The East African Community is reviewing the Common Market Protocol to allow a smooth entry of the Democratic Republic of Congo (DRC) and spur intra-regional trade, which has stagnated at around 15 percent.
The bloc’s highest decision-making organ, the Heads of State Summit, will review the protocol at the High-Level Summit Retreat on the Common Market before this year’s summit in April. EAC Secretary-General Dr Peter Mathuki confirmed the plan.
The Common Market was adopted in 2009 and entered into force on July 1, 2010, with the aim of boosting the growth of the EAC through free movement of goods, services, labour and capital. Its introduction five years after the first pillar, the Customs Union (2005), required that it combine the region’s economies, create opportunities for the private sector and increase competitiveness. But, 11 years on, its requirements have been hampered by tariff and non-tariff barriers, red tape and noncompliance by the partner states.
The other pillars, the Monetary Union and the Political Federation, are at various stages of implementation.
Now, with the expected entry of mineral and natural resource-rich DR Congo, which comes with a population of over 90 million people, Kinshasa offers a fertile consumer market and an important investment destination. Its EAC entry is expected to strengthen trade ties and expand the market for goods and services.
Explaining the rationale for the ongoing CMP review, Mathuki told The EastAfrican that there is a need for “reflection on the achievements, challenges and what needs to be done for realisation of a fully functional common market.”
“This review will inform the EAC Heads of State Summit on the progress and obtain general direction and specific interventions to address the challenges affecting the implementation,” he said.
Integration pillar
Dr Kevit Desai, Principal Secretary in Kenya’s Ministry of EAC and Regional Development, who also chairs the EAC PSs committee reviewing the CMP, conceded that this crucial integration pillar has been hit by various challenges.
“We want to review the CMP for everything from transport and logistics to the need for interconnectivity to market systems, to sector-based thinking, to promotion of innovation, technology, e-commerce and so on, which did exist when we wrote the CMP about 12 years ago,” he said.
Described as one of the most ambitious regional integration agreements globally, the CMP was meant to spur intra-EAC trade but partner states have not enjoyed its full benefits.
“There is a need for global logistical value chains, global involvement in terms of business ecosystems and focus on sectors on an interim basis,” Dr Desai said.
Ugandan Eala MP Denis Namara, and chairperson of the General Purpose Committee at the Assembly, cited the lack of commitment to reforms, drawing attention to the Customs Union Protocol, which provides for the establishment of the EAC Trade Remedies Committee to handle matters of rules of origin, anti-dumping, subsidies and countervailing and safeguard measures, and dispute settlement.
Recurring challenge
“That Committee has not been established since implementation of the Customs Union in 2005,” he said.
This is blamed on non-ratification of the Amendment of the EAC Customs Union Protocol to accommodate Burundi and Rwanda, necessitating an Amendment of Article 24(2) of the EAC CU by some partner states.
But now, with Kinshasa at the doorstep, things are moving along swiftly.
“DRC is joining (EAC) yet the two countries that joined way back in 2007 are yet to enjoy the full benefits of a functioning Customs Union. This is not good for regional trade,” said Mr Namara.
“Non-operationalisation of the Trade Remedies Committee (TRC) to handle matters relating to the application of Rules of Origin and trade disputes has aggravated the problem of resolving NTBs in the region,” said Nicholas Nesbitt, chairman of the East African Business Council.
“If it were within our powers, we would have suggested that each partner state provide at least three members each to constitute these TRC.”
The Common Market Protocol covers several commitments. To enable free movement of capital, 20 operations related to securities, direct investments, credit operations and personal capital operations are required to be free of restrictions. Yet a major recurring challenge that has led to the plan to relook at the CMP is NTBs. Since 2010, Rwanda, Tanzania and Uganda have been accused of introducing at least 10 restrictions on the movement of capital.
In services, several restrictions have been introduced or carried over from older laws since the protocol was signed, and in goods, where obligations started earlier at the enactment of the Customs Union, 51 NTBs arising from regulatory (protectionist) measures by governments were identified between 2008 and June 2013.
The partners had resolved 230 NTBs at the end of February 2022.
Mr Nesbitt said NTBs have significantly contributed to the declining intra-EAC trade, which is now below 15percent.
“The existing bilateral ad regional mechanisms of resolving NTBs are costly and time-consuming,” he said.
The EABC blames the persistent problem of NTBs on the failure to finalise amendment of the EAC Elimination of NTBs Act and its regulations. The private sector wants it finalised by June 2022.
Border closures
NTBs increase transaction costs, which impede intra-regional trade.
Other trading bottlenecks include Covid-related measures that saw Uganda, Kenya and Rwanda close their borders at the height of the waves of infections, hampering free movement of goods, workers, services and capital.
Though most measures have been eased, Dr Mathuki said they also want the implementation of mutual recognition of test and vaccination certificates through the EACPass to be expedited, as well as the revision of the EAC Covid-19 guidelines to facilitate the movement of goods and persons across the region and ensure uniformity in application and enforcement.
They further want the elimination of confirmatory testing and quarantine where persons have valid Covid-19 test and/or vaccination certificates.
In Kenya, the share of employment in services declined by seven percentage points, reversing almost all the gains since 2005, according to the World Bank’s Kenya Economic Update: From Recovery to Better Jobs 2020 on Impact of Covid-19 released in December 2021.
The CMP failed to resolve the impasse created by partner states’ decisions to close their borders at will, at times due to political differences. In February 2019, for instance, Rwanda closed its border with Uganda at Gatuna/Katuna, a move that Kampala protested to the EAC in vain. Kigali has since reopened the border, but the one with Burundi is yet to open, although talks are ongoing.
Uganda petitioned the EAC Secretariat to challenge what it perceived as Rwanda’s economic sabotage in breach of the bloc’s rules. However, lack of a dispute resolution mechanism led to a three-year impasse.
For free movement of services, the partner states long concluded negotiations to liberalise seven of 12 sectors currently covered by the World Trade Organisation’s General Agreement on Trade in Services (GATS). They also committed not to introduce new restrictions, and to eliminate the existing ones.
For goods, partner states are required to remove internal tariffs, implement a common external tariff (CET), and remove barriers to trade, among other commitments.
But the CET has remained a thorny issue. An ongoing CET review is anchored on Article 12(2) of the Protocol, which provides for a review after every five years, but the last review was done in 2010. In 2016, the EAC started a comprehensive review but failed to finalise it despite the various directives by the Council of Ministers. There is still no agreement on the maximum rate, with the three variances on 30 percent, 33 percent, and 35 percent tariff rates.
The delay of the review has caused uncertainty among investors.
“The EAC CET has the potential of increasing investment, enhancing technologies and productivity in response to better market opportunities within the EAC region through increased intra-EAC trade. But this is not happening,” Simon Kaheru, vice-chair of the EABC and chair of the Uganda private sector association, told The EastAfrican.
Harmonising positions
The CET is also expected to stimulate development through increased intra-regional trade and diversification of product base.
Waturi Matu, Trade Mark East Africa’s senior private sector technical advisor to the EAC, said the region cannot talk of industrialising if it fails to fast-track the CET.
“I urge the private sector to join efforts and harmonise positions on the fourth band of the CET to fast-track adoption by the partner states,” she said.
Another issue that the CMP has failed to address is the harmonisation of domestic taxes. The EAC Treaty, the Customs Union, the CMP and Monetary Union protocols call for harmonisation of domestic taxes with a view to removing distortions for a more efficient allocation of resources within the Community. To date, hardly any progress has been made on the process.
Domestic tax regimes such as excise, value added tax and income tax have often facilitated illicit trade and discouraged intra-EAC trade and investment.
“Partner states are unwilling to harmonise domestic taxes in order to retain their policy space,” said Mr Kaheru, “yet disparate domestic tax regimes hamper the free movement of goods, services, service suppliers, labour and capital.”
Cost-cutting
Progress towards eliminating restrictions has been slow, and some partner states have introduced new measures despite their obligations under the Common Market Protocol.
Partner states are yet to ratify the EAC Agreement for the Avoidance of Double Taxation, Prevention of Fiscal Evasion with Respect to Taxes on Income to enable the agreement to come into force.
Harmonised standards and regulations are easier to enforce, simpler for consumers to understand, and more efficient for manufacturers to implement, as they help businesses to cut costs associated with different national standards in force in the EAC. Currently, 1,814 product standards in different sectors have been harmonised at the EAC level, according to the private sector.
Several legislations have also not been assented to, further hampering the CMP.
“The slow pace of the Standardisation, Accreditation, and Conformity Assessment Bill, which will replace the Standardisation, Quality Assurance Metrology and Testing Act, is also to blame,” said Abdikadir Aden, a Kenyan MP at Eala.
“There is a need for the Council of Ministers to shorten the process of harmonisation of EAC standards by allowing the East African Standards Committee to declare the standards. This is one of the reasons we need to relook at the CMP.”
Dr Samuel Nyantahe from the Confederation of Tanzania Industries blamed mistrust between partners for the slow pace of reforms.
“Trust is central to the implementation and building consensus on EAC commitments and protocols,” he said.
On the free movement of labour, the EAC partner states have been petitioned to waive work permit fees and come up with clear regulations to govern Mutual Recognition Agreements (MRAs) for professionals. Dr Mathuki says among the recommendations to resolve the issues impeding trade is that EAC Partner States fast-track the EAC Common Market (Mutual Recognition of Academic and Professional Qualifications) Regulations 2011.
Other recommendations include the use of national identity cards for EAC citizens and residents travelling in the region.
“Under Article 9(2) CMP, partner States that have agreed to use machine-readable and electronic national identity cards as travel documents may do so. Kenya, Rwanda and Uganda have agreed to use national identity cards as travel documents. Burundi, South Sudan and Tanzania are in the process of putting systems in place to ensure use of national identity cards as travel documents to further facilitate the movement of EAC citizens and residents across borders,” Dr Mathuki said.
The teams reviewing the CMP want free access to and portability of social security benefits.
According the Dr Mathuki, other recommendations include the liberalisation of air transport services regulations and fast-track implementation and enforcement; adoption of the EAC Single Air Space Agreement to replace the existing bilateral air agreements; harmonisation of taxes, levies and charges on air passengers and cargo services; and adoption of the Regulations for Liberalisation of Air Transport Services, which are before the Sectoral Council on Transport Communication and Metrology.
On telecommunications, all partner states are to join the One Network Area and remove charges and taxes on roaming.
On tourism promotion, Dr Mathuki said all Partner States are encouraged to join the Single Tourist Visa to promote regional tourism.
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