he said.

Ameyo observed it is technically and legally impossible for a country to apply two different common external tariffs (CETs) and therefore be a member of two customs Unions.

"Whenever one member of the Customs Union negotiates a trading arrangement with another country, the whole group must bear the costs of administering several trades within the same Customs Union," he said adding that members of the various groupings must maintain border posts to enforce rules of origin meant to prevent preferential trade from entering the countries that are not party to the agreement.

He noted free circulation of goods in a single customs territory presupposes a revenue collection system that ensures reconciliation and accountability to enable goods to move from one place to the other.

Others include cessation of rules of origin, minimal or removal of internal border controls, improved information technology interconnectivity and exchange of information between agencies involved in clearance of goods and collection of taxes;

Partner states also have to shift the domestic taxation on imports at the time of entry of goods to the point of sale in the importing state and that strict bond controls are uncalled for among others.

Ameyo warned that possible disadvantages difficulty in collection of domestic taxes on cross border trade, encourage dumping and other unfair trade practices and that goods may be declared to be consumed at the destination but end up being introduced to the domestic markets of other countries;

He added free circulation could also overload capacities of partner states with sea ports as they would be required to clear the bulk of goods entering the Customs Union leading to the loss of import revenues.

He advised that partner states must have inter-connectivity of customs systems in the region to facilitate seamless flow of information between customs stations and standardize data structures.

However President of the Federation of East African Freight Forwarders Association (FEAFFA) Mr. John Bosco Rasagara said Dar and Mombasa ports are facing congestion and continuous internet break downs especially at the Kenya and Tanzania revenue authorities which limits both business and consumption.

"As such the notion of a single entry is akin to a flickering light that needs efforts to illuminate," he said.

Mr. Ameyo explained partner states need to put in place payment systems to manage transfers of revenues between states and an independent audit system for early detection of deviations to the protocol

He advised that partner states must have laws to authorize acceptance of electronic information as evidence for transactions, a centralized bond guarantee system and operational single window borders including a centralized customs administration.

Mr. Rusagara added customs revenue collection by member states remains decentralized and no attempt whatsoever is in place to institute a centralized system.

Mr. Ameyo also identified the main sources of non-tariff barriers in intra-regional trade to include disharmonized laws governing trade, non customs state agencies involved in clearance of goods, absence of a mechanism to harmonize laws and lack of an institution to sanction partner states over NTBs outside the court.

"The future success of EAC single customs territory can only be guaranteed if the region has got institutions that protect integration vision, and able to drive the territory even when political will-power fails nationally," he noted.

He advised that EAC implements the remaining aspects of the protocol so as to realism the gains of a fully fledged Customs Union

"The three regional economic communities negotiate applicable rules of origin to govern trade between them and that the negotiated rules are applicable on first entry of goods into the Customs Union," he said. He said that in the short run, partner states continue assessing their own revenue but goods be released only once at the time of first entry into the customs union and that pooling of revenue be stayed at the moment.

Considering the current level of integration EAC, the region harmonizes domestic taxes on goods through adopting common domestic laws, procedures, codes structures and definitions, incentive regimes, minimum and maximum tax rates in the short run with a view to adopting common rates in the long run.

Domestic taxes on goods such as excise and VAT be in the case of imported goods, collected on first entry of goods into the customs territory and in the case of goods transferred from a partner state to another, be remitted prior to those goods being released while collection of withholding tax at the port of importation is ceased.

Private Sector Foundation Uganda (PSFU) policy director Moses Ogwal proposed that the EABC should draw up an implementation plan for solving the identified problems hindering the attainment of the territory.

Programme Officer at the Eastern Africa Farmers Federation Shem Mecheo appealed to the East African Legislative Assembly (EALA) to put in place punitive measures and a time frame for the removal of non-tariff barriers by the partner states.

However Uganda chairman for the non-tariff barrier's committee Kassim Omar raised the issue of employment saying that some people will lose jobs when a single clearance of goods is implemented.

"How do we address unemployment, in addition more non-tariff barriers are being experienced at ports of entry at Mombasa where four years ago there were only four charges but have been increased to 19 arbitrary charges," he said.

"Have the respective member states addressed the avalanche of layoffs of labour and revenue collection, the ICD's, customs bonded ware houses that risk sudden closure," asked Mr. Rusagara who is also the chief executive officer of INTRA SPEED based in Kigali, Rwanda.

A consultant for Rwanda Private Sector Federation Mr. John Bosco Kanyagoga added Mombasa and Dar ports are still treated as national ports despite the integration agenda.

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