EAC-SA Standoff Over Car Tax Delays Free Trade Area Take Off

The Volkswagen production line at the Kenya Vehicles Manufactures plant in Thika, Kiambu County. The EAC is unwilling to open up its market for car imports from South Africa. FILE PHOTO | NATION

June 19, 2018//-Member countries of the Tripartite Free Trade Area will have to wait a little longer to benefit from the deal, following a dispute over motor vehicle levies.

The three trading blocs under the deal — the East African Community, Common Market for Eastern and Southern Africa and the Southern African Development Community — have agreed on some contentious issues on rules of origin and tariff liberalisation, moving closer to opening up their market of more than 600 million people.

But the EAC and the Southern African Customs Union (Sacu) are yet to find a common ground on tariffs for the automobile sector, the director in charge of trade and Customs at the Comesa Secretariat Francis Mangeni, told The EastAfrican.

The ministers of trade from the EAC and Sacu (South Africa, Botswana, Lesotho, Namibia and eSwatini) are expected to discuss the matter at a meeting scheduled for June 18 in Cape Town, South Africa.

The EastAfrican has also learnt that the EAC is unwilling to open up its market for car imports from the South African bloc, as it is protecting the nascent Kenyan and Rwandan motor vehicle manufacturing plants. Sacu, largely controlled by South Africa.

Dr Mangeni recommends that the EAC countries should identify a few vehicle models to specialise in, and allow importation of those they will not be producing.

“It may not be necessary to block or open up the whole automobile sector. The private sector partnership could even develop value chains to complement the stages of motor vehicle production and sourcing of inputs or parts,” he added.

While Europe remains the dominant region for South Africa’s new vehicle exports, sales to African markets have started to pick up, and Pretoria is seeking to expand its market in East Africa.

Negotiations so far

Save for the deadlock over the tax treatment of motor vehicle imports between EAC and Sacu, the 27 member states have agreed on the rules of origin of more than a half of the products while the annexes containing the Rules of Origin and Guidelines on Trade Remedies have been completed and adopted by the ministers.

The negotiations are on reciprocal basis.

In 2017, the EAC and Sacu made significant progress in resolving their differences on tariff offers on most of the items.

During the talks, Sacu offered to open up the market for 66.7 per cent of its products to East African countries while the EAC offered 64.25 per cent of tariff lines.

Tanzania, which belongs to both the EAC and SADC but not Comesa, has also concluded its negotiations on tariff offers with Egypt, a member of Comesa.

Originally, the EAC countries had agreed to abolish duty on 37 per cent of their products a, allowing duty-free imports of about 2,072 items, excluding sensitive items.

The other goods were to attract duty at the rate of 10 per cent for intermediate goods and 25 per cent for finished goods.

Sacu agreed to remove duty on 60 per cent of its 7,000 tariff lines, allowing about 4,200 goods from EAC and Comesa to enter its market duty-free.

Comesa has 5,000 tariff lines, but its members who are neither in EAC or SADC were allowed to negotiate individually because the bloc does not have a Customs union.

Under the TFTA agreement, partner states are required to ignore sensitive products and subject them to duty and quota restrictions to ensure fair competition. Among the sensitive items agreed to be granted protection until 2017 included maize, wheat, sugar, cement, textiles, rice, milk, cream and secondhand clothes.

Catalyst for Africa trade

The TFTA is expected to support and fasttrack the implementation of the larger African Continental Free Trade Area (AfCFTA) initiative, which was launched in Kigali in March. The idea of the AfCFTA, a unified market for about 1.2 billion people across Africa, was conceived in 2012 and negotiations formally opened in 2015.

It aims to boost trade among countries with a combined GDP of $3.4 trillion, by eliminating borders and tariffs on goods and services within the continent.

However, implementation of the TFTA largely depends on political will and leadership of member countries.

For example, while 22 of the 27 member states have signed the agreement, only three — Kenya, Uganda and Egypt — have ratified it. The pact requires at least 14 countries to approve the document for it to take effect.

South Africa was expected to complete its ratification process last week.

The heads of state and government of Comesa, EAC and SADC had given member states 12 months from the time of the launch in June 2015, to conclude negotiations on outstanding issues on rules of origin, trade remedies and tariff offers. The Council of Ministers later extended the timelines by one more year to June 2017.

Trade between the three regional blocs has not been steady. Data from the EAC Secretariat shows that EAC’s exports to Comesa fell by 13.1 per cent in 2015 before picking up marginally by 2.9 per cent in 2016 while exports to SADC fell by 57.2 per cent in 2015 and 12.2 per cent in 2016.

EAC imports from Comesa declined by 11.4 per cent and 10 per cent in 2015 and 2016 respectively, while imports from SADC fell by 24.3 per cent and 14.3 per cent in the same period respectively.

The East Africa

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