This archive report was first published on 3 January 2022.
As the East African Community (EAC) continues to review its common external tariff (CET), a crucial decision remains pending: the adoption of a fourth band. The EAC has been working on this comprehensive review since 2018, aiming to introduce the fourth band at either 30 percent or 35 percent.
Currently, the six EAC partner states import goods at three different CET tariff levels: zero percent for raw materials, 10 percent for intermediate goods, and 25 percent for finished products. The CET is a crucial import tariff or rate adopted and applied by countries within a common market, with the intention of promoting industrialisation in the bloc, enhancing economic development of member states, and liberalising regional trade.
Under the priority value chains as provided for in the EAC Industrialisation Policy (2012-2032), products to be included in the fourth band tariff are textiles, iron and steel, and motor vehicles. EAC Secretary-General Peter Mathuki has urged member states to agree on the fourth band, stating that by the end of the year, they will have agreed on the CET.
However, the private sector prefers the 35 percent CET rate, arguing that the proposed 30 percent will create just a five percent tariff differential with the third tariff band of 25 percent charged on finished goods. They claim that 35 percent will create a tariff differential of 10 percent, safeguarding products that are sufficiently produced in the region against similar cheap imports.
Early 2021, Uganda and Tanzania proposed 35 percent, while Kenya, Burundi, and Rwanda were for 30 percent as a maximum CET rate. The EAC Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) meeting in Arusha on May 28 proposed a middle ground of 32.5 percent as a maximum rate. However, at the July 1, 2021 deadline, no country had agreed to change its stand.
Phyllis Wakiaga, CEO of the Kenya Association of Manufacturers, stated that the current tariff of 25 percent and the proposed 30 percent rate undermines industrialisation efforts by favouring foreign imports at the expense of locally manufactured goods. She urged the region to adopt 35 percent as the 4th tariff band to support the industrialisation agenda.
According to an EABC analysis, the products to be assigned the maximum CET Rate (4th tariff band) by the Regional Task Force (RTF) are sufficiently available or produced in EAC, hence the need to have the fourth band. Some of these products include textiles, iron and steel, and motor vehicles.
With regard to motor vehicles, Kenya reported that the sector falls under their strategic sector and hence the need for protection. However, Tanzania, Uganda, Rwanda, Burundi, and South Sudan were of the view that the region is not yet self-sufficient in the sector.
