Introduction: EAC Custom laws and current Uganda-Kenya trade tensions.
A key pillar for the establishment of the East African Community (EAC) is trade liberalisation within the region. This is the essence of regional trade integration as the primary, if not foremost, objective of the EAC integration experiment. Trade liberalisation and integration underpins the Treaty and the protocols on the Customs Union and Common Market, and it is designed to be a cornerstone of EAC Partner States’ trade policies.
The framework of the Customs Union is defined by the Common External Tariff (CET), the EAC Customs Union (Rules of Origin) Rules, 2015, and the East African Community Customs Management Act, 2004 (as amended over the years, with the recent in 2019).
The character of an EAC Customs Union was articulated by the East African Court of Justice, as the regional court, in British American Tobacco (U) Ltd v. Attorney General of Uganda, 1 in these terms:
“A Customs Union, as was envisaged under Article 2(2) of the Treaty and Article 2(4) of the Customs Union Protocol, consists of a region or geographical area in which the cooperating (Partner) States engage in trade amongst themselves that is free from tariff and non-tariff barriers, and apply a common external tariff on goods from non-Partner States.”
The regional court also articulated the character of an EAC Common Market as follows:
“On the other hand, a Common Market, as was anticipated in the same Treaty provision and Article 2(4) of the Common Market Protocol, is a customs territory that is characterized by free trade as underscored under a Customs Union, the free movement of goods, capital, labour, services and persons, as well as EAC nationals’ right of residence and establishment.”
With the coming into force of the CUP, all the Partner States agreed to establish free trade on goods and services amongst themselves, eliminate internal tariffs or similar charges and agreed on a common external tariff (CET) for goods imported from the non-Partner States. The CET currently has a four‑band structure of 0% (raw materials and capital goods), 10% (intermediate goods) and 25% (finished goods), and the newly introduced 35% for particular goods (dairy and meat products, cereals, cotton and textiles, iron and steel, edible oils, beverages and spirits, leather products and fresh-cut flowers, etc.) set to commence on July 1, 2022.
In spite of the trade liberalisation and integration agenda, the private sector and trade experts have continued to witness disregard for the Community trade law. The longstanding dispute between Uganda and Kenya, as EAC Partner States—especially with regards to bans by Kenya over products including maize, sugar, dairy and poultry—has its genesis in 2019 and, in spite of diplomatic talks over the years involving trade policy analysts as well as the Heads of States, it is still far from being resolved.
As of June 15, 2022, Kenya had re-imposed its levy on Ugandan produced eggs at a rate of $0.6 a tray. Kenya had previously suspended the levy in 2021 following the bilateral talks between the two Partner States and retaliatory acts on the part of Uganda. The on-going trade wars are a setback in many ways to several industries and businesses in the region.
The uncertainty and tension that looms over the private sector paints a grim future for trade between the two States, and casts doubt on the vitality of the regional bloc. This article analyses these events and the impact they have on the region. It also highlights lessons to be learnt from this latest eruption of trade wars in the EAC.
Analysis on effects of trade wars on the private sector and trade relations between Partner States in the EAC
The EAC remains committed to strengthening the private sector in the region by virtue of articles 127 and 128 of the Treaty. The East African Business Council operates majorly to ensure interests of the private sector are being well represented in the integration process.
However, the trade wars between Uganda and Kenya seek to undermine the strides made by the EAC in trade liberalisation and integration entirely. As at the end of 2020, farm gate prices for milk in Uganda had dropped by 90 per cent according to Uganda Manufacturers Association records due to non-tariff barriers by Kenya.2 In 2021, acting in reciprocation, Uganda banned from its domestic market some of Kenya’s raw and processed agricultural products affecting the latter’s economy in a similar manner. Trade wars are seemingly the norm in the region with more countries participating in them. For instance, Tanzania banned imports of Ugandan sugar in 2019 following Kenya’s move and the closure of the Uganda-Rwanda Gatuna border closing off two-way trade for the Partner States in 2019 until it was reopened only recently.
Notably, in the trade wars, the private sector including manufacturers and processors continue to suffer losses in their business operations, coupled with higher importation rates. On the other hand, consumers remain paying the price for highly priced commodities and less diversified markets bringing welfare into question.
The possible cause of what is an evident ticking time-bomb to the EAC is “protectionism” that EAC Partner States seem to quickly default to as nationalistic posturing. The misguided notion that banning, imposing NTBs, and duties (or levies) on exports from neighbouring Partner States supports the growth of home industries or markets will cripple trade in the region if not promptly addressed. The central question is—how can this be dealt with?
In absence of a functional regulatory body on trade disputes, there are not many options— excluding resort to courts—that are available for affected traders and businesses. The EAC Committee on Trade Remedies (CTD) was envisaged to take on the role of addressing trade disputes and to provide recommendations on measures to prevent injury, and settlement of such disputes in a transparent manner. The CTD (established under article 24 of the CUP) is to deal with matters pertaining to rules of origin, anti-dumping measures, subsidies, and countervailing measures. Ideally, it should be the go-to body in instances of such trade disputes. However, much to the detriment of the residents of EAC Partner States, it remains non-operational to-date. This could also be cited as another factor giving rise to a spreading culture of perennial trade wars in the region.
The absence of uniform or harmonised benchmarks on standards and quality on a wide range of products in the region further fuels the implementation of NTBs under the guise of sanitary/phytosanitary measures by States. Most of these benchmarks are country-specific and a lot is left desired from the East African Standards Committee (EASC) to create uniform and elaborate ones.
Conclusion
It is expected that economies still recovering from the effects of the COVID-19 pandemic in the region will be gravely affected if trade tensions are not put to rest. States like Uganda stand to be even more affected, with existing record high inflation rates (6.3%). There is an urgent need for the Sectoral Committee on Trade, Industry, Finance and Investment to push for the operationalization of the Committee on Trade Remedies.
In the absence of this, what is likely to be exhibited is an influx of cases at the East African Court of Justice against Partner States by private sector and industry associations or private individuals for remedies. The EAC Treaty empowers legal and natural persons resident in any of the Partner States to seek redress from the regional Court on violations/infringement of the treaty’s provisions. Litigation in this regard seems to be the only viable solution to a problem that Partner States have clearly failed to resolve over the years and at the appalling expense of EAC traders and businesses.
References
1 British American Tobacco (U) Ltd v. Attorney General of Uganda, EACJ Application No 13/2017, para 43.
2 Ladu M.I., “What is the end game of Uganda-Kenya trade war?”, Daily Monitor, December 8, 2020 (accessed at https://www.monitor.co.ug/uganda/business/prosper/what-is-the-end-game-of-uganda-kenya-trade-war-- 3222118 on June 14, 2022).