Challenges Facing Kenya in the Implementation of Harmonized Custom Union under the East African Community

Abstract

The East African Countries are currently implementing the Common Market stage of integration and should have fully implemented the Customs union (CU) by July 2010. The protocol establishi ng the CU provided for implementation of several instruments such as the application of the Common External Tariff (CET) on third countries, elimination of all internal tariffs within member states, adoptions of a common EAC customs law, and common rules of origin for products prod uced within EAC among others. The purpose of the study was to assess the challenges facing the implementation of harmonized East African Community (EAC) Customs union in Kenya. The specific objectives of the study were; to determine how the differences in appl ication of common external tariff on goods outside EAC region by member states have affected the achievement of a harmonized CU; to evaluate the influence of intra-trade border custom procedures on realization of a harmonized CU; to determine the implications of multi ple memberships to regional organizations among EAC members on realization of a harmonized EAC CU; and to determine if the application uniform rules of origin on EAC produced products effects the implementation of a harmonized CU. A descriptive research design was adopted where the current status of implementation of Customs Union under EAC as well the challenges facing implementation were described. The total population of the study was employees in the Ministry of East African Community , Ministry of Trade, Ministry of Finance and Kenya Revenue Authority. The selection of these institutions is informed by the fact that these are institutions are direct involved in the implementation of custom unions. The targeted staff represented Kenya during negations on the customs union under the EAC secretariat at Arusha, Tanzania. Therefore, study purposively targeted 94 senior employees i n the above mentioned three ministries and Kenya Revenue Authority who are directly involved in negotiations, formulation and implementation of CU and hence there was no need for sampling. The research used questionnaire to collect data. The questionnaires were administered through structured interviews, sent through emails and through drop and pick methods depending on the preference of the respondent. Data was analyzed using both descriptive and inferential analysis, and particularly correlati on analysis. Frequency distributions and bar graphs were used to data analysis result. The study revealed that the implementation of the EAC CU Protocol is on schedule. The implementation processes, however, has experienced both successes and challenges since the inception of CU in 2005. Among the successes that were cited by the respondents include complete harmonization of the tariff codes; simplification and harmonization of trade documents and procedures; establishment of East African bill of entry; development of the rules of origin; and sharing of information among partner states. The respondents indicated that implementation of Custom union wi ll increase intra-EAC trade. Other benefits cited by respondents that are associated implementation of harmonized CU include free movement of people, increase in volume of trade and investment, and increase in employment. They also said implementation would have insignificant effect on Kenya's tariff reven ue base, as the reven ue arising from such trade is currently low in relati ve terms. The findings of this study so that ce1iain areas of the CU Protocol continue to pose challenges, however, including establishment of Common External Tari ff, particularly the harmonization of rates and exemptions; Elimination of Non-Tariff Barriers; and Application of rules of origin. Unli ke elimination of internal tariffs, adoption of a CET is a challenge and has significant revenue implications to Kenya, according to the personnel interviewed. With respect to implementation of the CET, majority of respondents reported that the major difliculty being experienced was reaching consensus on a common external tariff (CET). Other difficulties cited by respondent each are delays due to mistrust, indecision on tariffs, and creation of new documents. Moreover, mem bership to m ultiple integration schemes, perceived or real differences in development levels among the countries, and suspicion were reported as the key obstacles to the speedy implementation of the EACCU. In order to maximize the benefits associated with implementation of harmonized CU, the following recommendations are suggested: non-tariff barriers need to be removed, the pace of tariff elimination accelerated, and involvement of pri vate sector increased. However, respondent cited loss of reven ue as main concern of implementation of CU. To mitigate loss of revenue associated with harmonized custom union the respondents felt that the EAC countries need to adopt a Common External Tariff, hasten the integration process, and reduce membership in multiple regional groupings.