The East African Community (EAC) is on the verge of a significant transformation as member states near the final stages of reviewing fees, levies, and charges on essential goods and services in the transport and agriculture sectors. This initiative aims to boost intra-regional trade, which has often been hindered by these costs, sparking trade wars and stifling economic growth within the eight-member economic bloc.

Aiming for Harmonization

Streamlining trading costs in the transport and agriculture sectors marks the initial phase of an ambitious plan by regional authorities to harmonize various levies and fees across seven key sectors: transport, agriculture, environment, trade, finance, energy, and tourism. Launched in 2021, this plan seeks to eliminate ‘inflated’ and ‘discriminatory’ charges, creating a more level playing field for businesses operating within the EAC, which includes Kenya, Uganda, Rwanda, Burundi, Tanzania, South Sudan, Somalia, and the Democratic Republic of Congo (DRC).

The review targets additional costs impacting the trade of poultry products, day-old chicks, hatching eggs, table eggs, fish and fish products, dairy, veterinary medicine products, pesticides, human and veterinary drugs. It also includes road user charges, passenger service charges in air transport, landing charges, parking charges, navigation charges, and ports docking fees for cargo ships.

Progress and Next Steps

Insiders revealed to The East African that a comprehensive list of levies, fees, and charges in the transport and agriculture sectors has been completed. This list is now awaiting review and validation by the Sectoral Council of Ministers on Trade, Industry, Finance, and Investment, expected to meet in November. “So far, we have a list for the agriculture and transport sectors, a draft one for that matter, and we are waiting for the next meeting of the sectoral council of ministers responsible for trade, finance, investment, and industry to sit down and look at our list and validate it. After that, we will engage in the process of harmonization,” a source close to the process stated.

Tackling Discriminatory Levies

A key objective of this initiative is to address discriminatory levies imposed by partner states. For instance, some member states impose levies on products from trading partners that they do not impose on domestic products, thereby distorting the level playing field for trade. “There are quite a number of levies, but when we started, we were looking at harmonizing levies that are discriminatory. For example, where partner states impose a levy on products from a trading partner and do not impose the same levy on their domestic products, thereby distorting a level playing field for trade,” the source added.

Specific Levies Under Review

The EAC is meticulously reviewing levies and fees on various items in the agriculture and transport sectors. These include import and export permits for pets, dogs, and cats; import permits for live animals; transportation permits for breeding sheep and goats; inspection services fees for animal and animal products; and dairy inspection fees for imports. In the transport sector, charges under review include road user charges, passenger service charges in air transport, landing charges, parking charges, navigation charges, fuel service charges, application for air service licenses, air service licenses, and aircraft permits.

Additional fees under scrutiny encompass the registration of chemical products, radiation or atomic charges, poultry products, day-old chicks, hatching eggs, table eggs, import permit fees for fish and fish products, product registration fees for veterinary medicine products, export fees for pesticides and permits, inspection fees for imports of plants and products, phytosanitary certificates, and the registration of human and veterinary drugs. Port-related charges such as docking fees for cargo ships, port docking charges for special-purpose vessels, port gate fees for trucks, and port storage charges for both warehouse cargo and open storage are also being reviewed.

Addressing Protectionism

The harmonization process aims to eliminate charges of equivalent effect to import duties. As the EAC operates a customs union protocol that eliminates import duties among member states, some countries have resorted to imposing levies almost equivalent to import duties as protectionist measures. “There are levies that would be identified as being of the nature of charges of equivalent effect. These are levies that are almost equivalent to import duty. As you know, in the EAC, we do not have import duty because it was removed after the implementation of the customs union protocol, but in the protectionism tendencies of partner states, some impose levies that are almost equivalent to import duty,” explained the source.

An example of this is the imposition of levies on meat and meat products by some partner states. These levies, intended as protectionist measures, are often higher than the actual import duty would be. Identifying and proposing the removal of such charges is a critical step in the harmonization process.

Economic Impact of Intra-EAC Trade

The importance of harmonizing these levies is underscored by the significant growth in intra-EAC trade. Total intra-EAC trade grew by 11.2 percent to $10.91 billion in 2022 from $9.81 billion in 2021. The percentage share of intra-EAC trade to EAC total trade stood at 15 percent in 2022, according to the EA Trade and Investment Report (2022). Major intra-EAC traded products include cereals, cement, iron and steel, live animals, petroleum products, sugar, foods, and beverages.

Kenya, in particular, has seen substantial growth in its domestic exports within the EAC. Kenya’s domestic exports rose by 112.5 percent to $3.51 billion in 2022 from $1.65 billion in 2021. However, its domestic exports to the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC) saw significant declines, highlighting the importance of the EAC as a key market for Kenyan goods.

Case Study: Poultry Trade Between Kenya and Tanzania

A notable example of the impact of levies and trade restrictions within the EAC is the poultry trade between Kenya and Tanzania. Historically, Kenya has been a significant exporter of poultry and poultry-related products to Tanzania, including day-old chicks, hatching eggs, parent stock, and processed poultry items. However, in 2021, Tanzania imposed a ban on poultry imports from Kenya due to the global outbreak of Highly Pathogenic Avian Influenza (HPAI). This ban severely impacted Kenya’s poultry industry, hindering access to a vital market.

In April 2024, Tanzania and Kenya successfully addressed longstanding concerns regarding the export of poultry and poultry products. Tanzania clarified that it had not imposed a ban on Kenyan poultry and poultry products but had implemented sanitary and phytosanitary (SPS) measures in response to the global Avian Influenza outbreaks as per the World Organisation for Animal Health disease notification reports. These measures aimed at safeguarding animal and public health.

Addressing New Trade Disputes

The harmonization process also aims to address new and emerging trade disputes. In June 2022, Kenya reintroduced a levy on eggs imported from neighboring Uganda, setting the stage for a fresh trade war. Uganda claimed that Kenya was taxing its eggs at a rate of Ksh72 a tray, bringing back a levy that had been suspended in December 2021 following bilateral talks. Such disputes highlight the need for a coordinated approach to trade policies within the EAC to prevent protectionist measures that can harm regional trade.

Strategic Importance of the Harmonization Initiative

The ongoing review and harmonization of fees, levies, and charges within the EAC are not just administrative exercises but strategic imperatives. By removing barriers to trade, the EAC aims to boost economic integration, enhance competitiveness, and foster economic growth within the region. The harmonization initiative is expected to increase the ease of doing business, attract foreign investment, and improve the overall economic environment for member states.

Furthermore, the harmonization of fees and levies will likely lead to increased trade efficiency and reduced costs for businesses operating within the EAC. This, in turn, will benefit consumers by potentially lowering the prices of goods and services. The removal of discriminatory levies will also help build trust and cooperation among member states, strengthening the economic bloc’s unity and collective bargaining power on the global stage.

Conclusion

The EAC’s move to review and harmonize fees, levies, and charges is a critical step towards realizing the full potential of intra-regional trade. As member states prepare for the final stages of this process, the expected benefits of increased trade efficiency, reduced costs, and enhanced economic integration are within reach. The success of this initiative will depend on the political will and cooperation of all member states, as well as the effective implementation of the proposed changes.

By addressing discriminatory levies and fostering a more conducive trade environment, the EAC is poised to unlock significant economic opportunities for its member states. As the region continues to grow and evolve, the harmonization of trade policies will play a crucial role in shaping a more prosperous and interconnected East African Community.

Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

5th August, 2024