Action alert - CUTS International, Geneva

www.cuts-grc.org

N°7 | March 2012

Action alert EAC needs insights on NAMA positioning at WTO At an EAC Geneva Forum meeting organised by CUTS in February, the need to further analyse and articulate EAC negotiating positions in NAMA negotiations at the WTO was pointed out. Indeed, the exercise is a complex one since Kenya negotiates on terms that are different from other EAC Partner States. Yet, they share a Common External Tariff (CET) and industrialisation objectives. Several areas urgently need investigation to inform EAC trade negotiators’ positions. In a Customs Union like the EAC, members adopt a common trade policy towards third countries besides liberalising their intra-trade. EAC Partner States have achieved some progress towards this with the adoption of a Common External Tariff (CET) in 2010. While the Community has faced difficulties in the implementation of the Customs Union, the achievement of its industrialization goals is likely to be further challenged by the ongoing WTO negotiations on Non-Agricultural Market Access (NAMA) where EAC Partner States are engaged under different modality arrangements. All EAC countries but one are LDCs who benefit from Special & Differential Treatment that allow them not to make any tariff reduction commitment under NAMA negotiations. Only Kenya, as part of the PARA6 group, is expected to achieve target binding coverage at 75 percent at bound rates not exceeding 30 percent. Tariff binding by Kenya may increase variations among EAC countries’ trade policies, thereby impeding the process of converging EAC external trade policy, and reduce the policy space with respect to the EAC CET current structure and the future proposed reviews. Furthermore, achieving EAC’s industrial development objectives will require Kenya to identify priority areas where NAMA outcomes should leave enough flexibilities for policy interventions. Research needs to be undertaken in order to help EAC trade negotiators take positions that are consistent with regional integration and industrialisation objectives. In particular, the following should be investigated: q Given that Kenya has automatically committed the rest of the EAC Member States to bind their non-agricultural tariff lines as indicated above, what does this portend to the remaining four countries under the DDA and other future rounds of trade negotiations? w Identifying which sectors should be given enhanced tariff policy space, and need to be considered as sensitive products in the NAMA negotiations.

< QUICK FACTS »» EAC Partner States have established a three band Common External Tariff with a minimum rate of 0% , a middle rate of 10% and a maximum rate of 25% for all imports into the EAC. »» Under the EAC Customs Union regime, about 59 products are considered “Sensitive”, and are mostly labour-intensive products. »» The current tariff binding coverage for Kenya is at 14.8% of product lines »» In 2010, only 6% of EAC countries’ imports originated from the EAC Customs Union.

CUTS Action alerts are to draw attention and call for action on key trade and developmentrelated issues. Readers are encouraged to quote, reproduce and distribute this paper for advocacy purpose.

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This Action alert is produced as part of the “Promoting Agriculture-Climate-Trade linkages in the EAC” (PACT EAC) project. More at: www.cuts-geneva.org/pacteac

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What are the options available in NAMA negotiations ? The Draft Modalities Text (TN/MA/W/103/Rev.3) of December 2008 explicitly provides the commitment targets to be achieved by PARA6 countries, to which Kenya belongs. According to the text, PARA6 countries with a binding coverage of non-agricultural tariff lines: (i) below 15 percent shall bind 75 percent of non-agricultural tariff lines; (ii) at or above 15 percent shall bind 80 percent of non-agricultural tariff lines. Kenya falls under the former category of Members. Furthermore, each Member shall bind at an average level that does not exceed 30 percent. These figures should therefore be the basis for any research on the appropriate binding coverage and bound rates for Kenya and other EAC Partner States.

What could be possible sensitive products for Kenya and other EAC Partner States ? Identifying products or sectors that would in the future require enhanced tariff policy space will be critical in selecting a list of sensitive products under NAMA negotiations. A 2009 study by the Institute of Economic Affairs provided several recommendations in this regard. First, sensitive products should include those defined in the EAC Customs Union Protocol, which are mainly labour intensive products including textile, apparel and mining products, and fall within phase I of the industrialization roadmap. They are applied tariff rates above the maximum EAC CET of 25 percent to provide enhanced policy measures necessary for achieving EAC development objectives of employment and revenue generation. Second, the products in which EAC has or may potentially have comparative advantage (e.g. fisheries, forest, hides & skins etc.) should all be considered sensitive products as well. These are consistent with the sectors covered under phase I of Kenya’s industrialisation strategy. For Kenya in particular, sectors covered under phase II of Kenya’s industrialization strategy would require enhanced tariff policy space in the future and should therefore be excluded from the proposed NAMA binding commitments. These include metallurgical products, non-petrobased chemicals, pharmaceuticals, machinery and capital goods, Information and communication technology and Electronics.

What are the PARA6 countries ? The “Paragraph 6 group of countries” is a group of countries with less than 35% of non-agricultural products covered by legally bound tariff ceilings. They have agreed under the WTO to increase their binding coverage substantially, but want to exempt some products.

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It comprises Côte d’Ivoire, Cameroon, Congo, Cuba, Ghana, Kenya, Macao, China, Mauritius, Nigeria, Sri Lanka, Suriname, and Zimbabwe. (source: WTO)

Why should EAC Partner States pay attention to the work undertaken under the formula approach ? Although they are not subject to tariff reductions under the Swiss formula approach, Kenya and the other EAC Partner States should pay attention to its application by other countries, which can significantly influence the EAC future trade pattern and directions. In fact, tariff reductions by EAC trading partners can potentially open up new market opportunities. However, some studies point out that the reduction in world prices for industrial goods as a result of the Doha-induced generalised tariff reduction might lead to increases in manufactured imports into the EAC market, in particular for textiles in the case of Kenya. At the same time, falling world prices might render EAC manufacturing less competitive in international markets and causes a reduction in exports of industrial goods.

USEFUL RESOURCES Institute of Economic Affairs – Kenya (IEA). Tariff Binding Commitments under the Non-Agricultural Products Market Access (NAMA) Negotiations: Implications on the East Africa Community Customs Union. IEA Research Paper Series No.23. 2009. CUTS International, Geneva. Reflections from the Frontline: Developing Country Negotiators in the WTO. New Delhi: Academic Foundation. 2011. World Trade Organisation - Fourth Revision of Draft Modalities for NonAgricultural Market Access (TN/MA/W/103/Rev.3) World Trade Organisation - Non-agricultural market access negotiations http://bit.ly/HihZex East African Community Secretariat Arusha International Conference Centre 5th Floor Kilimanjaro Wing P.O. Box 1096 Arusha, Tanzania Email: [email protected]