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SUMMARY OBSERVATIONS

Since their previous TPRs, held separately during 2000-01, the three East African Community (EAC) members (Kenya, Tanzania and Uganda) have continued their economic reform programmes aimed at addressing their common challenges, including poverty reduction; sustainable economic growth and development;  more equitable income distribution; unemployment reduction; and full integration into the world economy.  The reforms have resulted in real GDP growth rates of over 4% per year in 2004 and 2005, despite the negative impact of external shocks, notably droughts and low levels of investment.

Over the last few years, high oil prices have resulted in an increase in inflation rates for the three EAC members, and their fiscal deficits (including grants) have also risen.  With the exception of Kenya in 2003, the EAC countries have registered external current account deficits since 2000.  They continued to attract foreign direct investment throughout the 2000-05 period, though small by international standards, but significant to their economies.

Each EAC member currently has its own monetary and exchange rate policies:  Kenya maintains a managed floating exchange rate regime to smooth out fluctuations of the Kenyan Shilling (K Sh);  the official exchange rate of the Tanzanian Shilling (T Sh) is determined by the national interbank market; and Uganda has an independently floating exchange rate regime for the Ugandan Shilling (U Sh).  The three exchange rate systems are free of restrictions on payments and transfers for current international transactions, the countries having accepted the obligations of Article VIII of the IMF agreement.

The full integration of EAC members will bring together two least developed countries (Tanzania with per capita GDP of US$303, and Uganda with per capita GDP of US$220 in 2004) and a low-income developing country (Kenya with per capita GDP of US$416 in 2004), for a combined population of about 90 million people and GDP of around US$30 billion.  This is expected to provide a strong foundation for their participation in the world economy.  The re-establishment of a monetary union, which was in place during the first few years after independence, is also expected to introduce more discipline into their monetary policy formulation and implementation.

Kenya, Tanzania, and Uganda have a long history of regional integration that dates back to the creation  of the original EAC (in 1917), which collapsed for a variety of political and economic reasons in 1977.  The current EAC, which entered into force on 7 July 2000, is to be an economic area (including customs and monetary unions, with harmonized macroeconomic policies, and ultimately a political federation), although no overall timetable has been established.

The EAC's legal framework consists mainly of:  the Treaty for its establishment; its Protocol; and its Customs Management Act.  The framework provides for, inter alia, a common external tariff (CET);  asymmetry in the liberalization of intra-EAC trade;  rules of origin; contingency trade remedies;  restrictions to trade for security and other reasons;  competition;  duty drawback, refund and remission of duties and taxes;  exemption regimes;  customs cooperation;  re-exportation of goods; simplification and harmonization of trade documentation and procedures;  use of the harmonized commodity description and coding system; and freeports.  However, EAC members are yet to fully implement some of those provisions, such as harmonization of customs procedures, other duties and charges on imports, internal indirect taxes, and of fees on production.

The EAC's main institutions are:  the Summit of Heads of State and/or Government; Council of Ministers; Coordination Committee;  sectoral committees;  East African Court of Justice;  East African Legislative Assembly; and the Secretariat (based in Arusha, Tanzania).  In addition, the EAC Protocol established the Committee on Trade Remedies to handle: rules of origin; contingency trade remedies;  dispute settlement mechanism; and any other matter referred to it by the Council.  The EAC currently has the following autonomous institutions: Lake Victoria Development Programme;  the East African Development Bank (EADB);  Lake Victoria Fisheries Organization (LVFO);  and the Inter-University Council for East Africa (IUCEA).

EAC countries are all original WTO Members.  They are neither signatories nor observers to any of the WTO plurilateral agreements.  All EAC countries accord at least MFN treatment to all their trading partners. They have not been directly involved, either as complainant or as defendant, in any WTO dispute settlement proceedings.  However, both Kenya and Tanzania have participated as third parties in the "European Communities-export subsidies on sugar" disputes brought separately by Australia, Brazil, and Thailand.

In addition to the EAC, Kenya, Tanzania, and Uganda are also members of the African Economic Community (AEC) and the African Union (AU), the Regional Integration Facilitation Forum (RIFF), and participate in different regional trade agreements.  Kenya and Uganda are members of the Intergovernmental Authority on Development (IGAD), and the Common Market for Eastern and Southern Africa (COMESA);  Tanzania is considering re-entering COMESA after its withdrawal in 2000. Kenya and Tanzania participate in the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC).  Unlike Kenya and Uganda, Tanzania is member of the Southern African Development Community (SADC), and a signatory to the Agreement on the Global System of Trade Preferences among Developing Countries (GSTP).

Under the EAC, each country is free to negotiate new bilateral trade agreements, subject to notification to the other two members.  In practice, this overlapping membership poses certain difficulties to the EAC countries, mainly because of differences in, inter alia, origin criteria, and intra-regional trade liberalization scenarios under the agreements.  Furthermore, EAC members are also eligible for non-reciprocal preferential treatment under the Generalized System of Preferences;  the Cotonou Agreement with the EC; and the U.S. African Growth and Opportunity Act.  As LDCs, Tanzania and Uganda are eligible for the Everything-but-Arms initiative of the EC.

During the Uruguay Round, the EAC members bound their tariffs individually.  Bindings cover 13.5% of all Tanzania's tariff lines, 14.9% of Kenya's, and 15.9% of Uganda's:  these cover all tariffs on agricultural products, and 0.1% of Tanzania's non-agricultural tariff lines, 1.6% of Kenya's and 2.9% of Uganda's.  These tariff binding commitments leave ample margins for discretionary increases in applied rates.

In January 2005, the EAC CET entered into force, with a few provisional exemptions (for Kenya, on its rice imports from Pakistan;  and for Tanzania, on its wheat and barley imports).  The move from national tariffs to the CET has reduced average tariff protection in Kenya and Tanzania, and has increased it in Uganda.  The overall average applied rate of the CET is 12.9%.  The average tariff on agricultural goods (WTO definition) remains relatively high (19.7%), against 11.9% on non-agricultural products.  Using the ISIC (Revision 2) definition of sectors, agriculture, hunting, forestry, and fishing is the sector with the highest tariffs (17.3% on average), followed by manufacturing (12.8%), and mining and quarrying (5.8%).  About 99% of all tariff lines carry rates of 0%, 10%, or 25%.  Some 58 tariff lines carry higher rates, mainly on dairy goods, wheat, and sugar.  For eleven lines, applied tariffs are compound and could exceed bound ad valorem rates, depending on the unit import price of the product.

In aggregate, the EAC's tariff shows a pattern of mixed escalation, negative from the first stage of processing (with an average tariff of 13.5%), to semi-finished products (with an average of 10.1%), and then positive to fully processed goods, on which tariffs average 14.4%. This structure reflects the relatively high tariff protection for agricultural commodities in particular.  Further simplification of the tariff structure through, inter alia, reduction of rates on agricultural commodities, should reduce the need for concessions, introduce more transparency in the tariff regime, and make it more neutral, and hence less distorting.

Kenya and Tanzania bound other duties and charges at zero.  However, Kenya applies an import processing fee of 2.75%, and Tanzania a destination inspection fee of 1.2% and a customs processing fee of US$10.  Uganda bound other duties and charges at between 10% and 30%;  it has abolished its 2% import commission, and transportation and insurance from entry points in Kenya and Tanzania to its border are no longer dutiable.  Imports and locally produced goods are also subject to VAT at different rates in the three EAC countries (standard rates of 16% in Kenya, 20% in Tanzania, and 18% in Uganda), and to excise duties at different rates.

The free-trade area component of the EAC customs union is being established through asymmetrical liberalization.  While imports from Tanzania or Uganda are duty-free, tariffs on some selected items from Kenya to the other EAC countries remain in place and will be phased out by 2010.  Members are also committed to removing non-tariff barriers on intra-EAC trade.  Under SADC, Tanzania grants duty-free access (on a reciprocal basis) on mostly capital goods and equipment from other members.  Under COMESA, Kenya and Uganda apply preferences of 0%, 4%, and 6% on inputs, intermediate goods, and final goods, respectively.  Kenya applies a preferential tariff quota to sugar imports from other COMESA members.

While the EAC has adopted regulations on contingency measures, no anti-dumping, countervailing or safeguard actions have yet been taken.  The EAC members increasingly adopt joint voluntary standards (close to 600as at July 2006).  In addition, they individually have technical regulations; Kenya is the only EAC member with a certain capacity to enforce its technical regulations.  The members also maintain common prohibitions and restrictions on imports for security, health, sanitary, environmental, and moral reasons;  they are allowed under the EAC rules to apply such measures individually for a transitional period.

The EAC has adopted provisions that allowmember states to establish manufacturing under bond, export processing zones, and duty drawback schemes; the sale of goods (produced under any such scheme) in the customs territory is limited to 20% of production.  The EAC members apply an export tax of 20% on raw hides and skins to encourage local processing of these goods.  An EAC Competition Bill is under consideration. For the time being, Kenya and Tanzania each has its own competition policy, and Uganda is preparing its legislation.

EAC members have implemented their individual privatization programmes, with divestiture of some 108 enterprises in Kenya, 380 in Tanzania, and 224 in Uganda.  New public procurement regimes were adopted in 2003 by Uganda, and in 2005 by Kenya and Tanzania.  Kenya has adopted new legislation on intellectual property rights;  it is also negotiating to achieve an extension of the TRIPS Agreement to protect genetic resources and traditional knowledge.  Tanzania is revising its legal provisions on patents and trade marks to align them on the WTO TRIPS Agreement by 2006.  Uganda has adopted a new Copyright Act.

Overall, with the exception of customs issues (which are being harmonized), including the CET and customs procedures, non-tariff measures are yet to be fully harmonized within the EAC.  Moreover, differences remain between mainland Tanzania and Zanzibar in certain trade policy instruments (e.g. on domestic trade and export promotion).

Sectoral policies are not yet harmonized throughout the EAC area, and there are differences between mainland Tanzania and Zanzibar regarding some sectoral strategies, such as on agriculture, energy, telecommunications, and tourism.  Full establishment of the EAC customs union is expected to further harmonize sectoral policies, both among EAC countries, and between mainland Tanzania and Zanzibar.

Agriculture provides livelihood and employment to the majority of the EAC population; nonetheless, its contribution to GDP has decreased over the last few years.  Food insecurity in the EAC has increased recently due to several factors, including unfavourable weather conditions (drought or floods), making emergency food aid necessary.  Tariffs are the main trade policy instrument in the sector, although some non-tariff measures are still in force.  Applied MFN tariffs on agricultural products average 17.3%;  and non-tariff barriers include SPS measures, although Kenya is the only EAC country with capacity to enforce them.

Mining and quarrying is the fastest growing sector in Tanzania and an important foreign exchange source and a magnet for foreign investment; while in Kenya and Uganda, the sector remains of minor importance.  Private investment is being encouraged in the sector, but some mining activities, notably exploitation, are still dominated by state-owned companies.  Tariff protection for the sector is relatively low at 5.8% on average.

The manufacturing sector in the EAC produces largely for the domestic market, with part of the production exported to regional markets.  It continues to be relatively small and based mainly on the processing of agricultural goods in Tanzania and Uganda, and decreasing in Kenya, the most industrialized EAC country.  EAC members have various programmes to promote industrial development and exports.  The general development of the sector, however, has largely been hampered by supply-side constraints (e.g. high production costs, limited access to financing, and low quality of products). Furthermore, subject to concessions, the negative escalation of the EAC CET (with an average rate of 12.8% on manufactured products and relatively high rates on agricultural commodities, including those used as inputs) is not conducive to investment in certain manufacturing activities.

The potential of the services sector remains largely unexploited in the EAC. In tourism, for example, where the EAC's attractions are among the best in Africa, inadequacies in infrastructure and marketing/promotion, financial constraints, security issues, and lack of skilled labour have limited its development. Further liberalization and commitments under the GATS should contribute to attracting investment in services, in general, and should improve the efficiency of other economic activities and the competitiveness of EAC's exports, especially by reducing costs related to, inter alia, telecommunications, transport, and energy.

The three EAC members have resident delegations in Geneva and participate actively in the WTO.  They support the Doha Development Agenda, which provides an opportunity to address some of what they consider as imbalances in the WTO Agreements, and to improve access conditions for their exports into other markets.  The EAC members have introduced or are in the process of formulating legislation that will bring their trade regimes more up to date and into greater conformity with WTO provisions.  Improvement of their multilateral commitments, through reduction of bound rates, enlargement of the scope of bindings on goods and services, elimination of applied compound tariffs (all bound duties are ad valorem), and removal of other duties and charges by Kenya and Tanzania would increase the predictability and credibility of the EAC trade regime.

Membership in overlapping preferential arrangements, notably the combination of free-trade areas (e.g. SADC)
and customs unions (e.g. EAC, COMESA), makes their trade regimes complex, and difficult to manage.  Moreover, EAC rules allow each member to sign bilateral agreements, subject to notification to the other members.  This, together with the overlapping membership, may limit the proper functioning of the EAC as a customs union. In addition, more attention needs to be paid to non-tariff measures in the full establishment of the EAC customs union (its free-trade-area and common trade-measure components). 

Continued structural reforms and further trade liberalization by EAC members would contribute to better resource allocation.  Such efforts will improve their ability to attract investment. Trading partners could help by ensuring that their markets are fully open to goods produced in EAC and by providing more technical assistance.