Finally, EA formally becomes a Common Market

The East African Community will formally become a Common Market on July 1 despite the aspirations of free movement of goods, services and labour being far from being achieved.

The Common Market Protocol, ratified in 2010, had a five-year transition period, which the business community says focused more on regulatory reforms as non-tariff barriers and national considerations that are frustrating efforts that would bring home the benefits of integration to the citizens of the five member states.

East African Business Council chairman Denis Karera said administrative barriers across the region have held back progress on the exchange of services and labour.

“Very little has been achieved since the protocol came into effect five years ago. The bigger challenge is that not all the partner states are committed to fully implementing it,” said Mr Karera.

A recent study by the East African Legislative Assembly indicated that in terms of movement of capital, only two — external borrowing and repatriation of proceeds from sale of assets — out of 20 capital operations are free of restrictions in all the partner states.

The EALA study further showed that partner states are implementing the protocol at a slow pace, especially in harmonising their national laws to conform with it.

But the major challenge has been the lack of a provision for sanctions for non-compliance.

The pending issues noted in the report revolve around linking and delinking of the schedules on free movement of workers and services. The EALA report noted 43 non-conformity issues, out of which 17 were attributed to Tanzania, 16 to Kenya, nine to Burundi, and one to Rwanda.

Under the key obligations on the free movement of goods, most partner states were found compliant, though non-tariff barriers remain a challenge.

“None of the partner states has moved to establish statutory regulatory bodies to handle issues related to professional services,” said Mr Karera.

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Peter Mathuki, a Kenyan member of EALA and chair of the Committee on Legal, Rules and Privileges, said that the states do not co-operate on harmonising policies and sharing information on markets regulation.

Kenya Private Sector Alliance chairman Vimal Shah said that the big stumbling block is the disparity in infrastructure in the member states, which increases transportation costs between the countries.

“The success and appeal of the internal market will be determined by freedom and ease of movement of goods and people across the region. East Africa needs to channel more resources and more investments towards infrastructural development in order to ensure all countries are at par,” said Mr Shah.

“Trade facilitation at border points is still a major issue. Border controls affect the clearance of goods. It is important to synchronise the time schedules at the borders of each partner states and harmonise the domestic taxes in order to facilitate the movement of goods across the region,” said Sachen Gudka, vice chairman of the trade and tax committee at Kenya Association of Manufacturers.

“All the partner states waive work permits for EAC citizens,” he added.

He said Kenya is finalising drafting the Miscellaneous Amendment Bill that aims to re-align 27 pieces of legislation with the EAC Common Market Protocol. Rwanda is also working on the same, and it is expected Uganda and Tanzania will follow suit soon.

“This is a good move in implementing the protocol, but there is a need for the provision of adequate regulatory frameworks at a regional level for trade in services,” said Mr Gudka.

The other impediment to the success of the Protocol is the harmonisation of domestic tax and investment regimes in the region.
“The different VAT and excise regimes in the countries act as barriers to cross-border transactions and have a bearing on trade facilitation. In most cases, extra time and resources are spent on complying with different tax regimes,” said Mr Shah.

“The overall effects are high transaction costs, high compliance costs and smuggling across the border. It is really ironical that small scale traders are forced to engage in smuggling of duty free goods because of such needless barriers. In order to provide a level playing field, there is need to harmonise domestic tax regimes in the EAC. The Governments should also finalise on the elimination of double taxation.”

He said that the absence of mutual recognition of products bearing a mark of quality is still a major problem.

“Products from member states are still subjected to further tests and certification in the importing country despite the fact that they already possess certification marks from the countries of origin, a practice that hurts business,” said Mr Shah, adding that the non-compliance with CET continues to deny market access to companies that made investments on the promise of an expanded internal market.

“There should be increased mutual trust between the partner states in order to ensure the implementation of the Mutual Recognition Principle, which is key. Each state should recognise products bearing the standard marks issued by standards bodies of the partners.

Although the EAC has a formal dispute resolution system under the Treaty, businesses have been reluctant to use them. The system is perceived to be slow and unreliable and the costs are borne by companies that are victims of violations.

“There should be political will and commitment by all partner states towards ensuring the success of the Common Market protocol,” said Mr Mathuki.

“States who fail to obey the decisions of the Summit and Council should be made to account by the Secretariat, which should have powers of protection of the union and the common market aspirations.”