Kenya: KAM Executive Brief: EAC Customs Union Takes Effect

Thursday, 21 January 2010

In its latest executive brief, the Kenya Association of Manufacturers (KAM) highlights some of the changes triggered by the EAC Customs Union that came into effect on 1 January 2010. With the coming into force of a fully fledged EAC Customs Union on 1 January 2010, KAM advises its members who have been using the EAC Duty Remission Scheme to continue using the same scheme to import industrial inputs/raw materials used to manufacture goods for export to other EAC partner states until otherwise advised.   The EAC Duty Remission Scheme was expected to implement changes so that raw materials and industrial inputs that were earlier imported at 0% duty would start attracting duty rates under the EAC Common External Tariff if the goods manufactured thereof would be exported to other partner states. Other changes that have taken effect under the fully fledged Customs Union include: No internal tariffs for Intra-EAC Trade between Kenya and other partner states; EAC Common External Tariff (CET)  will continue to be applied by all partner states in the Customs Union; EAC Rules of Origin will continue to be applied by all partner states in the Customs Union; Industrial inputs/raw materials will be imported duty free through the respective export promotion schemes to manufacture goods for export outside the EAC region. In case these goods are to be sold in the EAC Customs territory of the five partner states, only 20% of the goods produced annually by a specific company benefiting from the export promotion schemes will be allowed into the EAC customs territory after payment of applicable import duties, levies and other charges provided for in the EAC Common External Tariffs, subject to authorisation of competent authority; Goods from Kenya sold in the other partner states will be considered as domestic sales because the entire EAC region will be considered as one customs territory, according to EAC Customs Union Protocol.  However, certain reforms will be necessary to make EAC region one customs territory; Partner states will continue to operate without harmonised domestic taxes until the tax harmonisation process is concluded; Goods manufactured and sold in the domestic market will continue to be charged applicable taxes e.g. VAT, excise duty; Goods manufactured in Kenya and sold in the other partner states will be not be charged taxes until certain reforms are carried out; Partner states will continue to implement mechanisms for removal and elimination of non-tariff barriers; Partner states will continue to implement their existing national trade policies until the harmonisation of national trade policies are concluded; EAC partner states will pursue decentralised customs administration until relevant customs reforms are concluded; Movement of goods within the EAC will continue to be subjected to border controls until certain measures are put in place. However, according to KAM Senior Executive Officer in charge of Policy Research & Advocacy, Mr. Dickson Poloji, certain reforms need to be carried out before the realization of a fully fledged customs union.  These include: Application of the EAC Common External Tariff by partner states; Non-application of Rules of Origin for goods destined to other partner states; All industrial inputs/raw materials which are used to manufacture goods destined for EAC Region are to be subjected to applicable import duties as provided for in the EAC Common External Tariffs Handbook; Partner states to implement reforms that will make EAC region one customs territory; Partner states are expected to harmonise their domestic taxes and agree on revenue collection and sharing; Partner states are expected to improve on non tariff barriers (NTB).   In December 2009, a meeting was convened to discuss the implications of moving EAC to a fully fledged Customs Union this year. The meeting was attended by representatives from the Ministry of Finance, Kenya Revenue Authority and Kenya Association of Manufacturers.   The meeting agreed that Kenya would pursue a meeting with the EAC Secretariat in Arusha to discuss the application of EAC Duty Remission Scheme (Export) for EAC Regional Market, management of transition period and when the partner states will stop applying EAC Duty Remission Scheme (Export) for goods destined to EAC Regional Market. The meeting further agreed that Kenya will stop applying EAC Duty Remission Scheme (Export) for goods destined to the EAC Regional Market only after the above mentioned meeting has been held and the way forward agreed upon. The meeting emphasised the need to carry out the action jointly with other EAC partner states so as not to disadvantage any partner state.   In the meantime, KAM will monitor the progress towards convening the EAC meeting to discuss the issue and closely liaise with the Ministry of Finance for any new developments. Members are also requested to forward any problems or issues they may be facing since 1 January 2010 related to moving EAC to a fully fledged Customs Union to Mr. Dickson Poloji on email: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it Republished with kind permission from the KAM Executive Brief Vol. 3, Issue 1. For more information, contact the Kenya Association of Manufacturers (KAM) on www.kam.co.ke . 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