EAC sets targets ahead of merger talks with Comesa

Rwandan EAC minister Monique Mukaruliza, Dr Enos Bukuku (centre), the EAC deputy secretary-general, and Uganda’s EAC affairs permanent secretary Edith Mwanje with a copy of ‘Doing Business in the East African Community 2013 Report’ during its launch at Serena Hotel in Kigali last Thursday. Photo/Fredrick Omondi 

By ALLAN ODHIAMBO

Negotiations on the planned merger of three regional market blocs enter a make-or-break phase next week as member countries table their policy demands on areas such as customs procedures and rule of origin.

 

The Southern African Development Community (SADC), the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa) have since 2008 been negotiating a road map to merge into a free trade area covering more than 527 million people and a GDP of about $624 billion.

The talks are expected to deepen next week when negotiators converge on Kigali to present the preferred policies of the respective countries and blocs on key areas of integration such flow of goods and products.

“The Comesa- EAC- Sadc tripartite negotiations on a Free Trade Area are set to accelerate, with text-based negotiations expected to commence in May,” Richard Sezibera, secretary-general of the EAC said.

“I urge EAC partner states to prepare adequately and make available the necessary resources for negotiations so that we come up with a good and strategic regional position on the FTA.”

A schedule showed that technical teams of the EAC will hold separate meetings on May 3-7 to polish positions before the talks on May 8-10. The Kigali talks are on customs procedures, Rule of Origin (ROO) and sanitary and phytosanitary standards (SPS).

“The talks are particularly crucial for EAC because we are already a customs territory unlike others who are still in the lower categories of integration. We must prepare in advance to guard the gains made,” Mark Ogot, a senior assistant director at the East African Community Affairs, Commerce and Tourism ministry said.

The three topics remain a sensitive matter in overlapping trade territories because they have a direct impact on the competitiveness of a country.

Barely two years ago, Egypt was caught in a tussle with Comesa, SADC and EAC over its demands for a higher threshold for value addition on goods produced and traded within the region.

Egypt sought to have the threshold on value addition set at not less than 45 per cent instead of the 35 per cent recommended by other countries eyeing to transform the three blocs into a seamless market by next year.

Egypt later dropped its hard- stance that would have hampered ongoing talks for a smooth merger of the three.

The threshold on value addition is uniform at 35 per cent across the Sadc, EAC and Comesa and forms part of the ROO that only grant goods wholly produced or substantially transformed within the region access to the benefits of the tariff-free trade regime.

Across the three blocs, the ROO recognise goods produced wholly or partially from materials imported from outside the partner states as long as the value of the imported materials does not exceed 60 per cent of the total cost of the materials used in the production of the goods.

The ROOs also recognise any goods as long as the value added resulting from the process of production accounts for at least 35 per cent of the ex-factory cost.

However, simple operations such as packaging, mixing and assembly where the costs of the imported ingredients, parts and components used in any processes exceed 60 per cent of the total cost of the final product is not recognised under the ROO.
 

Although African economies are growing fast — second only to Asia — the continent has attracted criticism over its slow pace of integration, what is seen as driving up the cost of doing business.

The planned merger has however elicited mixed views, including concerns that the advanced economies of South Africa, Kenya and Egypt benefit more than the others.

Kenya recently unveiled a raft of proposals it said would help to safeguard its interests in the targeted grand FTA despite the threats of polarisation. Key among the proposals by Kenya is that the regional blocs adopt a flexible framework that accommodate characteristics and needs of the individual countries participating in the FTA talks.

It also proposes the creation of transitional measures that would be supported by technical co-operation to help disadvantaged countries adjust to adversity that may come with the shift.

“The measures may also include taking into account existing market access conditions among the countries of the three regions including economic partnership agreements (EPAs),” Kenya’s Trade permanent secretary, Adbulrazaq Ali told CEOs from eastern and southern Africa.

Apart from the dangers of economic polarisation, analysts at the South African Institute of International Affairs pointed out that the fact that the majority of countries in the three regional economic communities, with the exception of South Africa and Egypt, are dependent on trade taxes for fiscal revenue would amount to a major obstacle for tariff liberalisation.

They argued that because of the similar nature of products, Kenya, Egypt and South Africa are in a better position to market exports — further deepening the dangers of polarisation.