CET Review

One of the key instruments of the EAC Customs Union Protocol is EAC Common External Tariff (CET). EAC CET is a very important annex of EAC Customs Union Protocol as it reflects the tariff structure between EAC Partner States and the Rest of the World (RoW) with regard to import duty charged on imported products into the Community. The EAC CET is structured under three bands of 25% for finished goods, 10% for intermediate goods and 0% for raw materials and capital goods. In addition there are a limited number of products under the sensitive list that attract rates above the maximum rate of 25% which  range between 35% to 100%.

The EAC CET was last reviewed in 2010 and the three band rate structure was maintained. However, each year EAC Partner States through Pre-Budget Consultations of the EAC Ministers of Finance have been undertaking annual reviews on specific products. These annual reviews have been manifested with either increase or decrease of duty rates of specific products based on their availability in the region. Main challenges regarding these reviews have been on how to strike a delicate balance between several conflicting interests ranging from revenue considerations, support for infant industries; affordability, high quality and sufficient availability of inputs to allow for competitive upstream industries as well as sufficient supply of high quality products at affordable prices for consumers. The annual reviews have also been clouded with EAC Partner States requesting for stays of application of the EAC CET and applying different rates and a number of applications of duty remissions. This has resulted into non-uniform application of EAC CET by EAC Partner States.

The implementation of the EAC CET commenced in 2005 after coming into force of the EAC Customs Union Protocol. For the last 12 years of implementation of the EAC CET it has been evident that the EAC CET needs a comprehensive review with a view to align the existing tariff structure and rates with dynamic global trade changes and regional trade environment; Eliminate the use of stays of application of EAC CET by EAC Partner States, minimize list of products falling under duty remission scheme, address degree of processing and match applicable rates with supply capacity within the region.

In the years 2013, 2014 and 2015 EABC continuously advocated for uniform application of the EAC CET and for Partner States to stop requesting for stays of application of EAC CET rate.

Eventually EAC Partner States heeded to this call and the Sectoral Council on Trade, Industry, Finance and Investment (SCTIFI) in February and May 2016 directed the EAC Secretariat to undertake a Comprehensive review of EAC CET within a period of one year. EABC welcomed this noble move which after implementation will ensure uniform application of EAC CET by all EAC Partner Sates that will create a level playing field in the region and spur further industrialization of the region as manufacturers will source more inputs and products within the region.

It should also be noted that since 2012, there has been several developments in the industrial sector in the region and these range from infrastructure developments (energy, roads, railway telecommunication), capacity development, investment and backward and forward integration among others. These developments have reached a level where the current EAC CET can no longer effectively support the industrial sector hence the need for a comprehensive review.

EABC in collaboration with East African Manufacturers Associations (AIB, KAM, CTI, RAM & UMA) therefore recommend:-

  1. Partner States to consider replacing the existing three-band tariff structure for CET with a four-band tariff structure to address various degrees of processing and encourage backward and forward value addition in the manufacturing sector;
  2. Introduction of Specific Duty as an alternative to the ad valorem ( percentage) duty rate for products prone to undervaluation, subsidy, dumping and world price fluctuations;
  3. Amendment of EAC Customs Management Act to remove blanket exemptions of EAC CET for Government projects to encourage local sourcing;
  4. Do away with Stays of Application of EAC CET and where necessary rely on duty remission scheme which is more regulated and manageable than stay of application which is free for all importers;
  5. Limit Duty Remission to only products whose supply capacities cannot satisfy the demand of the regional market;
  6. Set up an independent Regional Board to scrutinize and approve requests of Exemption and Duty Remission;
  7. The EAC Region’s un-exploited production potential and possibility for enhancing intra-EAC Trade for the affected commodities should be considered as a fundamental determinant in the comprehensive CET review, especially for products under the EAC sensitive list.