ATPC ATPC. African Trade Policy Centre. Capacity Building for International Negotiations and Trade Facilitation in the East African Community. No.

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1 ATPC Work in Progress No. 84 African Trade Policy Centre Economic Commission for Africa ATPC March 2011 Capacity Building for International Negotiations and Trade Facilitation in the East African Community Tindyebwa Amos

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3 ECA CEA - CEA - ECA ATPC is a project of the Economic Commission for Africa with financial support of the Canadian International Development Agency (CIDA) Material from this publication may be freely quoted or reprinted. Acknowledgement is requested, together with a copy of the publication The views expressed are those of its authors and do not necessarily reflect those of the United Nations.

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5 ATPC Work in Progress Economic Commission for Africa Capacity Building for International Negotiations and Trade Facilitation in the East African Community Tindyebwa Amos The views expressed are those of the authors and do not necessarily reflect those of the United Nations.

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7 Table of Contents Acronyms ix Executive Summary 1 00Chapter One 5 Background and Introduction Background to the Study Scope of the Study Obejctives of the Study Specific Terms of Reference for the Study Expected Results Methodology Organization of the Report 9 Chapter Two 10 EAC Integration Context and Perspective EAC Integration Process progress of the EAC Integration Integration and Impact on EAC Trade Understanding Trade Facilitation 14 Chapter Three 18 Trade Facilitation Enviromnment in EAC A Situational Analysis Trading Across Borders in EAC Existing ICT Systems for Customs Business Registration and Licensing Coordination among Customs Authorities Harmonization of Regulations and Standards Role of Trade Facilitation Agencies Trade Facilitation Infrastructure and Transportation Trae Facilitation Challenges in EAC Challenges Associated with Non Tariff Measures Suggestions for Action by EAC 40 Chapter Four 43 EAC Participation in International Negotiations EAC and the Negotiations Regime Negotiations for an Economic Partnership Agreement with European Union Individual Country Participation in EPAs Participation in WTO Meetings Capacity Challenges in Trade Negotiations 48

8 Chapter Five 50 Export Promotion Procedures and Strategies Analysis of EAC Export Potential Existing Agencies for Export promotion Export Promotion Activities Export promotion Procedures Export Training Programmes Challenges in Export Promotion Benchmarking Export Promotion Programmes 57 Chapter Six 60 Review of International Strandards and Best Practices in Trade Facilitation Trade Facilitation from a Global Perspective WTO Future Directions in Trade Facilitations World Customs Organizations Initiatives Other International Standards in Trade Facilitation The Revised Kyoto Convention International Ship and Port Facility Security (ISPS) code Options and Recommendations for EAC 64 References 65 Annexes List of Tables Table 2.1: Imports and Exports Trade among EAC Countries 13 Table 3.1: Where it easy to pay taxes and where is not 18 Table 3.2: Where is Trading easy and where is not 19 Table 3.3: Trade Across borders requirements 21 Table 3.4: Global Ranking of EAC Countries 23 Table 3.5: Status of Export Promotion Agencies in EAC 26 Table 3.6: Key Private Sector Agencies in EAC 27 Table 3.7: Analysis of Ship Waiting Days at Mombasa 32 Table 3.8: Mombasa Port handling fees and charges 32 Table 3.9: Cargo Charges at Mombasa Port 32 Table 3.10: Composition of Cargo at Mombasa Port Table 3.11 Percentage Growth rate in Cargo traffic by Table 3.12: Cargo Traffic at the Port of Dar-es-salaam Table 3.13: Ranking of EAC Countries in Policy environment 36 Table 3.14: Barriers-Customs Procedures 36 Table 3.15: Time loss at Customs Points 38 Table 3.16: Problems Associated with Roadblocks and Weighbridges 38 Table 5.1: Training Modules and Syllabi of Export Promotion Agencies 56 Table 5.2: Export Promotion Strategies and Benchmarking Countries for EAC 58 Table 6.1: A Matrix of Key issues and Recommended Actions for EAC Partner States 65

9 List of Figures Figure 2.1: Intra EAC Trade for Figure 3.1: Constraints with Documents and Costs 21 Figure 3.2 Composition of Cargo at Mombasa Port Figure 3.3 Growth in Cargo Traffic at Mombasa Figure 3.4: Transit Market at Mombasa Port Figure 3.5: Exports versus Imports at Dar-es-salaam Port 34 Figure 3.6: Share of Cargo by Transit Countries Figure 3.7: Business leaders Perceive Customs process at slow/too slow 37 Figure 3.8: Challenges Associated with Certificates of origin 42 vii

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11 ACRONYMS APEC CBI CET CIF COMESA DRC EAC EABC EBA EPA EU GCR GDP HS ICC ITC KPA NEPAD NTB OECD SADC TOR TPA UNCTAD UNECA USAID WB WCO WTO Asian Pacific Economic Cooperation Centre for Promotion of Imports from Developing Countries Common External Tariff Cost Insurance and Freight Common Market for Eastern and Southern Africa Democratic Republic of Congo East African Community East African Business Council Everything But Arms Economic Partnership Agreement European Union Global Competitiveness Report Gross Domestic Product Harmonized System International Chamber of Commerce International Trade Centre Kenya Ports Authority New Partnership for African Development Non Tariff Barriers Organization of Economic Cooperation and Development South African Development Community Terms of Reference Tanzania Ports Authority United Nations Conference of Trade and Development United Nations Economic Commission for Africa United States of Agency for International Development World Bank World Customs Organizations World Trade Organization ix

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13 Executive Summary The study was commissioned by the African Trade Policy Centre (ATPC) of the United Nations Economic Commission for Africa (UNECA) to undertake a comprehensive analysis of the Capacity Building on International Negotiations and Trade Facilitation in the East African Community (EAC). The study was aimed at generating information that can inform and guide the harmonization of policies and strategies, the enactment of laws on harmonization of export promotion efforts and procedures in the EAC region. Part of the tasks under the study was to analyze export promotion procedures and regulations, identification of gaps and recommending areas of harmonization. The study outcome therefore identifies areas where EAC can remove the distortions and discrimination practices that exist in the legal frameworks of Partner States, bolster investment that is mutually beneficial and foster the overall competitiveness of EAC in both regional and global markets. Capacity building on International negotiations and Trade facilitation has been an important component of the EAC since inception in 1999 especially in the context of regional integration process. Even within the continued process of trade negotiation with the EU under the Economic Partnership Agreement (EPAs) and under the WTO, these issues future prominently. Previous research shows that trade facilitation is an important aspect and tool for economic development that needs to be explored for trade facilitation measures to be prudently formulated and implemented ;( Clarke, G.R.G 2005, p.17, CETRO 2006 p.23). More so, whereas the EAC countries acknowledge that trade facilitation is important for their development; the study revealed that EAC countries are concerned about the huge investments associated with trade facilitation measures such as investment in trade facilitation infrastructure such as roads, railways, customs modernization, information and communication technology and human resource development. In addition, the analysis has been made for the trade negotiations capacity of EAC Partner States, the legal and regulatory environment for trade facilitation and export promotion and the area for harmonization of laws and regulations in trade facilitation. Field research was carried out through public and private sector stakeholder consultative processes within the EAC region. Several meetings were held with key officials from relevant trade support institutions in all the five countries of the EAC.In addition, a comprehensive document review and analysis was made for policies and strategies on trade negotiations and trade facilitation in the Partner States. The focus of the study was the key issues on trade facilitation environment in EAC which largely define the business environment for cross border trade, participation in international negotiations and efforts for reforming the business environment. The study also examined the export promotion procedures of individual Partner States, training programmes and modules and infrastructure for export promotion. The study revealed that absence of harmonized export development programmes and export promotion activities affects the competiveness of EAC exports in addition to weak infrastructure and legal framework. Furthermore, benchmarking EAC trade facilitation environment and negotiations with other countries was done basing on International Standards as a basis for providing the way forward for recommending the necessary reforms in EAC business environment. Lessons were drawn to facilitate future training efforts of trade officers of the EAC Partner States in the key aspects of trade facilitation, international negotiations and export promotion procedures. The major findings of the study are that; despite several reforms in the trade facilitation environment such as harmonization of custom laws, standards and regulations among the EAC Partner States, there is high persistence of Non Tariff Barriers (NTBs) such as weigh bridges, road blocks, unwarranted inspections and prohibitive standards which inhibit the smooth flow of intra EAC trade. Trade facilitation agencies are so many, with overlapping roles and poorly coordinated in some cases and have limited communication with the business community. The study established that there is an improvement in custom management but with persistent incidences of untransparent behavior and discriminative practices among the custom officials at control points. Businesses face problems associated with numerous documents required to do cross border trade and often not found in one single window institution apart from a few exceptions. Road and railway infrastructure is still poor in all countries amplifying congestion at port harbors which is already a problem. And many staffs of trade facilitation institutions are not adequately trained 1

14 and lack adequate knowledge in trade facilitation. The implication of all these is the high cost of doing business compromising the competitiveness of EAC region. However there are some reforms already being implemented by Partner States to reduce the cost of doing business and Rwanda was listed as one of the leading reformers (World Bank 2010). In terms of International negotiations, the study established that the capacity for Intra-EAC negotiations is relatively good except for Burundi where language barriers compromise the ability of the national negotiating team to effectively participate. Participation of Partner States in International negotiations is generally weak hindered by limited resources to facilitate negotiations, conduct studies for due diligence to inform negotiations, train the trade negotiators and strengthening of the National Consultative mechanisms. EAC Partner States complained of having very few knowledgeable and skilled negotiators compared to other developed countries involved in negotiations at WTO or EPAs in Brussels. One noted that EU negotiators know much about EAC but EAC knows nothing or little about the EU. The East African Business Council has been playing a leading voice of the private sector in EAC negotiations in addressing trade facilitation issues and participating in trade policy meetings. In terms of export promotion and training, most of the institutions of export promotion in EAC lack adequate resources to develop export markets, and also to implement export training programmes for the business community. The public sector agencies often lack adequate budget support from Government, have few technical personnel and their services are highly concentrated in the capital cities. A few export promotion efforts and trainings that have been implemented are based on specific needs and availability of donor support. The leading agencies that have supported export development and training in the region include, the International Trade Centre based in Geneva, The Centre for Promotion of Imports from Developing Countries(CBI based in Rotterdam, the Netherlands), the Commonwealth Secretariat based in London, the World Bank, JICA/AICAD of the Japanese Government among others. Specialized training institutions in export promotion and trade policy are generally lacking. Much of the training in export promotion are the un-structured efforts of the export promotion agencies/boards such as Export Promotion Council (EPC) in Kenya, Board of External Trade (BET/TANTRADE) in Tanzania, Uganda Export Promotion Board (UEPB) in Uganda and Rwanda Development Board (RDB) in Rwanda. Private sector agencies such as Chambers of Commerce, Private Sector Federation and Manufacturers Associations contribute towards export training programmes. Few modules for training in Trade Negotiation are mainly conducted by Trade Policy Training Centre in Africa (TRAPCA) a private training centre affiliated to ESAMI based in Arusha Tanzania. In a particular case, Tanzania is connected to the India Institute of Foreign Trade to address some of the challenges of training trade negotiators and Uganda was in advanced stages of linking with the same institution in India. Generally, the key concerns of the stakeholders in the region include; Weak trade negotiations capacity for all EAC Partner States due to limited technical competence and resource constraints. Persistent Non tariff barriers to trade despite the fact that the Customs Union has been there for the last 5 years. Poor infrastructure for trade facilitation especially roads and railways increasing congestion at the ports of Mombasa and Dar-es-salaam which are the main ports serving the hinterland. Slow pace of adjusting to the EAC harmonized standards especially on inspection of consignments, custom procedures & issuance of trade documentation and clearance formalities at the border posts. Discriminative behaviour and poor attitude of the Customs Officials and incidence of un transparent behavior, informal charges and corruption practices. Poor collection and dissemination of trade facilitation information. Absence of a strong and systematic export promotion programme and export market development efforts Absence of harmonized training programmes for export promotion in EAC. 2

15 Language barriers especially for non English or Swahili Speaking EAC Partner States. Absence of Gender Performance Monitoring in trade facilitation mechanisms and trade negotiations. Low level of awareness of the business community on trade agreements and trade regimes. The study established that the priority programmes in EAC are mainly focusing on addressing transport logistics, improving transit cargo clearances and simplifying custom procedures and ensuring revenue security for Governments through duties and taxes. The study revealed that the LDC nature of most of EAC Partner States has made them continue to perceive trade facilitation in view of maximizing tax revenue collection for Governments and paying less attention to the functional role of smoothening the flow of trade. In benchmarking of EAC with other regions in Africa and Asia, the study showed that trade negotiations are very effective in ECOWAS countries where the giant countries support the weak ones. The study further shows that countries which practices efficient trade facilitation practices, standards and recommendations made by WTO,WCO,UNCTAD,ISO etc are more efficient in trade facilitation. For example, according to the Singapore Customs, it takes 10 minutes to process documents and 2 hours to provide a delivery certificate. While in the EAC country of Kenya it takes a minimum of 4 working days, in Mauritius customs clearance of goods takes one hour according to the Mauritius Revenue Authority. Both Mauritius and Singapore have adopted the best practice procedures and standards recommended by WTO and WCO. These countries have an integrated Electronic Data Interchange (EDI) network which links all commercial operators and trade facilitation agencies with the customs departments. The ICT system is well developed and enables the approval and release of cargo to be carried out simultaneously. However, the study provides evidence that the EAC Partner States are involved in reforms for improving data sharing through ICT systems such as ASCUDA++ and RADDEX. It is now a question of how fast all countries cooperate to adopt the system for better business facilitation. In conclusion the EAC Partner States should strengthen their monitoring mechanism especially for the Non tariff barriers that still inhibit the smooth flow of trade. There is need to develop an EAC wide Scorecard for monitoring compliance on trade facilitation reforms. This will help to shape and direct Partner States into compliance standards and reduce incidences of NTBs. It is urgent to voice strongly the need for reducing the number of trade documents, times losses and to adopt a single window institution for trade facilitation. There is also need for an integrated approach that will address trade facilitation constraints both at public and private sector level in terms of training of trade officers, dissemination of information for knowledge on EAC protocols and integration framework. There is need for a Joint EAC Export and Investment promotion programme that addresses market development, export promotion activities, export training, investment promotion and export financing. Lastly, EAC Partner States will need to prioritize trade negotiations and capacity building of trade negotiators in terms of budget support. Pooling resources to train a region wide negotiating team is also important especially for trade negotiations that impact on EAC as a region. It is important that governments strongly support studies that feed into the negotiation strategies of EAC Countries and also national consultative mechanisms.

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17 CHAPTER ONE Background and Introduction 1.0 Background to the Study The East African Community (EAC) is a regional organization of Kenya, Tanzania, Uganda, Burundi and Rwanda whose agenda is to attain economic, social and ultimately political integration. Regional integration is not new in Africa. With the creation of African Common Market; it has been fueling the vision of African Leaders for the last 5 decades ( UNECA, 2004). The Treaty for Establishment of the East African Community was signed in November 1999 and entered into force in July Under the Treaty, Partner States undertook to establish among themselves a Customs Union, a Common Market, Monetary Union and subsequently a Political Federation. The entry point of the integration is the Customs Union for which a protocol was negotiated and signed in 2004 and came into force in Having established a Customs Union among Partner States, the next level of EAC integration in the Treaty is the Common Market. In this regard, the EAC Common Market Protocol was adopted and signed by Heads of State on 20th November 2009(ACP-EU, 2009 p.6). Partner States ratified the Protocol by end of June 2010 and implementation commenced on 1st July Regarding trade facilitation, efforts have been made in the region such as customs procedures and clearance but there are still major challenges to be overcome at the major ports of entry such as Mombasa, border crossing points, and at internal ports. The processes at these stages are often cumbersome and time-wasting and ultimately constitute non tariff barriers (NTBs) by themselves. And these challenges affect the trade flow of Partner States that are land locked which are Uganda, Rwanda and Burundi;( Mbogori 2008 p.7,world Bank 2007). To face and surmount these challenges, East Africa needs to streamline and harmonize its policies in order to enhance its export competitiveness. Removal of bureaucratic procedures, investment in infrastructure and the reduction of corrupt practices are important reforms in the trade facilitation framework. Lowering the costs of financing and lowering input costs are also important to generate the necessary supply response to respond to international market opportunities. This study offers guidance in the training of Trade Officers from the EAC Partner States in the field of export and trade facilitation and development of trade facilitation and promotion procedures. In the broad sense of the study, Trade Facilitation was considered as encompassing the environment in which trade transactions take place and therefore trade facilitation reforms will be seen as paying attention to the whole process aiming at streamlining trade procedures in order to reduce the risk and transaction costs, measured in time and money, associated with international trade;(imf,2003). Furthermore, Trade Facilitation entails availability and cost of essential services required for import and export of goods and services, import and export procedures (e.g. customs or licensing procedures); transport formalities; and insurance and payment requirements; (OECD 2007 Vol. 42). Trade negotiations was seen from the point of view of the EAC Partner States desire to foster a favourable trading regime for intra EAC trade or with other regions such as COMESA, SADC and EU more especially in the framework of EPAs and within the WTO multilateral negotiations. From the EAC perspective and for purposes of the study, Trade Facilitation was used as defined by the World Trade Organization (WTO) as the simplification and harmonisation of international trade procedures; Where trade procedures are the activities, practices, and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade (Kafeero, 2008 p.63, WTO 2008). This study appreciated that not only EAC but all African countries from long past have attached great importance to capacity building and trade facilitation since the Lome Convention and subsequently the Cotonou Agreement. As summarized by a recent COMESA-EAC-SADC task force (2007); The Regional

18 Economic Communities (RECs) of COMESA, SADC and EAC have long recognized the importance of improving trade facilitation (amongst other issues) in the context of deepening regional integration and in reducing the costs of cross-border transactions and so improving economic livelihoods (Kafeero, 2008 p.65). As such, the RECs have supported a number of trade facilitation instruments such as regional customs bond guarantee systems, a regional 3rd party vehicle insurance scheme, harmonized axle loads and vehicle dimensions, a single customs document, harmonized customs procedures, regional carrier s license, etc. With the interplay of these, a successful trade facilitation and capacity building program can help improve negotiation competences, define a consistent, transparent and predictable trading environment based on internationally accepted norms and practices. 1.1 Scope of the Study The study was commissioned by the African Trade Policy Centre of the United Nations Economic Commission for Africa to undertake a comprehensive analysis of the capacity on International Negotiations and Trade facilitation in the EAC. Face to face consultations were carried out with stakeholders and key officials in the EAC Partner States from the trade support institutional network. In addition, desk review was conducted for Training programmes, syllabi, examination rules and standards, as well as training materials on trade facilitation, export promotion and trade negotiation documents. Document review was also done for protocols, legal and regulatory instruments and previous studies on trade negotiations and facilitation. Trade facilitation concerns mainly related to tariff classification, rules of origin, customs procedures, infrastructure, custom valuation, risk management and supply chain security were reviewed. The study looked at public and private sector coordination mechanisms in regional trade facilitation objectives, coordination practices in border processing and controls and in trade negotiations process. The study also analyzed the Policy, regulatory & legal instruments for trade facilitation that reflect international standards of transparency, efficiency and performance. Sources of data involved but were not limited to public and private sector trade facilitation institutional network such as line Ministries of Trade and Commerce, Export Promotion Agencies, Customs and Revenue Authorities, training institutions, Manufacturers Association and other relevant bodies within the EAC. Benchmarking was done for training programmes basing on international standards and best practices regarding trade facilitation, drawing lessons from other regional bodies especially on harmonization of export promotion, laws and regulations and Trade facilitation. 1.2 Objectives of the Study The study was conducted to achieve the following objectives; 1. To undertake a comprehensive analysis of the state of international negotiation, policies and strategies of the EAC Partner States, 2. To analyze the state of trade facilitation and its understanding among the stakeholders in the EAC region 3. Assesses the training infrastructure for export and trade facilitation, the education, and training curricular 4. To analyze the capacities of the EAC Partner States in export promotion and the training institutes in the region 5. To undertake an analysis of the export promotion procedures and regulations, 6. To identify the gaps and recommend areas to be harmonized among the EAC Partner States. The findings of the study provides directions on areas of improvement in Trade facilitation measures in EAC and evaluates how necessary and appropriate the Trade negotiations capacity can be enhanced. The study also proposes specific recommendations

19 based on International Standards and benchmarks from other best practice countries in Africa and Asia in the areas of enhancing efficiency in trade facilitation, coordination of trade facilitation agencies, capacity for International negotiations, the policy framework, integrity in border controls, export procedures among others aspects. 1.3 Specific Terms of Reference for the Study The Specific Terms of Reference for the study were to; Conduct a wide literature review of the training programmes, syllabi, examination of rules and standards as well as the training materials on trade facilitation. Review studies, collect information and data and compile a report on strategy and policy options in consultation with Ministries of Trade, Export Promotion Boards, Revenue Authorities, Private Institutions, Universities and Other relevant bodies in the EAC Partner States. Benchmark with International training programmes and best practices in trade facilitation, draw lessons from other regional bodies on harmonization of export laws and regulations and any other methods to achieve the study. Identify the critical concerns and issues in the context of trade negotiations and facilitation which are likely to demand training, technical expertise, resources and responsibilities which are consistent and compatible with the concerns and aspirations of EAC Partner States Identify practical ways for creating and improving existing training proposals and materials on trade negotiations and facilitation that suits the expectations and desires of the EAC Partner States Present the main findings and recommendations to stakeholders of the EAC Partner States through a Training Workshop. 1.4 Expected Results The expected output/results for the study were; Result Area 1: An examination of key concepts on trade facilitation, which establish: (i) Its nature and main components; (ii) its application and use, and (iii) what the EAC Partner States interests, challenges and concerns are in the field of trade facilitation. Result Area 2: A detailed analysis of the training programmes, syllabi, an examination of the rules and standards, as well as training materials on trade facilitation, in the light of how these match the needs of EAC Partner States. Result Area 3: A review of the existing best practices in trade facilitation within and outside the region, in particular those which may be easily adopted as well as detailed recommendations on how to implement such practices by EAC Partner States. 1.5 Methodology The Study Area and Period The study was conducted in the East African region covering all the five (5) EAC Partner States of Uganda, Kenya, Tanzania, Rwanda and Burundi. Government and private sector trade facilitation and support agencies located in the target countries were visited and consultative meetings and interview held between July and August, 2010.

20 1.5.2 Approach and Strategy a) Institutional Analysis: Institutional analysis was done in order to generate information on institutional environment for trade negotiations and trade facilitation capacity of the EAC Partner States. This strategy helped to understand institutional framework, legal and regulatory policies that enforce trade facilitation and the capacity for International negotiations. The strategy informed the study on the existing national negotiating teams, how they are constituted, coordinated and the lead institutions in trade negotiations. It was useful in assessing the existing training programmes, the curriculum of export promotion training institutions, syllabi and training materials and institutional constraints in trade facilitation and participation in international trade negotiations. b) Empirical analysis This was done to compile indicators that simultaneously capture the main policy concerns in trade facilitation and these are: port efficiency, port productivity, customs environments in terms of cargo traffic, cargo clearance, shipment and transshipment durations and dwell time, regulatory environment and instruments (transparency, predictability and performance and compliance to international standards) and quality of information and communication technology infrastructure. The strategy also helped to generate indicators on trade facilitation in view of the business environment in EAC Partner States, the doing business reforms that have been implemented and how they impact on the general trade facilitation environment in EAC region. This technique was also used to generate data on export priorities of EAC Partner States. c) Competitiveness Assessment (Data) The data that was used was based on opinions ranking at a given continuum with a higher value an indication of High Competitiveness (Good performance) and the Lower Value an indication of Low Competitiveness for the selected indicators of trade facilitation and export procedures and clearance processes. The World Bank hard data which tries to analyze and compare the cost of doing business between countries and among regions was utilized (World Bank 2010 p.2-4, 38-40) Desk Review The study methodology involved carrying out a comprehensive review of desk research of various documents and reports as well as carrying out extensive online (Internet) research particularly on benchmarking analysis of best practices and international standards Field Research The Consultant also carried out primary research using structured tools including a Questionnaire which was administered to 50 export and import companies in the EAC region targeting especially those persons involved in cross border custom clearances, 40 Truck drivers, 20 clearing and Forwarding Agencies. Face to face interviews were also held with over 60 Officials from relevant institutions and 20 service providers. With respect to trade facilitation agencies, face to face interviews and consultative meetings were held with appropriate officials from relevant institutions. The purpose was to obtain critical and useful information to establish the key concerns, aspirations and interests of the Partner States in trade facilitation and international negotiations, to identify key challenges and recommendations for improving the trade facilitation environment. Some of the key institutions that were consulted in interviews and meetings in all the EAC Partner States included but not limited to; Ministries of Trade and Commerce

21 Export Promotion Agencies and Customs and Revenue Authorities and Bureaus of standards Ports Authorities and Maritime Agencies and Association of Clearing and Forwarding Agencies Chambers of Commerce and Industry and Private Sector Federations and Alliances and Manufacturers Associations and other Private Sector Apex Agencies e.g. EABC Transporters and Logistics Companies, Commercial Banks and Development Banks, Training Institutions and Universities Development Partner Agencies such as EU, World Banks and SIDA Among others 1.6 Organization of the Report This report is structured in 6 chapters. Chapter one gives the background, scope and objectives of the study. The same chapter highlights on the specific terms of reference and study methodology. Chapter two gives the EAC integration perspective and contextualizes the key elements of the study which are trade negotiations and trade facilitation systems. Chapter three provides an analysis of the trade facilitation environment in EAC from a regional and global perspective. Chapter four analyzes EAC Participation in international trade negotiation agenda in bilateral, regional and in participation in WTO meetings and EPA negotiations. Chapter five gives an analysis of EAC export promotion procedures and strategies and highlights training activities, syllabi and benchmarking practices. Chapter Six provides a review of international standards and best practices for trade facilitation environment and identifies areas that EAC Partner States can adopt and implement. The chapter concludes with a matrix of key issues and recommended options for EAC Partner states for improving capacity for trade facilitation and participation in international negotiations.

22 CHAPTER TWO EAC Integration Context and Perspective 2.0 EAC Integration Process The Treaty for the establishment of the East African Community was initiated in 1999 when only Uganda, Kenya and Tanzania were the only members of the EAC Community. In 2000 the treaty was signed leading to the process of integration. In 2005, the three original members of the EAC signed the Protocol for the Customs Union and the process envisaged that integration among the countries of East Africa was to progress from a Customs Union to a Common Market, then a Monetary Union and ultimately a Political Federation (Article 5(2)). The integration process of the EAC commenced with the Customs Union in 2005 and has now reached a more sophisticated stage of implementation a Common Market that commended in July A Monetary Union is planned to commence in 2012 and ultimately a Political Federation. The EAC Common Market is guided by the fundamental principles of the community under Article 6 and 7 of the treaty where Partner States undertake to; i. To observe the principle of non discrimination of nationals of other Partner States on grounds of nationality ii. iii. iv. Accord treatment to nationals of other Partner States, not less favourable than the treatment accorded to third parties Ensure transparency in matters concerning the other Partner States Share information for the implementation of the protocol Partner States also agreed to cooperate in different areas of social, economic and technological development. Particular issues of the EAC Common Market is the promotion of free movement of goods provided under article 6(1) of the treaty and that free movement of goods in the Partner States are governed by a Community Customs law specified under article 39 of the protocol on the establishment of the EAC Customs Union. Other areas relate to free movement of persons in Annex 1 of the protocol, free movement of workers under article 10(1) and free movement of services under article 16(1) among others. The five (5) years transition period under the Customs Union achieved a number of aspects for the EAC regional trade facilitation environment. In particular, there has been the implementation of the Common External Tariff (CET), harmonization of standards for export products, customs laws and procedures. It is expected by all stakeholders that the Common Market that has been ushered in will bring greater harmonization of macroeconomic policies, including tax regimes to minimize distortions that have often taken a force of non tariff barriers to trade in the community. An APEC (2008) study estimated that trade facilitation programs in a cooperating region would generate gains of about 0.26% of real GDP to APEC, almost double the expected gains from tariff liberalization, and that the savings in import prices would be between 1 2% of import prices for developing countries in the region. Some recent studies have tried to determine how time delays affect international trade and how regional integration can potentially address time delays in customs. In a study by Djankov, Freund and Pham Cong (2006), they assert that on average, each additional day that a product is delayed prior to being shipped reduces trade by at least one per cent. Another important insight from that work is that the use of averages as indicators of trade facilitation in Africa can be very deceptive because of the large variations across African countries. For example, while it takes 16 days to get a product from the factory to the ship in Mauritius, it takes 116 days in the Central African Republic. This was a strong competitiveness comparison for trade facilitation between different countries (World Bank 2010). The International Chamber of Commerce (ICC) issued a position paper in January 2007, which indicated that there is a growing convergence of interest in trade facilitation from various intergovernmental organizations, donor organizations and the private sector, and articulation of clear steps to be taken to improve the trade facilitation environment. ICC identifies 10

23 these steps as adoption of the WCO Framework of Standards to secure and facilitate global trade. The coming into force of the WCO Revised Kyoto Convention in February 2007 and the emerging text of the WTO trade facilitation talks provide another framework. According to the World Bank (2010), administrative hurdles (for example, customs and tax procedures, clearances and cargo inspections) contribute to 75% of trade facilitation delays in developing countries. In this case, it is logical to conclude that certain actions by governments and the private sector to remove these administrative barriers are urgently needed. Moreover, where possible, the assistance of intergovernmental and international organizations like the World Customs Organization, United Nations Economic Commission for Africa, the African Development Bank and the Breton Woods institutions can significantly improve the situation with customs procedures within the context of regional integration framework. Customs reforms and modernization programs which have been carried out mainly in countries that have adopted the integrated revenue agency model, facilitate benchmarking of procedures and adoption of customs management quality audits. This approach should therefore be seen significant part of the peer review mechanism on the part of African fiscal agencies in general and customs administrations in particular. A critical assessment of the EAC countries indicated that the region is characterized by pervasive poverty, demonstrated by low per capita incomes, low level of human development, low productivity, undiversified economic structures dominated by agriculture, modest growth rates and a host of other challenges and constraints (EAC Private sector strategy 2006). The aim of economic integration in the EAC region is to tap opportunities of economies of scale arising from a larger market and investment area in order to accelerate growth and wealth creation in the region and developing the capacity to compete more meaningfully in the global economy. 2.1 Progress of the EAC Integration The Protocol establishing the East African Customs Union guides the implementation process of the customs union along with other instruments. The underpinning within the EAC Customs Union included removal of customs duties and charges of equivalent effects on internal trade, elimination of non-tariff barriers on trade and the establishment and maintenance of a Common External Tariff (CET). The implementation of the Customs Union has resulted in harmonization and uniform application of the Community customs laws by all Partner States. Uniform application of the Common External Tariff and asymmetrical reduction of internal tariff as envisaged in the Protocol has been ongoing. In addition, annual consultations through pre-budget consultation process of Ministers of Finance has been undertaken to review and agree on common areas for incorporation in the national budgets. Training and sensitization of Customs officials and stakeholders and the development of joint programmes in customs that enhance information exchange are on course however not adequate to guarantee improved customs. The implementation of CET as earlier indicated is going on well contrary to the initial fears of revenue losses with the implementation of the Customs Union. Non-tariff barriers (NTBs) to trade however remain a major challenge. The monitoring mechanism for identification and elimination of NTBs were developed in collaboration with EABC. The successful implementation of the Mechanism has been achieved through the establishment and operationalization of the National Monitoring Committees (NMCs) on NTBs in all Partner States. Further, a time-bound framework which categorizes the NTBs into eight clusters has also been developed. The clusters are: (i) (ii) (iii) (iv) Customs documentation procedures Immigration procedures Cumbersome inspection requirements Police road blocks 11

24 (v) (vi) (vii) (viii) Varying trade regulations among the Partner States Varying, cumbersome and costly transiting procedures in the EAC Partner States Duplication of functions within agencies involved in customs requirements Business registration and licensing. In this regard, various stakeholders including the East African Business Council (EABC) continue to work closely with the EAC Secretariat and Partner States towards the successful operationalization of the Mechanism and the Time-bound framework. In the area of harmonization of standards for goods traded amongst Partner States, 1500 standards have been harmonized as EAC standards. The implementation of the EAC Common Market Protocol is in progress having commenced on 1st July In November 2007, the Partner States signed an interim EAC/EU Economic Partnership Agreement (FEPA) which replaced the non-reciprocal Cotonou Agreement and provides the legal framework for trade between the EU and the EAC Partner States pending the conclusion of EAC-EU EPA anticipated for November, However consultation with key stakeholders indicated that even the anticipated period may not be achieved due to unresolved issues. There is consensus among EAC trade officials and policy makers that the EU has not yet addressed their core concerns to be able to sign the final EPA. These concerns were largely on development component, article on the Most Favored Nations (MFNs) treatment and Export taxation. The general opinion is that the EPAs offer both opportunities and challenges to EAC region. 2.2 Integration and Impact on EAC Trade Turning to the objectives under the Customs Union, EAC Customs Union is unique in purposes and comprehensive in design. Trade promotion is one underlying driver of the EAC Customs Union. Even after the launch of the Common Market in July, 2010, the main concern has remained on how to increase the speed and depth of intra- trade among EAC Partner States. In assessing this aspect, the analysis was done for EAC trade to provide a yard stick for measuring the performance of the region. From 2005 to 2008, EAC intra trade rose by 49% with value of trade having increased from US$ 1,847 to US$ 2,715 (estimates for the original 3 members of EAC). A conspicuous positive performance has been registered by Tanzania and Uganda whose export growth to the region has more than doubled since However this does not include the new members of Rwanda and Burundi (Joint Export and Investment Strategy for the East African Community, 2006). Likewise, Kenya has continued to register increase in total trade with the other Partner States which stood at 25% in The increase in the intra trade is attributable to the tariff liberalization within EAC. A free tariff regime on most of the internal trade was adopted alongside a progressive tariff reduction on some products from Kenya into Tanzania and Uganda. The EAC Partner States have enjoyed a positive transition and there have not been negative impacts to any partner state s economy even after Rwanda and Burundi joined in There is evidence of steady and substantial growth of revenue yields by the Partner States especially Uganda, Tanzania and Rwanda. Another reality that the EAC Customs Union presents is the adoption of harmonized customs tariff and legal regime. A common external tariff of harmonized customs duty rates apply uniformly to trade with third parties Import and Export Trade in EAC In 2008, total intra-eac trade increased by 37.6 percent reaching a record value of US$ 2,715.4 million on account of increased Intra-EAC imports and exports compared to the previous year but these figures exclude trading Partners of Rwanda and Burundi. During that period Tanzania recorded high intra-eac trade flows which more than doubled from US$279.5 million in 2007 to US$ million in This reflected automation of data compilation processes at the entry point bordering with other EAC Partner States. Overall, Kenya continued to dominate the EAC regional trade, accounting for 44.8 percent of total value of trade recording a surplus in intra-eac trade. Uganda and Tanzania accounted for 28.1 percent and

25 percent of the total intra-eac trade respectively. The entry of Rwanda and Burundi in the EAC in 2007 increased the potential for intra EAC trade. Table 2.1 presents details on Import and export trade in EAC by Table 2.1: Imports and Export Trade in EAC, 2009 Country Kenya Tanzania Uganda Rwanda Burundi Imports ( US $ 12.3bn 6.9bn 3.3bn 1.0bn 0.47bn Exports(US $) 5.7bn 1.9bn 1.0bn 0.29bn 0.09bn Import % of GDP 40.8% 33.2% 22.8% 22.6% 42.9% Export % of GDP 18.8% 9.3% 7.2% 6.5% 8.6% Overall GDP(US$) 30.2bn 20.7bn 14.5bn 4.5bn 1.1bn Sources: IMF, Direction of Trade database, IMF Working paper, 2010 The trading volumes of Rwanda and Burundi are much smaller than those of the other EAC members. Since Rwanda and Burundi are also the only two countries in the EAC without forward foreign exchange markets, it is possible that the lack of forward foreign exchange contracts in these two countries is due in part to a lack of demand for such products resulting from the low international trade activities. On the other hand, it is also possible that external trade of Rwanda and Burundi suffers due to the lack of proper instruments for managing foreign exchange risk. Figure 2.1: Total Intra-EAC Trade, (US$ million) Source: Partner States Revenue Authorities, Central Banks and National Statistics Offices, 2009 The figure above reflects that intra EAC trade has been registering positive growth trends since 2005 when the Customs Union commenced. 13

26 i) Trade flow chains Intra-EAC Export chain Kenya s export to EAC region is evenly distributed in Uganda, Tanzania and Rwanda estimated at 26% of the total. Kenya is the significant destination of Tanzania s exports estimated at 44%. Her exports to Uganda are much lower estimated at 28% of exports. On her part, Uganda s chain export destination is Rwanda importing almost 36%, followed by Tanzania at 25% and Burundi at 21%. Tanzania s exports to Rwanda and Burundi are even at 14%. Further, the survey results show that Burundi s exports within the EAC region is skewed towards Rwanda at 58%. Her export to Kenya, Uganda and Tanzania are evenly distributed at v 14 %. For Rwanda her main export destination in the region is Kenya at 56% with the rest of the countries receiving 11% each. ii) Intra EAC Import chain Businesses within the EAC region is predominantly imports from the rest of the world according to this survey s findings. Share of imports from this category ranges between 43% in Burundi to 75% in Tanzania. Europe is a significant source of imports for EAC Partner States, with the share in total imports ranging between 7% and 14%. Businesses reported significant imports from the EAC region too. Companies in Burundi, Rwanda and Uganda use considerable imports from the EAC region estimated at 43%, 32% and 22% respectively. Imports from Kenyan and Tanzanian businesses were rather low estimated at 6% and 5% of total imports respectively. Imports from the COMESA region (non EAC Partner States) were reported by companies in Kenya and Rwanda while the rest of the EAC countries reported nil. SADC region (Non COMESA/EAC Partner States) was reported as a source of imports by companies in all the five EAC countries, with most of imports coming mainly from South Africa. Key importers under this economic block are Kenyan and Tanzanian businesses who reported imports at 18% and 17% respectively (IMF 2007). 2.3 Understanding Trade Facilitation The EAC perspective Trade facilitation is considered broadly as encompassing the environment in which trade transactions take place in the EAC. And as such trade facilitation reform will pay attention to the whole process aiming at streamlining trade procedures in order to reduce the risk and transaction costs, measured in time and money, associated with international trade. Like any other region, in EAC trade facilitation entails availability and cost of essential services required for import and export of goods and services, import and export procedures (e.g. customs or licensing procedures); transport formalities, and insurance, and payment requirements. In the context of the Customs Union, the EAC Partner States undertook comprehensive and integrated approaches to reducing the complexity and cost of the trade transactions process and enhancing the efficiency, transparency and predictability of international trade. Trade facilitation environment in EAC involves various stakeholders in the public and private sectors, domestic and international many of which not traditionally associated with international trade. The EAC has made efforts to rationalize procedures and regulations leading to review of existing measures to ensure outdated procedures are dropped or modernized. There have been efforts towards harmonization of applicable laws especially the Customs law and regulations to introduce consistency and clarity. Customs have been automated to increase the speed of cargo clearance and improvement of physical infrastructure and facilities through effective use of information and communication technology. These elements are differently considered in multilateral, bilateral and regional negotiations on trade facilitation with the agenda in the negotiations usually more focused. 14

27 2.3.2 The multilateral framework At the multilateral level, the trade facilitation agenda is relatively limited. The July 2004 framework (WTO 2004) starting the negotiation towards a potential multilateral trade facilitation agreement was limited to three Articles of the GATT, including Article V on freedom of transit; Article VIII dealing with fees and formalities connected with importation and exportation; and Article X publication and administration of trade regulations. Article V has three main obligations. Firstly, that traffic in transit should not be subject to unnecessary delays or restrictions and should be exempted from customs duties, transit duties and other charges. Secondly, charges such as those associated with transportation or administrative expenses need to be reasonable (transportation charges apply to products being transported on the same route under like conditions). Thirdly products in transit should be given most favoured nation (MFN) treatment. This would require each member to designate roads and routes for goods in transit as well as provide for the necessary facilities such as customs and excise warehouses and container terminals where containers may be landed for transit, for carriage or for delivery to a container depot. An associated requirement is to endeavour to minimize delays. Article VIII of GATT deals with fees and formalities for importation and exportation. In the context, the members are required to keep, at a reasonable level, fees for government regulatory activities performed in connection with the importation and customs entry processes, such as the processing and clearing of documents and goods, and inspections. A second requirement is the need to reduce the number and range of fees and charges, as well as minimizing the incidence and complexity of import and export formalities and decreasing and simplifying import and export documentation requirements. A necessary condition for compliance also is the ability to distinguish between import, export and excise duties and anti-dumping duties and countervailing duties on the one hand, and customs related service charges, such as import and export entry transaction fees, inward and outward cargo transaction fees, licensing fees, stamp fees etc on the other. Many of the issues covered in Article VIII have been dealt with in some African countries e.g. through the Revised Kyoto Convention of the World Customs Organization (WCO) covering prearrival clearance, post audit systems, risk management and single administration document (SAD). Most countries and regional integration schemes have adopted the ASYCUDA system to upgrade their customs administration including EAC Partner States. Article X (Publication and Administration of Trade Regulations) imposes on contracting parties four main obligations. First, is the obligation to promptly publish and in the relevant media all decisions affecting international trade policy such as laws, regulations, judicial decisions and administrative rulings of general application that affect imports and exports. A second obligation is for this official publication to precede enforcement. Third obligation is the need to administer laws, regulations, decisions and rulings related to imports and exports in a uniform, impartial and reasonable manner. Overall the main intention of Article X is to provide to the business community the basic rule of law and administrative justice procedures and guarantee predictability and fairness. All African governments have moved with some sort of reform in this area. Negotiations in the World Trade Organization (WTO) framework also aim at averting policy reversals. Other GATT agreements also deal with trade facilitation related issues such as the Agreement on customs valuation; the Agreement on Import Licensing, Agreement on Pre-shipment Inspection; the Agreement on Rules of Origin; the Agreement on Technical Barriers to Trade; or the Agreement on the Application of Sanitary and Phyto-sanitary Measures. In December 2009, the Negotiating Group on Trade Facilitation under the Doha Development Agenda reached an agreement on a draft text for negotiations during This agreement reflects all the proposals put forth by different delegations. It served as a starting point for negotiations opening in February 2010 on the content of the future trade facilitation agreement to be adopted by the WTO membership (ICTSD, 2010b). At this level, there was hope that during these negotiations African delegations which include EAC will emphasise the importance of including special and differential treatment provisions, as well as technical assistance and capacity building to meet their trade facilitation needs in the context of the agreement. Furthermore, African delegations would also link discussion to their Aid for Trade concerns, in particular with regards to trade-related infrastructure, which is one of the main impediments to trade (Foster and Briceño-Garmendia, 2010). A positive outcome in 15

28 the Doha Round of international trade negotiations remains critical to EAC and generally Africa s efforts towards increasing its share in global trade. However, African Economic Outlook (AEO 2009, Box 1) highlights, the Doha Round stalemate since the Cancun Ministerial of 2003 and has been attributed to the lack of consensus among WTO countries on agriculture and non-agriculture market access (NAMA) issues. No breakthrough was achieved up to The emergence of the new global governance architecture in which the G-20 plays a bigger role did not help the Doha Round, as the Geneva negotiators never translated into action. Indeed, the negotiations achieved nothing across-the-board, despite the urgency for swift action introduced by the financial and economic crises. However, as highlighted in the Economic Commission for Africa (ECA) and African Union Commission (AUC) Economic Report on Africa 2010 released in March 2010, while no breakthrough occurred in the substantive negotiations there were process developments that have implications for Africa and obviously EAC Trade Facilitation at Regional Level Regionally, the Regional Economic Communities (EAC, COMESA and SADC) have been active in adopting trade facilitation programs to harmonize policies and regulations for the smooth flow of passengers and goods throughout the region. A number of instruments and common standards have been introduced to facilitate regional transport and trade including harmonized axle load limits, harmonized transit charges, regional carrier licensing, regional third party motor vehicle insurance, and regional customs transit system (EABC Brief 2009). But despite being adopted by most member countries, effective implementation has been erratic and generally weak. The EAC has committed itself to initiating a one stop border post within the community as a way of halving the amount of time spent at borders (URA 2010). A study and business plan for instituting a one stop border post at Malaba for both road and railway traffic was under taken in 2004 by the USAID-ECA Trade Hub and the Kenyan ministry of transport. Currently Kenya and Uganda Revenue Authorities at Malaba verify goods at one point on the Ugandan side. This has reduced the amount of time taken to process documents. EAC Partner States are implementing all the WTO agreements which relate to trade facilitation Trade Facilitation in bilateral negotiations Trade facilitation has been at the centre of most African regional trade integration schemes, however although it is an important element of the trade arrangements these regions enter into, especially with their main trading partner the European Union (EU) the provisions on trade facilitation are not in binding terms. The only existing agreement between an African region and the EU is the Trade Development and Cooperation Agreement (TDCA) with South Africa. This Agreement does not have explicit provision on trade facilitation. Trade facilitation-related aspects of this agreement pertain to cooperation between the customs administrations, particularly with respect to customs duties and mutual administrative assistance in customs matters. The envisaged cooperation in the EPA context is expected to enhance customs reform programs already initiated as part of ongoing national or regional programs. The intended objective appears to be capacity building in core areas such as information and communication technology infrastructure along transit corridors; assistance for the implementation of an enhanced regional trade facilitation program; assistance and building efficient road and railways. In benchmarking with other regions, under the ECOWAS, the EPA focuses on the simplification of procedures; administrative cooperation and information exchange, implementation of rules decided bilaterally or multilaterally, cooperation in customs valuation, among other things. In addition to issues of interest to West African above, sanitary and phyto-sanitary measures (SPS) and technical barriers to trade (TBT) are also included. UNECA has done extenstive studies on EPAs (ARIA IV and ERA 2010) and the studies made explicit recommendations for how regional integration in Africa can benefit from EPAs and how to mitigate the negative impacts. The studies also made recommendations for intra-africa trade such as infrastructure, corridor management, maritime transport, improvements in port management among others. Explicitly recognising a linkage between the WTO Doha Round and the EPAs will be vital. The question whether the Doha Round should be concluded before finalising the comprehensive EPAs remains relevant. This question is especially significant because the comprehensive EPAs foresee the possibility of finalising agreements 16

29 in important areas, such as services and rules, currently under negotiations in the Doha Round. Also, the fundamental questions in relation to EPAs and African regional integration must be resolved. Given the dynamism in Africa s integration agenda as evidenced by the COMESA-EAC-SADC proposed grand free trade area and the African Union s Minimum Integration Programme, the EPAs need to take account of these developments (ECA and AU, 2009). 17

30 CHAPTER THREE Trade Facilitation Environment In Eac 3.0 A Situational Analysis This analysis examines the business regulations in the East African countries of Burundi, Kenya, Rwanda, Tanzania and Uganda as a means of understanding the trade facilitation environment. At the onset, the study finds that East African countries are reforming but still have further to go. According to the World Bank Doing Business report (2010), none of the EAC country makes it into the global top 30 on the ease of doing business. And that the average ranking for East African countries is 116 out of 183 economies overall. But performance varies across East Africa. Rwanda was the best which ranks 67th on the ease of doing. In recent years, EAC economies have intensified efforts to cooperate with and learn from one another. They have worked to harmonize legislations relating to the EAC Customs Union and common market protocols while establishing such links as the Network of Reformers based on similar models in the OECD and European Union (World Bank 2010 p.3). Doing Business recorded a total of 46 reforms done in EAC since 2004 and indicated that in 2008/09 EAC recorded 9 reforms, 50% more than the 6 recorded the year before. Of the 9 reforms, 7 were carried out in Rwanda which led the world in Doing Business reforms. The other 2 reforms in East Africa were carried out in Kenya and Uganda. Since 2004, the areas with the most Doing Business reforms in the region have been on trading across borders and starting a business. The business environment has observedly improved in Rwanda as quoted in a business magazine; The study confirms that indeed reforms have shaped the Rwandan business environment. One sees and smells commitment to improving the business environment in Rwanda for cross border trade through a single window institution for trade facilitation, the RDB. Source: Summit Business Review June,2010 The study revealed that in Burundi, Kenya, Tanzania and Uganda entrepreneurs must interact with numerous agencies including the registrar of companies, revenue authority, Ministry of Trade, Ministry of Labour, Social Security fund, Health Authority and Town Planning department as well as commercial banks. In Rwanda, by contrast, the entire company registration is conducted at a one-stop shop established at its Commercial Registration Department. In addition, the study reveals that corporate tax reform is integral to creating a true common market for the East African Community (EAC). The study noted that as EAC businesses expands, to take advantage of the Common Market and moving their operations across borders, they need to know that the burdens of complying with different tax systems are not too onerous and that businesses from one partner state are not receiving more favourable tax treatment than businesses from another. In order to amplify this analysis, the study compares the ease of paying taxes among the EAC Partner States as revealed by hard data of the World Bank. Table 3.1 Country Where is it easy to pay taxes and where is not? Rwanda 60 Uganda 66 Rank Burundi 116 Tanzania 119 Kenya 164 Source: World Bank Doing Business database,

31 Rankings are the average of the economy s rankings on the number of payments, time and total tax rate. Rwanda ranked the best at 60th position followed by Uganda at 66th. In the context of promoting trade in the EAC, the study analyzed the impact on SME businesses with respect to paying taxes. Findings indicated that simplifying tax regimes for micro and small businesses helps reduce obstacles to formalization and encourages entrepreneurship. Good practices in tax administration already exist within the EAC but reforming Partners need to share good practices with other Partner States. Within East Africa, the Kenyan government is implementing an electronic tax filing system to facilitate tax compliance for businesses. This effort is being developed through the Kenya Revenue Authority s online portal. Electronic filing is now available for companies falling under the Large Taxpayers Office. It is expected to be rolled out to small and medium-size enterprises in due course. This system has also been adopted in Uganda. However the major complaint in Uganda is that the system requires sensitization and it is assumed that all enterprises have access to the Internet, there is a lot of system inefficiencies, and the version of the ICT package is not compatible with software packages used by most enterprises. Furthermore, the EAC economies have reached considerable harmonization in corporate income tax and VAT. There is a standard corporate income tax rate of 30% except in Burundi, where it is 35%. When Tanzania reduces its VAT to 18% (expected in the near future), 4 of 5 member states will have the same rate; Kenya has a lower standard rate of 16%. However, harmonization of tax rates is no panacea for businesses crossing borders in the EAC. In fact, the variation in tax rates within the European Union is larger, and it does not significantly impede a functioning common market. What may be more important is that tax procedures need to be similar throughout the EAC in order to facilitate business and trade. The study also found out that East African economies have lagged behind in tax reforms as compared to other regions. For instance, of the 185 tax reforms recorded globally by Doing Business since 2004, only 2 took place in East African countries of Tanzania and Rwanda. As recorded by Doing Business 2006, in July 2004 a new income tax law in Tanzania was introduced and this broadened the nation s tax base, closed various loopholes and introduced taxpayer self-assessments. Rwanda reduced its corporate income tax rate from 35% to 30% in January 2006 and allowed faster tax depreciation for certain fixed assets. The study also analysed the ease of trading in the region comparing the EAC Partner States. Using World bank hard data on doing business table 3.2 below presents an interesting comparison of EAC Country s ranking globally; Table 3.2.Where is trading easy and where is not? Country Mauritius 19 Rank Tanzania 108 Uganda 145 Kenya 147 Rwanda 170 Burundi 175 Source: Doing Business database, Rankings are the average of the economy s rankings on the documents, time and cost required to export and import. Tanzania presents the country where trading across borders is easy though much below the best practice countries like Mauritius. None of EAC country could rank with in the top 50 countries. Doing Business measures the procedural requirements, including the number of necessary documents and the associated time and cost (excluding tariffs), for exporting and importing by ocean transport. The indicators cover documentation requirements and procedures at customs and the ports as well as inland transport to the largest business city. The more time consuming and costly it is to export or import, the more difficult it is for traders to be competitive in international markets on bureaucratic approvals. Recognizing the importance of an environment conducive to 19

32 trade, members of the East African Community (EAC) have reformed trade practices. Indeed, some of the most active reformers in Sub-Saharan Africa are in the EAC (World Bank 2010). While recent reforms have helped EAC Partner States, the study revealed that significant challenges still exist in trade between themselves as well as with external partners. Within the region, the trading environment varies greatly. As measured by World Bank Doing Business report, exporting takes an average of 24 days in Tanzania but 47 days in Burundi nearly twice as long. And for the same consignment, while an exporter in Tanzania incurs a cost of $1,262 for trade-related expenses (excluding ocean transport costs), a trader in Rwanda incurs a cost of $5,070 on average. Although being landlocked creates its own logistical difficulties, not all trading problems stem from geography. While 5 documents suffice to clear goods in Tanzania, traders in landlocked Burundi and Rwanda must submit 4 additional documents. This adds to the complexity of trade and affects the competitiveness of trade in the region. According to a survey by the East African Business Council (2008), 70% of clearing and forwarding agents in the EAC region consider customs to be slow. The survey estimated that customs delays cost truck drivers some 45,000 lost days each year and an extra $2 million in bribes paid to customs officials to speed up the process. Even where risk-based inspection systems exist, the share of cargo subjected to physical inspection remains high with more than 60% in some EAC countries thus delaying clearance. Moreover, the lack of mutual recognition of inspection certificates forces traders to undergo repeated certification tests within the sub region. In addition agencies providing trade documentation are different in different Partner States thus delaying processes of approval and assessment. There was a major complaint in Rwanda that Certificates of origin in Uganda are issued by the Uganda Export Promotion Board(UEPB) which does not have offices at border posts and this often complication verifications where need arises. The future was that Rwanda Revenue Authority would no longer accept certificates issued by UEPB. The inspection regimes are also hampered by the proliferation of road blocks and delays at weigh bridges. According to the latest estimates by a study done by the East African Business Council, roadblocks and delays at weigh bridges lead to the loss of 126,749 working days and $7.9 million in expediting payments a year. But the study acknowledges that the public sector is not entirely responsible for the difficult trading environment. Some delays in the clearance process were found to stem from the entry of incorrect information and lack of business integrity among the traders themselves. In many cases, errors in custom declarations are due to lack of knowledge of the rules and regulations. But in some cases shippers deliberately record inaccurate information to cover up trade in contraband or to evade tariffs. And deceitful traders may exploit the information gap that exists between different customs services in the region because of the lack of an EAC-wide integrated customs system. 3.1 Trading Across Borders in EAC The study examined cross border trade in EAC and the areas in which EAC Partner States have addressed the constraints associated with trading across borders. The particular concern was on the costs associated with exports and imports, constraints in customs clearances, tariffs and cargo handling principally at the main ports of Mombasa and Dar-es-salaam. A review of various studies revealed that high trade transactions costs constrain the trade performance of African, Caribbean and Pacific economies negotiating Economic Partnership Agreements with the European Union. The study conducted by World Bank in 2007 estimated that reducing border delays in these economies by 1 day could increase exports by 1%. And a study using data from 167 countries found that every $1 reduction in trade costs could increase exports by more than $1,000. The potential benefits from reforms are not limited to exporters. The public treasury could be a big winner. Peter Malinga, commissioner of customs in Uganda (World Bank 2010) noted that the country s efforts to improve its customs administration and reduce corruption helped increase customs revenue by 24% between 2007 and Therefore trade facilitation reforms yield the greatest benefits when accompanied by reforms in other areas such as business start-up or contract enforcement. As reflected in table 3.3 below, Tanzania has made cross border trade much easier and cheaper compared to other Partner States. 20

33 Table 3.3: Trade Across Borders requirements No. of Documents to export Time to export/days Costs to export( US $) per container No. of Documents to Import) Time to Import / days Uganda , ,390 Kenya , ,190 Tanzania , ,475 Rwanda , ,070 Burundi , ,285 Source: World Bank Doing Business in East Africa Database, Costs of Import per container Trading across the border is much easier, cheaper and simplified in Tanzania. The very obvious reason is that where as an exporter or importer would require 5 documents to export/import in Tanzania, the same entrepreneur in Kenya, Rwanda and Burundi would require 9 documents an additional 4 documents. Rwanda and Burundi presents the most uncompetitive environment for trading across borders with high costs associated with shipping a container and many days, documents required and time delays. All documents required by customs and other agencies, document preparation, customs clearance and technical control, port handling, inland transport and handling US$ per 20-foot container, no bribes or tariffs included. Figure 3.1: Constraints with documents and costs Source: World Bank Doing Business database, Where the trade environment is favourable, businesses are better positioned to take advantage of new opportunities, to grow and to create jobs. But in EAC economies cumbersome procedures, long delays and high costs stifle trade potential. In Burundi for example, an exporter must spend 47 days completing all export formalities from the time the sales contract is signed until the goods are on the vessel. Meanwhile, an exporter in landlocked Belarus can ship goods in just a third of that time on average (World Bank 2010). Recognizing the importance of an environment conducive to trade, EAC Partner States have reformed trade practices. In the 5 years since 2006, Doing Business has recorded trade reforms in 4 years for Rwanda, in 3years for Uganda, in 2years for Kenya and in 1year for Tanzania. Burundi was the only EAC country that did not register reforms to better facilitate trade in that period. 21

34 3.2 Existing ICT Systems for Customs In order to improve efficiency in customs clearances and administration, the study revealed that EAC Partner States undertook a number of custom modernizations efforts mainly concerned with integration of ICTs and trying as much as possible to make customs paperless. For instance Kenya embarked on its far-reaching Revenue Administration Reform since 2005 and modernization program replacing its old customs system with a new one. The new system in Kenya allows traders to submit customs declarations electronically and pay duties directly. Selective post clearance verifications and risk analysis techniques save time by eliminating unnecessary inspections. And a new reward scheme for employees, based on performance targets for cargo clearance, better aligns employee compensation with clearance objectives. In 2009, Rwanda border posts extended their operating hours by 4 hours, closing at 10:00 p.m. rather than 6:00 p.m. Rwanda customs increased the number of declaration acceptance points and introduced automatic clearance of goods at selected border posts. It also established a risk management and intelligence unit to implement new risk-based inspections and clearances. Prearrival clearances and prepayment systems have also been implemented. Rwanda is also implementing ASCUDA ++. Tanzania also introduced UNCTAD s Automated System for Customs Data (ASYCUDA++) in Under this new system, traders, inspection agencies and shippers can submit information directly to customs. The system has the potential to validate entries by users within minutes, thereby correcting erroneous entries and saving time. But much remains to be done to achieve effective functioning. Tanzania also introduced a risk management system. Risk assessments undertaken by the destination inspection company (TISCAN) can share information with port authorities and customs, reducing clearance times for most traders carrying low-risk cargo. In Uganda a new secure system of seals for transit goods was put into place in Seals placed at the point of entry are removed only at the point of exit, reducing the need for inspection at different stages of transit and thus saving time and money. Uganda s ASYCUDA++ system has been extended to enable electronic declarations at additional customs stations around the country. And in some stations (such as Busia) the ASYCUDA++ system has been linked with banks payment systems so that traders can make payments at their banks, sending an electronic receipt to customs. Uganda has also implemented an electronic bond-cancellation system between border stations and a self-assessment module for customs duties. In addition, customs officials found to engage in corrupt practices are now promptly fired. To complement all these efforts, border cooperation at Malaba has been enhanced with the implementation of joint inspections by customs authorities from both Kenya and Uganda. Rwanda, Uganda and Kenya have also implemented a RADDEX (Rapid Data Exchange System) system that needs to be fast tracked to other Partner States of Tanzania and Burundi. Rwanda has also decentralized all trade documentation process to ease cargo movement and have introduced electronic Container Scanners at Magerwa to ease cargo clearance and inspection. Uganda and Rwanda have also implemented the simplified version of custom documentation at Katuna, Kakitumba, Buziba, Kamwezi, and Kanika and this has facilitated small traders especially for agriculture products. 3.3 Business Registration and Licensing Part of the examination of the business facilitation environment in EAC Partner States was an analysis of the process and procedures of acquiring business Licenses and registration of property. The study reveals that business registration and property registration is somewhat a cumbersome and bureaucratic exercise in EAC countries. Procedures are quite tiresome, takes too long and sometimes involve cases of informal charges and corruption. And it is even more difficult when government regulations 22

35 and procedures, rather than facilitating business transactions, are unduly burdensome. A recent mapping exercise in Uganda established that 45 institutions, 65 laws and 254 different regulatory approvals are imposed on businesses. For an entrepreneur in Kampala seeking to register property, this translates into waiting a month before a government valuer will inspect the property to determine its value for transfer purposes and assessment of the stamp duty. In Burundi the same entrepreneur would have to wait 2 months just to file the name change at the land registry. And in Tanzania that entrepreneur would have to wait 3 weeks to obtain the capital gains tax certificate needed to complete the property registration. In Kenya until recent reforms began, there were a total of 1,347 business licenses on the books, creating confusion among entrepreneurs seeking to register businesses in Kenya. EAC Partner States have particularly a poor global ranking in terms of business facilitation environment with exception of Rwanda as reflected in table 3.4 Table 3.4 Global Ranking of EAC Countries Countries Global Rank EAC Rank Rwanda 67 1 Kenya 95 2 Uganda Tanzania Burundi Source: Doing Business database, World Bank, Rwana and Kenya ranked better than the rest of the EAC Partner States. The study revealed that Rwanda has steadily reformed its commercial laws and institutions, and improved regulations and trade facilitation across the borders and property registration. The cost to start a business in East Africa ranges from 10.1% of income per capita in Rwanda to 151.6% in Burundi. Rwanda is the only country in East Africa where a company is registered with a single fee (RF 25,000, about $43). Elsewhere, new businesses bear additional costs. In Burundi, Kenya and Uganda entrepreneurs must pay to have company documents verified by a notary or a commissioner for oaths. In some countries of EAC entrepreneurs are required to obtain a business permit or trading license in Kenya, at a cost of KSh 5,000 ($64) and in Uganda, for UgSh 206,500 ($98). In Burundi a single procedure publication in a legal journal costs FBu 130,000 ($104) and accounts for about half the total cost to start a business. Another costly procedure is creating a company seal costing FBu 20,000 ($16) in Burundi, KSh 3,000 ($39) in Kenya and UgSh 225,000 ($106) in Uganda. In Kenya the 2006 Licensing Laws (Repeals and Amendments) Act eliminated the need for a trading license and business permit. 3.4 Coordination among Customs Authorities The analysis of institutions coordination in EAC revealed that there is considerable networking among customs agencies. In Particular, the revenue authorities of Kenya, Uganda, Tanzania and Rwanda have made taxpayer consultation an important part of their approach to achieve voluntary compliance. In addition, these agencies jointly hold regular seminars and workshops. Kenya, Tanzania and Rwanda hold an annual event called Taxpayers Day which is used to highlight the importance of voluntary tax compliance and to award individuals and companies that perform exceptionally well in various categories. In Uganda such events are held monthly and Uganda publishes annually the top 100 tax payers in the country through the public media as a way of motivating businesses into tax compliance. Indeed, the study mentioned Rwanda as a country with a good track record 23

36 in taxpayer consultation and promotion of integrity. In order to enhance information exchange the Revenue Authorities Digital Data Exchange (RADDEX) has been adopted thus providing a foundation for building a region wide system. 3.5 Harmonization of Regulations and Standards In an effort to improve the regulatory environment, the EAC Partner States adopted a common customs law ( EAC report 2008). The EAC now implements a Common External Tariff (CET) and EAC Rules of Origin. There is also harmonized EAC Standards that are acknowledged across the region for over 1500 products. Currently the EAC Directorate of Customs and Trade is working on Harmonization of the Customs Valuation manual expected to be completed soon. The EAC Partner States have moved in the positive direction to harmonize over 1500 products standards however the potential and scope or standards harmonization is still wide with the potential estimated at over 5000 standards. The study established that Standards among the EAC Partner States have served mainly to inhibit trade. Partner States have tendered to use standards are non tariff barriers to trade within the region. Instead of facilitating the flow of goods, they have become a barrier themselves from country to country. In addition regulatory authorities which are the respective Bureaus of Standards in the Partner States tend to require product testing in the importing countries to establish compliance with safety and health regulations. Although the EAC Partner States have moved to develop regional harmonized standards, these have served little. There is an EAC SQMT Protocol 2001 and the SQMT Act 2006 which calls for cooperation in Standards, quality assurance, metrology and testing (SQMT) activities and adherence to international standards. The Protocols elaborate the rules of application, with use of Sanitary and Phytosanitary measures approved at the EAC Sectoral Council on Agriculture and Food security. This provision is in line with Article 108 of the EAC Treaty and Article 38 of the EAC Customs Union Protocol. The SPS Protocol is also compatible with the WTO having been developed under WTO SPS guiding principles. The study revealed that though the process of harmonizing standards has been ongoing since 2006, according to the EABC the business community have generally not been involved fully in the process of harmonization of standards nor have they been adequately trained to comply with new standards. Secondary, the different Partner States threshold of standards specifications differ profoundly with Kenya having the most (5000) and Burundi the least (1000). This is problematic as the EAC has only harmonized 1500 out of the potential This means that Partner States face numerous bottlenecks to import or export a large number of products since there are no mutually recognised standards for all. Some problems are already being experiencing between Kenya and Tanzania. Kenya is concerned that Tanzania does not accept vehicles assembled in Kenya entering the Tanzania Market and the major complaint is that they do not meet Tanzania standards. A similar case is also in Tanzania regarding the sale of Tanzania made alcoholic spirit being rejected in the Kenya market due to standards. In addition the development of the standards agencies differ in capacity, technical knowledge and facilities. Whereas Partner States like Kenya have better Laboratories and inspection facilities, a country like Burundi lacks not only facilities and laboratories but also lack technical staff in quality testing. To further boost trade in the EAC, bottlenecks arising from the lack of harmonization of regulations and practices at the regional level need to be addressed. For example, while border posts in Rwanda now operate until 10:00 p.m., those in neighboring Burundi still close at 4:00 p.m. Axle-load limits also differ by country. Kenya, Rwanda, and Uganda follow the Common Market for Eastern and Southern Africa (COMESA) limit of 18 tons, while Tanzania complies with the Southern African Development Community (SADC) limit of 16 tons. In addition, the lack of mutually recognized test certificates and quality certification marks causes delays because goods undergo repeated testing and inspection certification procedures at borders. It s no wonder that traders consider the lack of mutual recognition agreements a barrier to trade in the EAC. The study revealed that standard marks for individual Partner States are recognized within the region but due to attitudes and lack of trust, there are tendencies for un warranted behavior by the officers in charge of inspection at border posts to require re-testing of these products. 24

37 3.6 Role of Trade Facilitation Agencies Customs Administration Agencies Custom Administration is managed by respective Revenue Authorities. The Revenue Authorities are the primary agencies responsible for administration and implementation of the community customs law particularly the implementation of rules of origin, custom valuation and implementation of the tax regime in the context of the EAC integration process. In some of the Partner States such as Rwanda and Kenya, the Revenue Authorities are the sole issuers of trade documentation such as the Certificates of origin (Euro 1, COMESA Certificate, EAC Certificate and Simplified EAC Certificate for Small scale traders at border points). In other countries like Tanzania, the Chamber of Commerce is responsible for issuing trade documentation and Uganda, the Export Promotion Board is in charge. The Revenue Authorities are also responsible for the customs valuation process in the context of the EAC Manual of Rules of origin. EAC Manual of the Rules of Origin (2006) is a key reference document for all custom officials in EAC. The EAC Protocol under Article 14 provides that goods shall be accepted as eligible for Community tariff treatment if they originate in the Partner States. The present EAC Rules of origin under Rule 4 provides criteria to enable the authorities in the Partner States to determine which goods qualify as originating from EAC. Partner States are all implementing the 4 tier criteria of Customs Valuation and rules of origin provided under the Manual on EAC Rules of Origin 2006 (p.3) as; a) Goods wholly produced or obtained in the Partner State ( no materials obtained from outside the EAC have been used; or b) Goods produced in the Partner States and the C.I.F value of any foreign (that is non-eac) materials used does not exceed 60% of the total cost of all materials used in their production c) Goods produced in the Partner States whose value added resulting from the process of production accounts for at least 35% of the ex-factory cost of the goods d) Goods produced in Partner States and are classified or become classified under a Tariff heading other than the tariff heading under which they were imported, always provided that the change to the character and nature of the goods is such that it demands as change in the four digit of the classification under the HS Tariff. The exporter may base his/her claim to the EAC Community tariff treatment on any of the four criteria characterised above. The Manual for EAC provides the formula for calculation of the material content under Rules 4(1) b,i) of the Protocol, Value added criterion rule 4(1) b, ii) and for calculation of ex-factory costs Export Promotion Agencies The EAC Partner States have government aided trade promotion agencies but all of them are concerned about the limited funding from respective Governments. The export promotion agencies are responsible for; Developing export promotion programmes Implementation of Market develop activities to target markets Promotion and support for product development in export sectors Promote export diversification Provide timely and reliable export market information to the business community Undertake export skills training for the business community and 25

38 Promote the formulation of policies and strategies for export promotion and development The analysis revealed that within the EAC, most of the export promotion activities and strategies for market development have remained on paper and shelved without implementation. An example is the Uganda Export Promotion Board (UEPB) where four sector export development strategies have remained shelved due to lack of budget support. UEPB with the support of ITC (2005) had developed sector specific strategies for trade in Services, apiculture, commercial crafts and horticulture but have never been implemented due to lack of budget support. In Kenya the National Export Strategy formulated in 2003 has remained a non starter document because the implementation framework did not clearly define the source of funds for implementing the activities and as such it has remained unfunded by Government of Kenya. The Export Promotion Council (EPC) which should have played a key role in implementing the strategy was never mandated as a key secretariat for coordinating the implementation activities of the strategy. In contrast, Rwanda export promotion activities were merged into a division within a consolidated and strengthened Rwanda Development Board (RDB) which has now become a one stop centre for all trade and investment facilitation services. In Burundi export promotion activities are vested with the Investment Promotion Agency which is a new agency with less than a year in existence. The status of the export promotion agency in Tanzania has been elevated, BET now known as TANTRADE has become an independent authority of Government. There is generally no uniform status of export promotion agencies in the EAC and this has implications in developing regional export promotion programmes. Their roles, mandate and function are indifferent with implications on their ability for regional cooperation in export promotion. Table 3.5: Status of Export Promotion Agencies in EAC Partner States Country Name of Agency Status Implications Kenya Uganda Tanzania Export Promotion Council of Kenya(EPC) Uganda Export Promotion Board (UEPB) Tanzania Trade Authority(TANTRADE) Formerly Board of External Trade Semi-Autonomy Agency of the Ministry of Trade, Industry and Marketing Semi-Autonomy Agency of the Ministry of, Tourism, Trade and Industry Independent Authority of Government Work is specific to export promotion and export development activities Work is specific to export promotion and export development activities The authority is now more strengthened and its mandate broadened. It is now responsible for both domestic and export trade development. Rwanda Rwanda Development Board(RDB) Independent Body Responsible for all business support services and export development is just one division of RDB. Burundi Burundi Investment Promotion Agency(BIA) Investment Agency under the Ministry of Planning and Municipality Development The main focus is on Investment promotion for export development The differences in the institutions status and functional role of the agencies have an impact on the cooperation of the agencies to develop regional wide export promotion activities. As reflected in the table above, the decision making hierarchy and framework 26

39 is different by those who head export promotion activities in the EAC Partner States. Apart from Kenya and Uganda, the institutional status in other countries is somewhat different Private Sector Agencies The East African Business Council (EABC) is the principle umbrella body of the private sector activities within the EAC integration framework. The analysis indicates that EABC represents the interests and aspirations of the private sector in all EAC meetings and in trade policy formulation. EABC also coordinates the private sector voices in influencing and advocating for reforms for a better business environment and any unfair business practices of Partner States. In particular EABC chairs the monitoring mechanism of the Non Tariff Barriers with the basic aim that the NTBs are eliminated. There are other numerous private sector agencies within the EAC that provide a lot of trade facilitation services. They are also part of the trade development and trade support network within the region and most of these are members of the EABC. These institutions include the Chambers of commerce, Private sector associations and federation as outlined in Table 3.6; Table 3.6: Private Sector Agencies in EAC Partner States Countries Chamber of Commerce Private Sector Organization Other Associations Kenya Uganda Tanzania Rwanda Kenya Chamber of Commerce and Industry(KNCCI) Uganda National Chamber of Commerce & Industry(UNCCI) Uganda Allied Chamber of Commerce, Industry and Agriculture(UACCIA) Tanzania Chamber of Commerce, Industry and Agriculture(TCCIA) Rwanda Chamber of Commerce & Industry Kenya Private Sector Alliance Private Sector Foundations Uganda(PSFU) Enterprise Uganda Trade And Business Tanzania Private Sector Foundation (TPSF) Confederation of Tanzania Industries(CTI) Small Industries Development Organization(SIDO) Private Sector Foundation of Rwanda(RPSF) Kenya Association of Manufacturers (KAM) Kenya Association of Freight Forwarders Uganda Manufacturers Associations Uganda Association of Clearing and Forwarding Agencies Uganda Transporters Association Uganda Women Entrepreneurs Association Uganda Insurers Association Tanzania Freight Forwarders Association Association of Clearing and Forwarding Agencies Burundi Federation of Chambers of Commerce of Burundi NIL Burundi Manufacturers Association 27

40 3.6.5 Training Institutions The EAC Partner States still lack in many areas of export related training and trade facilitation training and capacity building. Apart from main stream academic training, there are few specialised training institutions that offer the syllabi relevant to export promotion, customs valuation, rules of origin, trade negotiations among others. In the EAC region, the main and more focused training on trade facilitation and trade negotiations is conducted by the Trade Policy Training Centre in Africa (TRAPCA) based in Arusha Tanzania which is affiliated to the Eastern and Southern Africa Management Institute (ESAMI). Government officials, business organizations and corporate agencies have benefited in training programmes for Trade Policy, trade facilitation and negotiation skills. TRAPCA syllabi and course materials cover trainings in areas of; Theoretical issues and practical aspects in Trade Policy Issues and aspects of understanding of Trade negotiations and Cooperation Trade Law and Development Modules in Investment and Trade Facilitation Regional Integration Source: TRAPCA Prospectus, TRAPCA was inaugurated in 2006 and has many expert trainers and is cooperating with development agencies like SIDA, Sweden to provide training in trade policy and trade law. It is managed by ESAMI and the goal is to address LDC weaknesses in capacity and knowledge in trade issues. But the problem of the courses and modules at TRAPCA is that they tend to be more academic and thus not addressing the core issues of ordinary business operatives in the EAC region. Export promotion agencies in EAC offer structured training programmes which addressed modules in areas of export competence and skills. 3.7 Trade Facilitation Infrastructure and Transportation The Road Infrastructure Overall, the Northern Corridor road network which is the principle transit route is generally in poor condition, due to inadequate maintenance. The analysis has shown that the significant part of the trade within the region is in food products with a recent growth trend in manufactured consumables and inputs such as building materials. There is a lot of informal trade that uses transit routes which are often along traditional cross-border paths, away from the major transport corridors (UBOS-ICBT 2008). Hence, such trade remains inadequately captured in the official national statistics. It will be important to understand the implications of NTMs (and their elimination) on these trade flows. In addition it is vital to understand that poor road infrastructure continues to increase the costs of doing business and reduces the competitiveness of the EAC region. Transport corridors for formal goods trade is still in poor condition. As understood, the backbone of formal intra-eac trade are two overland roads and rail routes, the Northern and Central corridors - starting from the ports of Mombasa and Dar-es-salaam respectively and reaching the border of DRC on the region s western edge along with a north-south road link through Namanga on the Kenya-Tanzania border. These corridors are also critical for transit of EAC s imports from outside the region and its goods exports beyond the region. This therefore suggests a focus on NTMs related to the functioning of these corridors in particular. In terms of the state of the road and railway infrastructure, an acute constraint for the producers, traders and transporters of goods 28

41 in the EAC is the poor physical condition of the transport and communications infrastructure. The potential for rail transport is recognized, even though the current state of disrepair of rail along both corridors and the inadequacy of rail equipment is significant. In addition, constraints include the poor state and maintenance of roads and weighbridges, the small capacity and disrepair of the ports on the Indian Ocean and the lakes, and the underdeveloped water transportation across Lake Victoria and Tanganyika. The competiveness and investment climate of the region largely depends on the quality of this infrastructure. Rehabilitation of Road network: Consultations among the stakeholders revealed that the upgrading works on the Tanzanian portion for the Arusha Namanga commenced in July 2008 and is expected to be completed by July The upgrading works for the Kenyan portion for the Athi River - Namanga commenced in November 2007 and is expected to be completed in November The border post at Namanga is to be reconstructed under the project to cater for the International One Stop Border Post. It is anticipated that the upgraded road infrastructure will lower border transit time and transport costs between Arusha and Nairobi and beyond. In Uganda, the construction of the Northern by pass phase one was completed last year and phase two has not commenced. However this road is an important connection to the Northern corridor transit route The Railways The analysis was informed that a desire to enhance efficiency resulted into the privatization of the railways. The Northern Corridor railway network comprises of the Kenya/Uganda sections, which runs from Mombasa through Nairobi, Nakuru, Eldoret, Malaba, Jinja, and Kampala to Kasese in western Uganda (a distance of approximately 1660 km). A branch line runs from Nakuru to Kisumu on Lake Victoria (217 km), from where there is a wagon ferry link with Jinja and Port Bell in Kampala. The Railway infrastructure in EAC does not measure to a standard required to facilitate increased trade, the state of railway infrastructure is poor in EAC. The problems associated are that, the current railway systems (Kenya Railways / Rift Valley Consortium, Tanzania Railways / Tazara) are antiquated and are over 100 years old. In addition, there is no urban rail and no significant new/efficient inter-urban rail. However, there has been effort to improve the railway systems, with the partial privatisation of the Kenya-Uganda rail (joint) and the Tanzania railway. Already, Tazara has carried out some improvement on the system and made some expansion. The Kenya-Uganda railway line was placed in the management of the South African company, the Rift Valley Railways in 2006 for a period of 25 years. However, despite this privatization effort, old and poorly maintained tracks, locomotives, coaches and wagons continue to undermine the effective performance of the railway. Some of the challenges of utilizing the railway for movement of goods are that; the Level of automation of the Rift valley Railways systems is low. This is causing delays in cargo transportation, Processing of rail age cargo consignment Note is highly inefficient in the region. In addition, the Rift Valley Railways does not provide prior information to clients whenever wagons or trains are to be delayed Air Transport: The Region has 9 international airports 3 in Kenya, 3 in Tanzania and 1 each in Burundi, Rwanda and Uganda and several regional and local airstrips. The EAC region, particularly through Kenya s Jomo Kenyatta International Airport has a large number of airlines flying to and from many international destinations. Further, connectivity is therefore good in terms of air transport, making the region attractive to an investor. However exporters still complain of high air freight charges for export cargo making their exports uncompetitive The Port Facilities The region has 2 major ports in Mombasa run by the Kenya Ports Authority (KPA) and Dar es Salaam, run by the Tanzania Ports Authority. Both ports experience problems such as delays and congestion. Both are committed to improved service, 29

42 including operation on 24 hour basis to ease congestion. KPA - plans to have more terminal facilities, carry out modernisation in terms of computerising of the container handling systems, improve documentation and cargo clearance, cargo verification and scanning, among others. In addition, KPA has special representatives for each of the landlocked countries (Rwanda, Burundi, Uganda, DRC), who are allowed to participate in stakeholder meetings. TPA intends to build 5 inland container depots, special treatment for cargo that needs quick clearance such as fuels, purchase of more equipment and plans are underway to extend the port to enable it handle 600, 000 TEU (current capacity is 250,000 TEU). The Northern corridor remains the principle cargo route for EAC and all sea and inland ports are linked by the corridor as shown below. a) The Port of Mombasa in Kenya The Port of Mombasa is the largest port utilized by EAC Partner States especially serving the hinterland and the main landlocked countries of Uganda, Rwanda and Burundi. The Port has a 16 deep water berths with a total quay length of 3,044 metres and a maximum dredged depth of 11 metres. It has important infrastructure which include bulk oil jettles, handling facilities for coal clinkers and cement and a three berth container terminal as well as inland container terminals at Nairobi, Kisumu and Eldoret (KPA Annual report 2009). The Port has a rated capacity of 22 million tonnes annually while cargo handling has been on average approximately 8 million tonnes per year. In terms of performance, Mombasa port achieved a step in 2009 having been awarded Quality Management ISO certification, ISO 9001:2008 making it a world class port facility in terms of management standards and practices. In order to minimize the cost of doing business the port made tariff adjustments, removed scanning and verification charges in 2009 and renewed a free storage regime to ease collection of cargo. The port is planning to roll out a single window platform for faster cargo clearance. Stakeholders in the region acknowledge that much of the cargo movement liquid, bulk and containers are cleared through the Mombasa port. Imports constitute the largest share of cargo handled at Mombasa as indicated in figure 3.2; Figure 3.2: Composition of cargo at Mombasa Port in 2009 Source: Kenya Ports Authority, Annual Report, 2009 Much of the cargo handled by the port is imports which account for 86.6% of the total cargo handled in 2009 while exports account for 12.8%. Mombasa port is relatively advanced is terms of capacity, automation, infrastructure, facilities and modernization. Cargo operations in Mombasa in terms of traffic, transit countries, container storage and clearance is much more higher compared to any other port in EAC. The average container dwell time is 5.6 days compared to 8.6 days in 2009, reflecting an improvement of 34.9 per cent or 3.0 days less. The current impressive performance is an early sign of positive trend similar to that recorded in 2009 where the port witnessed a total port throughput growth of 16.1 per cent. The port had handled million tons up from million tons handled in Other measures implemented to enhance port efficiency include the implementation of the 24/7 work schedule by all stakeholders. The construction of the second Container Terminal west of Kipevu with an annual capacity of 1.2m TEUs is also a measure in progress that will enhance port efficiency. The growth in cargo is shown in figure

43 Figure 3.3 Growth in cargo Traffic at Mombasa, Source: Kenya Ports Authority, Annual Review &Bulletin of Statistics, 2009 Import cargo has for the last 5 years experienced growth. The port serves several hinterland countries which are EAC and non EAC Partner States (see figure 3.4). The Port of Mombasa has reached saturation and is experiencing major problems of congestion of cargo. Figure 3.4: Transit Market at Mombasa Port in 2009 Source: Kenya Ports Authority, Annual Review 2009 Uganda accounts for the largest transit cargo at Mombasa, followed by DR Congo and Rwanda. This implies that any problems affecting the port significantly affects the flow of trade in the region and this was evident in 2007 when Kenya experienced post election violence. Despite the importance of the Port, there are still some challenges facing the port such as growth in ship waiting days arising out of delays in loading and off loading of containers and process of cargo clearances as reflected in table

44 Table 3.7: Analysis of the Ship Waiting Days at Mombasa Port Year Ships Viz Days Ships Days Ships Days Ships Days Ships Days Average days per Ship 1.5 days 1.8 days 2.6 days 2.3 days Source: Extract from KPA Annual Review, 2009 Table 3.8 Mombasa Port handling fees and charges Cargo Category Cargo handling Charges in US $ Ft Container 40 Ft Container Imports Domestic $90 $135 Exports Domestic $45 $68 Import Transit $72 $110 Export Transit $35 $55 Source: KPA, Mombasa Port revised Tariff, 2008 Table 3.9 Cargo Charges in at Mombasa Port Category Cargo Charges in US $, Ft Container( 40 Ft Container Inspection and Verification of cargo $75 $110 Container Transfer at Custom request within the Port $30 $45 Handling of Dangerous Cargo $40 $60 Later Acceptance of Cargo $75 Source: KPA, Mombasa Port revised Tariff, 2008 b) The Port of Dar-es salaam The Port of Dar-es salaam is the second largest port in EAC region after Mombasa. The port falls under the management of the Tanzania Ports Authority based in Dar-es-salaam. The Port has a capacity of handling 9.1 million tons per annum at her 11 berths and a total quay length of about 2000 metres. Container penetration is increasing faster both for imports and exports cargo. The capacity of the General cargo terminal including light quay and oil terminals (SPM & KOJ) is 3.1 million tons and 6.0 million tons respectively. In 2009 the port managed to handle 4.7 million tons which is about 52.6% of the total installed capacity (Annual report, 2009). General Cargo terminal handled 2.3 million tons (73.5% of its capacity); oil terminal handled 2.5 million tons attaining 40.9% of its capacity. Composition of the cargo handled by the Port of Dar-es-salaam is shown in table

45 Table 3.10: Composition of Cargo at Dar-es-Salaam Port, / /2008 Imports Exports Total Imports Exports Total Dry Bulk 993, , , ,127 Break Bulk 2,852, ,840 3,806,651 2,531,604 1,185,581 3,717,185 Liquid Bulk 2,050,821 74,782 2,125,603 2,190,322 77,870 2,268,192 Transhipments , ,114 Total 5,896,927 1,028,622 7,432,220 5,697,053, 1,263,451 7,476,618 Source: Tanzania Ports Authority, Annual Report, 2009 Table 3.11 Percentage Growth rate in Cargo Traffic by 2009 Transit Country Tanzania 7.1 Burundi 15.1 Rwanda 15.8 Uganda 15.2 Zambia 25.7 DRC 22.2 Malawi 12.6 Source: Tanzania Ports Authority Annual Report, 2009 i) Cargo traffic at the Port % growth rate in Cargo traffic Over the last five years cargo traffic has been increasing at the port reflecting an increasing importance of the port in EAC trade and beyond. The growth in cargo traffic is reflected in table Table 3.12 Cargo Traffic at the Port of Dar-es-salaam Year Imports Export Transhipment Total ,829 1, , ,225 1, , ,676 1, , ,807 1, , ,630 1, ,102 Source: TPA Annual Report,

46 Figure 3.5 Exports versus Imports at Dar-es-salaam Port Source: Tanzania Ports Authority, 2010 The share of transit cargo has been increasing more especially imports serving the hinterlands countries of EAC. Other countries which are non members of EAC also use the port especially Zambia, DRC Congo and Malawi. Data obtained from Tanzania Ports Authority (TPA) indicated that a total of million tons of cargo to and from the neighbouring landlocked countries was handled by the port of Dar-es-salaam. Between 2006/07 to 2007/8 the growth in tonnage was 29% (TPA brief 2010, p.12). Zambia and DRC Congo which are non members of the EAC contributed a lot to this transit by 30.9% and 29.8% respectively in 2007/08 as shown in figure 3.7. Figure 3.6 Share of Cargo by Transit Countries 2007/08 Source: Tanzania Ports Authority Annual Report 2008 ii) Dar-es-salaam Port Productivity According to TPA on average the productivity of the container terminal was 23.1 containers moves per ship to shore gantry Crane (SSG) per hour. Ship Turnaround time (from arrival anchorage to departure port) averaged 7.9 days per ship in 2007/08 and the target has been to reduce this to 3.5 days. Container dwell time (day between off load and off take of the container) was 12 days per container on average but actual time attained was days due to continuing congestion at the terminal. The space for stacking containers at the port is a major problem. Poor Inland transportation system especially roads and railways is increasing the problem of port congestion at Dar-es-salaam Port. In terms of Cargo Clearance, a total of million tons were cleared from the port by rail and road in 2006/07. Road share is higher at around 92.7% compared to rail 7.3 %( 2006/07). The continued deterioration of railway infrastructure and the continued improvement in road infrastructure is the main explanation for this. 34

47 iii) Port Modernization efforts Dar-es-salaam port has implemented a number of projects funded by the World Bank such as the repair of the container terminal, construction of a new control tower, rehabilitation of port sinking sheet floor and the 8 inches pipeline and the acquisition of various cargo handling equipment. There have been strong efforts to increase private sector participation in the port operations at Dar-es-salaam but this has not necessarily enhanced efficiency. Steps already taken are the leasing of both Kigoma and Kasanga to private companies to increase efficiency. The port is apparently experiencing congestion problems and other problems such as old equipment, limited space, human resources and poor inland infratstructure that would speedup the decongesting process at the ports is also poor. Some measures are being taken to reduce this congestion. Some of these measures include; acquiring more space, the purchase of new equipment, transferring of containers to the new 6 inland container depots i.e. TRH, MOFED, AMI, MCCL, DICD and AZAM and reviewing of documentation processes to ease cargo clearance. 3.8 Trade Facilitation Challenges in EAC The study established that while recent reforms have helped EAC members to improve the business environment, Partner States still face significant challenges in trade between themselves as well as with external partners. Within the region, the trading environment varies greatly and the policy environment is still curbed with many constraints. i) Challenges with the Policy Environment The EAC Partner States have been working to overcome various challenges to improve business climate as well as economic infrastructure to enable the region emerge as the leading investment destination in the continent. These include creation of stable and attractive macro and micro economic environment with reasonable level of inflation, fiscal and monetary policy reforms and legal and regulatory reforms to improve their business climate. It is hoped that these efforts will put the region in a better position to compete globally (EAC Trade Report 2008, p.72, p.73). According to the 2010 World Bank Doing Business Indicators Survey, Kenya was ranked as one of the developing countries that have simplified procedures for starting business, property registration, business licensing, immigration permits, local authority licensing among other measures. While Tanzania is emerging as a frontier for FDI attraction in the region, especially in mining, Rwanda is emerging as the ICT centre in the region. Burundi is in the final process of establishing an Investment and Export Promotion Agency. In the minds of many EAC Stakeholders, the common market shall provide various rights and freedoms to EAC citizens. These rights include the right to permanent residence, the right to establishment, access to land, free movement of capital, goods and services and freedom of movement for workers. Enabling investment climate in the EAC region eventually requires harmonization of various laws and legislations affecting intra EAC business and investment flows. Elimination of Non-Tariff Barriers (NTB s) which is still persistent is essential in creating an enabling business environment. In Kenya, the legal framework and guidelines for implementation (Legal Notice No. 10 of 2009) establishing Public Private Partnerships was approved by Parliament in A strong affiliation between the Government of Tanzania and the private sector has been established through regular Public Private Dialogue in different fora. Such platforms include the National Investment Steering Committee which is led by the Prime Minister. Rwanda s effort in promoting public private partnership is realized through the vibrant Private Sector Federation which also serves as the umbrella of private sector. The federation in partnership with the Investment Board regularly organizes the Presidential Round Table meeting which also serves to enhance the same cause. In June 2007, Uganda launched the second phase of Presidential Investors Roundtable (PIRT) as an advisory body consisting of 24 national and international corporate leaders to advise government on how to make Uganda a competitive investment 35

48 destination and increase its share in the international, regional, and local markets. The Tanzania National Business Council (TNBC) is another initiative established through a Presidential Circular to provide a forum for public/private sector dialogue with a view to reaching consensus and mutual understanding on strategic issues relating to efficient management of resources in the promotion of socio-economic development in Tanzania. All these are efforts in the region that are trying to confront the poor policy environment that impend trade and investment in the EAC region. Ranking policy and regulatory environment (scale 1-(for the best) to 5-(for the worst), the EAC stakeholders scored the Partner States as follows; Table 3.13 Ranking of EAC Countries in Policy Environment Country % Rank ( 1, 2, 3, 4, 5) Uganda 2 Kenya 3 Tanzania 4 Rwanda 1 Burundi 5 Source: Survey data from EAC Stakeholders, 2010 Rwanda and Uganda scored highly as countries with better policy environment for trade by stakeholders. ii) Custom barriers The study revealed that customs is one of the key challenges in Trade facilitation in EAC. The EAC Partner States have tried to address custom concerns of the business community in the region but these procedures continue to be the major non tariff barriers in the region. The custom procedures are perceived to be slow by business leaders in export and import companies and Clearing and Forwarding Agents. In a study conducted by EABC (2008), the problem of custom delays was perceived as the worst in Kenya as illustrated in table 3.14; Table 3.14: Barriers-Custom procedures Proportion of business leaders who perceive custom process as slow or too slow Proportion of CFAs who believe customs delayed as a very or fairly big problem Proportion of business leaders who believe customs process got better over the last 1 year Proportion of Business leaders who perceive corruption as a major obstacle at customs Proportion of CFAs who perceive corruption as a major obstacle at customs Proportion of CFAs who believe corruption at customs increased over the last 1 year Burundi Kenya Rwanda Tanzania Uganda Overall

49 Proportion of truck drivers who reported bribe solicitation at customs Proportion of CFAs who believe speed of the customs process will get better over the next 12 months Source: EABC Briefing Paper, 2009 Truck drivers and Clearing and Forwarding Agents estimated that in the process of transporting goods across the borders in East Africa, 26% of the 172, 236 days lost each year due to delays is attributed to custom delays. The study further established that corruption is still a major obstacle according to the Clearing and Forwarding agencies and trucks especially in Tanzania, Burundi and Kenya. The Truck Drivers and Clearing Agents estimated that 20% of the US$ 9.8 million lost each year is through payment of bribes at customs but in the eyes of the business leaders the situation is improving. iii) Perceived Custom Efficiency in EAC Partner States The study established that custom efficiency was an important factor in easing the flow of trade in EAC. In a report by EABC (2008), 54% of the business leaders in EAC expressed high level of discontent of custom efficiency especially with the time taken to clear transit goods. Kenya customs was found to be the slowest in East Africa with 76% of the business leaders indicating the process of customs as either slow or too slow. EAC countries were put on comparison of rating custom efficiency as illustrated below in figure 3.8; Figure 3.7 Business Leaders perceive customs process as slow/too slow Source: EABC Survey, 2008 Customs was found more efficient in Rwanda followed by Tanzania, but slow in Kenya iv) Time Lost at Customs Points The study sought to investigate the time spent by truck drivers at the customs check points. The diary data from truck drivers established that on average a truck driver operating on the various major routes will encounter an average of 4 custom points. At each customs encounter a truck looses an average of 64 minutes. This equates to approximately 4 hours per trip. Given that a 37

50 single trip takes approximately a week, then a single truck will lose approximately 218 hours (or over 9 complete days per truck) annually in road blocks alone summarised in Table Table 3.15 Time loss at Customs Points Time losses at customs by Drivers Average time spent at customs Average number of Customs Points Time spent per trip per truck at customs Time spent per year per truck at customs Time spent annually by 5000 trucks Source: EABC, Business Climate Index Survey, Minutes 4 Customs 4.2 hours 218 hours 45,487 days v) Barriers from Road Blocks and Weigh Bridges In the EAC region, the problem of road blocks has remained persistent despite the fact that they have considerably been reduced from an estimate of approximately 30 to the present estimate of around 15 road blocks. However findings of the study revealed that businesses and associations reported that road blocks and weigh bridges continue to be a major non tariff barrier in EAC. In the review of existing studies by EABC, road blocks account for 31% of a total of 172,236 of the lost days due to delays, and weigh bridges account for approximately 43% of the lost days. Business leaders indicated corruption at road blocks and weigh bridges to constitute 38-39% in EAC and 72 % of truck drivers reported that solicitation of bribes is rampant as summarized in the table Table 3.16 Problems associated with Roadblocks and Weighbridges Burundi Kenya Rwanda Tanzania Uganda Overall Proportion of business leaders who perceive corruption as a major obstacle at road blocks Proportion of trucks driver who reported bribes solicitation at road blocks Proportion of business leaders who perceive corruption as a major at weight bridges Index level Source: EABC Survey, 2008 According to the table above problems of corruption at road blocks and weigh bridges were much prevalent in Burundi and Kenya which were above average in all the EAC Partner States. However there was need for effort to solve these barriers in all EAC Partner States. The EABC conducted a study in 2008 which showed that NTBs evolve around business registration and licensing, customs procedures, police road checks, road axle regulations and control, and standards and certification requirements (EABC 2008). 38

51 3.9 Challenges Associated with Non Tariff Measures i) Cost of Non Tariff Measures(NTMs). The study revealed that two days are needed for a 950 km journey between Mombasa and Malaba due to convoys and road blocks; an average of two weeks is needed to clear goods in Mombasa; and, all goods entering through any border post in Burundi needs to be cleared at the Bujumbura port. Next in rank are various non official costs arising from the scope for fraudulent behaviour created through the flexible implementation of national policies. For example, the current flexible application of axleload restrictions on trucks in Kenya and Uganda; the continued operation of five compulsory weighbridges along the Central corridor between Rusumo and Dar es Salam, as well as seven in Kenya and four in Uganda along the Northern corridor to reach Kigali from Mombasa (at latest count). ii) Type of existing Non Tariff Measures (NTMs). The analysis of the Non Tariff Measures in EAC revealed that Partner States harbour a range of generic NTMs that apply to most goods traded across the region s internal borders. These often apply to goods trade beyond the EAC also. They are based on technical quality and SPS standards specified for the goods, and mostly anchored in health and safety concerns stated by the Partner States. The current NTMs that apply to intra-eac trade as per the broad categories of the WTO inventory are; Generic Non Tariff Measures Customs and administrative entry and passage procedures. Evidence (EABC 2008) revealed that prolonged formalities, multiplicity of institutions, duplication of clearance processes, limited capacity at the border posts and travel restrictions through convoy and time of day, continue to add monetary costs and transit time for goods traded in the EAC. In addition, some cases of rules of origin have been frequent complaint to call for the need for verification mission to determine adherence. The study also shows that Governments in EAC continue to prioritize the revenue motive as the most important for each Partner States, with a range of specific charges adding to the private cost of trade in EAC. Many private firms complain of unfair treatment arising due to perceived national protectionism and corruption. Government participation Governments of Partner States are still dominating the operation of ports (sea ports of Mombasa and Dar es Salam; lake ports of Bujumbura and Kigoma), inland container freight stations (like Magerwa and Isaka). In addition the plethora of manned weighbridges by the national governments, parastatals or monopolies authorized by the governments, were mentioned by the private sector stakeholders as key challenges. Transparency and efficiency in clearance and release of goods at the sea ports is hampered by administrative complexity of formalities, especially limited skills and ineffectiveness of staff and agents. All add lengthy delays, congestion and high cost of offloading and clearing cargo (already limited by the useable physical infrastructure at these locations) and create considerable scope for discriminatory/fraudulent behaviour. In recent years, the governments have opted for private or joint management of some of the facilities or allowed in the first private sector in operations especially the Port of Mombasa and Dar-es-salaam. Multiple police road blocks and mobile control along the transit routes remain a muchdiscussed but persistent NTM, with ample scope to toa kitu kidogo. A Swahili phrase that depicts un-transparent behaviour and corruption among officials in the control points. iii) NTMs related to TBT and SPS 39

52 The EAC members are applying testing, certification and other conformity assessment for technical quality standards and norms in intra-eac goods trade. Much of the time lost is due to the fact that in national product standard definition and certification, the bureaus of standards operate at very different levels of capacity and ability (with virtually none yet in Burundi). Specific cases that have been in the forefront in the recent past cover trade in milk, poultry, beef, maize, etc. Though the recorded cases are few for now, this area of NTMs must be of particular concern since food and animal products are by far the largest group of goods trade within the EAC. Another technical standard that impedes intra-eac trade for the new EAC Partner States for now is the issue of driving on the left side of the road for Burundian and Rwandan drivers Suggestions for Action by EAC a) Prevention of new NTMs. EAC Partner States could learn from the EU s adoption of preventive measures which oblige member states to notify all draft regulations and standards related to technical specifications to be introduced on national territories. In this way, the EU Commission is able to monitor and prevent the emergence of new national barriers to intra-eu trade. All EAC members are WTO signatories and have undertaken significant unilateral steps towards enhanced participation in that institution. The study recommends that the Council of Ministers consider and agree on the principle that NTMs that are not WTO-consistent in EAC whether or not they restrict intra-eac trade in certain products, and irrespective of the political economy are to be eliminated with immediate effect. This could include inter-alia the operation of the weighbridges for intra-eac goods transit. The imposition of entrance fees on traders from other member states entering with their products, the French translation fee for customs documents, etc. b) For product specific NTMs and Monitoring capacity In a few goods, like milk, beef, poultry (including day-old chicks), the EAC should develop specific region-wide technical and/or SPS standards after detailed investigations. In choosing the specific product it would be important to consider the regulatory objective and /or intra-eac trade impact of the NTM. Here the guidance could be borrowed from ASEAN region. ASEAN countries apply a principle based on harmonization with performance requirements involving a single set of fully harmonized and detailed provisions. This approach is used for products that could put consumers safety at risk and for which performanceoriented legislation is felt needed. For the new NTMs that may arise as well as the existing generic and product specific NTMs are the areas where the EAC Secretariat as well as the Partner States would need to develop sufficient institutional capacity. For instance the EU s internal market scoreboard may prove to be a useful instrument for the EAC Secretariat to emulate. For the EAC, such a scoreboard could report the status of the NTMs action plans and the number of infringement proceedings due to new NTMs initiated against Partner States. It is recognized and accepted that in certain cases of locations (like Burundi with Tanzania; Uganda with Kenya) effective bilateral decisions among two Partner countries could largely ease the total impact of NTMs. c) Road transport, customs interface and transit regulation Actions in this area could cover four areas (a) harmonization of road transport regulation; (b) streamlining of transit procedures including the implementation of a regional bond guarantee system, the single custom document, and the creation of one stop window for customs and other formalities for transit to landlocked countries; (c) capacity building to implement the program, and the establishment of national and regional trade facilitation committees; and (d) modernization of the computerized custom information systems, focusing on the provision of interfaces between the different systems existing in the region as were discussed(ascuda ++,SIMBA & RADDEX). 40

53 d) Monitoring Corridor efficiency Related to the above is the need to identify key corridors in the region and put together adequate coordination mechanism, a monitoring scheme, on a timely basis identify and address obstacles to transit along corridors and corridor performance. An important element of this process would be the securitization of transit through electronic monitoring of truck movements and sealing of trucks used for international transit. The Trade and Finance and Trade Facilitation Division of the WTO has developed a useful instrument for such an analysis (WTO 2007) improvement of facilities at borders and of juxtaposed border posts and monitoring of regional ports efficiency. e) Provisions regarding customs and related import / export procedures There are still too many procedures for export or import of a typical consignment. In EAC, some may have to be simplified and some others abolished. Some trade facilitation schemes have so many restrictions that the scope of application is very limited. To mention a few, containers moving from hinterland and bearing Customs seal affixed by Central Excise Officers are opened and re-sealed by Customs Officers. Many of the export consignments require clearance/certification from designated export inspection agencies. The respective agencies are located at different places and some of them are far away from the port/airport. As a result exporters have to spend considerable time and effort in obtaining these certificates. Apart from the coordination problems noted earlier, another area requiring particular mention are the Legal changes needed to make many facilitation measures effective. The Customs Act 1962 provides for advance filing of Bill of Entry only for vessels and not for aircrafts. In most countries, the multimodal transport document (MTD) includes air transport. Certificate of origin is one of the key documents used in the implementation of the Rules of origin in EAC. Some of the experiences of traders with certificates of origin as documented by the Study conducted by Kenya Manufacturers Association (KAM 2008) that there was no acceptance of COMESA certificates with in EAC Partner States, delays in provision of certificates, incompetence and lack of skills on rules of origin as illustrates in figure 3.8. g) Problem of Human Resources For EAC to achieve effective trade facilitation all personnel associated with trade viz licensing authorities, Customs officials, inspectors, scientists manning testing and quality control laboratories, banking and insurance staff should be present at each of these locations. Internal customs in the hinterlands or the land ports are often not functioning well because of non-availability of full complement of customs staff and other export inspection agencies. The study observed that the staff of departments/agencies at the grass root level were not always aware of the extant provisions of policy, law and procedures and this was very evident when the common market was launched. Custom officials could not adjust to the situation for about 12 hours claiming that they await orders from the central headquarters. There is lack of positive approach and service orientation on the part of the trade officers. Figure 3.8 Challenges Associated with Certificates of Origin Source: EABC, Survey,