Rwanda: EABC pushes for 35 per cent common external tariff rate

The East African Business Council (EABC) insists on the position that partner states adopt a 35 per cent maximum Common External Tariff (CET) rate as it, among others, will promote industrialisation as well as boost intra-EAC trade by $18.9 million.

Rwandan economist John Bosco Kalisa, CEO of the six-member bloc’s top regional body of private sector associations and corporates, on Monday, February 21, told The New Times, in his offices in Arusha, Tanzania, that in the first week of March, they will start engaging Rwandan and Burundian stakeholders in a fresh bid to bring them on board.

An extraordinary meeting of regional Ministers of Trade, Industry, Finance and Investment last Friday directed Partner States to consult on the analysis undertaken by the Secretariat on the proposed maximum CET rates and submit comments on the analysis and the proposed maximum CET rates of 30 per cent, 33 per cent and 35 per cent to the Secretariat by March 15.

Kalisa said: “Our position remains the same. We are wondering why any further consultations (are required) when a study done on the proposed CET rate and it is very clear about the benefits in terms of promotion of industrialisation, expansion of intra-EAC trade, and product diversification.

“The 35 per cent CET rate also creates employment opportunities once we promote the regionally produced goods, as well as sustainance of regional food security and rural development.”

The regional CET reflects the trade relations between partner states and the rest of the world particularly import duty charged on imported products into the bloc.

The prefered maximum regional CET rate of 35% is set to boost intra-EAC trade by $18.9 million if adopted by Partner States, according to the analysis done by EAC Secretariat on the proposed CET rates of 30%, 33% and 35% for products classified under the fourth, or maximum, band.

In 2020, total intra-EAC trade stood at 11.8 per cent amounting to $6.39 billion. According to the EABC, the prefered 35% tariff is set to boost intra-EAC trade to $6.4 billion.

The 35 per cent maximum CET rate for products categorized under the fourth band will divert trade from global trading partners in favour of EAC intra-regional trade.

As noted, Uganda will accrue highest trade creation at $8,456,681 followed by Kenya and Rwanda at $5,099,829 and $3,714,495, respectively.

According to Kalisa, besides the development impact, justification for the 35 per cent maximum CET rate also includes aspects of revenue protection, reinforcement of the national and regional policies of developing priority value chains, as well as reduction in the use of stay of applications (SOAs) to support development of national and regional value chains.

Shedding more light on the latter, Kalisa noted that the bloc cannot produce enough sugar, for example, and as such requests that tax on sugar be lowered as locally produced sugar is more expensive.

“Rwanda would, for example, be allowed the right to import from outside the EAC and that’s what is called stay of application.”

“But if the EAC demonstrates the required capacity to produce such items then there is no need for further requests of the SOAs.”

Last November, drawn-out negotiations involving stakeholders highlighted divergent positions regarding a maximum CET rate of 30 per cent or 35 per cent. The Confederation of Tanzania Industries (CTI), Uganda Manufacturers Association (UMA) and Kenya Association of Manufacturers (KAM) were pushing for 35 per cent while the Rwanda Association of Manufacturers (RAM) and Association des Industrielles du Burundi (AIB) supported a 30 per cent tariff rate.

Reached for comment, earlier on Monday, Alphonse Kwizera, an official from the Rwanda Manufacturing Association, told The New Times that he was in a meeting where “we are discussing the matter even now.”

Hours later, late in the evening, Kwizera said: “We are supportive of the fourth band tariff as it puts into consideration the value chains, and domestic industries’ promotion.”

Manasseh Nshuti, Rwanda’s Minister of State for EAC Affairs also told The New Times that: “This (issue of the best maximum CET rate for the region) has been on the table. We shall discuss the same in the Council.”

Kenya’s Permanent Secretary EAC, Dr. Kevit Desai who chaired last Friday’s meeting in Arusha told The New Times that Ministers directed the EAC Secretariat, the bloc’s executive organ, to convene another extra-ordinary meeting on March 18 to deliberate on the maximum CET rate.

It was agreed that countries consult key stakeholders on the proposed maximum CET rates and submit comments to the Secretariat by March 15.

Dr. Desai said: “I am confident as the chair of the coordination committee that at our next meeting we will as partner states have consensus on the CET there by nurturing value addition through industrialization in EAC.”

A meeting of the regional task force held in Uganda, last October, to carry out a comprehensive review of the CET agreed on a four band tariff structure of zero per cent, 10 per cent, 25 per cent and a rate above 25 per cent which is either 30 per cent or 35 per cent.

It is now structured under three bands of 25 per cent for finished goods, 10 per cent for intermediate goods and zero percent for raw materials and capital goods.

There are a limited number of products under the sensitive list that attract rates above the maximum rate of 25 per cent ranging between 35 per cent and 100 per cent.

The Secretariat last week presented to Ministers the analysis it undertook on the proposed rates of 30 per cent, 33 per cent and 35 per cent for products classified under the fourth band.

The Secretariat noted that indicators of measure of benefit for products identified to be covered in the maximum tariff band are positive except for welfare loss, which is transitory.

As noted, the proposed various maximum CET rates will have diverse macroeconomic impacts.

On the implications for revenue, the average potential short-term impact on EAC Partner States total tax revenues increases by 3.9 per cent (scenario 1 – 30 per cent), 4.9 per cent (scenario 2 – 33 per cent) and 5.5 per cent (scenario 3 – 35 per cent).

On employment, employment generation increases marginally with 0.02 per cent (5,055 persons) under the maximum rate of 30 per cent; 0.03 per cent (6,089 persons) with a maximum rate of 33 per cent applied; and 0.03 per cent (6,781 persons) increase in average EAC formal employment under the maximum rate of 35 per cent.

On the implications for trade, potential trade diversion into the EAC (intra-EAC trade) increases by $13.03 million under the 30 per cent maximum rate, $16.51 million with a maximum rate of 33 per cent and 18.9 with the highest rate of 35 per cent.

On industrial development, industrial production increases under each of the proposed maximum CET rates of 30 per cent, 33 per cent and 35 per cent, with the highest rate of 35 per cent conferring the greatest gains in industrial output. There is a 0.02 per cent ($7.7 million) increase in industrial output with an applied maximum rate of 30 per cent; 0.03 per cent ($10.3 million) increase in production with a rate of 33 per cent; and 0.04 per cent ($12.1 million) increase in output with the highest rate at 35 per cent.

Original story on The New Times

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