East African Community rejects duty-free entry of South African-made vehicles

But the dispute is not new. The bloc first rejected a bid by South Africa nine years ago. Now, it could escalate, especially since the creation of a 29-member tripartite free trade area (TFTA), which essentially includes South Africa.

The TFTA is a concentric free market of EAC, South Africa Development Community (SADC) and the Common Market for Eastern and Southern Africa (Comesa).

Josiah Rotich, director in-charge of external trade at Kenya’s State Department for Trade, confirmed that the EAC has declined liberalising its automobile industry by allowing duty-free entry of motor vehicles from the Southern African Customs Union (Sacu), which is controlled by South Africa. He did not disclose more details on the concessions made by the two economic blocs in the deal.

“Yes. Tariff offers have been agreed. Automotive are not offered for liberalisation,” Mr Rotich told The EastAfrican in a text response.

A trade framework agreement agreed by member states requires countries to exchange tariff concessions based on reciprocity.

Sources familiar with the negotiations told The EastAfrican that the last planned tripartite meeting for December 2023 did not take place after trade negotiators from the Sacu failed to show up.

“We still have outstanding issues with Sacu on tariff offers on some items such as motor vehicles, textile and apparels,” a source said.

“We had a meeting as EAC with the South Africa Customs Union (Sacu) somewhere around September in 2023 under the tripartite negotiations to resolve this matter. They (Sacu) promised to get back to us in December the same year (2023) but they have not done that until now.”

TFTA market

The EAC bloc comprises Kenya, Uganda, Tanzania, Rwanda, Burundi, South Sudan, Somalia and the Democratic Republic of Congo (DRC), while Sacu economic bloc is made up of South Africa, Botswana, Lesotho, Namibia and eSwatini. Most of these countries also belong to Comesa.

The TFTA agreement creates a market of about 600 million people by bringing together 29-member countries of the three regional economic blocs.

The TFTA pact was launched by the heads of state and governments of Comesa, EAC and SADC in Egypt on June 10, 2015 andentered into forceon July 25, 2024 after Angola ratified the agreement, bringing the total number of the instruments of ratification deposited to 14.

The agreement required at least 14 out of the 29 partner states to deposit their instruments of ratification for it to take effect.

Angola, Botswana, Burundi, Egypt, eSwatini, Kenya, Lesotho, Malawi, Namibia, Rwanda, South Africa, Uganda, Zambia, Zimbabwe and Djibouti have ratified the agreement.

The protracted tariff negotiations between the EAC and Sacu have been triggered by the desire for key parties to protect their domestic and exports markets from competition.

South Africa, for instance, is cautious of opening up its domestic market and its exports markets in Botswana, Lesotho, Namibia and eSwatini, which are members of Sacu.

Four-band tariff

The EAC and Sacu have had a prolonged battle over whether to abolish the contentious 25 percent import duty on motor vehicles under the TFTA, a rate that climbed up to 35 percent from July 1, 2022 after the EAC revised its Common External Tariff (CET) structure.

The EAC is reluctant to open up its motor vehicle to imports from Sacu to protect its local industries, while Sacu, which is largely controlled by South Africa, wants to export these products duty-free to the East Africa.

Under the EAC revised four-band CET structure, finished goods entering the region attract a tariff of 35 percent, up from 25 percent under the original three-band tariff structure that came into effect in January 1, 2005.

Under the new four-band tariff structure, raw materials and capital goods attract a zero percent import duty, intermediate products not available in the EAC region 10 percent, intermediate products available in the EAC region 25 percent and 35 percent duty on imported finished products.

In addition, there is a list of sensitive items such as sugar, wheat, rice and milk, which attract higher duty of above 35 percent with an aim of protecting local industries from competition.

Initially, finished goods imported into the regional bloc attracted a duty of 25 percent, intermediate goods 10 percent and raw materials zero percent under the EAC’s three-band tariff structure.

In 2017, the EAC and Sacu made significant progress in resolving their differences on tariff offers on most of the items.

During the talks, Sacu offered to open up the market for 66.7 percent of its products to East African countries, while the EAC offered 64.25 percent of tariff lines and agreed that products classified as “not sensitive” will be liberalised through a five-year duty phase-down after the TFTA comes into force.

In 2018, the EAC heads of state directed the Council of Ministers to explore the possibility of developing the automotive industry by reducing importation of used vehicles from outside the region and thereby make the region more competitive.

The EAC countries also embarked on a process of tightening rules on the importation of second-hand cars into the region as part of efforts to encourage local assembly. For instance, in 2017 the EAC Council of Ministers recommended to the Heads of State Summit that the age limit for used imported vehicles be lowered to five years by 2021.

Under the TFTA protocol, each bloc is expected to remove duty on between 60 percent and 85 percent of the tariff lines. The remaining 15 percent of its tariff lines are to be negotiated over a period of between five and eight years.

The three blocs are required to ignore sensitive products and subject them to duty and quota restrictions in order to ensure fair competition.