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The Validation Workshop for the East African Business Council (EABC) Customs Union impact studies was held on the 4th of August, 2008 at the Kampala Sheraton Hotel, Uganda. It was jointly hosted by the EABC Secretariat and the Uganda National Chamber of Chamber of Commerce and Industry (UNCCI).Preceding the workshop was the commissioning of two studies by the EABC to take stock of the effects of the Customs Union on the business community so as to engage on issues geared towards enhancing its implementation whilst mitigating its adverse effects. The validation workshop was intended to offer an opportunity to selected stakeholders to confirm whether the findings of the studies were an accurate reflection of the effects of the Customs Union on the business community. The workshop attendance was drawn from the private sector, business membership organizations (BMOs) and the public sector. The attendance list in its entirety is at appendix A.

In his opening remarks, Mr.Kassim Omar, UNCCI’s First Vice-President welcomed participants to the workshop. He commended the EABC for the continued effort and investment in research geared at promoting the private sector and the regional economies. He observed that the EABC and its membership had done their part in highlighting critical issues inhibiting the growth of the private sector and that it was high time other stakeholders such as governments took cognisance of this and implemented the recommendations made. He concluded by expressing the hope that the outcome of the workshops deliberations will contribute to the fast-tracking of the integration of the East African Community.

On behalf of the EABC, Dr.Nelson Githinji, a member of the EABC Board of Directors, welcomed participants to the workshop. He underlined the fact that the EABC has a primary role in ensuring the creation of policies that enable the business sector become more profitable and enhances the possibility of attractive returns on investment. He revealed that as part of the EABC’s policy advocacy mandate, work was underway to identify issues for lobbying in the banking sector while the Annual Business Climate Index was another output of such efforts. He pointed out that energy was a key issue affecting the competitiveness of industries in the East African Community(EAC).To contribute towards the resolving of this situation and as a follow- up measure to the Energy Conference organised by the EABC in September of 2007, he announced that they intend to host a renewable energy forum in November of 2008 whose participation would be drawn industry regulators, renewable energy companies, financiers and donors with the objective of enhancing locally financed short term energy projects within limited time spans. His remarks also touched on the objectives of the study and the validation workshop as seeking to generate evidence that would be used by the EABC in its advocating for measures to maximise the successes of and mitigation of the challenges to the Customs Union. He concluded by expressing EABC’s gratitude to the Government of Uganda and the EAC for the support extended to the private sector as well as the Regional Trade Facilitation Programme(RFTP) and the United Kingdom’s Department for International Development(DFID)

for sponsoring the validation workshops.Lastly,he thanked UNCCI for their input in organising the workshop.

On behalf of the EAC, Mr.Fredrick Owiti, principal economist at the EAC in charge of investment promotion and private sector development underlined the importance of the private sector with regard to employment creation, wealth creation and tax revenues. He revealed that mainstreaming of the private sector within the EAC’s programmes and projects is underway and guided by the Private Sector Development Strategy and that the strategy was due for revision to cater for the entry of Rwanda and Burundi into the EAC.In addition, he disclosed that plans are afoot to brand EAC for investment promotion purposes and that this had been reaffirmed by the investment summit recently held in Rwanda. He further disclosed that an investment promotion campaign targeting Europe would be held in Novemeber, 2008.On the progress of economic integration, he stated that the common market which would enable movement of factors of production and reduce the cost of doing business was the target stage. He concluded by congratulating the new Board of Directors of the EABC and called for greater collaboration between the EAC and EABC.

2. Presentation of Draft Study Reports on the Customs Union Impact

Mr. Bernard Kagiira of Integrated Development Consultants presented the two draft reports commissioned by the EABC as part of taking stock of the implementation of the East African Community Customs Union and its effects on the business sector.

2.1. Draft Study Report on the Effects of East African Community Customs Union (EACCU) In recognition of the fact that the implementation of the EAC Customs Union was entering its fourth year, the EABC felt that the time was ripe to take stock of the implementation and the effects on the business community. To that end, a study on the effects of the customs union was commissioned. The objectives of this study are:

e) To understand the level of awareness about the opportunities of implementation of the EAC CU

f) To understand the expectations of the business community from the EAC Customs Union g) To understand the facilitation needs of the business community in relation to the EAC CU h) To understand the challenges facing EAC exporters, producers and importers.

The findings and recommendations of this study as presented to the workshop are presented below:

2.1.1. Study Findings.

The findings of the Study in summary form are presented below:

Inputs from the EAC account for 15% of the domestic production chain revealing scope for enhanced intra-regional trade.

On the external factors hindering businesses from taking full advantage of the EACCU,electricity,fuel and transport costs ranked highest accounting fro an estimated 70% of total external factors

Existence of excess capacity as a major hindrance to trade in the region with the situation being more grave in Rwanda and Burundi as compared to Uganda, Kenya and Tanzania. This illustrated by the finding that 40-50% of firms in the former operate at between 10-30% while in the latter they range from 81%to 100%.

On intra-region exports, the findings present a mixed picture with Kenya as the exception having its exports evenly distributed between Uganda, Tanzania and Rwanda at an estimated 26% of total

On regional imports, the study finds that the bulk of member states imports are from outside of the region with Europe as a significant source of imports

On awareness of the EACCU,the study found that the level of awareness is quite high in the founding member states of Kenya, Uganda and Tanzania as compared to the later entrants Burundi and Rwanda.

On the availability and content of information on the EACCU, the study found that this was low and, in some cases, unavailable.

On sources of business information on the EACCU, associacions of manufacturers ranked highest followed by the EAC website and secretariat, workshops and seminars and the media.

On whether the EACCU had been successfully implemented, the majority of respondents in Kenya ,Uganda and Tanzania took the affirmative view

On the impact of the EACCU on business, the study found that in varying degrees member states had experienced enhanced free movement of goods, business expansion and increased business turnover. However, implementation of the EACCU had not significantly impacted on intra-regional investments as domestic sources remained predominant.

On the attractiveness of the EACCU preferences, the study found that elimination of intra- EAC tariff and the Common External Tariff (CET) to be the most attractive features while Non-Tariff Barriers, the EAC sensitive list, application of EAC rules of origin and the CET structure were found to be the least attractive features.

2.1.2. Study Recommendations

Below is a summary of the recommendations made by the Study on the Effects of the Customs Union:

To enhance awareness of the EACCU, publicity needs to be stepped particularly in Rwanda and Burundi. In addition, the content of publicity needs to be revised to enhance access by the business community and other stakeholders

On the integration of domestic production chain into the EAC market, several recommendations are made. They include iidentification of products with intra-EAC trade potential and development of a network of buyers and suppliers, mapping of trade and regulatory requirements at national and regional level for each of the products, mainstreaming any policy/regulatory requirement which may be deemed as inhibiting intra-EAC trade for the identified products into EAC policy making organs and initiation of EABC/EAC periodic roundtables to monitor exploitation of the EAC market potential.

Development of EAC infrastructure to offset some of the external factor costs identified by the study On excess capacity, the study recommends that the EAC Industrial Development Strategy among other things identifies companies in such situations and devises measures to help them improve on capacity utilisation in the framework of the EAC market

Harmonisation of EAC,SADC and Comesa Trade regimes to eliminate the present differences Enhancing the awareness of the NTB monitoring mechanism

EABC,EAC and the regional financial sector need to devise measures to enhance intra-regional investments

On measures to address non-implementation of the customs union,export compensation, review of tariffs, and provision of rebate/insurance, among others, are proposed.

On measures to guarantee full implementation, the report recommends implementation of the EAC Customs Union Protocol, implementation of the NTB monitoring mechanism, elimination of the NTBs and harmonization of customs operations.

On mitigation of losses resulting from non-implementation of the EACCU, the report proposed eenforcement of the Customs Union Protocol, tracking and monitoring effectiveness of implementation of specific Customs Union requirement in collaboration with private sector, securing of reforms in trade facilitation system to accommodate the changes foreseen in the EAC Customs Management Act and capacity building and empowerment of the public and private sector on matters of the EAC Customs Union implementation.

On the empowerment of the EAC Secretariat to strengthen regional integration, the report proposes transfer of some powers from governments to the secretariat, ugpgrading of the secretariat to commission status with full funding and greater commitment by the partner states.

On the business community and lobby groups holding governments accountable for non- implementation of EAC Customs union, the report proposes aadoption of EAC harmonized standards, introduction of legislation to deter non-implementation of the Customs Union, demonstrate to governments’ strong correlation between private sector gains from implementation of Customs Union and economic development, quantify the loss of business opportunity and strengthen business associations and lobby groups to be proactive and petition governments in event of non implementation of the EAC Customs Union.

2.2. Border Survey Study

The Border Survey Study was commissioned by the EABC with the aim of identifying challenges faced by the business community when transiting through the EAC borders and the opportunities to address them. The study was, in part, motivated by the need to validate the findings of the study on the effects of the customs union with specific regard to NTBs.

2.2.1. Findings of the Study.

The scope of the study covered 12 border posts including 2 ports and its findings are abridged below:

On customs and trade processes, a total of 524,461 customs were made for the year 2007 translating into exports worth US$2,011,943,898 and imports worth US$ 13,389,733,691.In terms of headcount, 234 customs officials were deployed to man the 12 border posts. In addition, further analysis of the data obtained revealed a positive correlation between the number of customs officials and number of customs declarations

On immigration, the study identified discrepancies between the number of exitees and entrees and yet the two parameters should tally on either end of the border posts. In addition, no correlation was observed between the data on exitees and entrees on the one hand and the number of immigration officials on the other.

In as far as sanitary and phytosanitary (SPS) aspects are concerned, all border posts with exception of two had SPS officials. However, some border posts had one official and by implication either plant or animal health would go unattended at such border posts as it is unlikely that the one official would be qualified in both disciplines thus risking transmission of diseases across the borders. In addition, the Study found that only half the border posts had a health official on station.

On standards, the findings are that not all border posts have Bureau of Standards officers on station with the exception of Kenya

On security, the finding was that this matter is taken rather seriously and adequate measures are in place at the majority of the border posts

On infrastructure, the survey revealed that half of the border posts have adequate inspections bays while 58% of the parking bays are in a sorry state. The survey further reveals that most sections of roads serving border points are in good shape. In as far as availability of other essential services and with particular regard to banks and filling stations, the survey found that only half of the border posts had such facilities.

In terms of trade flow across the borders, the survey found that a substantial amount of trade was being carried out as manifested in the value of exports and imports that stood at US$ US$2,011,943,898 and US$13,389,733,691 respectively in 2007.However, an equally substantial amount of unrecorded trade estimated at US$31,600,000 was also going on over the same period.

In as far as trade facilitation is concerned, the survey found that immigration documents were widely available and the duration required to secure them fairly short while the perception of their cost was that it is standard. The survey further found that customs declaration forms were widely available and in use by most truck drivers.However, a section of traders was not making use of the declaration forms citing complexity. On customs clearance duration, on average it take a truck 115 minutes, 44 minutes for traders and 45 minutes for clearing agents. In terms of police, SPS authorities and Bureaus of Standards clearance, on average truckers require 96 minutes, traders need 109 minutes and clearing agents 117 minutes.

On clearing agents, the survey found that their use was prevalent and their charges depended on factors such as volume of goods, variety of goods, etc.The survey recorded several complaints against clearing agents including surcharges occasioned by the delay in clearance of goods, intentional delays in the clearance of goods, misplacement of client documents and high charges for their services.

On Non-Tariff Barriers (NTBs), the survey recorded various complaints from truck drivers ranging from police checks and barriers, to delays at border points and understaffing of customs. More importantly, the survey revealed the absence of a formal NTB monitoring mechanism confirmed by the strong support by respondents for the establishment of such a mechanism.

2.2.2. Reccomendations.

The Border Survey Study makes the following recommendations:

On immigration, the study recommends greater collaboration between immigration officials on shared border points to iron out discrepancies between in the data on entrees and exitees.It further recommends the rationalisation of staffing levels as a measure to enhance efficiency and the benchmarking of clearance durations with the most efficient border posts.

On customs, the survey recommends benchmarking against the most efficient customs points and the sharing lessons to enhance performance. In addition, it recommends the simplification of custom forms and the EAC Certificate of Origin

On sanitary and phytosanitary inspections, the survey recommends the posting of SPS officials at all border posts to address both plant and animal health as a measure of enhancing intra-regional agricultural trade.

On standards, the posting of Bureau of Standard officers at border posts is recommended. In addition, the study urges the Bureaus of Standards to explore the possibility of establishing jointly manned offices.

The study recommends the revamping of infrastructure at border points in terms of buildings,roads,inspection bays and parking bays as well as other facilities such as banks and filling stations

On Non-Tariff Barriers (NTBs),the report recommends the implementation of the EAC NTB monitoring mechanism.

3. Reactions by Participants

Following the presentation of the two Study Reports by the Consultants, the presentations were discussed by Mr. John Sempebwa and Mr. Charles Kareeba representing the Private Sector Foundation Uganda (PSFU) and the Uganda Freight Forwarders Association (UFFA) respectively. Additional reactions to the consultant’s presentation were drawn from the cross section of participants. Below is an abridged version of the reactions by both the discussants and the rest of participants:

3.1. Draft Study Report on the Effects of East African Community Customs Union (EACCU) Participants observed that the sample size of the study was rather limited and as a result

expressed reservation on the conclusions drawn. They called for the expansion of the sample size to generate more representative findings.However, the consultants clarified that despite the limited sample size the results were still statistically significant as the sampling had focused on companies that account for 60-70% of intra-regional trade.

Participants expressed dissatisfaction with the scope of the study and demanded an explanation on the criteria employed in distributing the survey’s sample between partner states. In response, the consultants clarified that the scope of the study was shaped by the terms of reference(ToRs) and resource constraints while the distribution of the survey’s sample amongst the partner states was guided by the principle of asymmetry.

On capacity utilisation, participants noted that the figures used to draw conclusions on this parameter were static. They observed that a time series approach would have been more beneficial in terms of assessing the impact of the customs union on capacity utilisation. Participants confirmed the finding that associations of manufacturers are a key source of

information on the customs union.However, they noted this was to be expected since manufacturers dominated the survey sample.Additionally, they indicated a willingness to learn about other good sources of information on the customs union.

On the finding by the study that implementation of the EACCU was proceeding well, participants expressed reservations on this revelation citing the prevalent NTBs with particular regard to the trade relations between Uganda and Kenya. To that end, they pinpointed the failure to implement the EAC NTB mechanism as a significant shortcoming.Relatedly, they called on Kenya to do more to dismantle NTBs inhibiting trade