Customs Union

The East African Customs Union Protocol was signed on March 2, 2004 after more than four years of protracted negotiations and became operational on January 1st, 2005. The Customs Union initially comprised Kenya, Uganda and Tanzania. It has since been expanded to include Rwanda and Burundi, who will officially join in July 2009. It is expected that the Customs Union will come will be fully implemented in January 2010, after the 5-year transition period.

Under the terms of the Treaty, and taking into account asymmetry in economic development among the three original Partner States, Kenya will pay duty on its goods entering Uganda and Tanzania until 2010. Goods from Uganda and Tanzania enter Kenya duty free. A harmonized 3 band Common Externa Tariff structure (0% on raw materials, 10% on intermediate goods and 25% on finished goods) applies to other countries supplying the three countries with goods.

Consensus has been reached on various areas which include common commodity description and coding system; common rules of origin; disputes settlement; anti dumping regulations, subsidies and countervailing measures, regulation on free ports and common export promotion schemes.

Work is underway to harmonize EAC Partner States standards and so far 1081 have been agreed upon and 600 have been catalogued. This is an important development since different EAC countries are at different stages of adopting international standards (Kenya, 5000; Tanzania, 2000; Uganda, 1000; Rwanda, 500; and Burundi, 100). The implication of the different stages of adoption of international standards is that an EAC country cannot legally import a large number of products available from within the region since the respective standard specifications are not known, making it difficult to access the region’s potential markets.

Opportunities & Risks for business

In general, the Customs Union has opened up business opportunities in the region and has paved way for improved business climate. It has generated a liberalized cross-border trade, through the adoption of common policies to minimize customs clearance formalities as well as enhance predictability of economic policies.

Other expected benefits include a bigger economy and market which will attract investment in efficient production technologies and systems. This will have a knock-on-effect in enhancing the competitiveness of local manufacturers. Furthermore, the EAC will be able to pool resources for joint infrastructure projects to enhance the region's competitiveness and this can already be seen in the on-going Arusha-Namanga-Athi River road project and the energy master plan.

It is also envisaged that the Customs Union will assist to level the playing field for the region’s producers by imposing uniform competition policy and law, customs procedures and external tariffs on goods imported from third countries.While the Customs Union will generate major benefits, it will also bring about greater competition among domestic firms. In the short to medium term, the firms that stand to gain most are those that are already competitive. The rationale behind the principle of asymmetry, which was adopted in the phasing out of internal tariffs, is to provide firms in Uganda and Tanzania with a grace period of 5 years during which they are expected to address firm level and national level factors contributing to (un)competitiveness.

The Customs Union has been instrumental in lessening the optional powers earlier enjoyed by Partner States, which often create uneven playing ground for firms. Such powers, in particular, relate to granting of exemptions from customs duties. Partner States have undertaken harmonization of their exemption regimes and they are many of them are now administered regionally.

EABC Contribution

Since its inception, EABC have been very active in resolving impediments to the proper functioning of the Customs Union. One of our biggest undertakings has been the elimination of Non-Tariff Barriers to trade. EABC has been championing this issue and in recognition of this, in 2005, EAC mandated us to develop the NTBs Monitoring Mechanism for monitoring, reporting and elimination of NTBs. In addition, EABC carries an annual Business Climax Index to monitor the progress in removal of NTBs and look at improvement in perception on key business climate factors such as access to land, level of taxation, legal and regulatory framework, among others.

Our other contributions, in the context of the Customs Union include channeling of general policy issues to EAC Summit; addressing the issue pertaining to rules of origin and double taxation.

Our efforts continue in tandem with the needed policies and initiatives to ensure the smooth progress towards full implementation of the Customs Union.