KENYA: FREE TRADE IN EAC: FOCUS ON TRADE BETWEEN KENYA, UGANDA AND TANZANIA
Economic growth via free trade is the key to economic integration.
As the founding partners of the East African Community, Kenya Uganda and Tanzania signed the Protocol for the Establishment of the East African Community (EAC) Customs Union in 2004 (the Customs Protocol). Burundi and Rwanda adopted the Customs Protocol in 2007.
The integration of the EAC was intended to create a large market for trade due to the combined population and GDP of the member states. However, the existence of numerous non-tariff barriers even after the adoption of the Customs Protocol is one of the key factors that inhibit trade in the EAC. The non-tariff barriers continue to increase the cost of doing business in the region and have negatively impacted on trade and cooperation.
It has been argued that true economic integration in the EAC can only be achieved if the trading partners can eliminate the non-tariff barriers. It is for this reason why there is political goodwill among member states to commit to the elimination of non-tariff barriers.
Kenya – Tanzania trade relations
Tanzania exports products like soap, foodstuffs, cleansing and polishing preparations to the region, including Kenya. Kenya imports cereals, wood, and edible vegetables amongst other things from Tanzania.
The key non-tariff barriers experienced when trading between Kenya and Tanzania include lack of harmonization in working hours, delays at weighbridges, multiple police road blocks, licences for goods in transit, standards verification, entrance fees and grace periods, corrupt police and border officials.
In August 2021, the Republic of Kenya and the United Republic of Tanzania held the fourth session of the Joint Commission for Cooperation to strengthen and enhance trade between the two partner states. It was agreed at this session that of the 64 challenges raised regarding trade, both parties would commit to resolving 34 remaining issues before the end of December 2021.
The 30 non-tariff barriers resolved include customs clearance on soft drinks, removal of inspection fees on processed products with a standardization mark and the grant of preferential treatment to Tanzanian cement, Tanzania and Kenyan juice and wheat flour.
The elimination of the remaining barriers could, over time, increase trade between Kenya and Tanzania. This is because measures at the border such as multiple police road-blocks, requirements for multiple licences, and differences in working hours cumulatively delay movement and result in supply chain inefficiencies.
Kenya and Uganda trade relations
Uganda, amongst other things, exports coffee, tea, dairy products, mineral fuels, iron and steel into Kenya, while Kenya, amongst other things, exports plastics, minerals, pharmaceutical products and vehicles into Uganda.
Similar to the issues raised above, stakeholders in the trade industry have reported the multiplicity of weighbridges, traffic, poor infrastructure and border delays as key non-tariff barriers between Kenya and Uganda. For example, improvements to transport links may exponentially reduce travel time between Mombasa and Kampala, thereby increasing the number of inter-country trips for businesses.
A report prepared by the East African Research Fund in 2017 highlighted the impact of the elimination of non-tariff barriers on trade in the East African region. It was reported that removing non-tariff barriers could lead to an increase in Kenya and Uganda’s Gross Domestic Product by 0.5%.
A commitment by both governments to improve the road and rail infrastructure between the two partner states would go a long way towards eliminating their greatest challenge in economic integration. It is clear that this kind of political goodwill, evidenced by the Kenya-Tanzania relations, is needed between Kenya and Uganda in order for both countries to unlock regional trade.
Uganda and Tanzania trade relations
Uganda and Tanzania non-tariff trade barriers are no different to the ones in other member states. For example, businesses in Uganda have reported difficulties with certification processes when their goods arrive at the Tanzanian border. This is caused as a result of differences in procedures at the standardization bodies in the two countries. Other more entrenched non-tariff barriers include heavily bureaucratic customs documentation and transit traffic.
A large part of unlocking economic integration within the region, as highlighted above, is the improvement of transport links within the regional block. Uganda does not currently have a railway connection to Tanzania, which may lead to a decrease in transaction costs for businesses within the East African Community.
Uganda exports to Tanzania, amongst other things, iron and steel, cereals, cosmetic products and beverages. Tanzania on the other hand exports vehicles, paper, electronic equipment, and machinery. It is clear that the goods exported within the East African trading block are similar and would therefore benefit from the same treatment by eliminating non-tariff barriers.
The African Continental Free Trade Area
The African Continental Free Trade Area Agreement (AfCFTA) seeks to tackle the issue of non-tariff barriers by requiring signatory states to eliminate them from trade. It is reported by the United Nations Conference on Trade and Development that non-tariff barriers are at least three times more restrictive than regular customs duties.
To combat this, an Annex to the AfCFTA creates an online mechanism to report, monitor and eliminate trade barriers between member states. Most importantly, private sector stakeholders are encouraged to report any trade obstacles on an online portal through which complaints are sent directly to nominated government officials from respective states.
The International Monetary Fund reported that the elimination of tariff barriers coupled with non-tariff barriers could double intraregional trade in Africa. It is therefore crucial that in order for East African countries to unlock economic integration, efforts must be pushed towards eliminating non-tariff barriers as much as regular customs duties.
Whilst there is movement in political goodwill and actions are being taken in the right direction, it may be a while before the consequential benefits are observed by the traders in these member states. As is being observed in Kenyan and Tanzanian relations, the changes brought about by the recent discussions between the two governments are yet to be seen. Trade between the two countries will continue to be encumbered by non-tariff barriers until formal directives are issued by the respective governments and are implemented with haste.
In current times, it has become even more important that the member states focus on this aspect of a common union as global trade becomes even more competitive. Continuous lobbying and active participation in calling out and raising awareness of non-tariff barriers is key to the successful elimination of their existence.