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EAC states should agree to one trading bloc, says IMF

The Standard, Kenya

EAC states should agree to one trading bloc, says IMF

2 November 2008

By Benson Kathuri

The International Monetary Fund (IMF) has challenged three East African Community (EAC) partner states to agree to one regional trade bloc in order to make the customs union (CU) more effective.

The fund, through its country report for October, saidthe CU, now in its third year, had made progress, overlapping membership was hindering smooth implementation.

Besides being a member of the EAC, Kenya, Uganda and late entrants Rwanda and Burundi belong to Comesa, while Tanzania is in the Southern Africa Development Community (SADC).

"The countries have made considerable progress by launching the CU five years after the re-establishment of the EAC," said the report. "However, to become a fully functioning CU, the EAC countries should resolve the issue of overlapping memberships in regional trade agreements."

The Fund warns that since legally or technically a country cannot apply for two different common external tariffs, the pattern of overlapping membership will become impossible to maintain, once Comesa and SADC become customs unions.

Comesa is expected to become a customs union by next month, although it has adopted a tariff structure, including a common external tariff similar to the EAC-CU.

fast-track option

"The EAC customs union can, in the long run, only be sustained as a fast-track option of a more slowly materialising Comesa CU, if all EAC Partner States belong to Comesa," said the IMF report. "This would require Tanzania to rejoin Comesa, and leave the SADC Free Trade Area".

According to the report, the private sector in Tanzania has revealed its strong preference to rejoin Comesa, a position that is supported by the East African Business Council.

The Fund has warned the bloc to be careful during the on-going Economic Partnership Agreement (EPAs) with the European Union (EU) that will conclude in July next year.

The IMF says that unless negotiations lead to a rationalisation of regional trade agreement, EPAs could complicate the overlapping membership problems and lead to further trade diversion.

different commitments

"Unless the SADC and Comesa groups’ negotiations with the EU are closely co-ordinated, the EAC members may face different commitments, which would make the implementation of the EPAs together with the EAC-CU, costly and cumbersome," warns the report.

In order to simplify the negotiating process, and to enhance the development impact of the agreements by promoting intra-regional trade, the EU has favoured negotiating EPAs with a limited number of groupings, centred on the pre-existing Free Trade Arrangements or customs unions.

Initially, the EU had a preferential trade arrangement with 79 countries across Africa, Caribbean and Pacific that ended last December.