Review of the EAC Common External Tariff (EAC CET) - Kenya Association of Manufacturers (KAM)

KAM argue that the current East African Community (EAC) Common External Tariff (CET) as structured does not encourage value addition. It has only four bands for which tariffs can be levied and lack of flexibility.

In addition, the EAC CET:

(a) does not provide a fair playing ground for locally manufactured goods; and

(b) leads to increased imports from states outside of the customs union whereas those goods could have been sourced from the region.

In KAM’s view, the EAC CET is restrictive and does not provide an optimum tariff structure to encourage increased manufacturing activity in the region. This makes the CET a key contributor to the slow growth of the manufacturing sector in the region.

KAM posits that this has tilted Kenya’s economy towards trading as opposed to manufacturing as evidenced by Kenya’s manufacturing sector declining contribution to GDP from 11.8% in 2011 to 8.4 % in 2017 (KNBS).

The EAC Customs Union came into effect in 2005 through the EAC Treaty Article 75. This was subsequently affected through the EAC Common External Tariff and an EAC Customs Union Act. In principle, the EAC Partner States agreed to establish free trade (or zero duty) imposed on goods and services amongst themselves and agreed on a common external tariff (CET), whereby imports from countries outside the EAC zone are subjected to the same tariff when sold to any EAC Partner State.

The current CET structure is based on a four-tariff band structure as follows:

  • 0% on raw materials and capital goods
  • 10% on intermediate products
  • 25% on finished products
  • 35% -100% on sensitive products  

This CET structure does not consider the nature of manufacturing where in some instances a finished product is a raw material for another manufacturing process. It also acts as a disincentive to regional trade for goods manufactured in the EAC as they attract higher tariffs than goods that are manufactured outside the region. In addition, the following key issues have arisen from the inflexible CET structure: 

  • Increased incidences of CET distortions where partner states apply for ‘stays of application’ essentially obtaining CET exemptions on certain products.
  • Inconsistent application of the CET by partner states thus giving undue advantage to some importers and manufacturers in the region.
  • Lack of an appropriate value chain interlinkage in the region leads to an inappropriate CET structure and does not provide opportunities for growth of manufacturing across the region.

According to KAM’s Proposal on CET, 2018, the most affected sectors with a restrictive EAC CET structure are: metal and allied; timber and furniture; food and beverages and leather and footwear. 

KAM seeks to advocate, a review of the EAC CET so that it is ‘fit for purpose’ for the manufacturing sector. For optimal value addition, the region needs more than three CET bands incorporating differentials between unprocessed/raw materials, intermediate products manufactured locally, intermediate products not manufactured locally, and justifiable rates for finished products.