Report No. 45708-AFR Non-Tariff Measures on Goods Trade in the East African Community Synthesis Report September 29, 2008 PREM 2 AFRCI Africa Region Document of the World Bank ABBREVIATIONS & ACRONYMS ACP Africa, Caribbean, Pacific IF IntegratedFramework AfDB African Development Bank ISSO InternationalStandardsSetting AFTA AsianFree Trade Area Organizations AGOA African Growthand OpportunityAct ITWG InterimTechnicalWorking Group ASEAN Associationof SoutheastAsian LDCs less developedcountries Nations MDG Millennium Development Goals ASYCUDA Automated Systems for MFN most favorednation CustomsData MoU memorandumof understanding BIC businessinvestment climate MRA MutualRecognitionArrangements BNPP Bank-NetherlandsPartnership MS member state Program NBS NationalBureauof Standards CEPGL Economic Community for Great NMC NationalMonitoring Committee Lakes Countries NPV net presentvalue CEPT CommonEffective PreferentialTariff NTMs non-tariffmeasures CET common external tariff OTRI OverallTrade Restrictiveness Index CFS ContainerFreightStation PRSP PovertyReductionStrategyPaper COMESA CommonMarket for Easternand REC regionaleconomic community SouthernAfrica SAD SingleAdministrativeDocument DRC Democratic Republicof Congo SADC SouthernAfrican Development DTIS diagnostic trade integrationstudies Community EABC EastAfrica Business Council SEA SingleEuropeanAct EAC EastAfrican Community SEM SingleEuropeanMarket EATTFP EastAfrica Transport andTrade SIMBA Similarity BasedComplex Analysis FacilitationProject System ECCAS Economic Community of Central SITC Standard InternationalTrade African States Classification ECJ EuropeanCourt of Justice SPS sanitary andphyto-sanitarymeasures EEC EuropeanEconomic Community SSA Sub-SaharanAfrica EPA Economic PartnershipAgreement TBT technicalbarriersto trade EPZ ExportProcessingZones TEU Twenty FootEquivalentUnits EU EuropeanUnion TIFA Trade andInvestmentFramework FDI foreigndirect investment Agreement FTA free trade area TRAINS Trade Analysis Information System GATT GeneralAgreement on Tariffs and (of UNCTAD) Trade TPRs Trade Policy Reviews GDP gross domestic product TTRI Trade Tar& RestrictivenessIndex GNFS goods andnonfactorservices UNCTAD UnitedNationsConferenceon Trade GNI gross nationalincome and Development GSP GeneralizedSystemof Preferences WCO World CustomsOrganization HIPC Highly IndebtedPoor Countries WDI World Development Indicators IDPs internallydisplacedpersons WTO World Trade Organization IDF InstitutionalDevelopmentFund Vice President : Obiageli Ezekwesili Country Director : Mark Tomlinson Sector Director : Sudhir Shetty Sector Manager : KathieKrumm Task Team Leader : Sumana Dhar NTMSONGOODSTRADEINTHE EAC: SYNTHESISREPORT TABLE OF CONTENTS FOREWORD.................................................................................................................................... EXECUTIVESUMMARY............................................................................................................ ...i 111 Chapter 1. Introduction.................................................................................................................. I. 1 I1. EAC's WorkingDefinition ofNTMs .......................................................................... ContinuingEffortstowardGreater IntegrationinGoodsTrade .................................. 1 I11. Work Already Initiatedby EABCEAC andOthers.................................................... 5 6 Chapter 2. PROFILEOF THE EAC.............................................................................................. I. 9 9 FormalGoods Trade .................................................................................................. The EAC's Economic Features.................................................................................... I1.. 10 Chapter 3. METHODOLOGYTO ORGANIZEFINDINGS..................................................... 15 I1. I APathofOpenRegionalism..................................................................................... . 15 I11. 15 A PracticalWay Forward........................................................................................... A Rankingby the EaseofActionfor ReductionRemoval........................................ 16 Chapter4. NON-TARIFFMEASURESINTHEEAC............................................................... 20 I. I1. 20 I11. NTMs Prevalentinthe EAC...................................................................................... 23 Economic Cost ofNTMs........................................................................................... Perspectivefromthe EAC's FormalGoodsTrade..................................................... 22 V. IV. 36 FactorsLikely to InfluenceSpeedofEACAction on NTMs.................................... Other Constraintson Goods Trade inEAC................................................................ 46 Chapter 5. LEARNINGFROMOTHER REGIONALECNOMICCOMMUNITIES...............49 I. I1. The EUApproach to Non-tariffMeasures................................................................. 49 The ASEAN Approach to Non-tariffMeasures......................................................... 54 Chapter 6. LOOKING FORWARD:RECOMMENDATIONSFORFOLLOW-THROUGH...59 I. I1. NTMDecisions.......................................................................................................... 59 I11. NeededEACActions Outsidethe DirectArena ofNTMs........................................ Workingwithin the CurrentEAC System ................................................................. 62 67 APPENDIX GROUPA ................................................................................................................. AppendixA1. DetailsofTrade FlowsofEACMembers.................................................... 69 AppendixA2.Trade Routes inEastAfrica......................................................................... 70 AppendixA3.UNCTADCodingSystemofTrade ControlMeasures................................ 73 AppendixA4.WTO InventoryofNon-tariffMeasures ...................................................... 78 AppendixA5. Transport CostsandPrices inEastAfrica.................................................... 82 Appendix A6.2 Infrastructure ImprovementsThat WouldMake a Difference...................88 AppendixA6.1 Rangeof ConstrainingInfrastructureinEAC............................................ 83 86 AppendixA7.SensitiveProductsunderthe EACCustoms Union..................................... 89 AppendixA8.2 EAC's OutstandingPrioritiesfor SPS....................................................... AppendixA8.1. Sanitary andPhyto-sanitaryPriorityNeedsfor a EACmember:Uganda 90 92 BIBLIOGRAPHY ......................................................................................................................... 93 WEB SITES................................................................................................................................... 98 APPENDIX GROUP B (available electronically on request to sdhar3GiJworldbbank.org) Recent Economic andTradeProfiles B1. Burundi B3. Kenya B2. Rwanda B5. Uganda B4. Tanzania List ofBoxes Box 4.2. Burundi: Institutions for Administrative and Customs Formalities............................... Box 4.1. Burundi: Steps inCustomsFormalities for Goods at Bujumbura................................... 24 25 Box 4.3. Uganda:Public Agencies to EnsureFood Safety, Agricultural Health, and/or Quality 25 Box 4.4. The Dairy War: Kenyaversus Ugandaand Tanzania.................................................... Standards ....................................................................................................................................... Box 4.5. ProductDefinition: The Case of IncompatibleSugar..................................................... 32 33 Box 4.7. GrainsTrade inthe EAC: Informal Trade andNTMs.................................................... Box 4.6. Kenya-UgandaStandoff inLivestock Trade: ................................................................. 36 38 Box 5.2. The CopenhagenCriteria for Accessionto the EU......................................................... Box 5.1. Establishingthe Principle of MutualRecognition:The Cassis de Dijon Case ...............51 53 List ofFigures Figure 3.1. Categoriesof NTMs................................................................................................... 16 List ofTables 9 Table 2.3. Exportsto EAC by Member Countries by SITC 1Categories(percent oftotal) ........11 Table 2.2. Value of ExportsofAll Commodities to EAC............................................................. Table 2.1. An Economic Profile ofthe EAC. 2000-6 average........................................................ 12 Table 2.4 Top Commodities inExport Value Shares, 2000-6 average......................................... 13 Table 4.lEstimated UnitTransport Costs for Container............................................................... Table 3.1. SummaryMeasures of CoreNTMs (percentage points) ............................................. 18 21 Table 4.3. Severity ofNTMs on Goods Trade inEAC: ................................................................ Table 4.2. Severity ofNTMs on GoodsTrade inEAC: ................................................................ 39 Table 5.1.Most PrevalentNTMs inASEAN................................................................................ 40 55 Table 6.1, StartingReductionRemoval ofNon-tariffMeasures inEAC...................................... 65 FOREWORD This is a synthesis of a five-country study beingpreparedby the World Bank at the requestofthe East African Community(EAC). Inestablishing its free trade area, the EAC has beenpromoting free movement of goods among its members since 2005, primarily by dismantlingtariffs and customs duties. In the elimination of non-tariffmeasures (NTMs) to trade in goods, the EAC intent and legal framework is already in place. In the EAC Protocol, Article 13(1) stipulates that member countries must agree to eliminate remaining NTMs and not to impose new ones. Moreover, Article 13(2) providesthat member states shall formulate a mechanismto identify and eliminatesuchNTMs. EAC Secretariat requested overall synthesis of findings based on in-depth member country analysesfor its member states. The work is expectedto feed into the EAC member deliberations and to devise practicalactions to make Art 13 of the EAC Protocolfully operational.It will also provide the anchor for the initial work program of the National Monitoring Committees for NTMsestablishedinJune 2007 inmost ofthe member countries. The concept for the phased work was reviewed and endorsed in the Bank over January 24- Februrary 4, and at the EAC inArusha on February 11, 2008. The assessment is basedprimarily on interviews conducted in the EAC from February to June 2008 of private stakeholders, covering a wide array of producers, traders, and transporters, as well as a variety of trade facilitationagencies and government departments. The draft synthesis report was reviewedinthe Bank on September22,2008. At the conclusion of the stocktaking, the EAC approval is expected to start a secondstage ofwork focusedon practicalstepstowardreducingand eliminatingNTMs. The World Bank task team leader (TTL) and primary author is Sumana Dhar (AFTP2). With the TTL, the task team acrossthe EAC countries was composedof JosphatKweka, Tracey Lane, and Rachel Sebudde (AFTP2); Eric Mabushi (AFTP3); Peter Isabirye (consultant, AFMRW), Viju Ipe (consultant, AFTP2)and Valentina Rollo (JPA). Local consultant support was provided by Tharcisse Kadede (Burundi), Simon Ihiga (Kenya), Jean Basco Iyadema (Rwanda), and Milton Ayoki (Uganda). Logistics and mission support was provided by the following Bank staff Aurore Simaneye (Burundi), Mary-Anne Mwakangle (EAC and Tanzania), Carol Kidiavayai (Kenya), Josiane Niyonkuru (Rwanda), Rosemary Mugusha (Uganda), and Marjorie Kingston (Washington, DC) as well as JackilinaTrindade (GEP-CERDIsummer intern). The team thanks the Bank staff who contributedto the concept and decisiondraft reviews for the resultantimprovements. It is particularlygratefulto the insightsand detailedcomments provided by reviewers, Mona Haddad (PRMTR), Michael Jensen (PRMTR), and Fahrettin Yagci (senior consultant PRM) as well as the EACDirectorofTrade, FloraMusonda. The team thanks Mark Tomlinson(CD-RI), KathieKrumm(Sector Manager, AFTP2), as well as Colin Bruce (then CD-Kenya, Rwanda); Victoria Kwakwa (CM-Rwanda); John McIntire (CD- Burundi,Tanzania, Uganda); Alassane Sow (then CM-Burundi);andHarriet Nannyonjo(ag. CM- Uganda) for their guidance duringpreparation. The document benefitedfrom discussion with the Bank teams working on agricultureand rural development, and on transport in AFR. The team recognizes the financialassistancefrom the Bank AFR operations (AFCRI) and the Government of the Netherlands(throughthe BNPPtrust funds). Theteam i s very appreciativeof the openness of the Governments of Burundi, Rwanda, Kenya, Tanzania, and Uganda in providing access to information, discussing preliminary concepts and draft report, both through their EAC delegations at Arusha, Tanzania and during the preparatory mission, interviews, and analysis in i the country capitals. The support from Peter Kiguta, Director General-Trade and Customs, EAC and his staff at the EAC Secretariat is gratefully acknowledged. In addition to informing the policy deliberations by the member delegations and Council of Ministers at the EAC, it is hoped that the report will be used to determine the national policy actions of the EAC member countries inthe diverse arena of NTMs on goods trade, both directly and as part of the EAC. Duringpreparation, the findings informed the World Bank's assistance strategy for the next three years and country team deliberations for Burundi, Rwanda, Kenya, Tanzania, and Uganda. September 2008 .. 11 EXECUTIVESUMMARY The purpose o f this note is to highlightthe key findings o f an assessment o f non-tariff measures (NTMs) on goods trade inthe EAC, and identify priorities for a second stage o f work focused on practical steps toward reducing and eliminating these NTMs. I.Non-tariff MeasuresastheNextMainAreaofActionforStrengtheningEAC'sTrade Integration Common market deliberations in EAC. The EAC wants to consider the elimination o f the NTMs within the context o f its evolving common trade policy. This (draft) synthesis report is prepared in response to EAC's request for a phased technical assistance from the World Bank. Its objectives are to choose NTMs with high impact on inter-member trade out o f the range o f NTMs identified in the region; improve the understanding o f their persistence over time; and, devise practicable implementation plans for their removal.' In concrete steps towards establishing a FTA, the E A C has already made remarkable progress on reducingleliminating tariffs on traded goods since 2005. The remaining internal tariff walls are to be eliminated by 2010. There i s increasing need for the kind o f analysis requested by EAC where the REC-wide internal trade liberalization has allowed considerable reduction/ elimination o f tariffs, but would be offset by NTMs. This, in turn would significantly delay the establishment o fthe EAC common market. Eliminationof NTMsin the EAC Protocol. The Protocol for the Establishment o fthe EAC Customs Union provides the legal structure for NTB elimination in Article 13, which stipulates that to establish a full FTA, "1. Except as may be provided for or permitted by this Protocol, each of the Partner States agrees to remove, with immediate effect, all the existing non-tariff barriers to the importation into their respective territories o f goods originating inthe other Partner States and, thereafter, not to impose any new non-tariff barriers. 2. The Partner States shall formulate a mechanism for identifying and monitoring the removal o f non-tariff barriers."2 The National Monitoring Committees for NTMs inthe EAC members were instituted in 2007 -except inBurundi.To develop and embark oftheir work programs, the NMCswillneed prioritization o f the NTMs and guidance at the EAC level and strengthening o f political commitments at the national level. Strong, targeted financial and technical support for improvement o f institutional capacity to monitor implementation o f the program at the regional and national levels will also be critical. 0 Building on earlier analysis of NTMs in EAC. EAC's working definition o f NTMs is `quantitative restrictions and specific limitations that act as obstacles to trade,' other than tariffs, that may be embedded in government laws, regulations, practices and requirements at the national and local level, often for various legitimate reasons like safeguarding health, environment, etc. Identifying and classifying NTMs is not easy anywhere. This assessment 'The phasedwork program concept has been endorsedby bothEAC andBank reviews. Phase 1was financedby the Bank andthe BNPP. Phase2 is expectedto be financedby the Bank and aMDTF for trade inAfrica. EAC Protocol, 2004, pp. 16. The Protocol was signedinMarch2004 and came into effect inJanuary 2005 for the founders: Kenya, Tanzaniaand Uganda. Burundi andRwandaaccepted it from July 2007. ... 111 has drawn on prior analysis of NTMs by the private sector entities in the three founding members, within the context of surveys towards improving overall private sector business environment, as well as country specific trade diagnostic studies. The earlier analysis focused less on the understanding the political economy for persistence of NTMs over time or measuring specific and/or quantitative impact ofNTMs for comparative purposes inassessing priorities. The analysis presented in this report complements the earlier work, based on a combination of desk reviews and consultations with member governments and private sector firms in all the five member countries. 11.Main Characteristics of intra-EAC Trade The following aspects of intra-EAC trade are particularly relevant for assessing priorities for NTMremoval. Current intra-EAC goods trade in official statistics. Food and live animals as a group continue to dominate the formal intra-EAC trade of almost all EAC members, except the exports of Kenya, suggesting the importance of assessing NTM impact for those sub-sectors. The two other important groups - especially for the new EAC members - are beverages and tobacco, and inedible crude materials. The intra-EAC exports by Kenya shows increasing diversification into more specialized manufactured goods and articles, and gradually so by Tanzania and Uganda also. Chemicals, fuels and lubricants, as well as machinery and transport equipment are the other significant groups in Kenya's exports to the rest of EAC. Most members sell their top five commodities (by the value share in regional trade) in the they do to the rest of the world. This latter observation - combined with relatively small Kenyan market. Burundiand Rwandaexport the same top commoditiesto the rest of EAC as internal market size relative to other RECs - suggests that the EAC may be able to draw heavily on WTO-consistency as a means for NTMelimination. Informality.A significant part ofthe trade within the region infood and live animals tends to be seasonal, largely localized, and often informal. The transit routes are often along traditional cross-border paths, away from the major transport corridors. 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, especially to the extent that NTMs have been encouraging informality and hence hampering market development. Transport corridors for formal goods trade. The backbone of formal intra-EAC trade are two overland road and rail routes, the Northern and Central corridors starting from the ports - western edge - along with a north-south road link through Namanga on the Kenya-Tanzania of Mombasa and Dar es Salam respectively and reaching the border of DRC on the region's border. These corridors are also critical for transit of EAC's imports from outside, and its goods exports beyondthe region. This suggests a focus on NTMs related to the functioning of these corridors inparticular. An acute constraint for the producers, traders and transporters of goods in EAC is the poor physicalcondition of the state-run transport and communications infrastructure. The potential for rail transport i s recognized, even though the current state of disrepair o f railroads along both corridors and inadequacy of rail equipment for use will need to be alleviated before it is a viable alternative again. Inaddition, constraints include the poor state and maintenance of roads and weighbridges; the small capacity and disrepair o f the ports on the Indian Ocean and the lakes; and, the underdeveloped water transportation across Lake Victoria and Tanganyika. While this report does not focus on the state of the physical transport infrastructure in EAC, it clearly is a complementary priority. iv 111. NTMsinEAC Today: SynthesisofFindingsbasedonmember countryinterviews 0 Cost of NTMs.The impact ofNTMs inEAC measuredby the largest direct and indirect cost to the private sector is the lost man-days during goods transit and clearance at the internal borders and along the transport corridors before reaching the destined market. For example, two days are neededfor a 950 kmjourney between Mombasaand Malaba due to convoys and road blocs; an average of two weeks is needed to clear goods in Mombasa; and, all goods entering through any border post inBurundineeds to be cleared at the Bujumbura port. Next inrank are various nonofficial cost enhancements, arising from scope for fraudulent behavior created through the flexible implementation of national policies. For example, the current flexible application of axle-load restrictions on trucks in Kenya and Uganda; the continued operation o f 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). The other important costs added by NTMs are the range of official payments necessaryfor goods trade, and the lost business opportunities, the latter most difficultto quantify. 0 Type of existing NTMs.EAC members harbor a range o f generic NTMs that apply to most goods traded across the region's internal borders. These often apply to goods trade beyond the EAC also. A shorter list ofNTMshas begun affectingproduct specific trade inthe region inthe recent years. They are based on technical quality and SPS standards specified for the goods, and mostly anchored inhealth and safety concerns statedby the member governments. The current NTMs that apply to intra-EAC trade - as per the broad categories of the WTO inventory - are rankedbelow ina decreasingorder of importance basedon numbersof private sector complaints. A. Generic NTMs 0 Customs and administrative entry and passage procedures. Prolonged formalities, multiplicity of institutions, duplication o f clearance processes, limited capacity at the border posts and travel restrictionsthrough convoy and time of day, continue to add monetary costs and transit time for goods traded in the EAC. In addition, some rules o f origin cases have escalated to the need for verification mission to determine adherence; or emerged related to specific rig in.^ In pre-shipment inspection, the efficiency of certain private/ parastatal agencies incharge is questioned by the traders. There i s very limited, ifany, flexibility inthe use of customs agents and bonds. The private firms' complaints identify this group of NTMs as the most important inthe region. The revenue incentives remain important for each member, with a range of specific charges adding to the private cost of trade in EAC. Actual instances o f unequal treatment according to the country o f origin of the goods and/or truck and its driver remain frequent, as are the vociferous allegations by private firms of such "unfair" treatment arising due to perceived national protectionism and corruption. The opportunities for fraudulent behavior are reported to arise due to the gaps between the respective national revenue authority decisions and their actual application at the border, as well as due to the early stages of acceptable coding and 'Repeatedallegations of counterfeit goods fiom the Far Eastentering the EAC throughDar es Salam, with the Tanzanianstamp of manufacturequestionedby the other EAC members. V synchronization within the EAC (a responsibility of the EAC Directorate of Customs and Trade). The EAC Council of Ministers expects that its region-wide decisions will simplify and c synchronize customs documentation, formalities and procedures at the border posts. To date there is considerable lag between the time the relevant rules are harmonized by the EAC Council of Ministers, and the time national customs officers at the border posts develop capacity to apply the EAC regulations and stop applying the national or COMESA taxedduties and procedures. Many member states are undertaking donor-funded customs systems reform and modernization and border post upgrading. But, the focus and content of such national efforts have been largely bilateral, slow, and uncoordinated across the EAC. Where attempted, the concept of `one-stop-center' for clearance has not really started working. 0 Government participation in trade and restrictive practices tolerated by it. The operation of ports (sea ports o f Mombasa and Dar es Salam; lake ports o f Bujumbura and Kigoma), inland container freight stations (like MAGERWA and Isaka) and the plethora of manned weighbridges by the national governments, parastatals or monopolies authorized by the governments, are identified by the private sector stakeholder responses as the NTMs second is importance in EAC serving as a bottleneck for economic activity in the region. Their response is mindful of the possibility of such NTMs being alleviated as constraint imposed by the physical infrastructure itself is tackled gradually. Transparency and efficiency in clearance and release of goods at the sea ports is hampered by administrative complexity o f formalities, especially in Mombasa; limited skills and ineffectiveness of staff and agents prevail, especially in Dar es Salam. Short, inadequate grace periods are provided for the imports prior to the application o f demurrage charges. All add lengthy delays, congestion, and high cost o f offloading and clearing cargo (already limited by the useable physical infrastructure at these locations) and create considerable scope for discriminatory/fraudulent behavior. Shipment clearance delays also enhance risk of deteriorating product quality, especially for perishable products. National infrastructure remedies being instituted are addressing brick and mortar issues, but often not the associatedoperational practices that have the direct impact on intra-EAC traden4 In recent years, the governments have opted for private or joint management some of the facilities, or allowed in the first private alternatives, or are looking into such options. However, following such decisions, scarcity of investment funds of the private management company and the lack o f co-ordination with other government decisions are often emerging, as are sub-optimal operational business decisions taken by the private monopoly after the replacement of a state monopoly. 0 Distributionconstraints. NTMs originating in national regulations and their application on the transit of goods in the member states constitute the third broad category in importance. The way inwhich the transit licenses for goods, the truck entrance fees and grace period, the permits for refueling, and the prohibition on transportation of locally produced goods and backloads are applied vary considerably within EAC and can be discriminatory. Multiple police road blocks and mobile control along the transit routes remain a much-discussed but persistent NTM, with ample scope to `toa kitu kid~go.'~ particular cases, for example in Tanzania, the difference intransit time along the same route and in ease o f procedures - hence In Improvementsare reportedalong the Northern corridor. 5The customaryrequest inKiswahili, `Give somethingsmall.' vi cost - are so significant that producers and traders make very specific choices on the use o f trucks registered in certain member countries and drivers who have the particular national citizenship. At present, a major issue with traders and transporters is that o f axle load specifications and Gross Vehicle Mass. The EAC has passed a specific 3 axle-7 tonne per axle load requirement for trucks. All member governments agree that the new restriction is good for protecting the road surface in the region. In addition, the private sector agrees that it will eventually be beneficial for truck maintenance and reduced workshop time. Tanzania has been strictly applying such axle load limits, as a member o f SADC, for a while. However, the other four EAC members have traditionally allowed 4-axle trucks with much larger loads. These larger capacity trucks have become an important lifeline for the EAC, as the railways became less and less an alternative for bulk commodity transportation. Inthe interim - while the rule is being disputed by the Kenyan transporters in the Kenyan courts - the rule i s starting to be sporadically applied by Kenya, Uganda, and Rwanda, with decisions at the border not agreeing on application o f axle load limits. In extreme cases, entry is temporarily denied, limiting market access. Specific limitations. Certain restrictions not directly inthe arena goods trade and transit are being applied as NTMs within E A C and affecting the intra-region trade. Widespread use i s made o f the procedures and fees for entry o f EAC citizens for business purposes into other member states, and the registration o f their businesses there. The restrictions also include the official charges for translation o f documents to/from French, since Burundimaintains it as the national language while the official language o f communication inEAC i s English. B. ProductspecificNTMs Technical quality standards and norms and sanitary and phyto-sanitarymeasures. The EAC members are starting to apply `testing, certification and other conformity assessment' for technical quality standards and norms in intra-EAC goods trade. The clearances can be periodic, but are mostly by consignment. Most time lost i s due to the fact that in national product standard definition and certification, the bureaus o f standards operate at very different levels o f capacity and ability (with virtually none yet in Burundi) at its laboratories; and in testing and conformity assessment at the border. The E A C harmonized standards are developing very slowly, product by product, and are not necessarily recognized by member agents at the internal borders even when they are in place. The prolonged follow-up often needed - with the shipment stranded at the border - has been `allegedly' used to discourage scope of developingcross-border trade incertain perishable products from time to time. Moreover, the EAC-wide guidelines on import requirements as well as procedures for introducing import restrictions and bans remain to be finalized. Specific cases that have been inthe forefront in the recent years cover trade inmilk, poultry, beef, maize, etc. Though the recorded cases are few for now, this area o f NTMs must be o f particular concern since food and animal products are by far the largest group o f goods trade within EAC. \ Where health and safety issues are involved under SPS measures - "including chemical residue limits, disease freedom, specified product treatment" - the certification authority, with variations in the center for testing and other conformity assessment, moves to the respective ministries for agriculture and livestock development as well as veterinary services increasing the number o f steps and complication. For both TBT and SPS measures, there is largely no mutual recognition o f inspectionreports and certificates among members. vii Another technical standard impedes intra-EAC trade for the new EAC membersfor now. The issue of driving on the left side of the road in the rest of EAC i s mentioned by Burundian and Rwandan drivers as a NTM, as changing sides as per the national driving rules and retrofitting the imported second-hand trucks makes transit susceptible to accidents. The Ministries o f Transport in Rwanda and Burundi are also seeking to apply strict right-hand side vehicle importationrules incompatible with the rest of EAC. IV. What the Other RECs areDoing Learning from other RECs. Generally RECs have been more successful in eliminating NTMs by using a mix of outlawing certain measures and following the mutual recognition principle for others. The EAC's preparation of a realistic plan can derive critical lessonsfrom the actual experience of other RECs, in the identification, classification and measurement of NTMsas well as their choice for reductionand removal. The EUand the ASEAN show that this process is very long drawn and resource intensive, requires steadfast commitment throughout to deal with complex political decisions, and tends to be integrally related to overall plans to establish a single internal market in the REC. There are hardly any successful examples of RECs in SSA attempting NTMreduction. From the EU. Albeit at a very different level of development, with far stronger REC administration and much larger availability o f resources to execute REC-wide decisions, the EAC could learn from the EU experience in development and application of the principle of mutual recognition in standards that facilitates free intra-EU trade in goods. For example, the intra-EAC trade in beer could learn from the EUrecognition that alcoholic beverages can be introduced into any other EU member state when they have been lawfully produced and marketed in one o f the member states. This streamlined approach to intra-REC trade relies only on "essential requirements" of alcoholic beverages and provides greater freedom to manufacturers to fulfil those requirements. At present, due to the difficulty intrade, beer and beverage producers in EAC mostly opt for separate production facilities in the larger members. Second, EAC could learn from impacts of the EU enlargement and the foreign competition from outside that REC on the pace and process of elimination of NTMs and the solutions found. New EUmembers brought challenges to the integration process and functioning of the internal market, due to their lower level of economic development and new constraining measures on internal trade that stretched the EU monitoring capacities. EU recognized that a failure to establish the internal market quickly and effectively would only exacerbate difficulties encountered by European firms from external competition (by Japanese firms entering European markets incars, etc). From ASEAN. The ongoing process in the ASEAN illustrates to the EAC the possibilities for developing countries, with limited financial flexibility and weaker administrative capacity. First, like the ASEAN, the EAC has large trading interests outside the REC. Hence, EAC should study how ASEAN's implementation of the principles of open regionalism - encouraging REC members to adopt and adhere to WTO rules - helps in eliminating NTMs. ASEAN's sector based approach to NTMs is an excellent example of the possibilities, when the implementation of REC-wide decisions is limited largely to national governments actions and the political complexity posed by sovereign members i s large. Second, ASEAN benefited from a product-specific approach for a select number o f goods deemed to have strong regional market potential (e.g., tourism, wood-based products). In the case of EAC, ... Vlll generic NTMs are currently more important than in the ASEAN case, but as noted, there are select products (like milk, day old chicken, beef, etc among food and live animals) where the ASEANimplementationcouldbe relevant. V. The Way Forward: Some Suggestions 0 Prevention of new NTMs. With respect to the monitoring for new NTMs that may be imposed by member states, the EAC 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 nationalterritories. Inthis way, the Commission is able to monitor and prevent the emergence of new national barriers to intra-EU trade. The Commission also maintains a score card on adherence to REC-wide rules including those on NTMs on trade, which can beusedto nameand shame membersinto compliance. A two-pronged approach for existing NTMs. The prevailing NTMs in EAC are clearly divided into two groups and are likely to need two distinct approaches in developing implementationplans for monitoring, reduction and removal. 0 For generic NTMs. All EAC members are WTO signatories also who are taking significant unilateral steps towards enhancedparticipation inthat institution. The team 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. WTO consistency requires NTMs to be "transparent," "non-discriminatory" among the domestic goods flow and intra-EAChnternational trade, "scientifically based," and "with no better alternative." The preliminary list of NTMs should be investigated for these characteristics. We have seen above that several of the prevailing NTMs can be nontransparent and are mostly discriminatory against other EAC members. This could include interalia the operation o f the weighbridges for intra-EAC goods transit, the use o f only national clearing agents, the exclusive use o f trucks registered and drivers who are citizens in the member state, the imposition of entrance fees on traders from other member states entering with their products, the Frenchtranslation fee for customs documents, etc. The generic NTMs in line with the WTO rules still need to be removed, but could be considered on a preferential basis. For ease of follow-through, the EAC members could prioritize those NTM areas for implementation where the Council of Ministers has already taken the EAC-wide policy decision. For those where such a decision from the Council is yet to be reached, the team recommends that the priority for EAC action be determined on the basis of criteria like the overall regulatory objective and/or the intra-EAC trade impact. This would include interalia the application o f the axle-load law, the use o f EAC-wide bonds and carrier licenses instead of national ones, etc. For product specific NTMs. In a few goods, like milk, beef, poultry (including day-old chicks), the EAC may want to 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 o f the NTM. Here the guidance from the ongoing process of deliberations and decisions in the ASEAN countries will be useful. This could be 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 performance-oriented ix legislation i s felt needed. Any capacity building initiatives inthe overall area of the technical and/or SPS standards for goods should be assessed vis-&vis clear articulated demand from end-users inthe publidprivate sector, rather than from the national bureaus of standards. Given the fiscal and human capacity constraints that exist in the EAC for now and dependenceon implementation of region-wide decisions only by national institutions, it is by no means beingsuggestedthat the EAC choosethe above course of action for all major goods traded among the five members. For most goods, the "new approach" o f the EUcould apply to products with similar characteristics and where there is widespread divergence of technical regulations in EAC countries. This streamlined approach would rely only on the "essential requirements" and allow greater freedom for manufacturers on the way to satisfy those requirements.This would significantly reducethe red-tape originating from various standards agencies that mires goods trade in the region in particular and in developing countries in general. Gradually, this approach could provide private firms with a number of choices for attestation methods: self-certification against the essentialrequirements; generic standards; or using notified bodies for type approval and testing of conformity of type. On the TBT and SPS measures, the WTO guidelines tend to be most relevant for the OECD countries and the EAC is advised to be cautious as not to constrain the potential for growth inthe region. 0 Capacity to monitor and prioritize. Monitoring is a difficult and resource-intensive exercise, based on regular notification, regular reporting, proper classification, appropriate mutual prioritization for removal of non-transparent, discriminatory NTMs, and prior/ subsequent monitoring. For the new NTMs that may arise as well as the existinggeneric and product specific NTMs, are the areas where the Secretariat as well as the member states would needto develop sufficient institutional capacity inthe EAC. Inthe member states, such capacity needs to be developed not only in the NMCs, but also in the individual line ministrieslike the ministry of transport, ministry of agriculture and livestock, etc. 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 member states. These proceedings could be initiated as a consequence of continuing or new application of a NTM by a member state. In this case, the member state is encouraged to quickly remedy the situation, and if it fails to do so it is referredto the EAC court, which can impose a sanction. 0 Other factors. It is recognized that incertain cases of locations (like Burundiwith Tanzania; Uganda with Kenya) effective bilateral decisions among two members could largely ease the total impact of NTMs for particular members. These could be tried while a five-member consensus being worked on. Second, as the trade links o f the EAC members with their external markets are very strong and a significant source o f growth for the region, the EAC common market could aim to adopt an open regionalism model like the ASEAN, based on the principle o f adherence to WTO rules. Through feasible processes, the EAC could urge its members to adopt the WTO agreements on TBT, SPS, and import licensing procedures as well as develop the related implementation guidelines. Third, large physical investments would go a long way in upgrading the state of EAC's trade facilitation infrastructure and hence alleviate NTMsassociatedwith these facilities. 0 Concrete progress in select areas to build confidence. Among the factors that may slow down the process of actions on NTMs is the capacity of national institutions -the regulatory institutions, the customs administration, the bureaus of standards. In addition, the flow of information from the EAC and the national governments to private sector firms and the civil X society in EAC needs to be faster, automatic and smooth. Efforts need to be made to address the widespread perception in the private sector that implementing agents in each member state continue to think and act on behalf o f the individual countries and not in terms o f the EAC. A focus on some key NTMs (both generic and product specific) will be critical to prioritize EAC and national governments efforts inlight of scarce institutional capacity and to build confidence inthe seriousness of the NTM elimination program notably with the private sector. xi CHAPTER 1. INTRODUCTION 1.1 The treaty for the establishment o f the East African Community (EAC) o f 1999 set out a vision for the eventual unification o f Kenya, Tanzania, and Uganda. The sequence o f events laid out comprised the establishment o f a customs union, followed by a common market, a monetary union, and eventually a political federation.6 1.2 The first step in this sequence is underway, with the "Protocol for the Establishment o f the East African Community (EAC) Customs Union" signed in March 2004 and coming into effect in January 2005 for the three founding members, envisaged to be complete by mid-2009.' The newest members, Burundi and Rwanda, adopted it in July 2007. In a relatively short time, EAC has moved quickly to eliminate a large proportion o f tariffs on intra-EAC trade' as an integral component to establish a free trade area (FTA) among the founding member^.^ The schedule o f accession allows commensurate action on tariffs by Burundi and Rwanda to be undertaken until2010. I. CONTINUINGEFFORTS TOWARD GREATER INTEGRATION INGOODS TRADE 1.3 Notwithstanding EAC-wide tariff removal, in all member countries several non-tariff measures (NTMs) are still reported to impede the free trade in goods. The private sector in the region also perceives that such NTMsmay be becoming more prevalent in the larger members as tariff protection is reduced. 1.4 Within the EAC Protocol, the legal structure for elimination o f NTMs in the regional economic community (REC) is provided by Article 13, which stipulates that to establish a full FTA, "Except as may be provided for or permitted by this Protocol, each o f the Partner States agrees to remove, with immediate effect, all the existing non-tariff barriers to the importation into their respective territories o f goods originating inthe other Partner States and, thereafter, not to impose any new non-tariff barriers. The Partner States shall formulate a mechanism for identifying and monitoring the removal o f non-tariff barriers." The five EAC members are currently negotiating the second step, a hrther Common MarketProtocol, for fiee movementof persons, labor, and services and to ensure the right to establishment and residence of EAC citizens within the Community. This protocol is being negotiatedjointly alongside those regardingthe establishmentof an East African Common Market. Underexisting plans, the Protocol is expectedto be ratifiedby June 2009 and implementation will begin inJanuary 2010. The thirdstepmonetary unification-will not be completed for some time, as the introduction of a single currency i s not expected until2011-5, while the establishmentofapolitical federationis envisagedby2015. I Source: East Afiican Community Secretariat, 2004. With the exceptionof selected lists of sensitiveproductsexportedfkom Kenyato Uganda (443 items), and to Tanzania(880 items). For these a gradual reduction over five years from a 10percentto 0 percenttariff would allow for the maturity ofthe f m s producing these productsinUganda and Tanzania, respectively. The simple average MFNtariffon overall imports - theunweightedmeano fall tariff lines, including import surcharges and other `para-tariffs' i.e. duties and charges- in1997 and2007 were, respectively, 41.0 and 12.6 for Burundi; 19.0 and 16.7for Kenya; 35.0 and22.7 for Rwanda; 21.8 and 14.1 for Tanzania and 13.2 and 12.9 for Uganda. Source:IMF 1 1.5 Recently, some preliminary analyses have been undertakento explore general monitoring options for Kenya, Tanzania and Uganda, the founding members only, with help from private sector lobbies like the East Africa Business Council (EABC), in the context o f the overall businessenvironment for private firms inthe REC. 1.6 In mid-2007, National Monitoring Committees (NMCs) were inaugurated in all member countries-except Burundi-to adopt a monitoring mechanism when adopted. The NMCs have quarterly reporting responsibilities to the ministries of EAC or trade o f the respective nations, and to the EAC's Sectoral Committee on Trade, Industry, and Investment. To date, however, the determination of a work program for the NMCs has been slow to develop. Significant among the reasons are: scarcity of specific information generated by EAC-wide stocktaking; the EAC requirement for consensus on monitoring mechanisms to be adopted (on a case-by-case/mutual recognition basis); the EAC requirement for consensus on member actions on reduction/removal o f NTMs; and dearth o f budget resources in member governments to locate and support NMC activities. 1.7 InSeptember2007, the EAC statedthat removalofNTMsisnow apriority initspolicy program toward deeper trade integrationand establishment of the common market ingoods. The EAC made a request to the World Bank for analytical and technical assistance on this issue. Subsequent discussions with the Secretariat by the end of 2007 determined that an overall investigation of NTMs inthe REC would be most useful for the EAC's work program, if it led to: An improved understanding ofthe politicaleconomy for continuedpersistenceofNTMs over time among the member nations An informed selection ofthe most important NTMs,which ifremovedcould significantly increase intra-regiontrade, from the list of all NTMs identified A practicable implementationplan for the removal ofthese NTMsbythe members. 1.8 There is increasing need for this kind of analysis where REC-wide internal trade liberalization may be allowingconsiderable reduction/ elimination o f tariffs, but such progress is being counterbalanced by use of NTMs in promoting national interests. The EAC's courage must be appreciated for takingup an extremely difficult issue to tackle on its way forward inthe policy reform program for its common market. 1.9 In general, NTMs within each nation and across members of a REC span remarkably different, technically difficult fields. The areas covered, especially in less developed countries (LDCs)- a criterion fulfilled by all but one EAC member-usually have little formal documentation and/or only very unreliable data. Compared to tariff reduction, the analysis and REC-wide policy implications of NTMremoval are neither clear nor precise, even for developed countries. This analysis of the NTMs, through which the World Bank is starting to assist the EAC, should be viewed as a useful beginning of a prolonged and arduous process. Much will need to be done if the actionable plans that emerge at the end of this process are to be implemented and have real impact on goods trade among EAC members (see chapter 2 and appendix A1 for a summary o f trade flows of EAC members; appendix A2 describes its trade routes). 2 Concept of the current NTMwork and guidance received 1.10 Review of the concept note for the overall NTM in EAC study, both in the Bank and in the EAC," over January-February 2008 endorsed a plan to divide the proposed work into two phases: e Phase 1." Identificationand choice leadingto importantNTMsthat have highimpact on intra-regiontrade among all NTMs identifiedinthe member country stocktaking. e Phase 2. Choice and implementation,to follow, to finalize choice of the important NTMsand prepare apracticable implementationplanfor the removalof these NTMsby the members. 1.11 It was clearly recognized that identification, understanding and region-wide discussion of the political economy for the continued persistence of various NTMs in EAC will not be easy, and will closely influence the decisions taken in each phase. The political/economic environment will be clearly identified in the phase 1 stocktaking and continue to be critical through the implementationplan preparations inphase 2. EAC expects the work inboth phases to be critical for member country NTM deliberations, and for practical actions to make Art. 13 o f the EAC Protocol fully operational. This would also anchor the initial work program of the established NMCs. 1.12 Phase 1 aims to clarify what NTM classification methods are available and which inventory of NTM instruments would be more appropriate for EAC; assess existinglongoing work in EAC and identify its limitations; learn from the experience of other RECs, such as the EUand ASEAN; providehpdate the list of NTMs for all five members usingboth local know- how and international sources; and initiate, to the extent possible, the selection o f important NTMs that constrain intra-EAC trade and analyze the reasonsfor their existence. 1.13 Focus and coverage. The task team was cautioned that NTMstend to be very broad and hence the key challenge would be to focus the issues and the coverage in consultation with the EAC Secretariat. The Secretariat agreed that barriers in a member's domestic market can be extensive and most often covered by reform programs on the domestic business environment, capacity building, and overall trade facilitation. It i s best to get a sense of the national and EAC- wide background of the environment for private investment fiom such programs, and then focus on NTM identification and analysis for trade in goods across the internal borders in EAC.12 Trade in services and factor (including labor) mobility is to be considered separately, at a later date. 1.14 Free movement of goods and its potential growth within EAC is considered critical to develop a fully functioning FTA. The investigation was guided to provide an in-depthview of the actual operation, key players, and impact of specific NTMs identified. Insight on political- '' By the EAC Secretariatandmember country delegations inArusha Tanzania. Participants includedthe Director General-Customsand Trade, Director-Trade, andother staffof EAC Secretariat, as well as memberdelegations from Burundi, Kenya, and Tanzania under the invited chairmanship-as per EAC protocol4fDep.Permanent Secretary, Ministry of Industries, Trade andMarketing, Governmentof Tanzania.Feedbackandendorsementfiom the delegationsofUgandaandRwandawere obtainedlater, in the respective countrycapitals: UgandainFebruary 18-19 andRwandainMarch2-5,2008. I 1Phase 1preparationsfrom October 2007-to June 2008 were undertakenwith assistance from the World BankandGovernmentofthe Netherlands(under the Bank-NetherlandsPartnershipProgram, BNPP). '' The generalbusinessenvironment for the privatesector inmember countries anddomestic goods ineach will be consideredonly to the extentthat they providemore informationonNTMs on tradedgoods. 3 economic reasons for persistence of specific NTMs is more useful for the EAC, rather than a presentation o f broad aggregates. Hence, the choice o f methodology i s to emphasize practicality and usefulness toward EAC deliberations and future actions, in preference to theoretical rigor. The strict categorization of the NTMs into predefinedgroups, according to definitions by the United Nations Conference on Trade and Development (UNCTAD) or the World Trade Organization (WTO), i s o f limited use. It may also be necessary for the analysis, in phase 2, to take stock of each member country's goods trade bilaterally, since specific factors such as the historical market links, the location of industry, and the use of specific ports are important. The analysis is particularly important for Burundi and Rwanda, whose steps to integrate into the EAC common market are less analyzed and defined. 1.15 Hence, to give a realistic overall picture of the bindingconstraints on exports and imports inthe EAC, the phase 1stocktaking hasbeenkept somewhat broader than the suggestedfocus of "only the export market" and "only specific products within EAC."13 Initial investigations across export markets revealed that, on the whole, current NTMs in EAC are more generic in their coverage across exports, imports, and goods transited through specific member countries. Moreover, the NTMsapply across most product groups, minus a few products. 1.16 The reviews recommended that the priority areas start to be identified in member government discussions of this (draft) stocktaking study, and be subsequently endorsed by the EAC. The choice and use of methodology is expected to evolve as the actual cases are documented, rather than a priori. Where possible, the impact measurement should include estimates of additional cost of producthime delays due to the constraint. In phase 1, however, it i s most important for the analysis to be very pragmatic. Most firms in EAC are small in size with limited capacity to explore the full EAC market, let alone markets beyond the REC. In addition, the actual period o f operation of intra-EAC zero/low tariffs has been short. For firms engaged in expanding their markets beyond national borders, most o f the impact o f NTMcould be detrimental. Hence, the absence of formal trade in the face of potential scope o f EAC-wide internal market may be an important indicator of impact. 1.17 Structured member country work program. The current (draft) stocktaking report prepared in phase lon the operation of NTMs on goods trade in the EAC is expected to be presentedto the EAC Secretariat in September 2008. The (draft) report brings together learning from all five partner countries and emphasizes local know-how, involving the member governments, private sector, local consultants, and Bank country economists/trade specialists. The EAC member governments provided in-country support and guidance to anchor the findings within the national policy reform agenda. To the extent applicable for EAC, the (draft) report also brings inthe experience of other RECs on monitoring, reducing, and removing NTMs. 1.18 In the light o f the above guidance, discussions on the draft stocktaking study will facilitate consensus building in EAC Secretariat and among member countries on the concepts, the objective, and the priorities in EAC's NTM reduction and removal. The EAC Secretariat expects to present the draft study to the member delegations for consideration inArusha, as was done at concept development. Most member governments have requested in-country discussions of the preliminary findings. Feedback and guidance is expected, through the Secretariat and direct member-country deliberations, on the choice and way forward in targetingspecific NTMs in phase 2 for preparation of implementation plans for monitoring, reducing, and eliminating those NTMs. l3 The task team is not reporting (yet, as of September 2008) on the NTMdiscussion inthe EAC Trade Committee Report (February 2008), which it expects to receive from the EAC Secretariat. 4 1.19 Phase 2 is expected to proceed inthree steps. First, a deeper analysis will be undertaken of a few complex NTMs and their supporting political economy. The following methodology could be taken on board (after EAC priorities are identified). Exporter firm surveys in each member country could be used to add to limited available data on NTMs and assess the main constraints. If EAC so choose, these surveys could be product area-based, focusing on the narrow products groups where EAC wants to concentrate first. In addition, member governments could be asked to report to the Secretariat the national regulations that might have an impact on trade (a WTO requirement, more implementable within a REC), with the specific justifications for existing NTMs (such as those related to public health and safety). Based on these two datasets, the NTMs could be categorized-by the Secretariat's decision-n whether they are transparent, scientificallyjustified, and have "no better alternatives," and subsequently identifiedfor reductionhemoval. The Bank-donor task team would provide analysis and capacity building assistance as needed. Second, an action plan will be developed to eliminate the critical NTMs inall five member nations as part of EAC's common trade policy. Third, an institutional mechanism will be developed for dissemination at the member nation and regional levels, to buildconsensus on action among the key stakeholders.l4 11. EAC'sWORKING DEFINITION OF NTMs 1.20 The EAC has adopted its own definition of NTMs, aimed at identifying them and monitoring their elimination. The definition uses the UNCTAD and WTO guidelinesrelated to identification of obstacles that have a negative impact on trade (see appendixes A3 and A4, respectively), since there i s no single internationally accepted definition encompassing the diverse measurescovered. 1.21 The EAC recognizes NTMs as "quantitative restrictions and specific limitations that act as obstacles to trade," that may be embedded in laws, regulations, practices, and requirements other than tariffs. These include non-tariff charges, government participation in trade, restrictive trade practices, and policies; customs and administrative procedures, and practices; technical barriers to trade (TBT); sanitary and phyto-sanitary measures(SPS); distribution constraints, and other specific measures. The definition recognizes that government regulations and measuresfor various legitimate reasons can end up adding unnecessary costs or inhibiting intra-EAC trade. These may include regulations applied at the national and local level to: Protect domestic industriesand consumers Safeguard against fiscal revenue loss Safeguardhealth, safety, and security of human beings, animals, and plants Safeguardthe environment and Safeguard national security. l4It is expectedthat phase2 will start inlate2008, following deliberationsinEAC onthe (draft) stocktakingreport. Use ofBank staff and international subject authorities is expected, as along with the continuedinvolvement of local consultants. 5 111. WORK ALREADYINITIATEDBYEABC/EAC AND OTHERS 1.22 A discussion by the EAC Council of Ministers on the EAC-wide NTMs and course of actionto be pursuedinanalyzing and reducing/removing them i s summarized in the EAC Trade Committee Report (February 2008).15 [Add summary here, when available; September20081 1.23 At the national level and/or for intra-region comparison, stocktaking of the prevailing NTMswithin EAC has beenfar from comprehensive. Inaddition, other measures-identified as NTMs in the member nation--can significantly raise costs; these include national shortfalls in physical infrastructure and/or behind-the-border supply constraints that affect the overall business environment for private enterprises and are not specific to regional or international trade. These may be critical for overall private sector led growth, but need to be (and often are) addressedinan EAC forum beyondthat for the flow of goods trade. 1.24 Two surveys commissioned by the East Africa Business Council (EABC) since 2004 prepare some ground for elimination of the NTMs through preparation o f a list of NTMs in the three founding members o f EAC. The surveys were conducted largely on firms active in cross border business transactions in Kenya, Tanzania, and Uganda. These business investment climate (BIC) survey results indicate that barriers are largely located in customs administration and procedures, immigration, business registration, and the inspection of imports and goods distribution (including police road blocks, operation o f weighbridges, and quality standards certification). In 2005 the EABC, together with the EAC Secretariat, proposed an institutional mechanism to monitor the elimination of the identifiedNTMs. 1.25 The main weaknesses of the existing work are listed below, along with a discussion of how to address these. A very broad definition is used to identify the NTMs, resulting in an extremely long list of NTMs in three founding members only. This would result in a very complex program to eliminate those NTMs. Priorities must be set. A large number o f the identified NTMs are administrative barriers to private business and investment, but not core NTMs.Moreover, the analysis is confined to the three founding members. The current (draft) stocktaking report includes the two new members in the exercise as integral part o f the EAC. It defines the critical areas of NTMs in the context of the EAC based on international experience. At variance with the expectations at the concept review, prioritization to date has not been based on the impact of the particular NTM on specific goods traded within the EAC, but rather on what is considered to be the most binding constraints to trade, as per the private sector interviews, and the ease of dismantling it. Overall, EAC-wide NTMs do not seem to have a product- specific focus within formal trade. The BIC survey -based inventory of the NTMs in EAC uses only interviews with private companies, and does not appear to have engagement/approval o f the member governments or the EAC. Since the barrierperceived by an exporting firm inone member is inmost casesthe regulation imposed by the government o f another member or non-member, such a method for collection o f information on NTMs-by reverse not$cation16 by firms-may not be the most effective in building up ownership o f subsequent actions. Similar information can also be l5The EAC member delegations instructedthat the Secretariat(Directorate of Trade), at the February2008 concept review,to make the internal Trade Committee Report available to the task team following due clearances, for the phase 1stocktaking. This is awaited. l6With a built-inbias to overstaterestrictiveness. 6 provided by governments on potentially trade-hindering laws and regulations imposed by them-that is, through notification.'' In the absence of a strong supranational body in the EAC, the main implementers of policy and policy reform will remain the member governments. Commitment o f the member governments to eliminate the NTMs cannot be built up and secured unless there is recognition, clear prioritization, and consistency of reasons. The current (draft) report involves and explains the reasonsto the key stakeholders, inparticular: the governments, the private sector, andthe EAC Secretariat." Generally RECs can and have been more ambitious and more successful in eliminating NTMs, using a mix of outlawing certain measures and following the mutual recognition principle for others. It must be noted that those successful have done so over an extended time span and have been at significantly higher levels o f economic prosperity than the EAC. As a customs union, the EAC has rightly targeted elimination of the NTMs inthe context of its evolving common trade policy. This means the main decisions initiating elimination of NTMs need to be made by consensus at the EAC Council of Ministers, requiring prior consensus building among sovereign member nations on the list of NTMs to be eliminated, the timetable, and other key considerations. International experience shows that a way forward through imposition of detailed obligations regarding elimination of NTMs is difficult, due to the diverse objectives of sovereign states. Less intrusive ways to reduce the cost impact o f NTMs have been found through movement toward WTO principles of transparency and nondiscrimination in application of national regulatory measures. The existing work in EAC did not take account of this important dimension of elimination of the NTMs.The current (draft) report makesthe distinction. The monitoring mechanism suggested by the existing work is a complex recording and reporting system rather than an implementation plan. The current program will prepare a time-bound implementationplan in phase2. 1.26 In recent years, EAC members have analyzed their trade policy and prospects, and prepared a framework for trade facilitation and mainstreaming in their development agenda, through the diagnostic trade integration studies (DTIS) under the multi-donor Integrated Framework (IF) for Trade. Since most o f the policy reform in the EAC members to date has focused on explicit trade taxes, and significant traditional export markets remain beyond the EAC common external borders, the DTIShave focused on these two topics. 1.27 Nonetheless, a few members have considered the prevailing NTMs in varying degree of depth and rigor. The DTIS for Tanzania (2005) and Uganda (2006) have taken a deeper look at prevailing customs systems and procedure^.'^ In the agriculture/fishery sector, they have also examined the operation o f taxes (especially local), the role of crop boards (in Tanzania), and the application of quality and safety standards. They have traced EAC-wide developments on these. The two DTIS also ascertain whether in recent years these measures have enhanced competitiveness, or added associated costs to trade. The Kenya DTIS (2007) (and follow-up With a built-in biasto understatepotentiallycontentious laws andregulations. Incustomsadministrationandprocedures,there is alreadywide recognitionwithinEAC andits members ofthe needfor improvement andrelatedcapacity development. The EAC received assistance for its foundingmembersin2003 for three years and similar support is expected in2008 for RwandaandBurundi through the BankInstitutional DevelopmentFunds (IDF). Also projectson trade facilitation from the Bank andAfrican DevelopmentBank (ADB) are already implementingplans adoptedfor customs improvement invariousmembernations. l9Some general behind-the-border issues constrainingtrade prospects are the transport infrastructure and the availabilityandmixoflabor skills. 7 Bank report in 2007) (World Bank 2007c) has a somewhat similar overall structure, but is less informative on NTMs due to its focus on potential export diversification. The two reports, however, do point to the potential importance of textiles, clothing, and footwear in Kenya's regional exports, demarcating another area for investigation on NTMs. The DTIS for Burundi (2003) considers the legal status of NTMs but does not focus on the actual operation on the ground, if any. The current study brings on board the DTIS learning for the members to the extent that they shed light on existence and operation of NTMs. The DTIS for Rwanda (2005) does not consider prevailing NTMs, although it analyzes the overall business environment and the steps toward application of quality standards. 1.28 For NTMs recognized at the national level by EAC members, notifications and reverse notifications to the international trade institutions are another source o f information. The UNCTAD's Trade Analysis Information System (TRAINS) database reports operation of the NTMs.~' part of their membership, the WTO Secretariat and the respective governments of As EAC members have undertaken Trade Policy Reviews(TPRs) to assess the country's process of liberalizing trade (within the overall strategic framework o f enhancing private sector-led economic growth and structural transformation) basedon a conducive environment for trade and investment provided by the government. These TPRs provide information on NTMsrecognized at the national level inbroader categories (see classification inappendix A4). These two sources provide a foundation for embarking on the stocktaking. However, they are not current or comprehensive in coverage of all EAC members. In general, the international databases suffer from a lag in reporting prevalent national measures. More importantly, arbitrary and/or ad hoc nationalmeasuresand local practices that may constitute NTMs are underreported, if at all. Most do not give indications o fthe restrictiveness of a particular NTM. 1.29 Few, if any, of the above sources report on the reasons and/or the environment in EAC member nations that sustains the operation of specific NTMs. Here local knowledge is critical ininformingthe current (draft) stocktaking report. 2oThese are available, up to June 2001, only for Kenyaand Tanzania(see www.unctad.org/trains). 8 CHAPTER2. PROFILEOF THE EAC I. THEEAC'sECONOMIC FEATURES A. Smalleconomic entity 2.1 The EAC is a small, relatively impoverished economic entity compared to other regional economic communities (RECs) that have attempted the identification and elimination of NTMs, such as the European Union (EU) and Association of SoutheastAsian Nations (ASEAN). Ithas a total land size of 1,702,000 sq. km In 2006 it had a combined GDP o f USD38,960 million at current prices and market size represented by a population of 123 million. All EAC members, except Kenya, are categorized as LDCs according to the low income, human resource weakness, and economic vulnerability criteria of the Economic and Social Council of the UnitedNations. For further details, see the profiles of each member nation inappendix group B. B. Variation across members 2.2 Nonetheless, there is considerable variation within the region. The gross national income (GNI) per capita (Atlas method) in 2007 varied in the range of USD680 for Kenya to USDl10 for Burundi, with an average for the EAC at USD370. With around 19 percent of the national GDP composed o f industrial production for each member, the poorer members have economies anchored inagriculture and the others inservices. A summary economic profile of the EAC member nations and the salient features of their trade are presented in the table 2.1.2` The difference inthe size o f the EAC member economies is illustrated by the respective average GDP since 2000. The difference in the scale of their intra-EAC trade is illustrated by value of the respective exports to the region, shown intable 2.2. Table 2.1. An EconomicProfile of the EAC, 2000-6 average Economy and Trade Kenya Tanzania Uganda Rwanda Burundi TotaVavg. GDP ($ currentmillion) 15,998 10,754 6,954 1,913 708 36,327 GDP growth(?A) 3.5 6.2 5.6 5.5 2.2 4.6 GNIper capita($) 460 306 256 223 97 268 Compositionof GDP (%) Agriculture 29 45 33 41 39 38 Industry 18 16 20 21 19 19 Services 53 38 46 38 42 43 Domesticsavings/GDP(%) 11 11 7 1 -12 4 Gross fixedcapitalformatiodGDP (%) 17 18 20 19 10 17 Revenue/GDP(exc. grants, %) 19 11 12 13 20 15 Expenditure/GDP("A) 19 18 20 24 34 23 Fiscalbalance/GDP(%) 1 -7 -8 -11 -14 -8 *'The data available for analysisextendonly to end-2006,coveringonly includingfirst two years of EAC's existence. 9 Economy and Trade Kenya Tanzania Uganda Rwanda Burundi TotaYavg. ExportsGNFS/GDP(%) 25 20 13 9 9 15 ImportsGNFS/GDP(%) 32 27 26 27 31 29 Current account balance/GDP(YO) -1 -4 -5 -5 -5 -4 Population(million) 33 37 27 9 7 114 Populationgrowth(%) 2.6 2.6 3.2 3.1 3.2 2.8 Landsize (000 sqkm) 569 886 197 25 26 1,702 Source: WorldDevelopment Indicators database. Note: GNFS-goods and nonfactor services; Ugandahas recently revised its National Accounts to adopt a changed structure o fthe economy and new base o f 2002/03-not reflected here. 11. FORMAL GOODS TRADE A. Outward-looking REC 2.3 Overall, the EAC membershave a similartrade pattern, with commodityexports focused on extra-EACmarkets, especiallythe EU. In recent years an average of 3 to 10 percent of the exports of the EAC membershave gone to Sub-SaharanAfrica (SSA) markets outside the REC, and 31 to 82 percent to markets outside SSA. An average of 9 to 14 percent of the imports of members has been received from SSA outside EAC, while imports from the rest of the world rangedfrom 54 to 89 percent. Except Rwanda, on average more than 85 percent of the top five export products (by value) from the members have been sold outside the EAC. For re-exports, however, the flows from Kenyafocus on EAC(see appendixA1 for details). B. Trade withinEAC.22 2.4 Though the members are quite similar intheir trade outside the region, the last 15 years show that there is a potentialfor steady-though perhapsnot dramatic- increase of trade within the EAC. See appendix A1 for more detailscomparingthe regionalexports to overall exports of the EACmembers. Table 2.2 belowonthe averagerecentflow as well as the actual value for the latest available year of intra-EACexports of goodunderscoresthat exports of the memberswithin the regionare increasing, and for the foundingmembersremarkably so. A medium-termpositive impact on intra-EAC trade of the notable success already achieved in EAC-wide tariff removal/reductionandharmonizationamongmemberssince 2005 can beexpected.23 22Onthe edge ofthe current EAC, the DemocraticRepublic ofCongo (DRC) is by far the largestpotential marketof goods from EAC andthose transitingthroughthe regionfor which the landlockedEACmembers andLakeTanganyikaprovide a gateway. Similarly, inthe south, Zambia andMozambique, andinthe north, southernSudanandEthiopia, are marketsfor EAC productsandfor goods landinginDar es Salam andMombasa. 23Comprehensivebilateraltrade data are availableonly for the period2005-6 for mostEAC members. 10 Table 2.2. Value of Exportsof All Commoditiesto EAC (USDthousands) Average 2000-6 Actual 2007' Burundi 7,052.8 9,524.0 Rwanda 29,603.3 32,4 15.4 Tanzania 84,353.2 126,604.3 Uganda 97,123.4 242,196.8 Kenya 501,618.3 952,788.1 ISource:COMTRADEdatabase. 2.5 The detailed dynamics o f intra-EAC trade are interesting,as illustrated intable 2.3. The formal trade in agricultural products has been large in the official statistics and persists for the poorer EAC members. In2000 most of intra-EAC commodity exports for Rwanda and Burundi, and more than half for Tanzania and Uganda, were in food and live animals. Kenya has maintained a share of less than 10 percent in this category of exports. Hence, any barrier to the trade infood and live animals would impactthe entire EAC, but especially the two new members. 2.6 Trade within the region for this group of commodities is seasonal and largely localized, and often informal. The transit routes are often away from the major transport corridors. Hence, it remains inadequately captured inthe official national statistics. The East Africa Grains Council estimates that about 60 percent o f the trade in grain among EAC's founding members may be informal. Informal intra-regional grain exports among the founding members has accounted for 10-15 percent of grain production in Uganda and Tanzania, and inthe form o f imports for about 10 percent of Kenya's grain consumption. Not all EAC members are undertaking the background surveys and analytical work neededto trace current statistics and locations o fthis informal goods trade. A recent survey by the Uganda Bureau o f Statistics shows that informal exports of Uganda were of more significance than its informal imports. In 2005, UBOS estimated that U S $200 million were informal exports, compared to a total of U S $ 811million formal exports. Whereas the bulk of this informal trade is through Uganda's eastern border with Kenya, more flows have opened up with the other countries: south Burundi, Rwanda, Tanzania (among the EAC), Sudan and DRC, which are not part of the EAC. 2.7 Beverages and tobacco are now very important for the exports of Burundi and Uganda. Inedible crude material exports (other than fuel) are important for Burundi, Rwanda, and Tanzania. For the new members of EAC, intra-EAC exports remains largely confined to these three major categories, as shown intable 2.3. 2.8 The manufacturingsector products ofthe more developed EAC membersare increasingly seeking markets within the region and in SSA. Intra-EAC exports shows increasing diversification into more specialized manufactured goods and articles by Kenya, and gradually so by Tanzania and Uganda. Chemicals remain important in Kenya's exports and have increased dramatically for Tanzania. Fuels and lubricants, and machinery and transport equipment, are significant inrange o f goods that Kenya exports to the rest of EAC. 11 Table 2.3. Exports to EAC by MemberCountries by SITC 1Categories(percent oftotal) SITC-StandardInternational Trade Classification a. Rwanda, Burundi, Tanzania, 2006. b. Rwanda, 2001. 2.9 Moving away from the broad categories above, table 2.4 illustrates the to five commodities (by value share at SITC 3 level) exported within EAC by each member4 On average, these commodities are largely sold in Kenya. The commodities marked with a superscript are also among the top export earners overall for the respective countries. The new members of EAC export the same top commoditiesto the rest ofEAC as to the rest ofthe world. 24Comparethis list with the top national export earners inappendixtable A1.3 where the selectionwas basedon the overall share inthe country's total exportsto the whole world. 12 Table 2.4 Top Commoditiesin Export Value Shares, 20006 average (selection based on share of country's totalexportsto EAC) Burundito Kenya Rwanda Tanzania Uganda Goldnonmonetarya 100.00 0 0 0 Tea andmatea 81.62 0.12 18.25 0.02 Sugar/molasses/honeya 0.00 97.08 2.49 0.42 Coffee and coffee substitutes' 10.19 8.37 57.52 23.92 Hideshkins (except fir)raw 98.16 0.72 0.00 1.12 Kenyato Burundi Rwanda Tanzania Uganda Petroleumproduct? 5.66 12.43 16.68 65.23 Articles of apparelnot elsewhere specified 1.77 5.12 38.31 54.79 Limekement /construction materials 0.18 1.39 5.93 92.50 Rolledplatedmanufacturedsteel 15.08 2.83 28.25 53.83 Soaps/cleansers/polishes 0.74 5.62 40.92 52.72 Rwandato Burundi Kenya Tanzania Uganda Tea andmatea 0.00 94.11 0.00 5.89 Coffee and coffee substitutesa 0.00 66.47 21.26 12.27 Ores and concentrates ofbase metal not elsewherespecified 0.11 39.00 10.72 50.16 Hideshkins(except fur) rawa 0.62 86.62 0.47 12.28 Petroleumproducts' 9.55 77.80 0.00 12.65 Tanzania to Burundi Kenya Rwanda Uganda Fish(live/fiesh or chilledfiozen)a 0.50 97.81 0.07 1.63 Tea and mate 0.02 99.96 0.00 0.02 Cotton 2.28 93.93 2.27 1.52 Elements/oxides/halogensalt 70.50 0.00 12.79 16.72 Maize except sweet corn 35.01 55.96 6.51 2.52 Made-up textile articles 3.22 86.09 3.18 7.51 Uganda to Burundi Kenya Rwanda Tanzania Tea andmatea 0.00 99.98 0.02 0.00 I Electric currentb 0.00 78.08 1.15 20.77 Maize except sweet corn 21.08 59.51 4.71 14.71 Tobacco, raw andwastes' 0.92 79.43 7.75 11.90 Rolledplatedmanufacturedsteel 33.23 0.06 56.52 10.19 Vegetables(fiesh or chilled fiozen) 17.55 65.90 10.44 6.10 Source: COMTRADE database. a. Also one ofthe top five export earners for the countryoverall. b. Electric current is anunusualcommodityexported C. Trr e routes 2.10 Overland trade corridors are a critical consideration in a discussion o f NTMs on E A C formal goods trade, since trade facilitation procedures in the region often pertain to their specific location and characteristics. Inrecent years, most o f the goods transit between the EAC members and across these countries has been by road usingtrucks. At present, the railways are largely non- functional along both main corridors noted below. 2.11 Many constraints on such trade emanates from specific features o f the physical infrastructure along these road routes. The barriers to export (and re-export) flows o f Kenya and, to some extent Tanzania and Uganda, to the rest of E A C may have a greater impact on the growth 13 potential of intra-EAC trade because of their in-country location of great lengths of the transportation corridors, as well as evolving composition of their formal trade. The 'same considerations apply to goods transiting across EAC membersto various destinations inEAC and beyond. For this trade, the location and the characteristics of the port operations at Mombasa and Dar es Salam i s also critical. There arethree mainroutes: 2.12 The Northern Corridor for trade, starting from the port o f Mombasa to the landlocked EAC members Uganda, Rwanda, and Burundi, and northeastern Tanzania. This includes the link between Mbarard Kabale in Uganda, onward through Kigali and Butare in Rwanda, to Bujumbura in Burundi that runs north-south. This corridor traverses several countries, even though the longest distances are within Kenya, and consists o f roads and rail networks, a petroleum pipeline, and lake transport through Lake Victoria to the extent it is currently operating. 2.13 The Central Corridor for trade, starting from the port o f Dar es Salam to the landlocked EAC members Burundi, Rwanda, and southern Uganda. This corridor through Tanzania consists of roads and rail network, and lake transport through Lake Tanganyika to the extent that it is currently operating. 2.14 A north-south link between the Northern and Central Corridor for trade through the Nairobi-Namanga-Arusha road route, especially important for central Tanzania and the countries borderingthe EAC to the north and the south. 2.15 The routes are illustrated inmap A and the physical details are described inappendix A2. While this report does not focus on the state of the physical transport infrastructure in EAC, it clearly is a complementary priority. 14 CHAPTER3. METHODOLOGYTO ORGANIZE FINDINGS I. APATHOFOPENREGIONALISM 3.1 All EAC members have significant shares of their overall goods trade destined fodoriginating from countries beyond the region. As members o f the World Trade Organization (WTO), they are bound to make progress toward their multilateral obligations in international trade, including intia-EAC trade. Hence, the most appropriate methodology for organizing findings on the prevailing NTMs that impede the current goods trade is the WTO consistency of these measures. To date, very few NTMs in EAC have been formally notified and verified by the members. Inaddition, a notification or knowledge of existence usually does not includethe NTM administration itself, making the transparency incomplete. If any NTM persists in the EAC member countries, WTO consistency requires that these NTMs be "transparent," "non- discriminatory" among the domestic goods flow and intra-regional/international trade, "scientifically based," and "with no better alternati~e."~~ 11. A RANKINGBY THE EASE ACTIONFORREDUCTION/REMOVAL OF 3.2 Figure 3.1 illustrates one way to organize the NTMs that exist in the EAC. NTMs identified in quadrant A and B of the figure may well be relatively noncontroversial for EAC- wide consensus building for removal. Given capacity constraints in the regional economic community (REC) and its member governments, EAC may want to target action on these first quadrants. Incontrast, far greater trade enhancement may be expected out o f targeting one or two NTMs identified in quadrant C, even though significant time and effort would be needed to devise, buildconsensus around, and implement a plan for their removal. 3.3 The EAC may also leverage the EAC-wide decisions already taken in this area. The NTMs for which the EAC has already taken the political decisions for removal or harmonization are likely to be located in quadrants A or B interms of pending implementation. The intra-EAC trade would benefit more from EAC's prioritizing those NTMs located in quadrant B during the preparation of action plans for implementationof reductiodremoval. 25ArticleXXIV o f GATT onnon-discriminatorytrade practices; Article I11of GATT ontransparency of trade practices. WTO: http://www.wto.org. 15 Figure 3.1. Categories of NTMs C Intra-EACtrade constraining 3.4 In addition to the static considerations, recent experience in the Southern African Development Community (SADC) illustrates a time dimension. As trade liberalization and tariff reform are implemented, intra-region trade is likely to grow steadily and the NTMs are likely to become considerably less identifiable and more embedded within the regional economic community.26 111. A PRACTICALWAY FORWARD 3.5 Under phase 1, in preparing this (draft) paper, the task team started with a desk review and then conducted country-by-country consultations with member governments and private sector firms (producers/exporters/importers/transporters) for confirmation. The entities interviewed ranged across government departments such as the relevant sections o f the revenue authorities, public entities like the national bureau of standards, parastatals such as export promotion agencies, and private sector foundations. Although effort was made to focus specifically on NTMs that constrain "onlyyy the intra-region trade o f EAC members, the discussions with firms often had to include their sale inother parts of the country and beyond the region (in Sub-SaharanAfrica, especially the Democratic Republic of Congo). The firms clearly consider these markets on a continuum, subjectto their scale of production. 3.6 The interviews pragmatically maintained the needed flexibility. They recognized explicitly that NTMs in low-income countries such as the EAC members-which are characterized by very poor infrastructure and weak administrative and monitoring systems-are likely to be more arbitrary, qualitative, and nontransparent. Application o f any a priori framework for organizing the NTMs -in this case, consistency with WTO instruments- was member nation-based, rather than EAC-wide. As illustrated in the next chapter, perspectives in specific member countries varied dependingon the country's economic development and location. 26Phase2 expectsto helpthe EAC Secretariatandmember nationsminimize/avoidsuchdevelopmentsin the NTMs. 16 3.7 Because o f the wide range o f mechanisms through which N T M s affect economic outcomes and the data-intensive computations required, it is very difficult to quantify the economic impact o f NTMs on such measures as tariff equivalent impact. Unlike the current overall needs o f EAC, the standard approaches for such empirical measurements o f NTMs were refined in the 1980s and early 1990s in the context o f entry of processed agro-products, textiles, and other light manufactures into markets in developed countries. The approaches range from frequency type measures based on counts o f observed NTMs in particular countries, sectors, and types o f trade, to the price-comparison measures (tariff equivalents), to the quantity-impact measures based on estimation o f trade flows. Each standard approach to assess the economic impact o fNTMs has its own drawback. 3.8 The difference between domestic and world prices is one indication o f the prevalence o f NTMs. However, the application o f available sophisticated empirical methodology to calculate the ad valorem tariff equivalent for the specific NTMs, and the resultant trade restrictiveness to ascertain the economic impact in EAC, i s not possible because o f the extensive, detailed empirical data requirements for each identified NTM category and inadequacy o f background information. More importantly, it i s unlikely to be useful in fulfilling EAC's objectives for the current investigation. In2006, Kee, Nicita and Olarreaga provided the empirical methodology and estimated the impact o f core NTB on imports at the tariff line level for 72 countries, including all EAC members, except Burundi. They provide an empirical methodology for estimating the impact o f NTB on imports at the tariff line level (Harmonized System six-digit) based on Learner (1990), and use it to measure the impact o f NTMs.~' They present the ad valorem equivalents o f NTMs for 72 developing and developed countries, including all in the EAC except Burundi. They use only four categories o f NTMs in their measure, Le. quantity control measures, price control restrictions, monopolistic measures, and technical regulations.28In table 3.2, the first two columns are the average ad valorem equivalent o f core NTMs over the whole tariff universe in their sample.29 The third and the fourth columns provide the average effect o f core NTMs, but only over the sample o f tariff lines for which each country has core NTMs. " They estimate the impact ofNTMs for aparticular country at the two-digit level ofthe harmonized system. They transform the quantity impact into price equivalentsusing import demandelasticity. The exact formula for the ad valorem equivalent depends on whether the NTB is a continuous (domestic supportto agriculture, for example) or a binary (core NTMs andkchnicalregulation, for example) variable. These are calculatedat the product level ineach country and an overall ad valorem equivalent for the three types ofNTMs consideredis obtainedby addingNTB components.The traderestrictiveness index methodology follows Anderson andNeary (2003). '*UNCTAD Trains: Quantity control measures (code 6100,6200 and 6300); Price control restrictions (code 3100, 3200 and 3300); Monopolistic measures(code 7000); Technical regulations (code 8100). 29All NTMs consideredfor the EAC members coveredare accounted as O h , dependingon their presence or absence. 17 Country Ad valorem Ad valorem Ad valorem Ad valorem Frequency Frequency equivalents equivalents equivalents equivalents ratio ratio (import (simple (import (simple (simple (import weighted) average) weighted) if average) if average) weighted) NTB exists NTB exists Kenya 0.2 0.3 5.4 27.9 0.8 4.4 Rwanda 4.0 1.4 68.5 54.4 0.7 5.2 Tanzania 0.0 0.0 31.6 19.2 0.3 0.0 Uganda 0.0 0.1 46.8 73.4 0.1 0.1 3.9 As noted earlier, the quantification may highlight the magnitude o f the constraint but does not address the EAC's objective o ftargeting specific NTMs and developing a work program for their removal. .As shown in chapter 4, the team made the choice inphase 1to provide a more qualitative analysis o f the NTMs, reserving later complementary quantification in specific cases for phase 2 ifneeded and ifthe data are plentiful.30 3.10 Among the various possible NTM categories, the task team found that no export restraints or production subsidies emerged to be significant in EAC. As direct trade control was not obvious in most cases, the task team sought focus to guide the discussions to see whether the NTMs operate largely on imports (and not domestic goods), such that discrimination against imports is inherent inthe NTM. Most often, the discussions revealed that strong national behind- the-border supply constraints in physical infrastructure and human capacity are affecting the overall environment for EAC oods meant for trade as well as domestic consumption. In the selection o f NTMs by impact! the method that emerged to be most useful in E A C was the numberheverity o f private sector complaints by NTMinstrument. Some information emerged on NTMsby productleconomic sector.32To maximize usefulness, the task team sorted the NTMson goods trade in E A C according to the broad WTO definitions in a hierarchy o f current constraints indicated by the private sector complaints. 3.11 Trade within East Africa has traditionally been small-scale, localized, and informal. In agro/fishery-based sectors, there are strong indications that a significant proportion o f total intra- EACtrade remains informal. N o firms interviewedclearly stated that the output they produced or transported was involved in informal cross-border trade, for obvious reasons. The preliminary information about the NTMs on such trade emerged in the discussions with the revenue authorities, private sector foundations, and others and would need further follow-up. The lack o f official statistics on such trade and the various trade facilitation authorities' dearth o f information on the NTMsmake their study arduous. Work on specific products by entities like the EAGC and 30 As Deardorffand Stern (1997, p.45) note: "There is no substitute for NTB specific expertise. The reliability of any measure ofNTMs that may be constructedfor particular sectors is limited by the knowledge ofthe intricacies ofthese sectors that bear uponthe measures." The recent (January 2008) World Bank N T M survey of ASEANcountries- which havemuchbetter data availability-notes this point and hadto adopt such a flexible approach(World Bank 2008a). 31 '' IncreatinganASEAN-wide database, researchers found that awide rangeofNTMsis being applied. Some countries have focusedon a few instruments,while others use a very broad menu. Non-automatic licensingwas found to be the most commonNTB inASEAN, followed by technical regulations and rohibitions. This is incontrastto the task teams' initial expectationsthat product-basedNTMcategorizationwould be most important. Itwas not possible to use feasibility ofpotential for intra-EAC trade, current trade value, andtariff equivalent impact as an organization method. 18 recent surveys by the UBOS are being undertaken slowly. However, it was not possible during this stocktaking to assess the quantitative control measures, sub-national fees, and other measures prevalent in informal trade. Hence, the subsequent selection process of NTMs for action in the EAC needs to be devisedvery carefully. It may not be representative to focus only on the official trade statistics. 3.12 The private sector entrepreneurs interviewedmade it clear that they develop a fairly clear idea of the additional costs imposed by NTMs along the different transport routes, and make a business choice over time of the particular corridor to use for particular trade and transit purposes. Thus, inchapter 4, the locationofNTMs is often associatedwith a particular transport corridor in EAC. Whenever possible, the cost incurred is indicated in terms of time or monetary loss, or decisions to undertakehot to undertake the trade. The stocktaking findings, reported in chapter 4, are organized according to the EAC-wide impact and coverage o f the particular NTM group, basedon WTO definitions o f the broad categories. However, there i s some variation inthe impact assessment depending on the country location of the interviewee, although no distinct pattern emerges by country. Perception of the severity o f the problem also varies somewhat depending on the location, economic development, and quality of national amenities and trade facilitation mechanisms available. The summary tables on the Burundi and the Kenya perspectives (tables 4.2 and 4.3) illustrate this. 19 CHAPTER 4. NON-TARIFF MEASURESINTHE EAC I. PERSPECTIVEFROMTHEEAC'SFORMAL GOODSTRADE 4.1 Characteristics of the EAC members and their formal goods trade provide the context in which the current NTMs operate in the region, as the sections that follow in this chapter emphasize. Two EAC members-Kenya and Tanzania-have the natural advantageofthe Indian Ocean coastline for access to the sea routes via the ports of Mombasa and Dar es Salam, respectively. This may not seem directly critical for intra-EAC exports or imports, but has significant importance indirectly for three main reasons. First, EAC agro-processing and manufacturing are very dependent on imported intermediate and capital goods entering EAC through these ports. Agro-processing and manufacturing products are most traded within the region, according to formal trade statistics. Second, the intra-regiontrade routes are also used for the imports/exports from outside the region: namely, the Northern and the Central Corridors, starting from Mombasa and Dar es Salam and covering long distances within the geographic boundaries of Kenya and Tanzania, respectively. Third, the two countries play a pivotal role in the intra-regional goods trade.33 4.2 For the landlocked members, Burundi, Rwanda, and Uganda, the locational distance, number of border crossings, and, in some cases, the specific goods traded may favor a certain route of transit. For north and central Uganda, the distance and the single border crossing with Kenya means predominant usage o f the Northern Corridor. For most of Burundi, the same reasons dictate the usage o f the Central Corridor through Tanzania. Such countries might choose to opt for (unilateral action and) simple bilateral agreements, while waiting for a five-member EAC consensus to be reached in goods trade facilitation, including lowering the impact o fNTMs. Except for Tanzania, all EAC members are dependant on the Mombasa-Nairobi-Eldoret petroleum pipeline. 4.3 Traditionally, the cheapest transport for bulk goods with high volume are by railways all across the world. This would be important for bulk commodities including food grains, animal products, other agricultural outputs and inedible crude materials that are integral to the intra-EAC goods trade. Unfortunately, in the recent years the official/formal goods traffic in EAC via railways along both corridors has declined substantially, as the reliability and quality of its service has deteriorated. Much as we stress on about 1400 km of railway network in the region, only about 20 percent i s currently active. The lack of complementary development o f roads and railways in the region has been costly for EAC members, particularly inland countries like Uganda, Rwanda and Burundi. Road transport has picked up the slack, even though it remains high-price(see appendix A5 on roadtransport cost and price inEast Africa). Notwithstandingthe recent privatization o f the railway operations, this trend persists. The two relevant private concessionings, in Tanzania and in Kenya-Uganda effective from 2007, have yet to embark on improvements laid down the concession agreements. Furthermore, since the Kenya and Uganda rail network has a different concessionaire from the Tanzania railways, adopting a regional approach towards use of the rail network of intra-EAC goods trade over the mediumterm may be 33Kenya's role is pivotal as the highest income marketfor goods, as the historic base ofmanufacturingin the region, as a key member of COMESA, andfor access to the marketsinEthiopia, Somalia, and southern Sudanand. Tanzania's role is pivotal as a fast transformingeconomy, as the sole member of SADC inthe region, and for access to marketsinthe south: notably, Mozambiqueand Zambia. 20 difficult. The overall usage data for EAC also show that the landlocked members have been gradually moving their goods transit away from the Central Corridor, except in emergencies like the December 2007-February 2008 political crisis inKenya. 4.4 Itwould be inevitable to highlightthe acuteneedfor investment inphysical infrastructure inthe EAC, but this (draft) report focuses on the barriers to goods trade that emanate from non- tariff policies, regulations, ad hoc procedures, and their implementation on the ground: that is on the NTMs. This is not to detract from the concern of the producers, traders, and transporters in EAC who perceive the poor state of its physical infrastructure and the related high transport price34as the overwhelming constraint on the trade and transit o f goods across the region (For the range of its inadequacy and poor quality, see appendix A6.1). The constraints imposed by the physical infrastructure emanate from: 0 the traditional government monopolies operating them, with little private sector participation the limited capacity of the existing facilities to handle the burgeoning goods traffic within and acrossEAC, and 0 the inability of the cash-strapped national governments to keep up the required rehabilitation and maintenance, much less make the large investments necessary for expansion. 4.5 The growing intra-EAC trade still remains a small proportion of the total trade of the member states, as noted inchapter 2. Government authorities, capitalizing of the potential of the regional trade, would need to pay more attention to trade monitoring and facilitation. In the face of the highprice of transportation (see table 4.1), smaller individual firms that produce and trade within EAC have been primarily interested inreaching relatively high-income markets within the region, like Kenya, and/or those in the other member states contiguous to the location of production. Appendix 5, which summarizes recent analyses undertaken in East Africa and other parts of Sub-Saharan Africa on the characteristics o f the transport price and its underlying total cost of transportation, but the transport prices inEast Africa - as in other parts of SSA - may reasons, basically shows that the decisions for improving transport infrastructure may lower the not come done for the final user due to the oligopolistic transport industry. However, it also illustrates that the transport pricing structure in East Africa is somewhat better than along other corridors in SSA. Table 4.1Estimated Unit Transport Costs for Container Route Distancein km Cost per km (USD) Dar es Salam-Kigali 1,650 3.0 Dar es Salam-Bujumbura Doala-D'Jamena 1,750 3.0 1,900 4.2 Lome-Ouagadougou 1,000 2.6 Lome-Niamey 1,234 2.6 Mombasa-Kampala 1,440 2.3 Maputo-Johannesburg 561 1.4 Source:Pearson (2006), based on United Nations Economic Commission for Africa (UNECA) data. 34 As seen in appendix A5, transport cost is based on the state of the physical infrastructure, but the price at which transport facilities are made available in SSA depends on the profit margin maintained by the transport companies. 21 4.6 Last but not least, noticeable improvement toward facilitation o f cargo transit has been made (in the opinion of the corridor users) in recent years within the framework of the North Corridor Authority and related investments in physical infrastructure along this route. Hence, recent stakeholder interviews convey that the predominant barriers to goods trade along the Central Corridor remain associatedwith infrastructure, and those along the Northern Corridor are now primarily administrative and customs procedures and operation.35 11. ECONOMIC COSTOFNTMs 4.7 The actual cost of the NTMs on goods trade i s difficult to assess in a preliminary stocktaking such as this report. In light o f the information gathered on NTMs prevailing along each Corridor, their political-economic context, and their severity, this study groups the principal NTMs according to their negative weight on intra-EAC trade and the complexity of reasons for their per~istence.~~These estimates/proxies of costs are based on the extensive private sector interviewsinEAC member countries. Inthe EAC, it is seldom possible for stakeholders in goods trade to separate such costs from the additions due the deteriorated physical infrastructure, its inadequacy vis-a-vis needs, and the resultant congestion. 4.8 The impact of the NTMs~~intra- EAC export/import and transit trade can be measured on by the amount o fbusinessexpenditure incurred in: Official payments, in the process o f complying with official export and import requirements General expenses (staff costs, storage costs, and the 1ike)accrued while awaiting verification or clearance of cargo at border crossings due to delayed clearance of goods Nonofficial expensesat border entry and exit points, police roadblocks, and weighbridges intendedto unofficially speed up clearanceof goods. Such bribes may be paidto officials from the customs, port, quality inspection agencies, police at road blocks/ border crossings, immigration office, business licensing/ registration office, and at weighbridge stations. Lost business opportunities, in value or quantity o f a business opportunity due to introductiordapplication of discriminatory tax rates and other import procedures, such as import licenses, quotas, bans, and wasted products (especially perishable ones) duringthe process of a full inspection, or o f weighing axle load or Gross Vehicle Mass specifications. Losttime, inthe process of complying with nontransparent or difficult procedures. 35In 1985 Kenya,Uganda,Rwanda, Burundiandthe Democratic Republicof Congo signedthe Northern Corridor Transit Agreement (NCTA) to simplify and harmonizeproceduresto expeditemovement of goods intransit across eachcountry.The agreement providedfor establishmentof TransitTransportation CoordinationAuthority (TTCA), for implementationofmattersrelatedto transit traffic. 36This will help assess the time requirements andresources needs for the future actionplanto eliminate NTMs. 37The NTB impact measures are elaboratedinthe ProposedMechanism for the Elimination ofNTBs in EAC, EAC-EABC (2006). 22 4.9 The largest direct and indirect cost ofNTMs inthe EAC, as determinedby the task team, stem from lost man-days during transit and clearance before reaching the market, and nonoflcial expenses related largely to the scopefor corruption in the implementation of policies, followed by oflcial payments and lost business opportunities. 111. NTMSPREVALENT INTHEEAC 4.10 The discussion that follows presents the NTMs that apply to intra-EAC trade, with the broad categories organized as per the WTO inventory categorization (see appendix A4). The broad categories are ranked in a decreasing order of importance based on numbers of private sector complaints. The presentation synthesizes findings from interviews in the five EAC economies. The presentation moves away from the state o f physical infrastructure in the region, though the task team remains mindful o f the EAC stakeholder responses conveying that NTMs related to the "government monopolies and its tolerance of monopoly practices" (that is WTO I, in the inventory provided in appendix A4) have a possibility of being alleviated as constraints imposed bythe physical infrastructure are gradually tackled. 4.11 As an illustration of specific national perceptions of indicative costs and the political- economic operation of NTMs, tables 4.2 and 4.3 present the perspectives o f producers, traders, and transporters of Burundi and Kenya, respectively. As seen in chapter 2, of the five EAC membercountries, thesetwo counties differ the most intheir economic and trade profiles. A. Customsand administrativeentry and passageprocedures(WTO 11) 4.12 The EAC Council o f Ministers decisions are expected simplify and synchronize customs documentation, formalities and procedures at the border posts. Many member states are undertaking donor-funded customs modernization programs, but the focus and content o f such national efforts remain largely uncoordinated across the EAC. Planned improvements in administering border posts have been slow, mostly bilateral, and with somewhat varying results to date.38Duplication of processes continues to add to monetary costs and loss of time. Unequal treatment according to the country of origin of the goods andor truck and opportunities for fraudulent behavior is frequent, as are the allegations of such "unfair" treatment and corruption. Documentation andprocedures 4.13 The task team witnessed varying systems of import declaration, payment of applicable duty rates, and (technical and sanitary and phyto-sanitary requirement)standards applied, as well as limitedvarying working hours at the customs posts. Lengthy procedures and inadequate information to enable customs officials make pertinent decisions at the border posts seem to plague the EAC-wide system.39Frequent use o f COMESA certificates o f origin by businesses of four EAC members illustrate that the standardization of EAC certificates of origin is not functional. To implement customs procedures for entry processing, cargo control, transit, warehouse control, and accounting, four member countries have opted to use (various versions of) ASYCUDA,40while Kenya has chosen to use SIMBA.41To date, the linkage between these 38 Kenya andUgandahave a bilateral legal fi-ameworkfor joint control at their common border posts, creatingaone-stoppost at eachborder crossing, startingwith Malaba. They also have an agreement to introduce24-hour services at their common border posts. 39 Ittakes about one week for process at Kenya Revenue Authority to be completed. 40Automated Systems for CustomsData i s a computerizedcustoms management systemdevelopedby UNCTAD to help reform the cutonis clearance process. It aims at speeding up customs. 23 two systems has not been smooth. Delays in processing export papers are widespread. Before transporters leave their departure point, they must file export papers with the revenue authority (at the capital) to be sent to the border post. These papers often reach the border two to three days after the arrival o f the goods, for example in Uganda. I Box 4.1. Burundi: Steps in Customs Formalities for Goods at Bujumbura I Numerous steps must be followed: Presentation o f PAC (summary statement of goods completedat the office o f entry) at the customs clearance office Presentation o f freightmanifest (numbero f packages, quantities, and weights) by the hauler 0 Intake and entry o f manifest data by customs 0 Unloading o fcargo inExploitationdu Port de Bujumbura (Bujumbura Port Authority) warehouses Customs declaration by a customs clearance agency Documentary/physical verification o f quantities and value o f goods by the customs office Verification o f the customs declaration by customs: acceptance/rectification o f the declaration Payment o f customs duties andtaxes by the importer Issuance o f the removal order bythe office chief Removal o f goods by the importer Use of clearing agents 4.14 In some member nations traders are restricted from using clearing agents from their own country o f origin and must hire (expensive) agents from the country o f the port location. For example, Ugandan traders cannot use Uganda-registered clearing agents to clear goods in Kenya. The integrity o f clearing agents is called into question in some locations.42 Lack o f capacity o f clearing agents impedes Burundiand Rwanda's goods trade, since the declaration process i s slow because they are not conversant in use o f the Automated System for Customs Data (ASYCUDA) and have only limited familiarity with customs procedures and regulations. Institutions exercising administrative and customscontrols 4.15 Even the EAC member governments accept that there are too many agencies involved in overall impodexport inspection and certification in the region, stretching the administrative capacity and resource needs. The process i s no different for goods traded ir~tra-EAC.~~For example, numerous agencies participate in the clearance process in Burundi (see box 4.2), even though the Customs Service i s the primary public agency responsible for administration, control, and collection o f taxes on imported and exported goods. It is also the only country in the EAC that does not have a full-fledged revenue authority in place. 41The Similarity Based Complex Analysis System (SIMBA) is an electronic real time trading system for international markets developed by SIMBA Technologies Inc. 42There are fi-equent complaints o f dealing with forged invoices, especially fi-om the UnitedArab Emirates andDubai. 43Along the Central Corridor starting at the Dar es Salam port inTanzania, public agencies playing a role are the Tanzania Revenue Authority (TRA), Tanzania Ports Authority (TPA), Tanzania Railways Corporation (TRC), Surface and Marine Transport Regulatory Authority (SUMATRA), Tanzania InternationalContainer Terminal Services (TICTS), and Tanzania NationalRoads Agency (TANROADS). The Tanzania Freight Forwarders Association (TAFFA) and Tanzania National Business Council (TNBC) are the associatedprivate entities that facilitate trade. 24 Box 4.2. Burundi: Institutions for Administrative and Customs Formalities The following institutions play various roles: 0 Customs Administration: administration, control, andtaxation of imported and exportedgoods 0 Commercial banks: financing of externaltrade (documentary credit) 0 SociCtC GCnCrale de Surveillance: pre-shipmentinspection of goods BurundiBureau of Standards: quality control Ministry of Commerce and Industry: issuanceof certificate of origin Ministry of Finance: authorizations for special customs clearancearrangements, e.g. for unloading goods at aregisteredaddress or for authorizedremovals 0 Ministry of Agriculture andLivestock: SPS controls Ministry of Health: food and drug safety controls 0 Border police (PAFE): police controls 0 SociCtC d'Exploitation duPort de Bujumbura (EPB): Bujumbura port management authority 0 Forwarding agentihauler:takes charge of goods during transport 0 Customs agency: facilitation of customs clearance operations. 4.16 Even in member countries with a fully functional revenue authority, with its own customs department, and a developed bureau o f standards, the inspection and verification is the responsibility o f multiple agencies. Consider the public agencies in Uganda that manage food safety and quality standards (see box 4.3). In the end, the multiple agencies result in customs processing taking up to one week on average in Uganda, with "simplified proceduresn for single- item cargo taking one day, and multiple item cargo taking three days. Box 4.3. Uganda: Public Agencies to EnsureFood Safety, Agricultural Health, and/or Quality Standards Various public agencies have authority: 0 UgandaNationalBureau of Standards(UNBS) 0 Ministry of Tourism, Trade and Industry (MTTI) 0 MinistryofAgriculture, Animal Industry andFisheries(MAAIF), especiallyDepartmentofLivestock and Entomology, DepartmentofAnimal Production, Departmentof Crop Protection (DCP), Departmentof FisheriesResources 0 MinistryofHealth (MOH), Environmental HealthDivision National Drugs Authority (NDA) 0 Ugandapolice 4.17 In addition, the effectiveness o f some agencies such as to which a member government may have delegated monopoly power in certain functions are being called to question widely by private sector firms. An example i s the SociCtB GBnerale de Surveillance in Burundi, which receives cargo under the Import Verification Program. Pre-shipment inspection i s usually designed to improve customs valuations by combating overcharging o f imports and undercharging o f exports, but this may become another barrier inthe member nation. Customs bonds remain country specific 4.18 At present, the compulsory customs bonds required o f traders expire at national borders within EAC. Hence, the number of border crossings impact on the cost o f EAC trade and often the choice o fthe route o ftransit. 25 Arbitrary use of rules of origin 4.19 Countries under the WTO are required to ensure that the rules of origin, which define where a product was made, are transparent and do not restrict, distort, or disrupt trade. They also must be based on a positive standard and administered in a consistent, uniform, impartial, and reasonable manner. WTO allows members setting up a free trade area like the EAC to use different rules of origin for products traded under their free trade agreement. The agreement establishesa harmonizationwork program, basedupon a set o f principles, including makingrules of origin objective, understandable, and predictable. 4.20 At present, differences in interpretation of the rules of origin complicate customs procedures in EAC. The five EAC members have yet to develop a clear consensus in this matter and standardize their certificates of origin. In addition, bureaucratic delays in issuing the certificate of origin affect exporters, especially those with perishable products. For example, the compulsory Uganda Exports Promotion Board certificate may take more than one week to issue for one consignment, and may not be accepted by other EAC members. The EAC rules o f origin only apply when an import is "wholly produced" in that country. If there has been any transformation in the product, the tendency is to largely use the rules of origin of the Common Market for Eastern and Southern Africa (COMESA), subject to interpretation. For example, Uganda upholds that "content of local raw material should exceed 35 percent of the ex-factory cost and the product should be classified in a separate tariff heading (other than the non- originating raw materials used inproduction)." Other EAC membersdisagree. Escorts of goods in transit 4.21 All sensitive and hazardous products are escorted through the territory of each EAC transit country.44 Inaddition, to ensure that transit goods actually cross the borders of a member country and are not smuggled for sale within, all products in transit are escorted in convoys through Burundi. Inall other EAC membersthe importer of the good is issued a transit bond by a clearing agent who monitors that the goods reach the designated point of exit, where the bond is cancelled. Inmost countries more than the requiredtransit days are authorized inthe bond, e.g. 3 days in Rwanda compared to the needed one day. In Burundi, the traders and transporters are concerned about the nontransparent escort fees. In general, the transporters are concerned about the time lost inthe assembly o f convoys by police escorts, which may not be daily and can range between two and three hours at each stop. Truckers report the journey "taking two days+om Mombasa to Malaba" (a distance of 950 km)due to suchconvoys. Verification of transit cargo 4.22 A lot of transit cargo is scanned and verified by the revenues authorities, like the Kenya Revenue Authority and the Rwanda Revenue Authority, though it is not for use in the member country concerned. The goods destined for the member country inmany cases are subject to 100 percent physical inspection, particularly where they involve refund or drawback claims, regardlesso fthe compliance record o fthe exporter/importer. Working hours at the borderposts 4.23 There is lack of harmonization in terms of the agreed working hours at the intra-EAC borders. At present, no border post in EAC is open for 24 hours a day-7 days a week. In addition, Burundicontinues to maintain a ban on vehicular traffic on its roads duringthe 6:OO P Mto 6:OO 44See appendix A7 for the EAC's sensitive product list. 26 AM period for safety reasons. Gates are opened/closed at different times on each side of the border, causing unnecessary queues and commotion. For example, at Malaba gates at the Ugandan border post are open 8:00 AM to 1O:OO PM, while gates at the Kenyan border post are open 8:OO AM to 6:OO PM. At Gatuna, gates at the Rwandan border post are open 7:OO AM to 9:OO PM, while gates at the Ugandan border post are open 8:OO AM to 1O:OO PM. The Rwanda Revenue Authority has announced that the border customs offices will start 24-hour operations from September 1, 2008 to ease the flow of goods and services in the EAC and neighboring Democratic Republic of Congo. Uganda, a crucial partner in the 24-hour operation, is not yet ready to follow suit due to manpower and budget constraints. B. Governmentparticipationintrade and restrictivepracticestoleratedby it (WTO 1) Port and internal CFSoperations 4.24 The operations of the ports and inland CFS operations in the EAC serve as a bottleneck for economic activity in the region. While operations of the sea ports of Mombasa and Dar es Salam are especially important for EAC's goods trade with the rest of the the lake ports of Bujumbura, Kigoma, and internal freight stations like MAGERWA and Isaka are particularly important for the intra-EAC trade. This is more so in member countries that have minimal capacity, if any, available at their border posts and all goods clearance activities are concentrated at these locations. Examples include Bujumbura in Burundi and MAGERWA in Rwanda, until recently. The transparency and efficiency in clearance and release of goods at the two sea ports is hampered by the administrative complexity of formalities, especially inKenya- including varied documentary requirements; numerous/excessive service fees; and offloading, inspection, and warehousing processes, with short grace periods provided for imports prior to the application of demurrage charges. Limited skills and ineffectiveness of the various staff and agents prevail, especially in Dar es Salam. Local regulations that do not allow the creation of a container freight station (CFS) and other activities beyond a short radius of the port impede expansion. All these add to the lengthy delays, congestion, and high costs in offloading and clearing cargo (already limited by the useable physical infrastructure at these locations) and create considerable scope for discriminatory and fraudulent behavior. Shipment clearance delays also add to the risk of deteriorating product quality, especially for perishable products. 4.25 Mombasa port operations are unanimously agreed by the private firms and public agencies in Uganda and Rwanda to be at the top of constraining measures for total goods trade along the Northern Corridor. The private stakeholders in Kenya convey a similar assessment. The Kenya Port Authority procedures are recorded to take over 60 hours-that is, two weeks- for clearance of a container. On average, cargo spends 17.9 days at the Mombasa port. For a subset of containers destined for Uganda and beyond, the time spent was 37.5 days; while that for containers destined within Kenya was 12.4 days.46 Regulations that do not allow a CFS to be located outside a 10 km radius from the port are hampering efforts to establish such a facility for Rwandan goods. Each 10-day delay inreleasing the goods implies a cost equivalent to about 0.5 percent ofthe value o f goods.47Costs also result from goods not being available for use, at around 0.8 percent of the value of goods per day.4s In early May 2008, approximately 8,000 containers were reportedto be waiting at the Mombasa port. "IncludinginputsforgoodsproducedandtradedwithinEAC. 46Time at portrefers to the time taken from unloadingcontainersto exitingports; or from enteringportto loadingon ships. World Bank (2006; p. 212) considers 7 days to be the reasonable standard time at port. 47Assuming an interest rate of 20 percent 48Basedon Harnmels(2001), which studieswillingnessto pay for reduc6gtransit time o fgoods. 27 4.26 The Dar es Salam port takes two to four weeks to clear containers. Increasingly stakeholders inthe land- locked EAC countries who have a choice interms o f usingthe two ports on the Indian Ocean are moving away from usingthis port (because of both the implementation of regulations and the quality and capacity of infrastructure at the port and along the central corridor). In September 2005, about 11,000 containers had not been cleared after four weeks, while they start incurring demurrage after two weeks. For Burundi, the finalization of the agreement with government of Tanzania to allocate land for the construction o f a warehouse for its goods inthe port area i s awaited. 4.27 The Bujumbura port clears all goods entering Burundi through all its border crossings-since the border posts are largely nonfunctional-while the clearance paperwork undergoesa process o f control and verification simultaneously with the actual goods. Forwarding agents and transporters estimate that clearance to often take three to seven days to complete. Duringthis span, fees for services are charged on the trucks, includingtruck fees of USD250 per day and parking fees o f BFr 9,000 per truck per day. In specific cases, goods can be unloaded for a registered address or are authorized for removal by a high-ranking authority in the government and are processedfaster. Authorizations to unload goods at a registered address are granted by the Minister of Finance for fragile products (suchas tiles or cement) and perishables (such as drugs) to avoid repeated handling, which could damage the product during verification operations. Authorizations for removal are issued by the same authority in the case of imports by NGOs, projects, and diplomatic missions that are exempt from customs duty and taxes. 4.28 InRwanda the border ports are functional, but customs offices inMagasins Generaux du Rwanda (MaGeRwa) finalize the clearing processes of goods and hand over to the final importer or the actual owners. A privately operated container terminal hasjust started operation in Kigali in 2008 to supplement the work done in MAGERWA. The minimumtime is three days for the issuing of an arrival note and customs procedures to be completed, but usually clearance of goods can range from one to two weeks. However in the process of clearing and releasing these goods to their owners, a number of different bottlenecks occur. Consider the multiple service charges at MAGERWA, illustrative of many similar locations in the EAC: Every truck i s charged a weighbridge fee o f FRw 5,000. There is FRw 7.5 per kilogram o f the goods carried for storage /demurrage. For goods kept inthe warehouses, a grace period of 15 days inprovided. Thereafter, a fee of FRw 1 per kilogram per day is charged. Inaddition, MAGERWA charges a parking fee on goods o f FRw 5,000 and a VAT of FRw 900 for any extra working day (beyond one day) that the vehicle remains parked. Charges by RRA may vary depending on the product's categorization. Delays at weighbridges 4.29 The mandatory weighbridges for goods all along the transit route, and not only at the border, impede trade through addition to transit time and cost o f transporter upkeep. These are particularly significant on the Kenyan and Tanzanian sides of the transport corridors. Tanzania requires every vehicle carrying goods, small or large, to be weighed, including passenger buses. Along the Central Corridor, between Rusumo and Dar es Salam, there are five compulsory weighbridges: at Nyahahura, Mwenda Kulima, Mkundi, Mikese, and Kibaha. Along the Northern corridor, there are 7 weighbridges on the Kenyan route at Mombasa, Malaba, Kilindini, Maliyakani, Athi River, Webuye and Amagoro. Trucks heading to Kigali have to be weighed another four times in Uganda, at Busitema, Masaka, Mbarara, and Ntungamo. Neither the acceptableweights per axle nor the number of axels are not yet harmonized inthe region, causing further conflicts (more on this later). The system that Kenya is moving toward (awaiting fully 28 compliance to the directive o f the Minister of Roads and Public Works) is that transit trucks will be weighed only once and needto carry the issuedcertificate,,as preferredbytransporters. C.Distribution restrictions (WTO VII). Multiplepolice road blocks and mobile control 4.30 Unrelatedwith weighing or clearing the cargo, police road blocks are constantly cited by traders and transporters as location for rent seeking and transit delays. The roadway along the Northern Corridor i s particularly noted for such practices, especially on the Kenyan part. "Police check points have become `police cash-points' as they no longer serve their intended purpose of security but are being used as medium of soliciting money from transit trailer trucks, especially those with foreign registration numbers," said one irritated transporter. For example, there are about 10 police/local government roadblocks from Mombasa to the Uganda border (down from about 27 about four to ten years ago). In addition, there are mobile checkpoints, more frequent in Kenya, runby the revenue authorities of the respective countries, such as the Revenue Protection Department inRwanda. It is estimated that 12 percent of checks o f commercial vehicles take one to two hours. In some cases, these roadblocks cause delays even for returning vehicles not carrying any goods. Along the Central Corridor, 26 checkpoints were reported between Rusumo and Dar es Salam (distance 1,48Okms), and 5 in Rwanda between Rusumo and Kigali (168 kms distance). What bothers transporters is that there is a general lack o f coordination among the police in carrying out their duties, such that a truck i s subject to similar checks at all traffic stops. This creates room for the police to openly press for petty bribes-for example, in Tanzania, commonly referredto as "kahawa," meaning a cup of coffee. Prohibition on transportationof locallyproduced goods 4.3 1 This is applied in most countries. For example, transit goods license issued for a truck by the KRA/RRA allows the truck only to route goods through KenyaRwanda, but not to undertake any local goods transportation within the country. It prohibits transportation o f locally produced goods from KenyaRwanda as exports and transportation of goods from another EAC member into KenyaRwanda as imports. Such restrictions, on what could be normal occurrence for returningtrucks, escalate transport costs, as empty trucks have to be sent back.49 Refueling 4.32 Ugandan transporters statedthat the trucks registered inUganda are not allowed to refuel in Rwanda. Since fuel prices are lower in Rwanda than they are in Uganda, refueling Uganda's trucks inRwandai s equatedto smuggling. Ugandan transporters have to make sure that they have enough fuel before crossing the Rwanda border to avoid getting stranded. This does not seem to be true, when cross-checking was done with the Rwandan authorities Discriminatory treatmenttowardforeign trucks in Tanzania 4.33 Allegations o f discriminatory treatment on foreign-registered trucks have been made concerning all member countries, though the problem seems to be most acute in Tanzania. Few trucks bearing Rwandan, Burundian, Ugandan, or Kenyan number plates ply along the Central Corridor. Most producers, traders, and transporters in these countries prefer to use trucks registered in Tanzania driven by Tanzanians because of discriminatory treatment of foreign- registered trucks. Transporting companies register part of their fleet in Tanzania to avoid 49Traders asked, "Ifthe COMESAYellow Card is acceptable inthe region, why isn't the EAC Transit Goods License similar?' 29 problems. Among other things, foreign registered vehicles in Tanzania pay a road fee of USD5O per week, compared to local vehicles that pay nothing. In Kenya, Ugandan truck drivers allege "injustice and unfair treatment- everything is judged in favor o f the Kenyans" at the road blocks. Harassment of Rwandese truckers has also been reported at weighbridges in Kenya and by police in Uganda. Such practice is often considered a sign of growing corruption in these countries. EAC transit licensesfor goods 4.34 These are being issued as part of the new EAC transit regulations, with multiple fees: USD 1,500 for acompany transit license; USD600 for atransit goods license, and KSh 10million for a security bond on goods transited across Kenya. Information shared with transporters is limited. Moreover, different countries seem to continue to charge their own rates at present. For example, it costs USh 500,000 (approx. KSh 20,000) for a transit license in Uganda and KSh 42,000 for one in Kenya. Truck entrancefees and graceperiod 4.35 Contrary to the EAC Protocol, Kenya, Tanzania, and Rwanda charge fees on each truck enteringtheir territory (often referredto as "road toll"). Kenya charges USD60 for a truck going up to Nairobi from Mombasa and USD90 beyond Nairobi; Rwanda charges USD76 per truck; while Tanzania charges USD5O per truck per week. In addition, local levies may apply. For example, the municipality of Mombasa has introduced a new levy on Uganda-bound trucks. The EAC transit regulations allow a grace period o f seven days without payment o f fees for vehicles entering the territory o f a member state, but compliance varies across member states and across time periods. Variation in application of axle load limits 4.36 The EAC has passed a specific 3 axle-7 tonne per axle load requirement for trucks. All member governments agree that the new restriction is good for protecting the road surface inthe region and, in addition, the private sector agrees that it will eventually be good for truck maintenance and reduced workshop time. Tanzania has been strictly applying such axle load limits, as a member of SADC, for a while. However, ,the other four members have traditionally allowed 4-axle trucks with much larger loads. These larger capacity trucks had become an important lifeline for the EAC, as the railways became less and less an alternative for bulk commodity transportation. 4.37 In the interim, while the rule is being sporadically applied by Kenya, Uganda, and Rwanda, decisions at the border do not agree on the same axle loading. Inextreme cases, entry is temporarily denied, limiting market access. In Burundi,the regulations to restrict axle load have not yet been introduced. Along the Northern Corridor, transporters and traders find the enforcement of the axle load controls more flexible than along the Central Corridor. Those who submit to the EAC restrictions along this route feel that it amounts to unfair competition, in as much as they are penalized by having to pay higher unit cost for cargo transport than those who may have bribed agents responsible for checking axle load. For example, Uganda registered trucks are sometimes denied transit permits to the DRC by Rwandan authorities for unclear reasons related to the concern that "Ugandan trucks spoil roads in Rwanda." For the time being, trucks must remove the fourth axle only when entering Tanzania, an activity costly both interms o f time and money. During the end-2007 political crisis in Kenya, Tanzanian authorities invited Uganda to use its ports. But continued transit became impossible on the Tanzania route even for two weeks because o f the huge fines charged on loads inexcess of the standard axle load. While 30 the railways remain a poor alternative for bulk commodity transit across the region, EAC-wide implementation o f the axle-load decision will hike unit transportation cost of cargo in the region and reduce the transport capacity of the existing fleet. For reasons of fairness and reciprocity between countries, all partner countries should harmonize implementation of the axle load regulation. D.Specific limitations (WTOV) Cost of translation 4.38 The official language of EAC business is English.However, the government and business processes of Burundi remain francophone, with very limited programs to improve English- and Kiswahili-speaking capacities o f the traders and transporters. Hence, the language of communication is yet another NTM recognized by Burundian traders and trucks that travel in Uganda, Tanzania, and Kenya. Traders face specific charges. For instance, those who export goods to francophone Burundifrom Kenya pay a USD300 fee to translate the requiredregulations to English at Jomo Kenyatta International Airport in Nairobi. Traders suggest that regulations should betranslated inall official national languages spoken inEAC by the issuingcountry. Use of immigration and visaprocedures 4.39 These are cumbersome, duplicative, and in many instances used contrary to the EAC Protocol. EAC-wide, visa fees was removed in June 2007 and replaced by temporary work permits for visitors seeking temporary work assignments. These do not apply to traders, transporters, and visitors who are not seeking temporary employment. At the border, officials at Nymanga, Tanzania not only charge eachtruck USDDSO,but also impose a charge o f USD100as work permit for accompanying businessmenwho would like to exhibit their products in Tanzania. Business registration 4:40 Treatment o f businesses originating in the EAC as "foreign" and different national procedures make cross-border registration of business branches difficult. Payment for registration of business names and the multiplicity of licenses for production, distributionhale of goods among the five EAC countries is cumbersome. Moreover, exemptions on certain WTO obligations apply to four EAC members that are categorized as less developed countries. When it comes to cross border trade inmanufactured products, it is not clear how this should impact their trade with Kenya in specific areas, such as pharmaceutical and medicinal products. E.Technical barriers to trade (WTO 111) 4.41 Technical standards and SPS concerns about goods are slowly emerging as NTMs in the EAC. These two difficult areas o f action are likely to be inthe forefront as the members develop their economies and industrial base. If EAC members continue to view intra-region trade in manufactures as being in conflict with the national political agenda of promoting industrialization, traded goods compliance to product technical standards and mutual recognition of such standards may prove very difficult to implement in EAC. Notwithstanding the immense capacity constraints presentedbelow, the political will inthe EAC countries is key inthe adoption of technical standards for traded goods. Trade inthe region has been affected when the credibility of the NBSs have been in doubt. But the problem can be alleviated by mutual understanding and an establishment o f a good track record over time.50 For example,that done by the UgandaBureauof Standards. 31 4.42 Inclose relation with the technical barriers, there are allegations of NTMs impedingsale of manufactured goods in Kenya. Producers and traders from other EAC members seeking to access this high-income market find it difficult to advertise and place their products on shop shelves in Kenya, even if they meet the technical standards specified by Kenya Bureau of Standards. Billboards of advertisements are reported to be taken down overnight. The retail outlets inKenya face difficulty renewingthe Kenyan business licenses inthe subsequentyears. Goods inspection and technical standards enforcement 4.43 The EAC member states are expected to adopt the EAC harmonized standards of goods traded within the region. Enacted into law is a mechanism to ensure mutual recognition of quality marks on products by the national bureaus of standards (NBS). Currently the bureaus are also responsible for enforcement o f the standards at the border. Goods are to be exempt from rigorous verification upon importation once they bear such national and/or EAC quality marks. 4.44 These steps largely remain unimplemented, due to human capacity and/or political will. At present, all EAC member states do not recognize one another's quality marks. Members continue to set their individual standards and require other states to comply on all goods for sale and for transit. The concerns of traders and transporters hinge on training /information available to agents applying the technical standards at the border; the product verification methods and continuance of inspections despite national/EAC quality marks/certificate issued by specific NBS; andthe inspectionfees on goods intransit. For example, Tanzanian food exporter pays TSh 200,000 per shipment for a Tanzania Bureau o f Standards certificate, but the certificate is not recognized by other EAC members. Another example is the case o f Ugandan tea. Shipments transited through Kenya to countries outside the region must pay an inspection fee of USD400 at the border despite the Uganda Bureau of Standardscertificate. The inspectionsystems for goods at the borders are not harmonious across EAC, and may not use the needed international standards of inspection, accepted procedures, and accepted sample sizes such that tests are unbiased. There are instances where goods are returned or destroyed due to the lack of standardization Box 4.4. The Dairy War: Kenya versus Uganda and Tanzania Milk processed by Musoma Dairy Limited, Tanzania was denied entry into Kenya in mid-2008 by the Kenya Revenue Authority on the grounds that the milk did not qualify under the EAC's rules of origin requirement. As a result, the imports into Kenya attracted a duty o f 60 percent, the prevailing common externaltariff(CET) o fthe customs union. Inadditionthe company has hadto obtain an export permit for each consignment from the Kenya Dairy Board, at the charge o f USD77 per consignment. The company had a contract to export 100,000 liters of UHT milk to Kenya, but in the end was allowedto export only 10,000 liters at the 60 percent duty. The dairy war has resultedfrom a complex regulationregime that prevents imports of dairy products from Tanzania and Uganda into Kenya, in effect defeatingthe spirit of the EAC Customs Union. Tanzania and Ugandaargue that the restrictionsandmultiplicity of controls are contrary to what EAC member states had agreed on milk exports. First, the Kenyan regulations require that milk exporters from Tanzania and Uganda must have certificatesproving that these products have been processedunder constant supervision by the veterinary authoritiesinthe region. Second, it is arguedthat the veterinary standardsimposedby the Kenyan authorities are neither made public nor is the information shared with the veterinary authorities in the region. Third, too many institutions-the Kenya Dairy Board, Kenya Bureau o f Standards, the Veterinary Department, andKenyaRevenueAuthority-deal with authorizingKenya's dairy imports. The mainNTMs restrictingmilk trade are the national legislationsandthe outdatedcumbersomeimport authorization systems that ineffect are not really intended for checking applyingthe EAC-wide norms on rules o f origin or enforcingtechnicalstandards of the imuort or it sanitarv and food safetv standards. 32 Goods definition and quality certification, according to technical standards 4.45 The EAC Protocol requires harmonization o f technical standards for goods across the region. It i s the mandate o f the NBS to develop and certify that products meet required technical standard^.^^ Slowly EAC is also developing technical standards for goods produced inthe region, with the associated quality mark. Inadequate capacity intechnical standards/ quality management leads to misapplicatiodmisinterpretation o f standards with regard to requirements/ certification. 4.46 Though the EAC policy o f harmonized standards is laudable, given the various constraints, a pragmatic way forward may have to be devised. The top export value products that the EAC trades internally are often also the key products that that it exports externally. Accordingly, many standards really do not need to be developed for the member countries. For example, for commodities like tea, coffee, fish, tobacco, vegetables, and petroleum, the quality requirements for exports outside the region do not need to be translated into regional (or national) standards; they just need to be complied with. Expanded efforts at regional harmonization o f standards may on the one hand buildup capacity; on the other, such capacity may not be used to ease NTMs. It may be used for the exact opposite purpose: to increase inspection, certification requirements 4.47 The five bureaus in the EAC operate at very different levels of physical capacity (of laboratories, for example), human capacity, and resources for investment and technical training, with the one in Kenya leading and the one in Burundi trailing the list. Accreditation o f laboratories to perform required tests- taking into account the general laboratory environment, competence o f personnel in testing products, procedures followed in performing tests, validation o f the tests through comparisonwith standard products-is not similar among the members.52 Box 4.5. ProductDefinition: The Case of IncompatibleSugar InUganda, imported sugar is sold at prices lower thanlocally producedsugar. This is beneficial for the consumers, but acause o f concernfor the localproducers. 0 A factory has been set up inthe Kagerabasinofwestern Tanzaniato manufacturebrown sugar. 0 Sugar producedat this factory bears the certification of quality by the Tanzania's Bureau of Standard. The Tanzanian sugar is exportedto Uganda. Existingtechnical standards inUgandado not apply to brown sugar. 1 I 5 1Inthe EAC, the NBSplay acriticalrole ingoods standards, but arenot the focus of capacity developmentefforts. Inall EAC membersanational law, establishinga systemof quality standards and control, forms the legal basis ofthe country's system of standards, such as the December 1999 law for Burundi.It designatestheNBSas the official entity responsiblefor quality standards andcontrol. The bureauthen defines and enforces standards, verifies product compliance, includingboth imports and exports, and ensures product quality control. It is amember ofthe International Organization for Standardization(ISO). It is often also chargedto assist businesses insetting up quality assurance systems appropriateto their technical and economic wherewithal andto carry out activities to raise awarenesson the partofprivate operators. Itis also incharge ofensuringcompatibility EAC andCOMESA standards, andpromoting intra-REC harmonization of such standards. It then sets up it own laboratoriesandor collaborateswith various national laboratoriesfor purposes of sampling and analysis. The status of compulsory standards of any manufacturedproduct or process may be attributed by adecision ofthe Ministerof Commerceand Industry. For agro-products,this role is playedby the Ministry ofAgriculture. 52Rwandais facing accreditationproblems concerningits laboratories. 33 4.48 In contrast, the products for export outside the EAC continue to depend on international testing and certification through laboratories located outside the region, usually in Europe. EAC producers and traders have a good record in this area, motivated by the desire to maintain and expand product sales indeveloped country markets. The NBS in EAC are seldom equippedto test and credibly certify that local industriesmeet the international standards, and therefore compete in the international markets. International product standards require confidence in the measurements of the industryequipment. Confidence is obtained from tests carried out to ensure that the industry equipment is up to the standard, which is difficult for the NBS. Industriesthat cannot have their equipments tested are therefore restricted inthe markets for their products. Driving on the lefuright 4.49 The issue of driving on the left side of the road is mentioned by Burundian and Rwandan drivers as a NTMto trade with the founding members of EAC. Since they are usedto driving on the right, changing sides increase the probability of accidents. Within the context of EAC, standardization of drivingrules should be considered. 4.50 In2005, Rwanda enacted a law requiring importation of left hand-drive cars; no right hand-drive car will be licensed in Rwanda ifthe vehicle does not comply with the law. The law does not affect cars imported into the country before 2005. Consequently, vehicle importers have resorted to fabricating trucks to the left hand-drive and comply with the enacted law while in Dubai, Mombasa, and Kampala by changing positions of the steering from right to left, using local mechanics. These fabricated vehicles have caused a number o f accidents. Importers are shying away from contracting such Rwandese-fabricated trucks for fear o f losing their goods in accidents, and end up hiring trucks from elsewhere in the region. Rwandese transporters have continuously complained against this law. F.Sanitary and Phyto-Sanitary Measures(WTO IV) 4.5 1 Awareness of the potential impact of noncompliance with SPS standards on their exports, following the EU fish trade restrictions at the end of 1990s, brought SPS standards to the forefront of EAC member state interest, and ledto the application of stringent national measures. While the focus of this effort has mostly been on products exported outside Sub-SaharanAfrica by EAC members, heightened national standards concerns over food safety and health are increasingly showing up as NTMs in intra-EAC trade in agro-based and animal products. Goods inspection and SPSstandards enforcement 4.52 . The EAC region has focused a lot of development programs on promoting national agro-based exports. In intra-EAC trade, awareness of the importance of food safety and health issues has spread beyond livestock and fisheries into agro-processing. Involvement of government departments abound, and most are seekingincreasedbudgetary resources to carry out regulatory enforcement on technical and SPS standards (see box 4.3). Simultaneously, there is little effort at EAC-wide harmonization and mutual recognition of standards, with arbitrary application of technical quality standards and inspection for compliance with compulsory SPS requirements-mainly inthe areaof food safety, and animal andplant health-prevailing. 4.53 In intra-EAC livestock trade, noncompliance of SPS standards is often related to "endemic diseases" (see box 4.6 for details of current status). an example i s the ban on Kenyan beef exports to Uganda due to unspecified animal diseases. In August 2007, Kenya and neighboring countries imposed a trade ban on Ugandan poultry due concerns over a suspected case of highly pathogenic avian influenza (bird flu). Kenya required a test for bird flu to be 34 conducted first; the test results came up negative. But the ban has not been lifted yet (as o f mid- 2008). The ban on Kenyan poultry and processed poultry products to Uganda due to suspected incidence o f avian flu may reflect a certain degree o f reciprocity. Technical standards imposed by Uganda on milk and milk products from Kenya prevent active trade inthis perishable product group, as the Uganda Dairy Development Authority does not accept a certificate o f analysis from Kenya Bureau o f Standards. The fruitjuice industryhas similar concerns about the applicationo f quality standards. 4.54 In enforcement, building up sustainable SPS/ technical quality management capacities has been slow, with past interventions often too broad to create any impact. Attention should now be focused on (i) prioritizing investments to specific SPS compliance issues and related capacity- buildingneeds; (ii) awareness and promotion o f good practices among primary producers, raising enterprises, and regulatory agents; (iii) clearly defining the roles and responsibilities o f different players; and (iv) strengthening institutional collaboration-within the private and public sector agencies, and among donors-in implementationo f agreed strategies and programs. 53 Goods quality certification proceduresfor SPSstandards and safety 4.55 Coordination and capacity are significant problems in standards development. While SPS standards are largely the mandate o f the ministry o f agriculture, there are instances where several government agencies overlap, with competing roles and influences on regulations on SPS issues. Itremains to be resolvedwhether the issue o f food safety should be the mandate o fthe ministry o f agriculture, or ministry o f health, or the national drug authorities. The agencies with the most direct involvement in the adoption and enforcement o f standards for traded agro-food products are the NBS, and the various departments in the ministry o f agriculture, and animal husbandry.54 Many o f these agencies need to work closely with health, veterinary, or other departments at the local government level. 53Based on the Diagnostic Trade Integration Study (DTIS) Action Plan and other capacity assessment and evaluations;and a2008 workshop WTO inKampala, Ugandaon mobilizing aid for SPS-relatedtechnical cooperation inEastAfiica. 54InBurundi, suchagencies include the BurundiCoffeeMarketing Board (OCIBU)/the BurundiTea Marketing Board(OTB); BurundiInstitute of Agronomic Sciences (ISABU); regional companiesfor advance laboratory analysis and certification services, such as inSouthAfi-ica; and the Hygiene Unit, housedat the customs office of the port of Bujumbura or at the Burundi Bureau o f Standards. 35 Box 4.6. Kenya-Uganda Standoffin LivestockTrade: How Not to Trade Chicks,Beef, and Bull Semen The standoff between Kenya and Uganda on chicks, beef and bull semen trade i s affecting free trade in spite of an earlier stand taken by the two countries to promote intra-EAC trade. Kenya maintains that Ugandanf m s will be allowed to export day-old chicks and chicken products to Kenya only on condition that they are sold through agents inthe latter country, who would conduct risk assessments on the imports. Uganda on the other hand maintains that their Kenyan counterparts must first submit a risk assessment report before an 11-year old ban on importation of beef, bull semen, and other associated products from Kenya can be lifted. The positions taken by both countries contradict an earlier stand taken by both countries on the sidelines of a World Organization for Animal Health general session, where they agreed in principle to lift the bans unconditionally. The industry players in both countries blame one another for politicizing the issue againstthe spirit of EAC trade integration. The stalemate is likely to hrther affect the ailing livestock industry in both countries, especially their leading f m s , Ugachick inUganda, and Kenchick, inKenya. It is estimatedthe Ugachick is loosing up to USD200,OOO per month as a result of the stalemate. Kenchick i s the largest integratedpoultry businessin the region and is the first inEastAfrica to achievethe so-calledfarm-to-fork standard, whichmeansthat all productssuch as eggs and chicken meats sold by the fmcan be traced back to the specific farms of origin. Kenya's leading beef processing fm,Farmer's Choice, was the first to suffer as a result of the ban on importation of beef and beef products into Uganda in 1997. Later it evaded the ban by constructing a subsidiary inKampala with a trade name Your Choice. While Uganda claims that it banned importation of meat and meat products in the wake of mad-cow (BSE) disease and that the ban was imposed for all countries, the Kenyan industry argue that their Ugandancounterparts are politicizingthe issue. While Kenya claims that they had lifted the ban on the import of one-day old chicks fiom Uganda and urged Ugachick to resume exports to Kenya with agents in Kenya, Ugachick representativesmaintain that Kenya has previously stated a similar position but inpractice deniedtheir products' entry into the market. As regards imports of beef and beef products Uganda says the ban following the BSE scare will be reviewed for Farmers Choice on a product-by-product basis. It says it will form a technical committee for the review and feedback. While the bull semen does not pose a risk to spreading BSE, as inthe case of meat, Uganda maintains that there was still a problem with regard to traceability and origin. A new agreement directs Farmers Choice to make a fiesh application for review of ban, and suggests a meeting of sector authorities from both countries every six months. As a way forward, the players from both countries could adopt internationally accepted guidelineshtandards on trading of livestock and livestock products, vaccination, and traceability so that neither side perceivesbeingdisadvantageddueto the arbitrary natureofnational decisions. 4.56 The inspection bodies have not developed adequate capacity to suppoduse accredited laboratories, let alone have them located at the entry and exit points, which would be ideal. Accredited laboratories, where they exist, have stricter standard requirements and higher inspection charges, adding to the costs o f expanding the market for the product. For E A C exports destined for EU and the West, the producers continue to depend on accredited laboratories outside EAC. A range o f activities could to be undertaken in SPS standards development for both EACand each of its member countries (see appendixes A8.1and A8.2). IV. OTHER CONSTRAINTSONGOODS TRADE EAC IN Information constraints 4.57 Not only are the rules and regulations not mutually recognized or harmonized, as discussed earlier in this chapter, but the dissemination o f information on them i s extremely poor 36 across member states and withinthem. Traders are not aware of some o f the decisions made at the EAC Council, such as the new transit regulations. At the borders, the customs agents often do not have the latest directives and/or forms from their revenue authorities, and truck drivers may not know the regulations specific to their cargo. Application o f national legislations often appears to be arbitrary and protectionist, basedon outdatedcumbersome import authorizationsystems. Insecurity/ highway crimesAoss of goods at the containerfreight stations 4.58 Heightened security concerns along the trade routes and highway thefts add to concerns for traders and transporters. Along the Ugandan segment of the Northern Corridor, transporters who make night runs complain about acts of banditry. In2007, 32 containers were lost to thieves and a number of people lost their lives on the way to Kampala. The events that unfolded after the December 2007 election in Kenya led to one of the worst spurts of highway crimes witnessed in Kenya. Users of the Kigoma port in Tanzania note frequent thefts of goods duringtransshipment operations. In Burundian territory, night travel is banned because of the prevailing lack of security. Operation of the CFSs at various locations is affected by pilferage o f cargo. Importers end up losing their goods and are often unable to lodge claims becausethey do not know whose responsibility it is to pay for the claims. Influx of counterfeit products 4.59 Trade in counterfeit and adulterated products is spreading for goods enteringthrough the two sea ports and across the EAC's common external border. The regulatory authorities have inadequate financial and human resources to curb the problem of counterfeits practices. The sale of these products unfairly competes with the legitimate industry within the EAC, and more importantly adds unnecessary risk for the users. Only recently have member state parliaments approved laws to deal with the problem of counterfeits. 4.60 For example, in 2004 in Uganda about 50 metric tonnes of counterfeit goods were impounded by the Uganda National Bureau of Standards (UNBS)because they failed to meet the minimum quality standards. These included foodstuffs, soft drinks, salt, cosmetics, clothes, building materials such as cement, and other manufactured goods. According to officials at UNBS, counterfeit goods worth over USh 600 million were either denied market in Uganda (returned) or destroyed by inspection units at various border points. Other affected products are pens (the case betweenMulwana and Picfare), tiger head battery, textiles, and foam products (the case between Euro foam and Vita Foam), tooth brush(the case between Mulwanaship toothbrush and another firm that producedthe same model at a German factory). I nformal trade 4.61 The borders of the EAC's member states are inherited from a colonial era that split communities that shared historical trading, cultural, and family links. Hence, historically cross- border trade inthe region has been informal, has not passedthrough the major border crossings, and has been in small-scalehmall value transactions that do not attract much attention of border authorities or are captured in official statistics. A large part of this trade comprises day-to-day transactions between traders living in locations near the national borders. Most commodities crossing borders are absorbed by the local markets along the border. It i s usually carried in small quantities on bicycles, or in"caveras" (polythene bags). Identifyingcross-border illicit trade of this nature is not straightforward becausethe items are easily claimed as goods for personal use or gifts from relatives. The case of grains trade inthe EAC is consideredinbox 4.7. 4.62 In addition to the traditional informal trade, smuggling or illegal sale of high value commodities occurs across the national borders of EAC member states. For example, even with 37 physical escorts provided by customs authorities, diversions of transit trucks passing through Kenya (especially targeting non-Kenya registered trucks) have been reported, with resultant delays and loss of goods. Following such incidents, importers using the Northern Corridor are losing confidence in non-Kenyan transporters, makingthe latter uncompetitive. Box 4.7. Grains Trade in the EAC: Informal Trade and NTMs Arbitrary and unpredictable NTMs are reported at the border to be significant in the grains trade in the region.a The NTMs reported on the formal grains trade, include regulations requiring proof o f origin, phyto-sanitary certificates, and invoices from vendors, "required side-payments'' to police at road-blocks andborder crossings.b Most important among such NTMs is the periodic physical ban imposedby Kenya and Tanzania, preventing Uganda, Rwanda, and Burundi's farmers from reaching more lucrative markets (as well as northern Tanzanian ones from entering Kenya). Tanzania has often followed a practice o f banning food exports following a poor harvest to ensure that local supplies go to deficit areas within the country. Kenya periodically imposes temporary restrictions on grain imports to protect its farmers. Rwanda usually imposes bans on the export o f beanswhen it suspects supply shortage. To date, monitoring the active cross-border grain trade in EAC and the associated NTMs has been very problematic since the trade remains mostly informal (unrecorded in official statistics). It is also seasonal and often the transit routes are away fi-om the two major Corridors. Preliminary estimates by the East Africa Grains Council posit that about 60 percent o f the grains among EAC's founding members may be informal. It is estimated the intra-regional grain trade among the founding members o f EAC has amounted in exports to 10 to 15 percent of grain production in Uganda and Tanzania, and as imports for about 10 percent o f Kenya's grain consumption. The fact that so much trade is informal leads to questions o f whether this practice is a rational responseto NTMproblems, over and above the historical links. The EAC countries must carefully consider whether the private sector faces distinct drawbacks in attempts to formalize trade. This is clearly an area where product-specific follow-up work on NTMs is necessary through survey instruments and other means. Some research has been initiated in this area. For example, a World Bank analysis o f maize trade among Kenya, Tanzania, and Uganda only is starting with data fi-om USAID- funded RATES, the Famine Early Warning Network (FEWS-NET), and others, includes the Michigan State University/Tegemeo Institute in Kenya, the World Food Program, and the International Livestock ResearchInstitute. It i s expected that for major wholesale markets inthe three founding members o f EAC, marketing chains linking key production and consumption points across borders will be indentified. Primary data will thenbe collected on marketing flows, transactions cost, and margins from interviews with traders, farmers, transporters, and other informants. The choice o f maize, among other grains and beans, was made based on the importance incaloric intake, total production, and estimates o f intra-regional grain trade. Even such rough estimates are hardto find for Burundiand Rwanda. a. See USAID RATES Program, 2003. Also, EAC 2000. b. See IFPRI, 2008. 38 Table 4.2. Severity of NTMs on Goods Trade in EAC: A Perspective from Burundi's Traders and Transporters Category of NTMby Corridor Politicaleconomy of NTM Severity of NTM Quadrant in WTO involved figure 3.1 Govt. monopoly Congestedports Central Ineffectivenessof Lengthydelays, added D of Dar & Kigoma stakeholders costs Customs & admin procedures for entry/ passage Lengthytransit Portof Dar Processingof paperwork How long: 3-4 days B formalities Lengthycustomsclearance Portof Control& verification Added cost: USD250fee B formalities Bujumbura process How long: 1-3 days Multiple checkpoints and Central& Load inspection How long: 2 hrs B policebarriers North How long: 1-2hrs B Multiple institutions Portof Distances& supervisory ties How long: 6-10 days C exercising controls Bujumbura Product-specificcustoms Escortsof convoys in Central& regulations Results in lost time B transit North Pre-shipmentinspection North & Monopoly awardedto SGS- Cost: 1.5percentofthe B Central Bujumbura,a inspections, value o f imports verification,testingand certificationcompany. Technical barriers Quality standards North & Lack of equipment and Relianceon foreign C & control Central skills services Driving on the left North & Different practices Cause ofaccidents B Central & colonialpast Specific limitations Lang. ofcommunication North& Different practices Translationfees and lost B Central & colonialpast business Distributionconstraints Axle loadrestrictions Central& Regulatorymeasure Doublesunit cost of B Border closinghours & North transport communityworks in Burundi Central& Closinghours, Community How long: 6 hrs waiting B Bujumbura works time every Saturday - P Related Infrastructure Constraints L Railroad Centraland Aging track, shortageof How long: 3-4 months C North cars, inad. locomotives Coffee: 1monthon CentralCorridor Juxtaposition o fborder Central Congestion& lack o f How long: 2 hrs at both B posts equipment posts Congestedports Central Congestion& lack of Lengthydelays, added D o f Dar & Kigoma equipment costs 39 B 8 3 8 L 5 3 e, u a5 5 m e, D .c 8 e"M ;n 211) .e C 9 m e . 3 f: q a E3 ad =35 .P% mc 4c4 m d P 1 0 V. FACTORS LIKELY INFLUENCE ONNTMS TO SPEED OF EACACTION 4.63 Compared to its pursuit of tariff reductions to date, the elimination of NTMs in EAC is widely expected to be more difficult because of the complex nature o f the NTMs, the need to shore up political will to tackle them, the need to build technical capacity across member states, the financial dependence at the national level, and other considerations. Initial interviews with stakeholders-especially private firms-indicated to the task team that the following factors are likely to influence the speed of decisions and action to reducehemove NTMs on goods trade in the EAC. A. Councilof Ministers' meetings 4.64 The decisions of the EAC Council of Ministers require unanimity across all members states. Currently, delays occur as the Council finds it difficult to meet on a regular schedule. Consensus building is a prolonged exercise, requiringboth extensive time and effort across the member country ministersat the level of policy choice and the national civil service in charge of the implementation of EAC-wide decisions. Unilateral decisions taken by members have few channelsto impact actions o f other EAC members. B. SynchronizationbyEAC members 4.65 EAC member states are required to give similar treatment to all agreed EAC policies. Within the short period of the regional economic community's existence, the members are finding the agreed harmonization of the national laws/policies and standards governing intra-EAC slow, cumbersome, and resource- and capacity-intensive given their LDC status. Currently, the harmonization process for policies and standards on traded goods is being driven by the public sector, with little or no involvement o f the private sector-the sector most affected by the process. 4.66 Where action has been taken significant variance is developing with regard to decisions and regulatory systems on the optimum standards o f goods.55Enhanced capacity for EAC-wide harmonizationof standards may or may not be usedto ease NTMs.It may end up being a double- edged sword for the exact opposite purpose, i.e. to increase inspection, certification, and other requirements. 4.67 EAC-wide harmonization is made more difficult by multiple memberships in regional trade arrangements. Uganda, Kenya, Rwanda, and Burundi are members of the COMESA, while Kenya belongs to the free trade area in COMESA, but Uganda does not. Tanzania is not part of COMESA, but belongs to SADC. The COMESA members inEAC perceive that Tanzania might be delaying certain key decisions in goods trade integration and adoption of best practices at the EAC Council in order to maintainthe lead already attained through its SADC membership. " Consider this example: Inthe FY08budget,Uganda imposeda banonproductionand importationof polythene bags less than 30 microns.Kenyadid not. Itcontinues to produce polythene bags less than 30 micronsandthese are smuggled into Uganda.Onthe other hand, inRwanda,the use all polythene bags is completely banned.Hence, Uganda, Kenya, and other memberscannot export productsto Rwandausing suchmaterial for packaging. 46 C. Implementationof currentEAC rulesandnew decisions of the Council 4.68 There is widespread perception inthe private sector that implementing agents (including those manningcustoms and ports) ineach member state continue to think and act on behalf of the individual countries and not in terms of the EAC. Hence, they tend to favor their own citizens in production, trade, and transit decisions related to goods trade. Private stakeholders across the EAC recommend that all member states needto devise a mechanism to restrain domestic players from undermining regulations that are put in place by other partner states. 4.69 Several reasons are cited-by both private sector agents and officials in ministriesacross EAC-for the observed low commitment of member governments to remove NTMs. First, government agencies (port officials, revenue authorities, police, and others) inthe region have not been fully sensitized and oriented to play their role effectively in implementing EAC directives and agreements. Second, the EAC Secretariat has only observer status at present and hence limitedpower to penalize noncompliant members. For example, some stakeholders are frustrated with the pace of development and application of arbitration processesat the EAC Secretariat. The process of reaching a decision on mitigation is so slow that some NTM problems reported in goods trade and transit are never resolved. EAC also lacks a policy on how firms who are recognizedto have incurred business losses can be compensated. 4.70 Third, as the tariff walls have come down, NTMs are often cited as deliberate actions to protect the trade interests of the country and stem competition from neighbors. Fourth, the functioning ofthe National Monitoring committee^^^ for NTMmonitoring is hampered due to the dearth of budget resources in member governments to locate and support N M C activities, the scarcity of specific NTM information available for use, the lack o f clarity o f the monitoring mechanism to be adopted, and the absence of agreement on actions for reductiodremoval of NTMs. D.Flow of information 4.71 In all EAC member states, the traders and officials of traders' associations criticize the national governments for monopolizing information (deliberately or because of lack of dissemination capacity) on decisions relevant to goods trade. Information gaps persist between the policy makers, the implementing agencies like national bureaus of standards, and the producers and traders. For example, the majority of the EAC traders are not even aware of the NTM monitoring mechanism through which they can report constraining measures. There is widespread concern that the mechanisms and the language used to explain issues concerning goods trade in the EAC are not simplified enough to be usefulto small indigenous traders. This i s particularly problematic for Burundi-where the government systems are focused on early stages of post conflict recovery-but are prevalent EAC-wide. The complaint is least in Kenya, where deliberate efforts have been made by the government since 2002 to consult and incorporate key private entities. 4.72 Broadening and deepeningownership of EAC among the citizens o f East Africa remains a big challenge. Whereas awarenessat the level of senior government and regional administration i s high, public participation in the EAC member states i s very limited. The task team was reminded several times that majority of the citizens of the member states do no know about the *' The NMCs havenot met since their inaugurationin2007. The fiamework for the NTMmonitoring mechanismis yet to be implemented, and its progress to be evaluated. 47 EAC and/or what it i s expected to achieve. Traders feel that unless the people are sensitized about the EAC objectives, structure, integration process, and region-wide benefits, they will remain reluctant to endorse certain strategies decided upon. This can be achieved through increased information sharing, adoption o f improved networkingby national governments with national and EAC-wide stakeholders, and more deliberate public interactionby the EAC Secretariat. E.Capacity of nationalinstitutions 4.73 The regional structure for goods trade facilitation is not adequate. The capacity of the numerous regulatory bodies varies significantly and national institutional frameworks remain largely ineffective in developing and harmonizing standards. Ofthese, the customs administration inmost member states is undergoingenhancement of capacity and modernization, thoughnot ina very coordinated fashion within EAC. The bureaus of standards are generally not high on the national priority for capacity building- except in Kenya, through donor and private sector support. Most of the certification for the foreign exchange earning exports outside EAC is through internationally recognized laboratories in Europe. Hence, the national bureaus remain inadequately staffed and may not have the right skills to develop standards and implement the standards certification and harmonization. The junior bureau staff, in most cases carrying out the enforcement at the border, is yet to be sensitized ofthe regional impact o f their work. 48 CHAPTER 5. LEARNINGFROMOTHER REGIONAL ECNOMICCOMMUNITIES 5.1 The regional economic communities (RECs) in Africa do not have an impressive record o f dealing with contentious non-tariff measures (NTMs). However, the E A C has quickly achieved a lot that remains desirable for RECs in Sub-Saharan Africa. This study suggests looking beyond the continent for examples, to learn from successes o f RECs and emulate them, as appropriate, and to avoid failures. 5.2 The current chapter moves away from direct discussion o f NTM issues in the EAC. We examine here the course o f action taken by the European Union (EU) and Association o f Southeast Asian Nations (ASEAN), since they contain a number o f lessons that can help EAC plan well and minimize policy errors. Although the economic profile o f the EU member states and the decision-making authority has by now evolved to be very different from the EAC, in the area o f NTM removal, it has a long history and by far some o f the best practices over the long term. Some ASEAN members have economic profiles closer to the founding members o f the EAC. Hence, their ongoing experiences inhandling NTMs are perhaps the one the EAC will be able to emulate more easily inthe medium term. I. THEEUAPPROACH NON-TARIFFMEASURES TO 5.3 The European Union is a good example o f a successful economic integration achieved through the removal o f barriers to trade, including NTMs. The EUwas established in 1957 with the Treaty o f Rome, and since its inception it has called for the removal o f NTMs, as has the EAC. The discussion that follows first highlightsthe most important steps undertaken by the EU toward the elimination o f NTMs and the creation o f the internal market. It describes the EU's major tools to reduce NTMs: mutual recognition and the harmonization process. Next, it describes the catalysts-such as foreign competition and the enlargement process-that pushed toward a quicker integration process in the EU. Lastly, it briefly describes the EU tools for monitoringthe emergence o f new NTMs and reporting the correct transposition o f EUregulations into national legislation. A. Main direct action toward eliminating NTMs and events to establish a single market 5.4 The achievement o f a working internal market in the EU has been a long and complex process, with a series o f initiatives and legal steps required to achieve free trade. The European Economic Community (EEC, now EC) was established in 1957 with the signing o f the Treaty o f Rome. The Treaty built a customs union o f six members and, through Art. 3, called for the removal o f NTMs that have equivalent effect to tariffs and quotas on trade. NTMs were the main obstacles to the creation o f a Single European Market (SEM) because they were the outcome o f diverse national rules, regulations, taxation, and subsidies. 5.5 At first, the EUtried to remove such NTMs through the adoption o f European laws and regulations, with the aim o f determining European standards for a large range o f products. This "old approach" required product-specific (even component-specific) legislation; implementation was based on an extensive use o f directives. Needless to say, this system was extremely 49 cumbersome and difficult to implement, as it required a very technical harmonization and extensive consultations. In addition, the unanimity required in Council decision making was a tool for member states to veto any proposed European law ifthey considered it damaging to their own economies. 5.6 As a result, very little progress was achieved and the need became clear for a simplification of the harmonization process and for the adoption o f the qualified majority in the Co~ncil.~'To overcome the difficulties of the "old approach", in 1978 the European Court of Justice (ECJ) establishedthe principle of mutual recognition in the famous Cassis de Dijon case (see box 5.1). The ECJ established that goods that are produced in a member state in respect of national rules and regulations should be able to be sold in any other member state. So companies should be allowed to produce according to their national rules and still be able to sell their products throughout the Community. The principle outlined in the Cassis de Dijon case provided a precedent for break with the long-used harmonization process, to be replaced by the principle of mutual recognition (finally adopted in 1985). 5.7 Inthe same year, the 1985 White Paper called for a program of legislation to complete the internal market by 1992. Apart from calling for a simplified harmonization process (the new approach), the White Paper also called for strengthening the capacity o f the European standards bodies. Similar to the EAC's objective of eventually adopting EAC-wide standards, these bodies in the EUwere considered an essential tool inthe gradual replacement of national standards by European standards. The White Paper also highlightedthat the new harmonization policy had to put particular emphasis on certain sectors, such as information technology and telecommunications, construction, and foodstuffs. The EAC could similarly identify sectors in which the initial harmonization would be critical and prioritize those. As regards monitoring, the White Paper encouraged the adoption o f preventive measures, such as Directive 83/189/EEC. This directive obliged member states to notify the Commission o f all draft regulations and standards related to technical specifications to be introduced on national territories. In this way, the EC couldmonitor andprevent the raise ofnewnationalbarriers to intra-EUtrade. 5.8 Following the EU example, the EAC's immediate objective is to take steps toward establishing a common market. The various planned steps toward this would impact on the elimination of NTMs. For the EU, the Single European Act (SEA) was approved by all member states in 1986, and implementedin 1987, to execute the White Paper recommendations and create a SEM. Thanks to the SEA, majority vote replaced unanimity in the Council in areas related to the establishment ofthe internalmarket. This facilitatedthe decision-making process andreduced the delays associated with unanimity. The SEA resulted in the establishment of a detailed program to achieve the single market, including the removal o f legal barriers to the free movement of goods, services, capital, and labor. It is also important to note that the SEA established a Community Policy of Economic and Social Cohesion, to mitigate the effects of the completion of the internal market on less-developed member states and consequently reduce development discrepancies among the regions. Physical barriers for goods at the borders were removed in 1993, together with the associated customs documents. This step helped facilitate trade through reduced delivery times and lower associatedcosts. 57See Brentonand Vancauteren (2000). 50 I Box 5.1. Establishing the Principleof MutualRecognition: The Cassis de Dijon Case I The Cassis de Dijon case is the founding father of the principle of mutual recognition, a huge step toward the abolition ofNTMs. In 1979, the EuropeanCourt ofJustice ruledthat Germany couldnot banimportsof Cassis de Dijon (a Frenchalcoholic drink) on the basis that it did not conform to German rules governing alcoholic drinks. According to such rules, Germany prohibited the sale of any drink with alcohol content between 15 and 25 percent, arguing that beverages with low alcoholic content may encourage alcoholism more than high alcoholic content drinks. Moreover, Germany claimed that the banhadhealth grounds, as it was a measure to reduce the proliferation of alcoholic drinks in the German market. A German importlexport company brought Germany to court with the accusation that the German regulation on minimumalcohol content was an illegal NTM. After the case was brought against the German courts, the EuropeanCourt of Justice ruledthat cassis could not be banned from the German market, as it met French standards. Most importantly, the Court ruled that: "There is therefore no valid reason why, provided that they have been lawfully produced and marketed in one of the Member States, alcoholic beverages should not be introducedinto any other Member State." B. Specific criteria used inEUenlargement and functioning 5.9 The following are relevant to the EAC's learningon reducing and eliminatingNTMs. Principle of mutual recognition and the harmonization process in EU 5.10 Mutual recognition was a very important achievement toward the removal o f NTMs. In the EU this principle allows free intra-EU trade in goods. Based on the mutual recognition principle, a product that i s produced and marketed in one member state must be allowed in any other member state, even when the product does not fully comply with the technical rules o f the member state o f destination. Only inthe presence o f public safety, health, or environment risks is mutual recognition not applied. In such cases, the member state o f destination can ban the risky product, but only after demonstrating that the implied NTMis the least trade-restrictive measure. For example, mutual recognition has facilitated trade through the removal o f technical barriers to trade on beer. According to the EC, over 90 percent o f EU imports o f beer come from other member states. 5.1 1 Nonetheless, EUtechnical harmonizationremains necessary to regulate more complex or sensitive sectors through EU directives. Mutual recognition can easily apply to new and specialized products and it can be relatively effective for equipment goods and consumer durables. It encounters difficulties where the product risk is high, and consumers or users are directly exposed (as is the case with chemicals, motor vehicles, pharmaceuticals, and foodstuffs). Here the resulting system is a combination o f mutual recognition and EU harmonization, so that harmonization can ensure the free movement o f goods in those cases where mutual recognition cannot work. According to the nature o f the product, two different approaches are used: 0 The "old approach" i s based on harmonization with performance requirements, involving a single set o f fully harmonized and detailed provisions. This approach i s used for products (pharmaceuticals, chemicals, or automobiles) that could put consumers' safety at risk and for which performance-oriented legislation (with detailed testing methods) is needed. For example, in the case o f passenger cars, according to the EC type-approval system, once a car has been type-approved in one member state, it can be registered and 51 put on the market anywhere in the Community without further testing. The measure has resulted in an increase of both the competitiveness o f the European car industry and the foreign investment into the EU, particularly from Japanese carmakers. The "new approach" applies to products with similar characteristics and where there has been widespread divergence of technical regulations in EU countries. This approach is more streamlined, with its reliance only on "essential requirements" and greater freedom for manufacturers on the way to satisfy those requirements. Moreover, this approach provides the private sector with a number of choices for attestation methods: self- certification against the essential requirements; generic standards; or using notified bodies for type approval and testing of conformity of type.58For example, the Radio Equipmentand Telecommunications Terminal Equipment Directive cover avast range of radio and telecommunications equipment. Manufacturers are now allowed even to certify their own products and to attach the CE-mark, a single mark of conformity recognized throughout the Community. EU's Internal market andforeign competition 5.12 The process o f creating the internal market was accelerated in the 1980s. These years were characterized by a slow growth rate and high unemployment in Europe. At the same time, Japanese firms were entering very sensitive European markets+ars, electronics, and computing equipment-while high technology European companies were unable to maintain their presence inthese markets. In 1983 the growing difficulties in facing U.S.and Japanese competition called for a Solemn Declaration o f European Union. The EU recognized that a failure to establish the internal market could only exacerbatethe difficulties encountered by European firms. 5.13 Thus, the pressure of externallforeign competition was a very important catalyst for the creation o f the Single European Market. It also had some consequences on foreign investment, as the Japanese example can show. Some analysts arguethat economic integration roduces changes inthe distribution of ownership-specific advantages across international firms.' The removal of NTMs on intra-EU trade was about to increase the degree o f protection o f European producers vis-a-vis extra-EU exporters. This move was encouraged by lobbies o f industries threatened by the strengthening o f Japanese competition. Between 1973-7 and 1983-7, the share o f Japanese direct investment located in EU doubled from 6.0 to 14.5 percent, with most of the increase coinciding with the years of publication of the White Paper on the completion of the internal market and with the start o f the discussions on "Fortress Europe." It i s clear that fears of protectionist European policies and an increased economic stability associated with the creation of the internal market acted as a catalyst for Japanese direct investment in the Community. Needless to say, such reaction was stronger in the sectors where the Japanese firms had considerable technological advantages over European firms: motor vehicles, electronics, and office equipment. Internal market and EU expansion 5.14 Since the beginning, the EU expansion process has been an important factor in the creation of the internal market, for both the opportunities and the challenges associated with it. The expansion o f the EEC in 1973, with the accessions of the United Kingdom, Ireland, and Denmark, was not followed by a fast integration progress. When Greece (1981) and then Spain and Portugal (1986) joined the EU, they contributed to the creation of a potential market of 320 58Brentonand Vancauteren (2000). 59See Yannopoulos (1990), 52 million consumers. They also brought new challenges to the integration process, with their lower level of economic development and difficulties encountered in complying with the constraint imposed by the Treaty of Rome (including the removal of barriers to trade). This situation acceleratedthe process of regional integration and ledto the approval of the Single EuropeanAct, a necessaryprogram for the implementation ofthe Single European Market. 5.15 The enlargement process6'poses new challengesto the functioning o fthe internalmarket, as new member states may bring new constraining measuresto internal trade and stretch the EU monitoring capacities. In order to be eligible for accession, candidate countries must align their regulatory systems with the acquis. The Copenhagen criteria for accession (see box 5.2) -which follow mainly from the Treaty of Rome-require "the ability to assume the obligations of membership" and consequently to comply with the internal market rules allowing free trade. As a consequence, no waivers are granted to the new member states. In fact, EUmembership i s a long and rigorous process, which includes a pre-accession strategy meant to prepare the candidate country to become a member. Box 5.2. The CopenhagenCriteria for Accessionto the EU Countries fidfillthe Copenhagencriteriafor accessionintothe EU, adopted in 1993, by having: Stable institutions that guarantee democracy, the rule of law, human rights, and respect for and protectionof minorities, A functioningmarket economy, as well as the ability to cope with the pressure of competition and the market forces at work insidethe EU, and The ability to assume the obligations of membership, in particular adherence to the objectives of political, economic, andmonetaryunion. 5.16 The candidate's submitted application is evaluated by the EU. If it is accepted and the applicant meets the required criteria, negotiations for accession may start. This long and cumbersome process is intended to make sure that candidate countries have the capacities to absorb and implement the EU legislation. Moreover, the EU also becomes sure o f its own capacity to integrate the new members without compromising the effectiveness o f the internal market and the future development of the community. Internal market monitoring and reporting by EU 5.17 The proper functioning of the internal market is supervised primarily by the European Commission, in charge o f monitoring the quality of the internal market regulatory framework. Other European institutions contribute to this important function (the European Council, the European Court of Justice, and the European Parliament), and have a set of tools to enforce European law. The EU has put in place a complex system of monitoring and reporting. This is necessaryto enforce the transposition and applicationof European laws by every member state. 5.18 Inorder to check how long it takes for a member state to transpose`Europeanlaws into national laws, the EU has created an internal market scoreboard. This reports the status of the harmonization process and the number o f infringement proceedings initiated by the EC against member states. These proceedings are initiated as a consequence of an incorrect or missing application of an EU law by a member state. In this case, the member state is encouraged to quickly remedy the situation, and if it fails to do so it i s referred to the ECJ, which can impose a 60 In 1995, Austria, Finland,and Swedenjoined the EU, followedbythe historic enlargementin2004 when Cyprus, the CzechRepublic, Estonia, Hungary, Latvia, Lithuania,Malta, Poland, Slovakia, and Slovenia joined. Lastly, Romaniaand Bulgariajoined in2007. 53 sanction. An example is the decision taken by the ECJ against France in 2005 (P/05/917), caused by France's failures to comply with a Court judgment o f June 1991 (regarding the fisheries control system). With this decision, the ECJ condemned France to make a lump sum penalty of 20 million and a periodic payment of 57.7 million every six months, untilFrance had taken the necessarysteps to revert the infringement. 5.19 Even though the monitoring system has been put in place, legislation problems arise. With the aim o f solving them, the Commissionhas an additional tool, called SOLVIT. It i s an on- line network among member states that allows every citizen or business in any member state to report directly a problem in the functioning of the Single European Market. Every member state has a SOLVIT center, which is an integral part of the national administration, and i s committed to provide a real solution within ten weeks. 11. THEASEANAPPROACH NON-TARIFF TO MEASURES 5.20 The Association o f Southeast Asian Nations (ASEAN) represents a major example of regional integration and commitment to the removal o f constraining measures to trade among developing countries. It was created in 1967 with the signing o f the Bangkok Declaration by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. The integration process is ongoing. It is meant to strengthen its members' external linkages rather than create a protectionist bloc and is considered an example of open regionalism, based on the principle of adherence to GATT/WTOrules. Another major characteristic that distinguishes the ASEAN experience from that of the EU in dealing with NTMs is its sector-based approach. In this strategy, ASEAN has focused its economic integration and elimination of trade barriers on a few sectors (chosen among sectorswith the highest potentialfor intra-regional trade and integration). 5.21 To enhance the learning of EAC from the ongoing process in ASEAN, the discussion below describes rather than assessesthe steps undertaken so far toward the elimination of NTMs. Itfollows with a descriptionofthe tools (harmonization and mutual recognitionagreements) and the strategy usedby ASEANto identifyand eliminate such barriers. Last, it briefly covers the few steps already undertaken by the region to monitor the integration process and ASEAN's intention to strengthen its capacity o f doing so. A. Main direct action toward eliminating NTMs and events to establishthe ASEAN 5.22 In 1977, even though the ASEAN Free Trade Area (AFTA) had not been created, ASEAN countries committed to the removal of NTMs with the signing o f the Preferential Trading Arrangement Agreement. A decade later, in 1987 the memorandum o f understanding (MoU) on standstill and rollback on NTMs followed. This M o U was based on the principle that barriers inconsistent with the GATT rules hadto be eliminated. The NTMs inline with the GATT rules still had to be removed, but on a preferential basis. In general, the member countries had to give priority to the elimination of those barriers that were affecting the most important industries for regional economic integration. With this aim, the M o U also obliged the member countries to provide the ASEAN Secretariat with an inventory of all existing NTMs and to notify it of new ones. Reverse notification was also included, so that countries were allowed to make formal complaint to the Secretariat about NTMs imposed by other members. The Secretariat was in charge of dealingwith such complaints and facilitating reconciliation. 5.23 In 1992 the AFTA was created, with member agreement of a Common Effective Preferential Tariff (CEPT) Scheme. The steps included the immediate elimination of intra- regional tariffs for products enjoying concessions under the CEPT scheme. In addition, Article 5 54 o f AFTA called its members to "eliminate other non-tariff measures on a gradual basis within a period of five years after the enjoyment of concessions." To achieve this objective, the member countries agreed on awork program for the removal of NTMs, including: A process of verification and cross-notification: manyNTMsaffecting intra-regional trade have already been identified 0 Update of the working definition of non-tariffbarriershon-tariff measures inASEAN, basedon the classificationdeveloped by UNCTAD Setting-up of a database on all NTMs maintained by member countries 0 Eventual elimination of unnecessary and unjustifiable non-tariff measures. 5.24 As per the MoU, the ASEAN members had to focus on the removal of those NTMs affecting the most important products in intra-regional trade. The products identified were minerals, electrical appliances, and machineries. Inorder to recognize the NTMs affecting these sectors, the Secretariat used a variety of sources: submissions made by member countries, the GATT Trade Policy Review, submissions by the ASEAN Chambers o f Commerce & Industry (ASEAN-CCI), and the UNCTAD's Trade Analysis and Information System (TRAINS) database. The outcome o fthe analysis ofNTMs was the identificationofthe main measuresaffecting intra- regional trade: namely, customs surcharges, technical measures, product characteristic requirements, and monopolistic measures. Table 5.1 presents the most widespread NTMs in the ASEAN. Table 5.1. Most Prevalent NTMs in ASEAN Non-tariff barrier Number of tariff lines affected Source: ASEAN Secretariat. 5.25 In 1997, the priority areas for harmonization (to be achieved by 2003) were identified, mainly focusing on consumer safety and health.61The harmonization of standards for these products was achieved by 2003 based on international standards, as suggested by the WTO's technical barriers to trade (TBT) Agreement. With the aim of protecting customers' health and safety, two initiatives were undertaken: the harmonization of sanitary and phyto-sanitary (SPS) measures in priority crops and livestock products in 1997; and the harmonization of standards in electrical products in 1999. 61The includedproductswere: air conditioners, refiigerators,monitorsandkeyboards, inductors, loudspeakers,video apparatus, telecommunications equipment, radio, television,parts of TV andradio, capacitators,resistors, printedcircuits, switches, cathoderay tubes, diodes, mountedpiezo-electronic crystals, motors andgenerators, rubber condoms, andmedicalrubber gloves. 55 5.26 In2003, theASEANEconomic Ministers' HighLevelTask ForceonASEANEconomic Integration requested accelerating the reduction o f tariffs, the harmonization o f customs and standards, and conformity assessment. This opened the door for accelerating the implementation o f Mutual Recognition Agreements for priority sectors. B. Specific criteria used inASEANfunctioning Harmonization and mutual recognition in ASEAN 5.27 In1998, the ASEAN members signed a Framework Agreement on Mutual Recognition Arrangements (MRA). These were intended as "agreements between two or more parties to mutually recognize or accept some or all aspects o f one another's conformity assessment results," so MRAs could accelerate both bilateral and regional agreements. The signing o f the framework agreement encouraged the conclusion o f three sectoral MRAs in electrical and electronic equipment, telecommunication, and cosmetics. ASEAN members are currently implementing the application o f these agreements. A MRA for pharmaceuticals is under preparation and a MRA for prepared foodstuffs is planned. In a number o f sectors (traditional medicines and health supplements, medical device, automotive, and wood industries), ASEAN has achieved the harmonizationo f standards and texting procedures. 5.28 Below is a brief description o f such achievements: Cosmetics. The ASEAN Cosmetic Directive has been the outcome o f cooperation between the ASEAN cosmetic regulators and the cosmetic industry.The directive aims at facilitating the removal o f TBTs for cosmetic products. By providing all requirements that cosmetic products should comply with in all ASEAN countries, the directive allows a product to be produced or marketed in an ASEAN country and to be sold in any other member country. 0 Electrical and electronic equipment. The ASEAN Sectoral MRA for Electrical and Electronic Equipment has been preceded by a series o f activities aimed at building confidence among member countries, such as seminars/forums for regulatory authorities, study visits to testing laboratories, and analysis o fregulatory regimes inASEAN. 0 Telecommunications equipment. The MRA for telecommunications equipment was an initiative led by the ASEAN Telecommunications Regulators' Council (ATRC). It was finalized in October 2000 and is expected to promote cross-recognition o f conformity assessment procedures for type-approving telecommunications equipment inthe region. Pharmaceuticals. The outcome o f a comparative study o f the ASEAN regulatory regimes for pharmaceuticals identified four areas for harmonization: quality, efficacy, safety, and administration data. With the aim o f placing the requirements in a harmonized structure, an ASEAN Format o f Common Technical Requirements (CTR) was developed. Member countries are working on the ASEAN Common Technical Dossier (CTD) for pharmaceutical product registration. This dossier will constitute a basis for a possible MRAinthis sector. 5.29 Last but not least, the region is trying to reduce government involvement in securing health and safety standards, with the aim o f increasing the role and responsibilities o f the private sector. For example, the directive on cosmetics-which became effective inJanuary 2008-aims at substituting the cumbersome pre-sale product-by-product approval system with a risk-based post-sale surveillance. 56 ASEANstrategy to removeNTMs 5.30 ASEAN members identified eleven priority sectors in 2004: namely, electronics, information technology, healthcare, wood-based products, automotives, rubber-based products, textiles and apparel, agro-based products, fisheries, air travel, and tourism. The choice o f these sectors was done on the basis o f comparative advantage in natural resource endowments, labor skills, and cost competitiveness, and value-added contribution to the economy o f ASEAN. The importance o f the priority sectors is reflected in the share o f intra-regional trade (approximately 50 percent in 2003), contributing USD48.4 billion and USD43.4 billion o f intra-ASEAN exports and imports, respectively. A 2005 analysis on NTMs confirmed to the Secretariat that most o f these measures were inthe priority sectors.62 5.3 1 Once identified as NTMs, ASEAN will prioritize their elimination through a combination o f criteria: 0 Trade impact criterion. This gives an idea o f the trade restrictiveness o f the measure. In order to assess such restrictiveness, the Interim Technical Working Group on CEPT for AFTA (ITWG) will consider the following elements: number of private sector complaints, difference between domestic and world prices, and trade value. 0 Regulatory objective criterion. This takes into account the objective o f the measure, whether consumers protection or generation o f revenue. 0 WTO consistency criterion. This allows ASEAN to classify NTMs on the basis o f the WTO principles. According to such principles, NTMs must: be transparent, be nondiscriminatory, have scientific basis (in case o f SPS measures), and have no better alternative. 5.32 The examination o f all the above-mentioned criteria will allow ASEAN to classify NTMs into three main categories: Red-NTMs to be immediately eliminated Amber-NTM not clearly identifiedas barriers 0 Green-NTMs that can be maintained, as they arejustified. TheESEANmonitoring system 5.33 The ASEAN model differs from the EU model in being based on a declaration (the Bangkok Declaration) rather than a legal binding treaty (the Treaty o f Rome). Moreover, the ASEAN does not have a powerful body like the European Commission to guarantee and monitor implementation o f decisions taken at regional level. Hence, it will be interesting for the E A C to see how ASEAN is trying to ensure compliance and more specifically monitor the correct elimination o fNTMs. 5.34 The ITWG i s the body currently responsible for the elimination o f NTMs. However, other ASEAN bodies will have to participate in this important task. One o f these bodies, the ASEAN Consultative Committee for Standards and Quality (ACCSQ), has already set up a task force to deal with NTM elimination. The strategy envisaged by ASEAN reflects its members' reluctance to encourage rigid structures and centralization o f power. Such strategy i s based on: 62World Bank(2008a). Specifically, they were prevalentinelectrical equipment, organic chemicals, motor vehicles, tobacco, cereals, sugar, cosmetics, beverages, cereal/flour/milk preparations, edible fruit andnuts, pharmaceuticals,cocoa, dairy products, coffee/tea/spices,live animals, vegetables, meat/fish preparations, vegetable preparations, waste fromthe food industry, seeds, live trees, meat, and edible offal. 57 0 Market forces, specifically the ASEAN members' motivation to increase intra-regional trade. An increase in trade would increase the dependence among member states and consequently reduce the probability of potential retaliation. 0 Third party enforcement. As per the EU experience, ASEAN i s considering the possibility o f creating a sovereign body. The ASEAN decision-making model is very flexible at present and is based on informal agreements rather than legal binding decisions. Consequently, the thirdparty enforcement will be tested only on a single sector at first. A sovereign body will be created with the purpose of managing and supervising the correct functioning of this sector by issuingrules and directives when necessaryand ensuringtheir correct transposition innational laws. 5.35 ASEAN envisages that should these mechanisms be insufficient in some sector, the enforcement o f compliance will have to be ensured by counter-notification, dispute settlement, and sanctions. However, the monitoring system has not yet been put inplace. For this, ASEAN is looking at the WTO's Trade Policy Review Mechanism and at the EU Scoreboard as possible models. 58 CHAPTER 6. LOOKINGFORWARD: RECOMMENDATIONS FOR FOLLOW-THROUGH 6.1 Inthe EAC, non-tariff measures--coupled with poor infrastructure, limitedhuman skills capacity and considerable scope for corruptiodfraudulent behavior-add to the difficulty and cost of trading goods. Since the imposition of the NTMs largely follow the trade corridors, the farther the member country and its various regions is located from the source of goods, the greater is the likelihoodthat NTMswill add to delays intime and monetary cost. 6.2 The instruments under the EAC Customs Union Protocol arejust being initiated to curb NTMs on formal goods trade along the trade corridors. Based on the consensus at the EAC Council of Ministers on the need to eliminate most NTMs, the EAC Secretariat needs to develop a mandate and capacity for monitoring and classification of NTMs and implementation of the action plans for reductionhemoval of the non-transparent and discriminatory ones. The implementation of elimination plans through the member governments may face specific challenges, ranging from difficulties in estimating the constraint imposed by individual NTMson specific trade flows to the national political and economic interests that make targeting difficult. The phase 1 task team recommends that the EAC observe, learn from, and take specific practicable decisions to emulate the successful steps in NTMremoval undertaken by other RECs, especially the EU (as discussed in chapter 5). The member states should also prepare for a prolonged period over which such decisions will actually be implemented after the decisions are taken. 6.3 The phase 1task team makesthe followingrecommendations: I. NTMDECISIONS A. General WTO consistency for existing NTMs 6.4 The team recommends that the Council of Ministers consider and agree on the principle that NTMs inconsistent with the WTO rules have to be eliminated within the EAC. As noted in chapter 3, WTO consistency requires NTMs to be "transparent," "non-discriminatory" among the domestic goods flow and intra-EAChnternational trade, "scientifically based," and "with no better alternative." The preliminary list of NTMs, prepared in chapter 4, should be investigated for these characteristics. At the start of this process in phase 1, it seems that the prevailing NTMs can be nontransparent and are mostly discriminatory against other EAC members. With immediate effect, NTMs that are not WTO-consistent in EAC-whether or not they restrict intra- EAC trade incertain products, and irrespective of the political economy-are to be eliminated. B. Specific decisions for existing NTMs 6.5 The NTMs in line with the WTO rules still need to be removed, but could be considered on a preferential basis. Here, the ongoing choices in ASEAN could provide guidance for the EAC decisions (see chapter 5). The team recommends that the priority for EAC action be determinedon the basis ofthe following criteria: 59 Regulatory objective 6.6 The choice could be on the basis of the NTM's objective, be it national consumer protectionor the generation o f revenue at the national/locallevel. This criterion may be important for the EAC since many o f the NTMs, found in chapter 4, apply across a range of products, and the revenueneeds are important due to the economic status ofthe various members. Tradeimpact 6.7 The choice could be made on the basis of the NTM's trade restrictiveness, including the following elements: number of private sector complaints, value of expodimport affected, and difference between domestic and world prices for consumer. The findings in chapter 4 are prioritized on the basis o f the first element.63 Though it will be difficult to assess the total value of expodimport affected by a particular NTM, chapter 2 listed the top goods by value traded in the EAC. For most EAC members, other than Kenya, these goods are also the most important ones in the value share o f overall trade. Hence, prioritizing the NTMs that apply specifically to these goods will yield added benefits from expansion of EAC's global trade. Further investigation may be needed, in phase 2, to determine the extent to which the NTMs increase the consumer prices of these goods. 6.8 One way forward for developing a strategy for reducinglremoving NTMs given national differences and capacity constraints is to adopt a producthector view in a phased manner. In ASEAN, the choice of these sectors was made on the basis of comparative advantage innatural resource endowments, labor skills, cost competitiveness, and value-added contribution to the REC economy or share o f intra-regional trade. As analyzed in chapter 2, the intra-EAC trade is quite product-specific. However, the current NTMs on formal goods trade revealed by private sector firms and public sector institutions, in chapter 4, are largely not product-~pecific.~~Going through some of the supply chains of intra-EAC traded products and following the flows across borders would reveal the costs faced by the private sector. In this way, it would be possible to deal with the problem o f formalityhformality of trade and big differences between written rules and actual border practice. As noted, this is being investigated for the intra-EAC maize trade, one of the top products traded inthe region by Tanzania and Uganda. 6.9 Inafew goods, likemilk,beef, poultry (includingday-oldchicks), the EACmaywant to 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 o f the NTM. Here the guidance from the ongoing process of deliberations and decisions in the ASEAN countries will be useful. This could be 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 performance-oriented legislation is felt needed. Any capacity building initiatives in the overall area of the technical and/or SPS standards for goods should be assessed vis-a-vis clear articulated demand from end-users inthe publidprivate sector, rather than from the national bureaus of standards. 63The privatesector complaints inthe EAC are the strongestabout poor infrastructure. This is followedby the NTMs listedinchapter 4, and cormptiodfiaudulent behavior. The private sector also complainedabout the limitedhumanskills andtechnical capacity ofthe tradekransit facilitators andnational government officials inthe EAC. 64Further investigationof informaltrade inthe EAC may leadto a revision ofthis conclusion, especially in traded"food and live animals." 60 6.10 Given the fiscal and human capacity constraints that exist in the EAC for now and dependence on implementation o f region-wide decisions only by national institutions, it is by no means beingsuggestedthat the EAC choosethe above course of action for all major goods traded among the five members. For most goods, the "new approach" o f the EUcould apply to products with similar characteristics and where there is widespread divergence o f technical regulations in EAC countries. This streamlined approach would rely only on the "essential requirements" and allow greater freedom for manufacturers on the way to satisfy those requirements. This would significantly reduce the red-tape originating from various standards agencies that mires goods trade inthe region in particular and in developing countries in general. Gradually, this approach could provide private firms with a number o f choices for attestation methods: self-certification against the essential requirements; generic standards; or using notified bodies for type approval and testingo f conformity o f type. On the TBT and SPS measures, the WTO guidelinestend to be most relevant for the OECD countries and the EAC is advised to be cautious as not to constrain the potentialfor growth inthe region. C. Monitoringfor new NTMs 6.11 With respect to the monitoring for new NTMsthat may be imposed by member states, the EAC could learn from the EU's adoption of preventivemeasures which oblige member states to notify all draft regulations and standards related to technical specifications to be introduced on national territories. Inthis way, the Commission is able to monitor and prevent the raise of new national barriers to intra-EU trade. 6.12 The EU's internal market scoreboard may prove to be a useful instrument for the EAC Secretariat to emulate. The European Commission maintains this scoreboard on member adherence to REC-wide rules including those on NTMs on trade, which can be used to name and shame members into compliance. 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 member states. These proceedings could be initiated as a consequence of continuing or new application of a NTM by a member state. Inthis case, the member state is encouraged to quickly remedy the situation, and if it fails to do so it is referred to the EAC court, which can impose a sanction. To supervise the proper functioning o f the internal market for goods in the EAC, the Secretariat would need to develop adequate capacity for classifying NTMs reported and monitoring, as would the member states in identifyingand notifying the observed NTMs. Later this could be supplemented by capacity for enforcement and redress action. Other EAC institutions could be neededto contribute to this important function. 6.13 It has been agreed by the EAC Council of Ministers that all truck drivers should carry NTM spot-and-patch forms to record all the barriers they face along the transit routes in the region. This form would then be submitted to the Ministry o f Trade, Tourism and Industryin the membercountry for review, and subsequently forwardedto the EAC Secretariat for classification and redress action, if needed. This plan has yet to take off in the member states. The current capacity o f the Secretariat to undertake this sensitive activity is unclear, as i s the role of the NMCs in this monitoring activity is unclear, neither are the current capacity to do so by the NMCs or the EAC Secretariat D. Associated CommonMarket Operation 6.14 The trade links of the EAC members with their external markets remain a significant source of growth for the region, as seen in chapter 2. Hence, in the development of the EAC Common Market the team recommends that the EAC consider the open regionalism model of the 61 ASEAN, basedonthe principle of increasedadherenceto WTO rules, inorder notto lose benefits from the large external market size o f most its members relative to other RECs. Through feasible processes, the EAC could urge its members to adopt consistency to WTO agreements on technical barriers to trade (TBT), sanitary and phyto-sanitary measures (SPS) and import licensing procedures, as well as develop the related implementation guidelines as a means for NTMelimination. 6.15 As integration deepens and associated activities expand, the EAC may want to explore the option of reachingREC-wide decision makingbymajority, on the lines ofthe EU, rather than the current decisions made by unanimity only. Majority voting in the EAC may the means to alleviate a specific member's ability to hold the adoption of EAC-wide policies hostage, in case protectionist national interest is the basis of a specific NTM. 6.16 Such decisions will go a long way toward simplifying the monitoring, reducing, and removing of NTMs emanating from these areas. 11. WORKING WITHIN THE CURRENT EACSYSTEM 6.17 On the private sector side, firms requested overall simplification, transparency, and more rigorous application of EAC-wide rules and procedures surrounding intra-regional goods trade. In cases where the firms were also trading in markets external to the REC - mostly in Europe - they proposed that the regional ruleshtandards adopted be largely consistent with their global participation.Various proposals by private firms to alleviate NTMs impedinggoods trade inEAC emergedduringthe stocktaking interviews. The firms tended to focus on the implementing agent in the EAC. They perceive that each member state could go a long way in reforming national policy or implementingfollow-up actions unilaterally behind the border to alleviate the NTMs. Examples of such recommended national action include institutinga one-stop clearance at ports and border posts; opening up private competition for management of weighbridges and pre- shipment inspection; seeking private funding to upgrade institutions for product quality control; etc. Actions recommended at the EAC level include establishing a common road transit system and a common carrier license; initiating mutual automated data exchanges; etc. Such recommendations are expected help planning o f the phase 2 work program on this activity. However, a clear priority across the range of actions mentioned did not emerge clearly across various interviews, and across member states. length over the specific features of EAC-wide strategy for NTMs constraining goods trade - on 6.18 The task team understands that the EAC Council of Ministers may want to deliberate at the lines recommended in section I- in order to implementArticle 13 of the Protocol effectively. NTMsthat are not WTO-consistent inEAC need to be eliminated, but capacity needs to be built upto do so andmonitor compliance. This remains critical. 6.19 The Council may simultaneously want estimatesthe time and effort it may take to make progress on implementation o f reductionhemoval plans under the current circumstances. A distinguishing feature could be whether or not the EAC-wide agreement i s already adopted (but not implemented). This is considered further in the current section. Table 6.1 suggests some NTMs on EAC goodstrade for action, where the team concurs with the private sector suggestions and tries to estimate the ease by which NTMscould be removed. 62 A. Category1 6.20 Where EAC-wide consensus agreements the action steps have to be devised, implemented, and mutually monitored by the members. Where a statement within the Protocol itself or a unanimous decision of the Council of Ministers the political commitment of the members to remove these NTMs has been underscored. Most of these NTMs continue to exist because member governments or their agencies are delaying implementation of the provisions in the EAC Protocol or the decisionshesolutions of EAC Council of Ministers, or the follow-up directives by responsible ministers to eliminate them. (Some others, like the `harmonization of technical standards' may need a framework for decision making and several steps. Hence they would be in category 3 below). The team expects the implementation span for category 1NTMs to be short. Such NTMs may vary in their trade restrictiveness (that is, according to the classification schemes in figure 3.1 they may lie in quadrants A or B). Technical assistance may be needed for implementation, especially for the new members, Burundi and Rwanda. Nonetheless, all category 1 NTMs may well be the low-hanging fruits that EAC may wish to target first. B. Category2 6.21 Ifan EAC-wide agreementhas yet to be reached, a medium-termprogram of consensus buildingin and among the member states and unanimous agreement on policy and action steps at the Council is envisaged. Such category 2 NTMsare expected to account for the bulkofthe total action in this area. In the traditional EAC thinking, such NTMs arise from policy differences or lack o f cross-border harmonization and standardization of procedures and regulations.66 Benchmarking the EAC and national development o f harmonized and simplified clearance and transit procedures and standards (such as by the widely used Kyoto Convention) could proceed according to WTO recommendations/ requirements or along the lines followed by other RECs. Various instruments such as SingleAdministrative Documents (SADs), Time Release studies, the World Customs Organization (WCO) Diagnostic, and the WCO data model have been developed to enhancethis process. 6.22 However, this i s not the only way forward. Sections Iand I1 in this chapter have delineated an alternative, simplified way forward in dealing with category 2 NTMs, based on promotion of open regionalism through increased adherence to WTO rules by the members.For most products, the prolonged and resource-intensive process of harmonization of standards could be replaced by the simpler principle of mutual recognition, as in the EU (see chapter 7). In the limited number o f product cases where the Council chooses to harmonize, separate EAC-wide standards do not need to be developed. Quality requirements for EAC exports outside the region already exist. Intra-EAChational standardsjust need to adopt and comply with these, not revise them. 6.23 In both cases, the way forward will require technical assistance and capacity building over the short and medium term, as significant time and effort may be needed to devise and implement a plan for removing eachNTM. 65The task teamhas yet to verify the status of specific decisions onNTMs taken by the EAC since the Trade ReviewCommittee report (February 2008). 66Ingeneral, category 2NTMscanbe locatedanywhere infigure 3.1, althoughwith greater political and technical complexity expectedthan category 1. 63 C. Category3 6.24 Where government monopolies and/or fiscal constraints have given rise to severe infrastructure constraints, the consequenthelated (category 3) NTMs will need prior large-scale investments, and long-term interventions in expansiodrehabilitation of physical infrastructure in a coordinated manner across the EAC, especially along the two corridors. Here the prioritization could consider the potential for (i)combining the economic strengths of EAC members for regional advantage; (ii) facilitating intra-EAC trade and investments; (iii) attracting and retaining manufacturing activities within EAC; (iv) promoting outsourcing in EAC; and (v) developing EAC products and services.67 6.25 The decisions and action relatedto technical standards for goods and the associated SPS considerations can be visualized inthis category, since it is expected to take a prolongedperiod to intervention to adopt a general framework, adopt it and install the appropriate infrastructure and human capacity to implementthe decisions 67Despiterecognitionoftheir obvious trade-restrictivenatureand country commitments madeunderthe Uruguay Round. See the APRISproject inASEAN for successlshortcomingsof similar choicesmade. http://www.aseansec.org/apris2/index.htm. 64 Table 6.1. Starting ReductionEternoval of Non-tariff Measures in EAC Selected EAC Causes Solution agreed but not Category NTMs implemented/ Responsible agency for action' reported Action recommended TBTand SPS: Inspectionof Misapplication/ EAC Protocolalreadvreauires EAC to choose the goods. 3 goods for interpretationof harmonizationof sthdaris. NBSto determinethe export and standardswith Synchronizedactionneededto develop `essential requirements' on importwith regardto acombinationof mutualrecognition some; as well as harmonize incompatible certification. for most goods which fulfill certain standards for others. standards and `essentialrequirements' and Ministry ofTrade and archaic national Mutual recognition harmonizationof standards for specific Industry; certification of nationalquality sensitivegoods traded. MinistryofAgriculture and proceduresin markson products Livestock. use by national Privatefirms want relevant NBS agents at the border standardagencies stakeholders,e.g. commodity posts yet to take off. associations.Attention is requestedto (i) onproductwisetechnical focus Since nationalgovernments Too many agents standards/SPScompliance andrelated are makingleast involved in capacity-buildingneeds in entities that investments in the NBS, certification. oversee quality control andproduct exploreoptionsfor private certification; (ii) raise awareness and funding from businesses promote bestpracticesamong primary within EAC to improvethe producers, manufacturingenterprises, physicalinfrastructureand andregulatoryagents; (iii) defineclear train staffofNBSand rolesandresponsibilitiesof different laboratories. players; and (iv) strengthen institutionalcollaborationin implementingagreed strategiesand programs-within public sector and fundingagencies, and vis-a-visthe privatesector. Distribution: Varying Harmonized3-axle Councilof Ministersdecisionalready Ministry of Transport in 1 applicationof and standardaxle requiresEAC-wideharmonization. memberstates axle loadlimits loadlimits yet to andvehicle be appliedinfour Expectedapplicationafter the decision dimensions members. inthe Kenyatransporterscourtcase. Variation in Lack of 1.Devicean EAC-widecarrier license. Ministry ofTransport in 2 transitgood standardizationof 2. Exploreoptionthat such alicense member states license fees transit license fees. should allow transit of goods for part No transit back- or whole of the returnjourneysto the loads allowed point of origin Customs and administration: Multiple transit Lack of 1.Establishacommonroadtransit Ministry of Transport in 2 fees and bonds streamliningtransit system for the full lengthof agiven member states fees or bonds; corridor, to harmonizerequiredtrade currently issuedby and transit documentation. country. 2. Institutesingle bondfor goods transitingin EAC Lengthy Lack of 1. Exploreone-stop clearance at ports Revenueauthorities 2 customs synchronized of and borderposts. inspection customs 2. To simplify transittrade and proceduresand proceduresand customs clearance, reorganize documentation documentation institutionsin charge of customs clearanceand administrativecontrols at the ports andat the border. 3. Harmonize EAC-wide customs documentation 65 Selected EAC Causes Solution agreed but not Category NTMs implemented/ Responsibleagency for actiona reported Action recommended 4. Sensitize business communityon import proceduresandprocesses. 5. Initiate mutualautomateddata exchangesacross customs administrations.An operational networksystemlinking all EAC revenueauthoritiesallowing them to share data would improve customs tax appraisals and curb avoidance. 6. Establishroutineadvance shipping informationsystems inASYCUDA and SIMBA 7. Explorescope for bilateral/joint control of administrativeandcustoms formalitiesatjuxtaposedborder posts Varying system Problemof EAC Council of Ministers 2 of import interpretation; declaration, failure to with arbitrary standardize use of rules of certificateof origin origin; centralized locationof issuing agency in the member state capitals. StandardizeEAC certificate or origin Delays at Monitor and reducepoliceroadblocks. Police inmember state police roadblocks.' Delaysin Limited Rwandahas startedoperatinga24- Revenueauthorities clearinggoods mismatched hour border post with DRC, but at border posts customsopening Ugandahas not followed suit quoting hours/failure to capacity constraints. implement decisionof 24- Ugandaand Kenyaagreedto introduce hour service. 24-hour serviceat commonborder posts. Government monopoly: No standard Council of Ministersdecisionyet to be Ministry of Trade and 1 monitoring and implemented.Truck driversare to Industry; NMCs; EAC redress process carryNTM spot-and-patchforms to Secretariat. for NTMs. recordalongthe transit route the The form is to be submitted constraints on goods trade andnote to the Ministry of Trade, new ones emerging. Tourism and Industryin member state for review, The redress mechanismin EAC is and subsequently specifiedpreciselyandfunctionalyet. forwardedto EAC Secretariatfor redress actions Delaysat Too many 1. In2007 KenyaMinistry ofRoads Ministry o f Roadsand 1 weighbridges weighbridges; andPublic Works directedtransit Public Works inmember acceptableweights goods be weighed once and issued states not synchronized. with one certificates. 3. Abolish excessivenumber of weighbridges ontransit route 2. Open up competitionamong nationaUinternationa1firms to work the weighbridges 66 Selected EAC Causes Solution agreed but not Category NTMs implemented/ Responsible agency for action reported Action recommended Delays in Low off-take Investmentto improve PortAuthorities inmember 3 offloadingat capacity; limited 1. off-takecapacity and portfacility states; government inthe port and physicalfacilities. 2. Physicalpremisesof the border member states overseeing customs posts the revenueauthority and premises customswithin it ASYCUDA -Automated Systems for CustomsData Source:Team summary from interviews a. See sectionI1inthis chapter for description of the categories. 111. NEEDED EACACTIONS OUTSIDE THE DIRECTARENAOFNTMS A. Improve infrastructure 6.26 There is little doubt among the private sector producers and traders in EAC that the infrastructure bottleneck i s critical in the region. The three key suggestions emerging in this area are as follows. (i) Prepare and execute regional infrastructure improvement plan(s), especially the roads network, with a view to ease the costs imposed on landlocked countries. (ii) Provide wagon ferry vessels on Lake Victoria and Lake Tanganyika, through public or private investments, with adequate safety regulations for their operation. (iii)Institute an efficient railway system through the required investment by the national government in rails and by the private operators in wagons to improve the competitiveness and safety o f the transportation o f bulk products in the region. The need for developing dual rail tracks across the region is also imperative. There is need to regulate the railway service provider to prevent inefficiency and abuse o f market power in niches that railways could dominate] (such as container traffic) (see appendix A6.2 for some immediate needs). B. Promoteeffectiveinformationsharingby public entities; and stakeholder participationin decision making 6.27 The public sector in E A C needs to consult with the private sector more regularly and systematically and develop a framework for providing information to them (including the business community). This would build towards the next stage o f collective public-private decision making. The private producers and traders perceive a clear need for a focal point institution (at the national level) outside the national governments to disseminate information effectively. In the areas related to goods trade in EAC, these could cover new regulations, the resolutionand decisions o fthe Council o f Ministers, the issuance o f standards, and the creation o f awareness-and to update or educate stakeholders on progress in the integration. Through the focal point network, effective mechanisms for solving problems that traders face while doing businessand for getting feedback can be developed to improve beyond the border relations. 6.28 Article X o f WTO requires that laws, regulations, and other information (including on cross-border procedures and customs administration) that affect or relate to importing and exporting must be published promptly in such a manner as to enable governments and traders to familiarize themselves with them. C. Apply the principleof asymmetry 6.29 As EAC explores a program to achieve the common market-including the removal o f legal barriers to the free movement o f goods, services, capital, and labor-the team recommends 67 putting in place a policy to mitigate the effects of the completion of the internal market on relatively disadvantaged member states (those that are landlocked or are the least economically developed). This will reduce development discrepancies betweenthe member states. Removal of physical barriers for goods crossing the intra-EAC borders is merely the first step to facilitate trade through reduced delivery times and lower associatedcosts. D. Promotethe use ofEnglish 6.30 The agreed language across EAC for overall administration, public trade facilitation, and private transactions is English. However, for members that were originally francophone, especially Burundi, concrete steps are recommended to promote English in government administration, and indoing so, facilitate the private sector goods trade of these members. 6.3 1 These are a few ways, expected to be explored further in phase 2, on how the EAC could rethink its strategy to encourage intra-region goods trade and effectively observe, monitor, and reduce the NTMs hampering it. 68 APPENDIX GROUPA 69 APPENDIXAl. DETAILS TRADE OF FLOWS EACMEMBERS OF Years Burundi Kenya Rwanda Tanzania Uganda Burundi 1993-9 0.3 1.5 0.1 0.2 2000-5 __-_ 0.4 0.5 0.2 0.5 Kenya 1990-9 3.4 _ _ 29.8 6.1 17.8 2000-5 10.4 -- 30.9 6.0 25.3 Rwanda 1994-9 1.1 1.1 0.2 1.9 2000-5 2.1 0.8 __-_ 0.1 0.9 Tanzania 1994-9 2.9 3.4 7.0 -- 1.4 2000-5 7.8 2.8 5.4 -_ 1.1 Uganda 1994-9 1.o 5.0 4.9 0.5 -- 2000-5 2.8 5.8 5.8 0.6 -- With EAC 1994-9 8.4 9.8 43.2 6.8 21.3 2000-5 23.1 9.7 42.5 7.0 27.8 With rest of SSA 1994-9 9.0 8.7 5.3 10.0 6.6 2000-5 7.8 10.2 7.7 12.2 9.9 With rest of World 1994-9 82.6 81.5 51.5 83.2 72.1 2000-5 69.1 80.1 49.7 80.8 62.4 (average 1990s and2000s, percent) Years Burundi Kenya Rwanda Tanzania Uganda Burundi 1993-9 _ _ 0.7 1.8 0.4 0.3 2000-5 -- 0.9 0.9 0.9 1.5 Kenya 1990-9 1.7 -- 56.7 4.8 6.3 2000-5 5.0 -- 44.1 7.9 14.2 Rwanda 1994-9 2.9 2.6 -- 0.8 4.9 2000-5 8.6 1.9 -- 0.4 2.7 Tanzania 1994-9 1.9 7.7 14.7 0.9 2000-5 2.0 6.8 7.3 ____ 1.5 Uganda 1994-9 0.4 12.4 4.1 1.5 _ _ 2000-5 1.8 14.0 9.0 1.3 -- To EAC 1994-9 6.8 23.4 77.4 7.5 12.4 2000-5 17.5 23.6 61.2 10.4 19.9 To rest of SSA 1994-9 3.2 9.5 3.O 7.5 8.8 2000-5 2.5 10.1 6.3 7.2 10.3 To rest of world 1994-9 90.0 67.1 19.7 85.0 78.8 2000-5 80.0 66.4 32.5 82.4 69.7 Source: COMTRADE. 70 To EAC To rest of SSA To rest of world Burundi 10.8 0.9 88.2 Coffee and coffee substitutes 1.4 1.o 97.6 Gold, nonmonetary 4.8 0.0 95.2 Tea and mate 99.4 0.0 0.6 Sugar and honey 91.8 7.4 0.8 Alcoholic beverages 87.5 9.7 2.8 Kenya 14.4 4.0 81.6 Tea and mate 0.2 5.3 94.5 Petroleum products, refined 68.0 5.6 26.3 Crude vegetable materials, n.e.s. 0.9 1.7 97.4 Vegetables, fresh, chilled, fi-ozedpres. 0.1 1.8 98.2 Coffee and coffee substitutes 0.5 2.5 97.0 Rwanda 60.2 4.9 34.8 Ores and concentrates o f base metal 20.6 13.6 65.8 Coffee and coffee substitutes 70.5 0.0 29.5 Tea and mate 100.0 0.0 0.0 Hides and skins (except fur skins), 37.3 0.0 62.7 Petroleum products, refined 62.9 10.7 26.4 Tanzania 3.1 11.4 85.5 Gold, nonmonetary 0.0 19.1 80.9 Fish, fresh (livelfresh, chilledfiozen) 18.3 0.8 80.9 Ores and concentrates o f precious metals 0.0 0.3 99.6 Tobacco, unmanufactured; tobacco ref. 0.2 7.5 92.3 Coffee and coffee substitutes 1.6 0.7 97.7 Uganda 13.0 10.8 76.2 Coffee and coffee substitutes 1.7 11.7 86.6 Fish, fi-esh (live/fresh, chilledfiozen) 1.8 0.2 98.0 Gold, nonmonetary 0.0 30.8 69.2 Tobacco, unmanufactured; tobacco ref. 12.7 13.6 73.7 Tea and mate 99.4 0.1 0.5 To EAC To rest of SSA To rest of world Kenya 65.1 2.0 32.9 Petroleum products, refined 66.2 1.4 32.5 Tea and mate 0.3 24.6 75.1 Made-up articles, wholly/chiefly o f 19.1 18.9 61.9 Passenger motor cars, for transport 33.4 57.5 9.0 Motorcycles, motor scooters, invalid 42.5 33.8 23.7 Share o f total re-export/total gross exports 51.7 9.1 12.9 Uganda 18.8 17.8 63.4 Petroleum products, refined Other cereal meals and flours Telecommunications equipment and part Maize (corn), unmilled Passenger motor cars, for transport Share o ftotal re-exporthotal gross exports 18.2 21.7 6.8 71 Burundi Kenya Rwanda Tanzania Uganda Burundi 1993-9 0.0 1.3 0.0 0.0 2000-5 __ __ 0.0 0.4 0.0 0.0 Kenya 1990-9 4.3 24.5 6.7 25.3 2000-5 11.6 _--_ 27.7 5.5 29.3 Rwanda 1994-9 0.4 0.2 0.0 0.1 2000-5 0.5 0.0 __-- 0.0 0.1 Tanzania 1994-9 3.3 0.5 6.1 _- 1.7 2000-5 9.2 0.4 4.9 _ _ 1.0 Uganda 1994-9 1.2 0.3 5.3 0.3 2000-5 3.0 0.3 5.1 0.3 __ __ From EAC 1994-9 9.2 1.1 37.2 7.1 27.1 2000-5 24.4 0.7 38.1 5.8 30.3 From rest of SSA 1994-9 11.8 8.2 5.9 12.0 5.2 2000-5 9.2 10.6 8.0 14.0 9.4 From rest of world 1994-9 78.9 90.8 56.9 80.9 67.7 2000-5 66.4 88.7 53.9 80.2 60.3 Bold demarcates increases or no change. Import-Gross import-Re-import. Appendix A1.6 Non-Oil Import Value Shares: Within EAC, from Rest of SSA, and from Rest of the World (average 1990s and 2000s; percent) Burundi Kenya Rwanda Tanzania Uganda Burundi 1993-9 0.0 1.3 0.0 0.0 2000-5 __ __ 0.0 0.4 0.0 0.0 Kenya 1990-9 3.8 -- 11.5 5.7 19.9 2000-5 5.3 _ _ 15.5 3.6 12.7 Rwanda 1994-9 0.4 0.2 ___ _ 0.0 0.1 2000-5 0.5 0.0 0.0 0.1 Tanzania 1994-9 2.7 0.5 6.1 1.5 2000-5 6.1 0.4 4.9 ___ _ 0.9 Uganda 1994-9 1.2 0.3 4.3 0.3 -- 2000-5 3.0 0.3 4.6 0.2 -- From EAC 1994-9 8.1 1.o 23.2 6.0 21.5 2000-5 14.8 0.7 25.3 3.8 13.7 From rest of SSA 1994-9 11.4 7.0 8.7 11.1 1.9 2000-5 8.9 10.4 7.5 13.0 10.2 From rest of world 1994-9 80.5 92.0 68.2 82.9 76.6 2000-5 76.3 88.9 67.2 83.2 76.1 Source: COMTRADE. Bold demarcates increasesor no change 72 APPENDIXA2. TRADE ROUTESEAST IN AFRICA The East African Community is served by two main corridors. The Northern Corridor connects the port of Mombasato Nairobi, Kampala, Kigali, Bujumbura, and easternDemocratic Republic of Congo (DRC). The Central Corridor connects the port of Dar es Salam to Kampala, with branches to Kigali, Bujumbura, and entry points to DRC. The two corridors serve an area consisting o f three landlocked countries (Burundi, Rwanda, and Uganda), the eastern part of DRC, southern Sudan, and Ethiopia. The port of Dar es Salam also serves the landlocked countries to its southwest (Malawi and Zambia). A pictorial presentation of the traditional road- rail routes of the Northern and Central Corridors i s presented inmap A2. The NorthernCorridor This is a multimodal corridor (road, rail, inland water transport and pipeline) that connects the port of Mombasa to Nairobi, Kampala, Kigali, Bujumbura, and eastern DRC. The Northern Corridor has a longer history than the Central Corridor, and is complete within the EAC. However, there is a long missinglink across DRC and parts of Central African Republic, which prevents any transit trade traffic between East and West Africa. Road. The key transit transport routes to the Great Lakes countries are from Mombasa to Bujumbura in Burundi (the southwest terminus).The average distance traveled by truck on this route is 2,050 h.'* bulk of imports and exports destined to and from countries in the The corridor are transported through either of these transit routes. From Kenya to Uganda, the Mombasa-Malaba- Kampala road (1,170 km) is preferredbecause the road is of relatively good quality and social amenities are available en route. Transittime inthe recent months has averaged 10 days, depending on the period taken (usual is about 5 days, after the transit truck leaves the port of Mombasa). The alternative route i s Mombasa-Kisumu-Busia-Kampala. From Uganda to Rwanda, the principal routes are Kampala-Kagitumba-Kigali and Kampala-Gatuna- Kigali. Bujumbura in Burundi is reached from Kigali (Rwanda) through the border post of Kanyaru- Haut. The terrain o fthe roads has steep slopes for the trucks to negotiate. The NorthernCorridor roadnetwork by membercountries is shown intable A2.1. Country Paved (km) Unpaved (km) Total (km) Burundi 320 36 356 Kenya 1196 1196 Rwanda 814 __ __ 814 Ugandaa 1042 657 1669 Total inEAC 3372 693 4035 EAC's share of total NC road network (percent) 50 10 60 a. Does not include thc Kainpala-Karunia-Pakwach-Nebbi-Cloli-Arua. The road freight industry represented by the population of cargo fleets that serves the Northern Corridor has expanded rapidly inrecent decades, due to the growth within EAC, the post-conflict reconstruction in many immediate neighbors of EAC, and a shift from a large share of the market Inall, the Mombasa-Kisangani (inDRC) route stretchesfor about 3,000 kmto access DRC, the largestmarket of goods reachablethrough the landlocked EAC members. Bukavu, Goma, and Kisangani, all in DRC, are reachedfrom Rwandaand Uganda. 73 previously served by railtransport. The advantage of this overland route for road freight is that no trans-shipment has been necessary at the various borders, although freight must pass through several countries. Most of the road transit traffic is operated by private companies, which transport foodstuff, agricultural produce, livestock, consumer manufactures, and other industrial products across the corridor. About two-thirds o f the road network is paved. Although the condition i s generally better than the Central Corridor, inadequate resources severely constrain rehabilitation and maintenance by various EAC members. Various spots-for example, the Bugarama-Bujumbura link spanning around 40 kilometers-are in extremely poor condition. Overloaded freight vehicles and poor enforcement of axle load regulations further deteriorate the road network and reduce road life spans. Security conditions have beenproblematic in Kenya from December 2007 to February 2008. Burundihas longer-term problems with road security, and travel between 6:OO p.m.-6:00 a.m. i s not permitted. InKenya, traffic flow is slowed by the need for a police escort within nationalterritory for identified products. EAC has adopted regulations to a limit of 3 axle- 35 ton rule trucks. To date, however, no country has been enforcing the legal axle weight along the corridor. Unlike the other countries traversed by the North Corridor inwhich there are limits on axle loads, Burundi has no weight restrictions on road traffic. The Northern Corridor is the route usedfor most o f the fuel imports (over 80 percent) and tea and coffee exports for EAC. Railway. The rail transport network transports about 20 percent o f the cargo shipped overland along part of the Northern Corridor. The single rail track from Mombasa to Kampala via Malaba-a total o f 1,330 km-is currently the principal route for rail transit. The network i s about 1,650 km, comprising of a single rail track from Mombasa through Nairobi, Nakuru to Kisumu in Kenya, through to Busia in Uganda. The main route from Mombasa goes through Nairobi, Nakuru, and Eldoret, to Malaba in Kenya. From the border at Malaba, the rail runs through Tororo, Jinja, and Kampalato Kasese inwesternUgandan6' The route is served by express block trains operated by a recently appointed railway concessionaire (Rift Valley Railway), with the aim of facilitating faster movement of cargo from Mombasa to Kampala and return. According to KRC, the trains have managed to reduce transit times from 14 days in 2006 to the current best of 4-5 days. KRC estimates that average transit time is 7-9 days from the port of Mombasa to Kampala. This estimate, however, differs from business owner perception of an average transit time of 14 days. There are still no fixed schedule container trains. Shuttle trains from the port of Mombasa to Nairobi internal container depot may runtwo times a day, depending on availability ofcargo. Pipeline. A pipeline connecting Mombasa to Eldoret and Kisumu is used for petroleumproducts by all EAC members, starting as far back as February 1978. The pipeline not only provides transport at a good price, but keeps many heavy vehicles with hazardous cargo off the busiest section of the Northern Corridor. About 80 per cent of imported petroleum products are destined for Kenya-including that for refining in Kenya before re-export to other countries-and 20 percent goes to the rest o f the neighboring countries. Industrial fuel also constitutes a significant proportion of petroleum products transited along Northern Corridor countries. The oil pipeline linksthe refinery inMombasawith Nairobi, Eldoret, and KisumuinKenya. The Nairobipipeline terminus has an extension to Nakuru, Kenya. The Nairobi-Mombasa pipeline segment has pumps at Mombasa and at three intermediate booster stations located at Maungu, Mtito, Andei, and SultanHamud. It is 14 inches indiameter and about 450Km long. Its installed pumpingcapacity is 440,000 liters per day, with provisions for doubling the capacity. Even this increased capacity 69 From KaseseinUganda,transit traffic en route to Rwanda,BurundiandDR Congo is handledby the roadnetwork 74 is way below demand for fuel in Kenya and other EAC countries, at more than 2,000,000 liters per day. Other landlockedmembers of EAC and inland cities inKenya are served by transporting the petroleum products by roadtankers from the end ofthe pipeline. Mombasaport. The port has a total annual capacity of20 millionmetric tons. Ithastwo separate terminals, one devoted solely to containers and the other for miscellaneous goods. The miscellaneous goods terminal is functioning below capacity, since there i s a shift away from break bulk to containerized traffic. In contrast, the capacity o f the container terminal is limited, resulting in backlogs at the offloading stages. According to the users that were met with, however, goods in transit for Burundi are stored in separate areas at the port. The transshipment procedures for goods in transit to the landlocked countries have been simplified pursuant to the arrangements negotiated under the Northern Corridor Transit Agreement signed by the Governments o f Burundi, Kenya, Rwanda, and Uganda. The port is operated by a parastatal, the Kenya Ports Authority (KF'A). The Government of Kenya intends to concession port operations and make KPA a port landlord and regulator, but such concessioning of operations has been highlycontroversial. The Mombasa-Bujumbura overland route. This is a mostly paved road in general good condition, except for the Bugarama-Bujumbura leg (spanning roughly 40 kilometers), which is in extremely poor condition in some spots. This leg has steep slopes. Security conditions are problematic, and travel between 6:OO p.m. and 8:OO a.m. i s not permitted. InKenya, traffic flow is slowed bythe need for a police escort within nationalterritory, which compounds shipping delays and costs. One major issue concerning the Northern Corridor is the fact that all goods traffic has to transit through the center o f Nairobi on the UhuruHighway. This contributes to major traffic bottlenecks for local/urban traffic and delays the transit traffic. Plans are underway to build a southern bypass around Nairobi for the transit or up country traffic. Unlike the other countries traversed by the Northern Corridor which have stipulated limits on axle loads, Burundi has no weight restrictions on road traffic. This is the route used by most of the country's fuel imports (over 80 percent) and for tea exports. Transit through Lake Victoria. Although not operating at a level even close to its potential, lake transport could play an important role in transit traffic between Kenya and the Great Lakes countries. The routes are marked in map A2. The Kenya Maritime Authority under the Ministry o f Transport regulates and coordinates all marine services in the Kenya, including ferry services at Lake Victoria, which are provided by Kenya Railway Corporation. The ferry links on Lake Victoria between Kisumu(Kenya), Port Bell/Jinja (Uganda), and Mwanza (Tanzania) could form an integral link to the rail network in the Northern Corridor. At present, the ferry cargo services between Kisumu and Port Bell is regular, though not often, and the service between Kisumuand Mwanza is irregular. The only rail-lake route on the corridor is through the Mombasa-Kisumu- Kampalaroute (1,242 km). This route leaves the main railway line at Nakuruto reach Kisumuon Lake Victoria. The inland water operations o f KRC and URC have been taken over by the concessionaire o f the Kenya-Uganda railway system. One priority activity underway is to rehabilitate two rail ferries to provide more regular IWT from Kisumu to Port Bell. Currently there are four wagons operating between Kisumu, Jinja, and Port Bell, with the average transit time to Uganda o f 18-20 days. There is adequatecapacity inwagon ferries operating on the lake to handle more cargo, ifbottlenecks that hinder full utilization of this service are removed. Burundi and Rwanda are anxious to utilize a ferry link between Kisumu and Kemondo Bay, Tanzania, which would complete the Lake Victoria southwestern transport link between Kenya and the Great Lakes countries, for Burundiand Rwanda and for the southern towns of DRC, such as Lubumbashi. Full utilization of these water transit routes would require improving docking facilities at Kemondo Bay and rehabilitating the road links between Rwanda and Burundi. 75 Rwandaalso plans to study whether navigation on the AkageralKagera river into Lake Victoria is technically/economically feasible. The CentralCorridor This corridor connects the Port of Dar es Salam through Tabora to Mwanza and Kampala, with branchesto Kigali, Bujumbura, and entry points to DRC. The demand for the Central Corridor is currently approximately 600,000 transit metric tonnes plus about 750,000 metric tonnes of. Tanzanian cargo. Burundi stands to gain the most from an upgraded Central Corridor, that would be 850 km shorter and crosses only one transit country instead of three transit countries. Rwanda will gain from a 200 km shorter route through only one transit country instead of two. Nevertheless, many products, such as tea, will continue to use the Northern Corridor because of the establishedauction housesor other facilities inMombasa. Road. The Central Corridor is a combination of paved and gravel roads that can become impassable duringthe rainy season. An ambitious program to upgrade the whole road to bitumen standardwith donor support is underway and includes rehabilitation (5 17 km), construction (527 km), and routine maintenance (200 km). According to the government of Rwanda, the Central Corridor section from Isaka to Rusumo Falls should be fully paved by 2010, i.e. the Central Corridor in EAC will be fully paved to Rwanda. Current demand on the road is approximately 1.1 million metric tonnes. The road network along the Central Corridor handles some 75-80 percent o f goods moving to/from Burundi.It comprises two separate routes: By road, Dar es Salam-Bujumbura, through Mwanza and onward via border crossing at Kobero: This route i s 1,200 km long and lies mostly within Tanzania. It has the advantage of having only one border-crossing point. Most ofthe roadway inTanzania has been paved, with the exception of the Manyoni-Singiola (90 km) segment. In Burundi, the Bugarama-Bujumbura segment (spanning around 40 km) is in poor condition. Its steep slopes are often the cause of accidents over the travel time o f five to six hours. Roundtrip cargo shipment time i s estimated at about one month, taking into account the time required for travel, various customs and administrative formalities required, and loadinghnloading at Dar es Salam and Bujumbura, as well as the truck maintenance. By a combined rail-ship route, Dar es Salam-Kigoma-Bujumbura. This route is 1,670 km long. Although the combined route is less expensive, it i s being used less and less in recent years because o f serious problems with aging infrastructure and transfer of shipments, which cause long delays and extra costs. Rail transport between Dar -es Salam and Kigoma i s inefficient because of the poor condition of the rail tracks, shortage of wagons, and inadequacy of the locomotives. Duringthe two annual rainy seasons, rail transport is disruptedas tracks become flooded. Railway. Tanzania Railways (2,706 km total length)joins the port of Dar es Salam to the lake ports of Mwanza on Lake Victoria and Kigoma on Lake Tanganyika. The rail system is characterized by lack of wagons, poor track conditions, congestion at Kigoma port, time lost in intermodal transfers, and poor quality of service. Before concessioning o f part of the railway system, Tanzania Railway Corporation handles only about 20 percent o f the cargo from the Port of Dar es Salam. The demand on the corridor i s approximately 1.3 million metric tonnes and is growing at about 10 percent a year. Two factors may increasethe overall demand: the success of inland trade development and diversion of traffic to the Central Corridor because o f better tariffs and service. At 20 percent, the rail share is roughly 250,000 metric tonnes. Dar es Salam port. The port of Dar es Salam has eight deep-water berths (1,478 m in length), and four terminals with a total capacity o f 10 million metric tons per year. Both importers and 76 transshipment agents complain about the congestion and abnormally long delays at the other terminals at the port. Overall traffic has been growing steadily on the two corridors that the port of Dar es Salam serves. (Approximately 53 percent of transit traffic is for the Central Corridor and 47 percent is for the Southern Corridor connecting the Zambia, Malawi, DRC-Lubumbashi area). Dar es Salam handled 7.3 million metric tonnes in 2004, with an average annual growth in demand over the past five years o f 10 percent. The port handled about 350,000 TEUs in 2007. The demand for container handling is growing by approximately 13 percent annually. The demand from Uganda and Rwanda for transit cargo on the Central Corridor varies year by year. Demand from Burundi and DRC, however, has steadily increased. Since 2001, the Container Terminal has realized a 60 percent increase in throughput, and transshipments have almost tripled. In 2002, the container terminal was taken over by a private sector consortium. With modernization through a computerized tracking system, it appears to have substantially improved its performance. The container terminal now operates at international standards. The terminal area i s constricted, however, and the growth incontainer throughput has congestedthe terminal area. This congestion i s reducing efficiency in clearing cargo from the port. The general cargo terminal is also experiencing continued performance problems. A parastatal, the Tanzania Ports Authority, operatesthe port of Dar es Salam. Kigoma port. The major infrastructure problems identified by the private sector are the shortage of suitable rolling stock and the age of the cargo handling equipment. This results in long delays in loadinglunloadinggoods. The shipment on Lake Tanganyika is provided primarily by four Burundian companies: ARNOLAC, BATRALAC, SOTRALAC, and Tanganyika Transport. The Burundian fleet has a limitedcapacity. Its vessels are old, with some in service for over a hundredyears. The country does not have its own shipyard. Bujumbura port. The port facilities have an annual capacity of 500,000 metric tons, with underutilization at current traffic levels. There are five berths, four of which are devoted to miscellaneous goods. The fifth is devoted to the loadingloffloading o f petroleum products. The handling equipment needs to be modernized to speed up goods loading and offloading operations. TradeRouteLinkinp the North and CentralCorridors The Nairobi-Namanga-Arusha-Dodoma road route links the Northern and Central Corridors. This route is critical for Kenyan exports to Tanzania and southern Africa (notably Malawi and Zambia), as well as east and central Tanzania's exports to the large Kenyan market and to southern Ethiopia and Sudan. The route section between Dodoma in Tanzania, through Arusha to Nairobi serves Tanzanian towns located along the Central Corridor road route such as Manyani, Singida, Bukombe, Tabora, and Kigoma. Rwanda and Burundi can be accessed through connection with Central Corridor railway line that runs from Dar es Salam through to Kigoma. Products exported through this road link include manufactured items such as processed foods, cosmetics and perfumery, building materials such as cement, paint, iron and steel products, pharmaceuticals and medicines, and paper and paperboard items. Imports comprise agricultural products such as rice and maize, textiles, cotton, construction timber, and unprocessed hides and skins. 77 APPENDIX A3. UNCTADCODINGSYSTEM OF TRADE CONTROL MEASURES (Code 3000 onwards) The UNCTAD provides a comprehensive organizing principle for the myriad of constraints on trade that may be identified as NTMs (besides tariff and para-tariff measures also listed below). These precisely defined categories and subcategories include six groups o f measures in areas of price control, finance, automatic licensing, quality control, monopolistic (practices), andtechnical (requirements).'' 1000 TARIFFMEASURES 1100STATUTORY CUSTOM DUTIES 1200MFNDUTIES 1300GATT CEILING DUTIES 1400TARIFF QUOTA DUTIES 1410Low duties 1420Highduties 1500 SEASONAL DUTIES 1510Low duties 1520Highduties 1600TEMPORARY REDUCEDDUTIES 1700TEMPORARY INCREASEDDUTIES 1710Retaliatory duties 1720Urgencyand safeguardduties 1900PREFERENTIALDUTIES UNDER TRADE AGREEMENTS 1910Interregionalagreements 1920Regionaland subregionalagreements 1930Bilateral agreements 2000 PARA-TARIFFMEASURES 2100CUSTOMS SURCHARGES 2200 ADDITIONAL TAXES AND CHARGES 2210 Tax on foreignexchangetransactions 2220 Stamp tax 2230 Import license fee 2240 Consular invoicefee 2250 Statisticaltax 2260 Tax ontransport facilities 2270 Taxes andcharges for sensitiveproductcategories 2290 Additional charges n.e.s. 2300 INTERNALTAXES AND CHARGES LEVIED ON IMPORTS 2310General sales taxes 2320 Excise taxes 2370 Taxes and charges for sensitive productcategories 2390 Internaltaxes and charges leviedon importsn.e.s. 2400 DECREEDCUSTOMSVALUATION 2900 PARA-TARIFF MEASURESN.E.S. 3000 PRICECONTROLMEASURES 3 100ADMINISTRATIVE PRICING 3 110Minimum importprices 3 190Administrativepricing n.e.s. 70 FromUNCTAD, "Coding of Trade ControlMeasures 2003, with Over 100 differentNTMs." UNCTAD, TD/B/COM.l/EM.27/3 78 3200 VOLUNTARY EXPORTPRICERESTRAINT 3300 VARIABLE CHARGES 33 10Variable levies 3320 Variable components 3330 Compensatoryelements 3340 Flexible import fees 3390 Variable charges n.e.s 3400 ANTIDUMPING MEASURES 3410Antidumping investigations 3420Antidumping duties 3430 Price undertakings 3500 COUNTERVAILING MEASURES 35 10Countervailinginvestigations 3520 Countervailingduties 3530 Price undertakings 3900 PRICECONTROLMEASURESN.E.S. 4000 FINANCE MEASURES 4100ADVANCE PAYMENT REQUIREMENTS 4110Advance import deposit 4120Cashmarginrequirement 4130Advance payment of customs duties 4170Rehndabledepositsfor sensitive productcategories 4190 Advance paymentrequirementsn.e.s. 4200 MULTIPLEEXCHANGE RATES 4300 RESTRICTIVEOFFICIAL FOREIGNEXCHANGE ALLOCATION 4310Prohibitionofforeign exchangeallocation 4320 Bankauthorization 4390 Restrictiveofficial foreign exchangeallocationn.e.s 4500 REGULATIONS CONCERNINGTERMS OF PAYMENT FORMPORTS 4600 TRANSFERDELAYS, QUEUING 4900 FINANCE MEASURESN.E.S. 5000AUTOMATIC LICENSINGMEASURES 5 100AUTOMATIC LICENCE 5200 IMPORT MONITORTNG 5210Retrospectivesurveillance 5220Prior surveillance 5270Prior surveillance for sensitive productcategories 5700 SURRENDERREQUIREMENT 5900 AUTOMATIC LICENSING MEASURESN.E.S. 6000 OUANTITY CONTROL MEASURES 6100NON-AUTOMATICLICENSING 6110 License with no specificex-ante criteria 6120 License for selectedpurchasers 6130 License for specifieduse 6131Linked with export trade 6132For purposesother than exports 6140 License linkedwith localproduction 6141Purchase of localgoods 6142Local contentrequirement 6143 Barteror countertrade 6150License linkedwith non-officialforeignexchange 6151Externalforeign exchange 6152Importers'own foreignexchange 6160License combinedwith or replacedby special import authorization 79 6170Prior authorization for sensitive product categories 6180 License for political reasons 6190 Non-automatic licensing n.e.s. 6200 QUOTAS 6210 Global quotas 6211Unallocated 6212 Allocated to exporting countries 6220 Bilateralquotas 6230 Seasonalquotas 6240 Quotas linkedwith export performance 6250 Quotas linked with purchaseof localgoods 6270 Quotas for sensitiveproduct categories 6280 Quotas for political reasons 6290 Quotas n.e.s. 6300 PROHIBITIONS 6310Total prohibition 6320 Suspension of issuance of licenses 6330 Seasonalprohibition 6340 Temporary prohibition 6350 Import diversification 6370 Prohibitionfor sensitive product categories 6380 Prohibitionfor political reasons (embargo) 6390 Prohibitions n.e.s. 6600 EXPORT RESTRAINT ARRANGEMENTS 6610Voluntary export restraint arrangements 6620 Orderly marketing arrangements 6630 Multifibre arrangement(MFA) 6631Quota agreement 6632 Consultation agreement 6633 Administrative co-operation agreement 6640 Export restraint arrangementson textiles outsideMFA 6641Quota agreement 6642 Consultation agreement 6643 Administrative co-operation agreement 6690 Exportrestraint arrangementsn.e.s. 6700 ENTERPRISE-SPECIFIC RESTRICTIONS 6710 Selectiveapproval of importers 6720Enterprise-specific quota 6790 Enterprise-specific restrictions n.e.s. 6900 Quantity Control Measuresn.e.s. 7000 MONOPOLISTIC MEASURES 7100 SINGLE CHANNEL FOR IMPORTS 7110 State trading administration 7120 Sole importingagency 7170 Single channelfor sensitiveproduct categories 7200 COMPULSORY NATIONAL SERVICES 7210 Compulsory national insurance 7220 Compulsory national transport 7900 MONOPOLISTIC MEASURES N.E.S. 8000 TECHNICAL MEASURES 8100TECHNICAL REGULATIONS 8110Product characteristicsrequirements 8120 Markingrequirements 8130Labelingrequirements 8140 Packagingrequirements 80 8150Testing, inspectionand quarantinerequirements 8160Informationrequirements 8170Requirementrelativeto transit 8 180 Requirementto passthroughspecifiedcustoms 8190 Technicalregulationsn.e.s. 8200 PRE-SHIPMENTINSPECTION 8300 SPECIAL CUSTOMSFORMALITIES 8400 RETURNOBLIGATION 8900 TECHNICAL MEASURESN.E.S. 81 APPENDIX A4. WTO INVENTORY OF NON-TARIFF MEASURES The WTO applies a broader categorization o f notified NTMsthat make the price o f traded goods at the border different from their domestic price. That is, the inventory accounts for government participation in trade and restrictive practices tolerated by governments; customs and administrative entry procedures; technical barriers to trade; and sanitary and phyto-sanitary measures.71 WTO Category Description partI GovernmentParticipationinTrade and RestrictivePracticesToleratedbv Governments A Government aids, includingsubsidies andtax benefits B Countervailingduties C Governmentprocurement D Restrictivepractices toleratedby governments E State trading,governmentmonopolypractices, etc. CustomsandAdministrative EntryProcedures A Anti-dumping duties B Customsvaluation C Customsclassification D Consularformalities and documentation E Samples F Rules of origin G Customsformalities H Importlicensing I Pre-shipmentinspection Part I11 TechnicalBarriersto Trade A General B Technical regulationsand standards C Testingand certification arrangements PartIV Sanitary andPhvtosanitaryMeasures A General B SPS measures including chemicalresidue limits, diseasefreedom, specifiedproduct treatment,etc. C Testing,ceriification and other conformaYy assessment partv SuecificLimitations A Quantitative restrictions B Embargoesand other restrictions of similar effect C Screen-timequotas and other mixingregulations D Exchangecontrols E Discriminationresultingfrom bilateralagreements F Discriminatorysourcing G Exportrestraints H Measuresto regulate domestic prices I Tariff quotas J Exporttaxes K Requirementsconcerningmarking, labelingandpackaging L Others Part VI Chargeson Imports A Prior importdeposits B Surcharges, porttaxes, statisticaltaxes, etc. C Discriminatoryfilm taxes, usetaxes, etc. D Discriminatorycreditrestrictions E Bordertax adjustments PartVI1 Other A Intellectualpropertyissues B Safeguardmeasures, emergencyactions C Distribution constraints D Businesspractices or restrictionsinthe market E 71From WTO Inventory ofNon Tariff Measures, TN/MA/S/S/Rev. 1,28 November 2003, (03-6324) 82 APPENDIXA5. TRANSPORTCOSTSAND PRICESINEAST AFRICA From: World Bank flagship study: Africa's Transport Price/Cost, 2008 (S. Teravaninthorn, AFTTR). Hightransport pricedcosts are a major obstacle to increased trade and economic growth of the East Africa region. Amjadi and Yeats (1995) concluded that, in Africa, the effect of high transport costs are a higher trade barrier than import tariffs and trade restrictions. World Bank (2007) demonstrates that transport prices are high compared to values of goods traded and that transport predictability and reliability are low by internationalstandards.'* Rizet and Hine(1993) estimated that prices o f road transport in three francophone African countries (Cameroon, C6te d'Ivoire and Mali) were up to six times higher than in Pakistan, and about 40 percent higher than inFrancewhere labor rates are much higher.Rizet andGwet (1998) comparing seven countries in Vietnam) and Latin America (Costa Rica) - demonstrated that for distances up to 300 kilometers, three continents - Africa (Ghana, Cameroon, Burkina, C6te d'Ivoire), South-East Asia (Indonesia, the unit costs of road transport were 40-100 percent higher in Africa than in South-East Asia. MacKellar et al. (2002) found that transport prices for most African landlocked countries range from 15-20 percent of imports costs, which is three to four times higher than in most developed countries. Ithas beenobservedthat trade is highly sensitive to transport prices and costs -a 10percent drop in transport costs increasestrade by about 25 percent and that transport costs are sensitive to the quality of infrastructure, as measured by such variables as the density o f the road and rail network. The principal causes of low productivity of the trucking industry and high transportation costs East Africa are the infrastructure constraints (Pedersen, 2001; Limao and Venables, 2001) and low levels of competition between service providers (Rizet and Hine, 1993). Poor condition of infrastructure characterized by inadequate quantity and substandard quality o f transport network, long distance from the ports and multiple roadblocks increasestransportation costs. A frameworkfor Transport Costs and Prices A distinction has to be made between transport prices (or tariffs), transport costs, and vehicle operating costs. This distinction is useful both since the prices may/may not reflect transport costs, and the vehicle operating costs provide a good reflection on the quality of road infrastructure and the type o f vehicles. A brief description of transport costs and prices are given below: (9 Vehicle operating costs (VOC) include the various direct costs the transport provider must pay to operate a given vehicle, notably labor, capital, fuel, tires, maintenance and depreciation cost o f a vehicle. (ii) Transportcosts(TC) arethecoststhetransport operatorincurswhentransporting acargo. Itcovers VOC and other indirect costs, suchas license fee, roadblock payments, etc. (iii)Transport pricedtariffs (TP) are the rates chargedby a transport company or a freight forwarder to the shipper or importer. Transport prices usually are the result of negotiated rates between the shipper and the transport service provider. Transport price normally covers TC and the operator's overheadsand profit margin. 12World Bank (2007d), Agriculture in Sub-SaharanAfrica. 83 Based on data from the trucking surveys, the averagetransport prices and costs inEast Africa are presented below: Table A5.1 Transport prices and costs in East Africa Route Transport Variable Fixed Yearly Average Average Eact Gateway- price cost Cost ratio FC/ yearly truck Africa Destination USD/ (USD/ km) (USD/ vc mileage fleet Corridors vehicle km day) age Kampala-Kigali 56% - (Rwanda) 1.47 40 43% 80-90 10 Mombasa- 2.22 Kenya, Kampala 0.98 61 69% - 130-140 7 Rwanda, (Uganda) 30% Uganda Comparator: TemdAccra- 1.77 36 10% - 20-30 9 Bamako (Mali) 89% Kenya Mombasa - 2.26 0.83 63 54% - (National Nairobi 45% corridor) Mombasa - 56% - Eldoret 0.98 62 43% Notes: 1. These values includetruckingservices(3 or moretrucks) andtruckers (one or two trucks). We are reportingthe destinationcity and country inparenthesis. 2. Average yearly mileage (in thousands) is calculateddistancetime number ofturnaroundper year. Source: Trucking surveys dataand own calculations;Exchangerates come from IMF-IFS, It may be noted that there is significant discrepancy in the operating costs, both variable and fixed, in different corridors and also on the same corridors between different trucking companies mainly established in Uganda and Kenya. Despite discrepancies in the Ugandan costs data set, Kenyan companies face higher fixed costs explained by acquiring recently a new fleet (and therefore have high depreciation costs) and high financial cost; and low variable costs because of recent and economical fleet and good road condition on the main corridors. The breakdown of variable transportation costs along the eastern corridor, presented below, shows that fuel accounted for the major share followed by costs o f tires and then maintenance costs and bribes. Table A5.2 Breakdownofvariable transportationcosts Corridor Route Gateway-Destination Fuel Tires Maintenance Bribes Kampala-Kigali 67% 31% 1Yo 1% East Africa Mombasa-Kampala 79% 13% 6% 2% The professional trucking companies account approximately for 20 percent o f total market share. There are about twenty large companies that operate over 100 trucks each. The largest Kenyan company owns a fleet o f 600 trucks. These large companies obtain load from long-term direct contracting (from one to three years). Yearly mileage to Kampala for these companies can reach more than 100,000 kilometers, which is muchhigher than the average mileage inCentral Africa. 84 The quality o f service indicated by the transit time from Mombasa to Kampala and Kigali is presented below: Gateway Destination Distance (km) Transit time from ship arrival Transport price to final destination (in USD per ton) Mombasa Kampala 1100 5-6 days 90 Mombasa Kigali 1700 8-10 days 100-110 Policies to improve efficiency of the transportation sector should consider the fact that transportation prices are significantly higher than the transportation costs. Hence, measures to improve efficiency should first emphasize reduction in transport prices through improving efficiency of truck fleet. The majority o f the fleet o f vehicles is aging, which reduces the efficiency. Transport market in East Africa i s a strong seller's market with access restrictions (through bilateral agreements, freight sharing schemes, quota auctioning, queuing system, etc.). These were the critical factors enabling the forming o f cartels. Price setting can be high despite low productivity o f the industry. Policy measures to reduce transport prices are abolition o f market access restrictions and promotion o f market competition and measures to reduce delays at border-crossings in order to decrease vehicle turnaround time so that truckers can make profit from efficiency improvement and higher vehicle utilization rates, not from protectionism. Policy measures to improve the trucking efficiency and reducing cost through the renewal o f truck fleet include: using fiscal policy to discourage the import o f old trucks; providing business tax rebate or cheaper credit to encourage replacement o f aged second-hand trucks or to exit the market; and, reform fuel taxes. 85 APPENDIXA6.1RANGE CONSTRAININGINFRASTRUCTURE OF INEAC Some examples of widespread problems are listed below. Poor roads and bridges. InEast Africa, the main regional corridors and core road network are mostly paved. Acute problems arise due to the variable condition o f parts o f the corehegional road network, and the fact that roads aroundthrough major urban agglomerations and for access to the ports are increasingly congested. The cost of road services is 38-56 percent above the rail rates (World Bank 2006). Goods transported between Mombasa-Kampala cost about US$3,000 per container. The bridge at Rusomo between Rwanda and Tanzania (50 meters longand 6 meters wide) allows only one truck to pass at atime. Dilapidated rail~ays.7~ Disrepair of railroad infrastructure and equipment i s characterized by the aging track, shortage o f cars, and inadequate locomotives. The railway network has virtually collapsed along the Central Corridor, and is not much better inthe Northern Corridor. In Uganda, only two lines are functional: Kampala-Malaba and Tororo-Soroti, commissioned in July 2004. Along the Dar es Salam-Kigoma railway, the Isaka-Gitega-Musongati connection is yet to be constructed. Most o f the railway system in Kenya, Uganda and Tanzania has now been concessioned out. This is expected to eventually lead to improved operational and financial performance of the railway transport. The viability of constructing new railway lines in the EAC needs to be scrutinized carefully due to very high cost and potentially relatively low levels of traffic. Inadequate ports and inland container freight stations. Problems include inadequate storage and handling capacity; the poor condition of handling equipment, such as cranes; and lack of adequate rolling stock at Kigoma, Bujumbura, and Dar es Salam. Burundi and Rwanda have yet to reach agreements with Ethiopia and Kenya on land allocation earmarked for the development of a CFS to handle their cargo and maintenance at Dar es Salam and Mombasa, respectively. Just as an illustration, the port of Dar es Salam, with built capacity is 250,000 TEU is operating at 350,000 TEU in 2007. Even then, at any given moment, there are about 10 cargo ships waiting to be offloaded. About 700 containers are offloaded per day, but maximum capacity of Tanzania International Container Terminal Services (TICTS) to deliver containers out of the port is only 300. Inland CFS, such as at kaka, Tanzania have similar problems or are not fully functional. Insufficientcargo vessel capacity at the Great Lakes.Age and disrepair o f the merchant fleet on Lake Tanganyika and Lake Victoria is grave. There is no shipyard on Lake Tanganyika that could maintainhenovate the existing fleet. Considering the current low levels of traffic, a shipbuildingyard may not beviable at present. 0 Inadequatefacilitiesat the border posts.Problems include: understaffing o fborder posts in relation to the volume o f activities and cargo handled, such as at Malaba, Uganda; limitedparking space for cargo trucks at most posts, such as at Katuna, Uganda; no parking yard at Rusomo, Rwanda; lack of truck scales at Kayanza and Gitega, Burundi so customs agents estimate the actual figures; dilapidated, small offices; scarce computer equipment; accommodation and public amenities located about 50-100 km from the border; inadequate bonded warehouses. For example, Rusomo, Rwanda has only one customs bonded warehouse and Tanzania has none. Poor powersupply.Power supply may be infrequent at the remote, key border posts, such as in Uganda. At posts like Rusumo on the border of Tanzania and Rwanda, there is no electricity 73All over the world, including in the EAC, railwaysremainsthe cheapestmeans for transportingheavy, largevolume goodsover land. 86 and the post is dependant on unreliable small generators that often run out of fuel. This forces manual book-keeping at the very least. 0 Expensivecross-border communication.Counterpart revenue authorities locatedjust across a border communicate on land phones charging international rates. Private telecommunication companies-such as Zion, MTN,and Safaricom-are developing special arrangements for cross- border phone calls at local rates, butthese do not cover Burundi. 87 APPENDIXA6.2 INFRASTRUCTUREIMPROVEMENTSTHATWOULD MAKE A DIFFERENCE Stakeholders provided the following feedback: Convert the Northern Corridor into a dual carriageway. The cost o f this for the whole Northern Corridor is extremely high and may not be justifiable from the current economic point o f view. What is required i s a staged approach where within the next five years the stretches going through major urban agglomerations are converted to four lanes. Progressively, depending on traffic growth, other stretches can be converted, with the whole processtaking 10-15 years. Upgrade: - Stretches of the Northern Corridor in Uganda to Rwanda, with the DRC link from Kyanika near the Rwandaborder, as well as the Mbarara-Katunamain link -Manyoni-Singiola segmentoftheDaresSalam-Kobero road -Eldoret-Nairobi inKenya -Ntungamo-Lyantonde inUganda -Kampala- Busia/Malaba. Make adequate government investment on the rail lines along both corridors. The private management agencies should invest in more wagons and improve operation. The model that has been adopted is concessioning out of all aspects of operating the railway systems in Kenya, Uganda and Tanzania. Thus, at this point, there is no plan for governments to invest inrailway infrastructure onthe two corridors. Develop the Tanga-Moshi-Arusha-Shinyanga rail link to operationalize alternatives for access to the sea via the port of Dar es Salam. Here comparingthe large investment costs vis- avis the current traffic levels is critical Rehabilitate wagon ferries on Lake Victoria and Lake Tanganyika. Purchase a new ferry wagon to replace the MY Kabalega, which sank in 2004, as being done with supportfrom the EATTFP Expand storage areas and acquire new handling equipment for ports, especially Dar es Salam, Bujumbura, and Kigoma. Implement the port authority's plans to operate the Dar es Salam port on a 24 hour/7 day basis. Replace dilapidated weighbridges and have multiple weighbridges at each checkpoint to minimize congestion. Parts of this are already being undertakenwith from the EATTFP. Upgrade and furnish border posts and customs clearance offices, together with computerization. At juxtaposed border posts, ensure adequate parkindwaiting areas and public amenities. Parts of this are already beingundertaken with from the EATTFP. Fasttrack constructionof the southendeasternbypasses o fNairobi Upgrade accesdlink rods to the port of Mombasa Complete bypass of Kampala and Kigali Assess medium term requirements to construct bypasses around major urban agglomerations on the Central and Northern Corridors 88 APPENDIX A7. SENSITIVE PRODUCTS UNDERTHE EACCUSTOMS UNION Heading No. Description Duty rate (YO) 4.01 MilWand cream, not concentratednor containingaddedsugar or other sweeteningmatter (of fat content, 1 4 % by weight) 60 4.02 MilWand cream, not concentratednor containingaddedsugar or other sweeteningmatter (inpowder, granulesor other solid forms) 60 10.01 Wheat and M e s h Durumwheat 0 Other 0 Speciallypreparedfor sowing 0 Hardwheat 35 Other 35 10.05 Maize (Corn) 50 10.06 Rice-in the husk (paddy or rough), husked(brown) rice, semi-milledor wholly milled, brokenrice 75 or US $200per MT 11.02 Wheat or meslin flour 60 11.02 Maize (corn) flour 50 17.01 Cane or beet sugar and chemically pure sucrose, in solid form (Raw sugar not containingflavouring or colouringmatter) Cane sugar :jaggery 35 Other 100or US $200 per MT whichever is higher Beet sugar :jaggery 35 Other 100or US $200per MT whichever is higher Other containingadded flavouring or colouringmatter 100or US $200 per MT whichever is higher Industrial sugar 100or US $200 per MTwhichever is higher Other 100or US $200per MT whichever is higher 24.02 Cigars, cheroots, cigarillosand cigarettes, of tobacco or of tobacco substitutes 35 24.03 Othermanufacturedtobacco andmanufacturedtobacco substitutes; "homogenized" or "reconstituted" tobacco; tobacco extractsandessences 35 Portlandcement, aluminous cement, slag cement, supersulphate cement andsimilar hydrauliccements, whether or not colouredor inthe formof 25.23 clinkers 55 36.05 Matches, other thanpyrotechnic articles ofheading36.04 35 52.08 Woven fabrics of cotton, containing 85% or more by weight of cotton, weighingnot morethan 200g/m2 (Khanga, Kikoi andKitenge) 50 Woven fabrics of synthetic staple fibres, containing less than 85%by weight of suchfibres, mixed mainly or solely with cotton, of aweight 55.13 not exceeding 170g/m2 (including Khanga, Kikoi andKitenge) 50 Bedlinen, table linenandkitchenline (including knitted or crocheted, 63.02 printedbedlinen, of cottonandother) 50 63.05 Sacks and bags, of kind used for the packingof goods Ofjute or other textile based fibres of heading53.03 45 63.09 Worn clothingandother worn articles-US 45% or US ctsl45 per bagwhichever is higher Stoppers, caps andlids (including crown, screw caps, andpouring stoppers), capsules for bottles, threaded bungs, bungcovers, seals and 83.09 other packing US $ 0.75per kgor 50% whichever is higher Accessories of base metals Crown corks 40 85.06 Primarycells andprimary batteries (manganesedioxide, mercuric oxide, silver oxide. lithium. air zinc. others) 35 Source: EACCommonExternaltariff(Annex 1to ;he EACCustoms UnionProtocol). 89 APPENDIXA8.1. SANITARY AND PHYTO-SANITARY PRIORITYNEEDS A EAC FOR MEMBER: UGANDA Timeframe SPS Area Shortterm Medium Longterm 3-5yrs DEVELOPMENT OF NATIONAL SPS POLICY Stock taking-Establishment of existing gaps and policy development X following aconsultativeapproach Policy implementation-Include regulations development, legal X X reforms, institutional development and rationalization, awareness creation X Training on pest risk analysis X Monitoring & evaluationfor the SPS policy LIVESTOCK SECTOR Awareness creation X Conformityassessmentand establishmentof certificationsystem X Infrastructuresystems X Establishdisease-freezones X Cattle movementroutes X Researchon breeding GoodHandlingPractices(GHP) Capacitybuilding inanimalhusbandry Traceability X ANIMAL DISEASE Policy enforcement surveillancemechanismsfor cross-borderanimal X disease-Regional aspect Awareness creation X Proper informationflow X Strengtheningexistingcontrol mechanisms X Capacity building in risk assessment and mitigation measures for X quarantining, holding, andpestrisk analysis FISHERIES Awareness creationon GHP across the entirechain Improve fish handling methods and the design of fishing boats for properhygiene Build capacity inmonitoring control and surveillance X Provisionof adequateupstreaminfrastructureat landingsites X Harmonizetraceabilitysystemregionally Approveother lakes andupgradethe landingsites X 90 SPS Area Medium Longterm Clyr term 1-2yrs >3-5yrs Infrastructuredevelopment in laboratories/accreditation and capacity X building X Strengtheningresearchinstitutions X Development of infrastructurefor aquaculture X Environmentalmonitoring programming HORTICULTURE Creation of awareness amongfarmers Creationofexport groups/criticalmassof small-scaleexporters Standardpack houses Training quality controllers Improvementof the cold chaininfrastructure Productionmarketingdistribution and transportation infrastructure Pesticideresiduemonitoring planfor fruits and vegetables X FOODSAFETY Safe water supplyand its impacton SPS (water policy) Implementationof nationalfood safety strategicplan Improvementof policy framework for food safety Streamlininginstitutional responsibilityframework Food safety and handling infrastructure, including training of enterprisesandfood inspectors. Certificationfor enterprises Awareness creation including on the demand side (food safety in educationsystem) Development of Codes of Practices (COPS) on good agricultural practices, good manufacturing practices, and mycotoxine detection in foods, food safety managementsystems CROSS-CUTTINGISSUES Bolstering the enforcement capacity, including training of X X responsibleenforcement agencies Strengtheningof nationalnotification systems/informationflow X Building capacity for sustainedcompliance with SPSlsustainability. X Awareness of SPS issuesby policy makersand politicians X Development of Codes of Practice X Source:WTO workshop on Mobilizing Aid for Trade for SPS-RelatedTechnic Cooperation inEa! Urica, Kampala, yda; May 28-29.2008. 91 .. 1 . e . . BIBLIOGRAPHY Abegaz, M.2008. "Mobilizing Aid for Trade for SPS-relatedTechnical CooperationinEast Africa: SPS Balance Sheet for Uganda." 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National Institute EconomicReview,Number 134: 93-8. 97 WEB SITES ASEAN: http://www,us-asean.ordafta.asu; http://www.aseansec.ora/l6620.htm; http://www.aseansec.or~/apris2/index.htm Bankofthe RepublicofBurundi.www.brb.bi IntegratedFramework.www.integratedframework.org EuropeanUnion.http://europa.eu/scadplus/treaties/sinnleacten.htm# KenyaMinistry ofTransportWeb site, EA Trade andTransport FacilitationProject.www.transport.ao.ke NorthernCorridor Transit Transport CoordinationAuthority Web site. http://www.ttcanc.orq Tanzania Ministry of Communications and Transport, with respect to information on the Central Corridor. http://www.tanzania.go.tz/communication.htm UNCTAD TRAINS database Web site. www.unctad.ordTrians USAID: RegionalAgricultural Trade ExpansionSupport (RATES) Program. 2003. http://eastafrica.usaid.gov/en/activity. 1006.aspx Wikipedia, with respectto the GreatNorth Road. http://en.wikipedia.org/wiki/Great North Road 98 MAP SECTION IBRD 36064 EAST AFRICA MAIN TRANSPORTATION ROUTES IN EAST AFRICA BORDER CROSSING ROAD SELECTED CITY AND TOWN MARITIME PORT RAILROAD PROVINCIAL CAPITAL WATER ROUTES NORTHERN CORRIDOR'S ROAD NATIONAL CAPITAL INTERMODAL PLATFORM CENTRAL CORRIDOR'S ROAD INTERNATIONAL BOUNDARY 28°E 28 3030°E 32°E 32 34°E 34 36 36°E Dila Dila 0 50 100 150 Kilometers 0 50 100 Miles SUDAN SUDAN Juba Juba Karungu/MuleKarungu/Mule ETHIOPIAETHIOPIA LokichokioLokichokio 4°N FaradjeFaradje Moy0/JubaMoy0/Juba 4°N MoyoMoyo KakumaKakuma Moyale/DilaMoyale/Dila KobokoKoboko AdjumaniAdjumani Moyale Moyale LodwarLodwar KilakKilak Isiro Isiro Gulu Gulu NebbiNebbi LokicharLokichar Pakwack Pakwack Oyam Oyam MarsabitMarsabit Lira Lira 2°N 2°N BuniaBunia UGANDA UGANDA K E N YA SOMALIASOMALIA Kitale Kitale O BeniBeni Fort Portal For Portal MalabaMalaba G Mubende Mubende Tororo ororo Archer'sArcher's EldoretEldoret ButemboButembo KAMPALA KAMPALA Jinja Jinja PostPost N Mityana Mityana Port Bell Por Bell BusiaBusia Butere Butere Nyahururu Nyahururu Falls Falls 0° OCONGOC Kasese Kasese Entebbe Entebbe Kisumu Kisumu Nanyuki Nanyuki 0° Masaka Masaka F Nakuru Nakuru GarissaGarissa Mbarara Mbarara OFO Ntungamo Ntungamo MutukulaMutukula Lake .PEREP Kabale Kabale IsebaniaIsebania Victoria NAIROBINAIROBI Gatuna Gatuna BukobaBukoba MachakosMachakos Gisenyi Gisenyi R RWANDA ANDA MusomaMusoma MagadiMagadi 2°S KIGALI KIGALI . RusumoRusumo KemondoKemondo 2°S baybay Sultan Hamud Sultan Hamud Lake ME NyanzaNyanza Rusumo Rusumo Natron Cyangugu Cyangugu Falls Falls Mwanza Mwanza Butare Butare Namanga Namanga KoberaKobera DEM.D Kayanza Kayanza LusahungaLusahunga BUJUMBURA BUJUMBURA Moshi Moshi Uvira Uvira Taveta aveta VoïVo Gitega Gitega BukambeBukambe Lake Eyasi ArushaArusha BURUNDIBURUNDI Lake Shinyanga Shinyanga Manyara 4°S Mombasa Makamba Makamba IsakaIsaka NzegaNzega 4°S Babati Babati Nyanza-Lac Nyanza-Lac Lunga-LungaLunga-Lunga LulimbaLulimba KigomaKigoma KaliuaKaliua SingidaSingida Tanga anga Tabora abora Lake Kalemie Kalemie Tanganyika 6°S ManyoniManyoni DODOMA DODOMA 6S MpandaMpanda Chalinze Chalinze TANZANIA ANZANIA Dar Es Salaam Dar Es Salaam MobaMoba Morogoro Morogoro INDIAN Lake IringaIringa OCEAN Rukwa 8°S 8°S PwetoPweto MbeyaMbeya Lake Lindi 10°S Malawi Mtwara ZAMBIA ZAMBIA SongeaSongea This map was produced by the Map Design Unit of The World Bank. The boundaries, MALAWI MALAWI colors, denominations and any other information shown on this map do not imply, on LubumbashiLubumbashi the part of The World Bank Group, any judgment on the MOZAMBIQUE MOZAMBIQUE legal status of any territory, or any endorsement or a c c e p t a n c e o f s u c h 28°E 28 32°E 32 34 34°E 36° 36 E 38°E 38 40° 40 E boundaries. SEPTEMBER 2008