60104 Addressing Trade Restrictive Non Tariff Africa Trade Policy Notes Measures on Goods Trade Note #7 in the East African Community Robert Kirk August, 2010 Introduction NTMs are generally understood to refer to any measure other than a tariff that causes a The East African Community (EAC) trade distortion. A trade distortion exists launched a regional common market in July where the price at the border diverges from 2010. This followed closely on the full the domestic price and can result from implementation of the customs union, which regulations or administrative procedures was realized in January 2010 after a five- which are imposed to serve a specific year transition period. While all the partners objective such as ensuring food safety or have been able to eliminate a significant addressing product safety or environmental proportion of tariffs on intra-EAC trade and issues. The pursuit of such domestic policy agree on a common external tariff, there has objectives is quite legitimate, however, in been more limited progress in addressing many cases the regulatory policies, trade restrictive non-tariff measures procedures and administrative requirements (NTMs), which are referred to as non tariff are implemented in a manner that effectively barriers (NTBs). The EAC Customs Union discriminates against imports relative to Protocol makes specific reference to the domestically produced products. Thus a need to eliminate NTBs and to refrain from NTM has the potential to become a NTB imposing new ones. Recognition of the when it serves to constrain imports. Any importance of reducing NTBs has resulted in NTM that is not implemented in the ,,least Partner States and the EAC Secretariat trade-restrictive manner may be classified devoting considerable time and attention to as a NTB. This policy note focuses on identifying specific measures based on a NTBs. series of surveys. Moving from identifying NTBs to their reduction and removal has The reduction of tariffs in progressive proven to be more challenging. rounds of trade liberalization at the multilateral and regional levels has been mirrored by the rise to prominence of NTBs. 1 The multilateral agreements of the WTO binding approach with sanctions to enforce have focused on developing core principles compliance the majority of regional for addressing NTBs. These include economic communities have chosen moral transparency, non-discrimination and suasion through establishing committees and proportionality. Using these three principles, other institutional structures (i.e. technical the WTO members developed taxonomies expert groups) requiring dialogue, and the for classifying NTBs with the objective of exchange of information. defining appropriate design criteria. All countries have made progress on The remainder of the note discusses the significantly reducing "old style" NTBs, approach to NTBs within the EAC before such as quotas and restrictive import outlining the key policy recommendations licensing requirement. However, for reducing and removing NTBs. The implementing regulatory reforms to policy recommendations draw on the minimize the trade restrictiveness of specific relevance of the WTO rules and the NTBs has largely taken place in the major experience of both the EU and ASEAN in developed and developing countries. addressing NTBs. The new multilateral rules that established Non-Tariff Barriers in the EAC the WTO in 1995 included explicit Partner States within the EAC have made agreements relating to the management of progress on addressing NTBs, and the EAC NTBs with a specific focus on customs and Secretariat with support from Ministers and transit, technical regulations, and health and Heads of State has entered into safety issues. Including these regulatory commitments to eliminate and reduce NTBs. issues in the trade agenda requires extensive All the Partners recognize that realizing the inter-government coordination as portfolio vision of the EAC to create an integrated responsibility often rests with a non-trade market requires the reduction and removal ministry such as Agriculture, Health, of NTBs. To date, the approach has focused Science and Technology, or Environment. on developing national-level focal points The policy recommendations in this note and publicizing specific NTBs. Establishing draw on the experience of both the WTO formal notification requirements is an and other regional organizations to identify important element in monitoring NTBs and the characteristics of a successful approach represents a necessary condition. However, for reducing and eliminating NTBs. Over it is not sufficient for moving to the next the past 15 years members of the WTO have step--the reduction and removal of NTBs. implemented the SPS and TBT Agreements The legal framework governing the EAC through notifications and active participation provides a basis for addressing NTBs. and engagement in the Committees. In Article 13 (1) of the EAC Protocol states addition, the binding dispute settlement that Partner States must agree to eliminate process of the WTO has resulted in a remaining NTBs and refrain from imposing number of NTBs being resolved through new ones. The following paragraph enforceable legal process and the provides that Partner States shall formulate a consequent development of precedent and mechanism to identify and eliminate such case law. At the same time regional NTBs. The Protocol defines NTBs as economic agreements have also turned their "administrative and technical requirements focus to addressing NTBs. While the imposed by a Partner State in the movement European Union has pursued a legally of goods." Implementing this Article 2 remains a major challenge for all five EAC Categories for Non-Tariff Barriers Partner States. The working definition of Category A: NTBs with a low political and NTBs within the EAC is "quantitative economic complexity and a low impact on EAC restrictions and specific limitations that act trade. Immediate Action required, consensus as obstacles to trade," other than tariffs that reached at EAC Council may be embedded in government laws, Category B: NTBs with a low political and regulations and practices at the national and economic complexity and a high impact on EAC trade. Short term (1-6 months) EAC Council local level. consensus but no agreement on implementation Identifying and classifying NTBs is often Category C: NTBs with a high political and economic complexity and a high impact on EAC not straightforward as specific trade. Medium term (6-12 months) No political administrative practices and legislation has consensus as EAC Council evolved over time in response to political Category D: NTBs with a high political and economy developments at the national and economic complexity and a low impact on EAC trade. Long Term (>12 months) No political local level. These practices inevitably pre- consensus at EAC Council date the initiative to move towards a Common Market in East Africa and also pre-date the establishment of the WTO. Classifying NTBs in accordance with the Over the past several years Partner States dual criteria of political complexity and and the EAC Secretariat have devoted intra-regional trade impact is justified by considerable attention to addressing NTBs. arguing that it will deliver a few ,,quick A series of detailed studies has identified wins that will increase trade. This in turn specific measures based on surveys will result in an increased awareness of the undertaken by private sector advocacy trade benefits which will build the support organizations in the region. Further studies necessary for addressing the more have made recommendations for challenging NTBs. In practice there have establishing an implementation mechanism been very few ,,quick wins over the past to facilitate their reduction and removal. As two years as it proven very difficult to part of this process, Partner States have remove the Category A NTBs. Some of the established National Monitoring specific NTBs classified as Category A are Committees (NMCs). shown in Table 1. While a number of NTBs may be explicitly protectionist, the majority The EAC Partner States have adopted a of NTBs seek to meet an agreed regulatory Time-bound Program for the Elimination of objective--such as food safety or product Identified Non-Tariff Barriers (2009). This safety. While there may be a consensus that classifies the listed NTBs into one of four an existing NTB should be abolished this categories (see box below) based on the does not mean that there is agreement on level of political and economic complexity how to meet legitimate regulatory objectives and the magnitude of the impact on EAC in a less trade restrictive manner. trade. The action agenda is prioritized according to the degree of difficulty in The publication of Non Tariff Barriers in achieving a consensus and the quantitative EAC (now available on the EAC Web site impact on intra-regional trade flows. for download) along with the existence of a Essentially this approach seeks to identify high-profile forum within the EAC for ,,easy NTBs to remove in order to harness a discussing NTBs represents a major step growing consensus behind further reform. forward. EAC Partner States and the Secretariat face the challenge of moving 3 from identifying and discussing NTBs to level regional and multilateral commitments implementing regulatory reforms and that already have buy-in, can assist in reducing trade restrictive measures. building support for the reduction and Presently there is no mechanism for removal of NTBs and provides a basis for ensuring that Partner States follow a process tackling difficult regulatory and procedural of either justifying the NTB or agreeing to issues. remove it once a NTB is identified and publicized. The absence of a clearly defined In Southern Africa, the SADC Ministry of monitoring mechanism with time limits for Trade has established a transparent system action means each Partner State is for monitoring and ensuring compliance responsible for voluntarily removing or with the SADC Trade Protocol which reforming listed NTBs without being subject includes procures for addressing reported to possible sanctions for non-compliance. barriers to trade including NTBs. The SADC The ,,moral suasion approach to removing Trade Monitoring and Compliance NTB within the EAC has, to date, failed to Mechanism (TMCM) requires all members yield significant progress. This may be to notify all trade laws and regulations and contrasted with the more formal legally will function as a system for notification, binding mechanisms with sanctions that are consultations and negotiation among practiced by the European Union. Member States as well as for implementing judgments and sanctions determined by the At the national level the NMC is generally dispute settlement system. coordinated by either the Ministry of East African Affairs (Kenya) or the Ministry of Policy Recommendations Commerce (Rwanda and Uganda). The The commitment of Partner States and the Ministry of East African Affairs does not EAC Secretariat to reduce and remove have the capacity to analyze and review the NTBs has, to date, focused on identifying identified NTB, and while the Ministry of specific NTBs and establishing NMCs. Commerce may have more capacity to Raising awareness and improving assess specific NTB it does not have the transparency over NTBs represent necessary mandate to make decisions on their first steps however, it is apparent from the modification or removal. In the absence of a lack of progress in removing NTBs in East transparent process for removing and Africa and elsewhere that they are not reforming specific NTB the National sufficient. At the Partner State level, a Monitoring Committees risk becoming commitment to implement in full their ineffective ,,talk shops as the same issues commitments under the GATT 1994 are repeatedly referred back to the EAC Articles V, VIII and X and the Agreements Council of Ministers for resolution. on Technical Barriers to Trade and Sanitary The five members of the EAC all belong to and PhytoSanitary measures would go a the World Trade Organization (WTO). As long way in advancing the EAC moves to such they have already committed to promote a single market. Developing an organizing their multilateral trade relations effective program for reducing NTB in a transparent and non-discriminatory requires governments, the private sector and manner with least trade restrictive civil society to consider the following policy regulations, within a legally binding and issues. enforceable system. Linking specific Firstly, all existing notified NTBs should be reforms, such as removing NTBs, to high- subjected to a WTO Compliance review to 4 ensure that the measure is transparent, non- be posted on the web site with a facility for discriminatory, and minimizes trade interested parties to submit comments. restrictiveness. EAC Ministers could consider establishing a transparent rule that Fifthly, EAC Partner States and the when a NTB is found to be non-compliant Secretariat should ensure that the dispute with the WTO the Partner State is required settlement system is in place and ready to to abolish or modify the measure to ensure address NTBs. It is recommended that the compliance within 12 months. This is EAC consider adopting the SADC approach consistent with each of the Partner States of linking the management of NTBs with a committing to implement their commitments formal monitoring and compliance under GATT 1994 Articles V, VIII and X. mechanism that allows for fast track decision making and is linked to the formal Secondly, and with immediately effect, all dispute settlement mechanism with a legally proposed new regulatory binding outcome. The experience of the EU measures/procedures should be required to in establishing a legally binding mechanism be notified to the other Partners and the with sanctions for non-compliance provides EAC Secretariat in advance to allow time (a a relevant model. minimum of 90 days) for consultation and review. When Partner States notify new regulatory requirements or procedures to the About the Author EAC Secretariat and each other they should also notify the WTO. For simplification, the Robert Kirk is Senior Vice-President at reporting requirements should be identical. AECOM International Development. The The experience of the WTO SPS and TBT work is funded by the Multi-Donor Trust Committees represent a relevant model for Fund for Trade and Development supported notification, reporting and discussion. by the governments of the United Kingdom, Thirdly, prior to any modifications or new Finland, Sweden and Norway. The views technical regulations being announced, the expressed in this paper reflect solely those Partner Country should undertake a of the author and not necessarily the views regulatory impact analysis (RIA). While the of the funders, the World Bank Group or its RIA is widely used in developed economies Executive Directors. it is rarely undertaken in developing countries. The RIA assesses the likely economic and social impact of a proposed regulation. Donors could potentially provide technical assistance to develop capacity for the EAC to undertake RIAs. Fourthly, the EAC and Partner States should commit to ensuring all existing policies, regulations, administrative procedures, and any related fees and charges relating to the importation and export of goods are readily available through a publicized web site. Provision should also be made for all proposed changes to technical regulations to 5 Table 1: Examples of EAC Non-tariff Barriers Identified for Immediate Action Potential for Non- NTM Transparent & Evidence/Scientific Summary Description Objective Alternative Measure Category discriminatory Basis application Non-recognition of EAC Rules and Certificates Prevent trade diversion II High Verification Missions Apply risk assessment of Origin under the EAC FTA Inconsistent between Mutual recognition I Import Bans (Milk, day old chicks, beef, poultry) Public Health High imports and domestic within EAC production Prevent tax evasion on Document based II Multiple Road Blocks High evidence of bribes None transit goods controls at borders Kenya levies charges on Plant Import Permit for IV Protection Yes None Abolish levy Ugandan tea Kenya requires Ugandan tea to have a SPS Lack of confidence in Recognition of SPS IV Public Health Yes certificate but does not recognize it UNBS certificates certificates within EAC II Multiple weighbridges along Northern Corridor Road Safety High None Use risk assessment Requirement for import license from the Ministry II of Trade and Industry and a bond prior to Protection Yes None Remove requirement Tanzania issuing excise duty stamps Discriminatory excise duty on cigarettes that do Domestic Content II Yes None Remove requirement not have 75 per cent of Tanzanian tobacco protection Landing certificates for exports from Kenya Abolish Landing II through Namanga issued by TRA in Arusha Administrative Yes None Certificate requirement rather than at the border Extra charges levied on Kenya pharmaceutical II Protection Yes None Abolish requirement exports by Tanzania Cotecna inspection required for imports to II Undervaluation Yes None Abolish requirement Tanzania Road Consignment note required from II ? Yes None Abolish requirement transporters prior to packing of goods Corruption along Northern and Central Corridors II Yes None Increase transparency at roadblocks, weighbridges, and borders 6 References ASEAN Program for Regional Integration Support, Issues and Options for the Work Program to Eliminate Non-Tariff Barriers in AFTA, 2005. EAC (East African Community), " NTB Elimination Plans for Kenya, Tanzania and Uganda", Arusha, Tanzania, 2007. EAC. " An Evaluation of the Implementation and Impact of the East African Community Customs Union", Final Report, 2009. East African Community Secretariat-East African Business Council (EAC-EABC). "Proposed Mechanism of the Elimination of Non-tariff Barriers in the EAC". Arusha, Tanzania 2006. Van Den Bossche Peter, The Law and Policy of the World Trade Organization: Text, Cases and Materials, Second Edition, 2008 World Bank, A Survey of Non-Tariff Measures in The East Asia and Pacific Region, January 2008 World Bank, Non-Tariff Measures on Goods Trade in the East African Community: Synthesis Report, October 10, 2008 (Report No. 45708-AFR) 7