Tanzania has blocked preferential access for Kenyan textile goods manufactured outside the Export Processing Zone (EPZ), citing unfair competition for its own manufacturers.
"This is informed by the fact that Kenya has allowed textile and apparel manufactures operating in the EPZ to off load their final textile products in the Kenyan market duty free," Tanzania stated in a communiqué from a joint meeting on September 2 in Dar-es-Salaam to iron out trade wrangles between the two countries.
"This in effect may hinder similar products from Tanzania from being competitive when sold in the Kenyan market."
Kenya in May cleared firms operating in its EPZs to sell up to an expanded 40 per cent of their products in the local market as part of strategy to boost sales and help prop the struggling industry.
The EPZ firms were initially only allowed to sell 20 per cent of their products in the Kenyan market with the rest sold under the African Growth and Opportunity Act (Agoa) -- a trade pact that allows US buyers to import goods from a number of sub-Saharan African countries without paying taxes.
The gesture has, however, sparked a trade spat between the two countries amid concern that the Kenya's expanded domestic market sales quota for EPZ firms could lead to dumping of products in the Tanzanian market.
"Tanzania is not according preferential treatment to Kenya because it is now enjoying a stay of application for textiles and footwear. Moreover, 96 per cent of textile produced in Kenya is sold under AGOA market and thus the mechanism for monitoring such export is difficult" Tanzania stated in the communiqué.
According to the document, Kenya raised concern that textile and apparel goods manufactured outside its EPZs were being denied preferential access to the Tanzanian market despite provisions of Legal Notice No.84 OF 2017 by the East African Community (EAC).
Tanzania nonetheless argued that as per the Legal Notice, Kenya was granted a stay of application of the common external tariff (CET) rate on garments and leather footwear manufactured in the EPZ on the 20 per cent of the annual production allowed in the protocol to be sold within the domestic Kenyan market for one year, duty-free.
As a result the sale of these products in any of the EAC states is subject to duties, levies, and other charges provided in the CET when exported, Tanzania argued.
Kenya objected the assertions and requested Tanzania to grant access to her textile and apparel products as long as the Kenya Revenue Authority (KRA) issued a certificate of origin and a list of firms operating both within and outside the EPZ.
Tanzania stood its ground and undertook to audit Kenya's dual tax regime to ascertain the impact on her textile sector.