EABC calls for a common external tariff of 35% | The new times
The East African Business Council (EABC) insists that partner states adopt a Common External Tariff (CET) of no more than 35% as this, among other things, will promote industrialization and boost trade intra-EAC of $18.9 million.
Rwandan economist John Bosco Kalisa, CEO of the six-member bloc’s main regional body for private sector associations and enterprises, told The New Times on Monday (February 21) at his offices in Arusha, Tanzania, that the first week of March, they will start engaging Rwandan and Burundian stakeholders in a new attempt to get them on board.
Last Friday, an extraordinary meeting of regional ministers of trade, industry, finance and investment directed partner states to consult on the analysis undertaken by the Secretariat on the proposed maximum rates of the CET and to submit comments on the analysis and proposed maximum rates of the 30% CET. , 33% and 35% to the Secretariat by March 15.
Kalisa said: “Our position remains the same. We wonder why further consultations (are needed) when a study has been done on the proposed CET rate and it is very clear on the benefits in terms of promoting industrialization, expanding intra trade -EAC and product diversification.
“The 35% CET rate also creates employment opportunities once we promote goods produced in the region, as well as maintaining regional food security and rural development.”
The regional CET reflects trade relations between partner states and the rest of the world, particularly import duties levied on products imported into the bloc.
Preferred maximum regional CET rate of 35% expected to boost intra-EAC trade by $18.9 million if adopted by partner states, according to analysis by EAC Secretariat on CET rates offered 30%, 33% and 35% for products. ranked in the fourth or maximum band.
In 2020, total intra-EAC trade stood at 11.8%, amounting to $6.39 billion. According to the EABC, the 35% preferential tariff is expected to boost intra-EAC trade to $6.4 billion.
The maximum rate of 35% of the CET for products classified in the fourth band will divert trade from global trading partners to the benefit of EAC intra-regional trade.
As noted, Uganda will register the highest trade creation at $8,456,681, followed by Kenya and Rwanda at $5,099,829 and $3,714,495, respectively.
According to Kalisa, in addition to the impact on development, the justification for the maximum CET rate of 35% also includes aspects of income protection, strengthening national and regional policies for the development of priority value chains, as well as reducing the use of suspension of requests (SOA) to support the development of national and regional value chains.
Shedding more light on the latter, Kalisa noted that the bloc cannot have enough sugar, for example, and as such calls for the sugar tax to be lowered as locally produced sugar is more expensive.
“Rwanda would, for example, have the right to import from outside the EAC and this is called the stay of application.”
“But if the EAC demonstrates the required capability to produce such items, there is no need for new SOA requests.”
Last November, lengthy negotiations involving stakeholders highlighted divergent positions regarding a maximum CET rate of 30% or 35%. The Confederation of Tanzanian Industries (CTI), Uganda Manufacturers Association (UMA) and Kenya Association of Manufacturers (KAM) pushed for 35% while the Rwanda Association of Manufacturers (RAM) and Association of Industrialists of Burundi (AIB) favored a tariff rate of 30 percent.
Reached for comment earlier on Monday, Alphonse Kwizera, an official with the Rwanda Manufacturing Association, told The New Times he was in a meeting where “we are discussing the matter even now.”
A few hours later, late in the evening, Kwizera said: “We are in favor of the fourth tariff because it takes into consideration value chains and the promotion of national industries.
Manasseh Nshuti, Rwandan Minister of State for EAC Affairs, also told The New Times that: “This (issue of the best CET maximum rate for the region) has been on the table. “.
Kenya’s EAC Permanent Secretary, Dr Kevit Desai, who chaired last Friday’s meeting in Arusha, told The New Times that the ministers had asked the secretariat of the EAC, the bloc’s executive body, to convene another extraordinary meeting on March 18 to deliberate on the maximum rate of the CET.
It was agreed that countries consult with key stakeholders on the proposed CET maximum rates and submit their comments to the Secretariat by March 15.
Dr Desai said: “As Chair of the Coordinating Committee, I am confident that at our next meeting, we as Partner States will achieve consensus on the CET by promoting added value through the industrialization in the EAC.
A regional working group meeting held in Uganda last October to conduct a comprehensive review of the CET agreed on a four-band tariff structure of zero percent, 10 percent, 25 percent and a greater than 25 percent which is 30% or 35%.
It is now structured in three tranches of 25 per cent for finished products, 10 per cent for intermediate goods and 0 per cent for raw materials and capital goods.
There are a limited number of products on the sensitive list that are subject to rates above the maximum rate of 25 percent, ranging from 35 percent to 100 percent.
Last week, the Secretariat presented to Ministers the analysis it had undertaken on the proposed rates of 30 per cent, 33 per cent and 35 per cent for products classified in the fourth band.
The Secretariat noted that the benefit measurement indicators for the products identified to be covered by the maximum tariff band are positive, with the exception of welfare loss, which is transitory.
As indicated, the various maximum CET rates proposed will have various macroeconomic implications.
In terms of revenue implications, the short-term average potential impact on total tax revenue of EAC Partner States increases by 3.9% (scenario 1 – 30%), by 4.9% (scenario 2 – 33%) and 5.5% (scenario 3 – 35 percent).
Regarding employment, job creation increases slightly with 0.02 percent (5,055 people) below the maximum rate of 30 percent; 0.03% (6,089 people) with a maximum rate of 33% applied; and an increase of 0.03% (6,781 people) in average formal employment in the EAC below the maximum rate of 35%.
In terms of trade implications, the potential trade diversion to the EAC (intra-EAC trade) increases from $13.03 million with the maximum rate of 30%, from $16.51 million with a maximum rate of maximum of 33% and 18.9 million with the highest rate of 35%. .
With respect to Industrial Development, Industrial Production increases within each of the CET’s proposed maximum rates of 30%, 33%, and 35%, with the highest rate of 35% conferring the greatest gains in Industrial Production. There is a 0.02 percent ($7.7 million) increase in industrial production with a maximum applied rate of 30 percent; increase in production of 0.03% ($10.3 million) with a rate of 33%; and 0.04% ($12.1 million) increase in production, with the highest rate being 35%.