Thursday, March 24, 2016

EAC 2050 Vision

The EAC has recently concluded an EAC 2050 Vision document. The Pillars of Vision 2050 contain five chapters, each of which is a pillar on which the Vision 2050 stands. These pillars are integral to the very idea of long-term transformation, value addition and growth the overarching theme that runs through the vision, needed for accelerating the momentum for sustained growth over the long term. 

The 5 pillars are:
(a) Infrastructure development; 
(b) Industrialization; 
(c) Agriculture, food security and rural economy; 
(d) natural resource and environment management; and finally 
(e) tourism, trade and services development.

The presidents of the six countries of the East African Community have approved the regional Vision. The Heads of State committed themselves to implement the EAC vision and ensure that by 2050, the EAC will have been transformed into an upper-middle income region within a secure and politically united East Africa based on the principles of inclusiveness and accountability. The Heads of State also committed themselves to implement the vision and ensure that by 2050, the EAC will have been transformed into an upper-middle income region within a secure and politically united East Africa based on the principles of inclusiveness and accountability. 

Vision 2050 primarily focuses on initiatives that will create gainful employment and must, therefore, aim to accommodate the development pillars and enablers that would create jobs to absorb the expected expansion of workforce in the next decades. 

The implementation of Vision 2050 will be based on periodic concentration with marked segments consisting of phases of five years and addressing specific aspects of the Vision.

The EAC vision is a way of harmonizing and consolidating the visions of Partners States as well as the EAC institutions and bringing into focus the interests of the combined population of the community and alignment with the AU Agenda 2063 as well as the 2030 Sustainable Development Goals in the United Nations.

For the African Union Agenda 2063 which is both a vision and an action plan. It articulates an approach on how the continent should effectively learn from the lessons of the past, build on the progress now underway and strategically exploit all possible opportunities available in the immediate and medium term, so as to ensure positive socioeconomic transformation within the next 50 years.

Export Processing Zones in Kenya

Kenya’s Export Processing Zones (EPZs) have failed to meet expectations on wealth and job creation, the World Bank (WB) says in a new report as the government prepares to reform the model which has lagged behind what Asian and Latin American countries offered.

Incentives provided through export processing zones and special economic zones should be compatible with World Trade Organization specifically the Subsidies and Countervailing Measures Agreement including timelines on export promotion instruments; otherwise host countries may face retaliatory actions by importing countries.

According to the Kenya Export Processing Zones Act Article 9 replicated below these are the regulations that apply to EPZs in Kenya.

Subject to subsection (1) and without prejudice to any other written law, the export processing zone enterprises, export processing zone developers and the export processing zone operators shall be granted the following exemptions—

(a) exemption from registration under the Value Added Tax Act;
(b) exemption from the payment of excise duties as specified in the Customs and Excise Act (Cap. 472);
(c) exemption from the payment of income tax as specified in the Income Tax Act (Cap. 470) for the first ten years from the date of first sale as an export processing zone enterprise, except that the income tax rate shall be limited to twenty-five percent for the ten years following the expiry of the exemption granted under this paragraph;
(d) exemption from the payment of withholding tax on dividends and other payments made to non-residents during the period that the export processing zone enterprise is exempted from payment of income tax under paragraph (c);
(e) exemption from stamp duties on the execution of any instruments relating to the business activities of an export processing zone enterprise;
(f) exemption from quotas or other restrictions or prohibitions on import or export trade with the exception of trade in firearms, military equipment or other illegal goods;
(g) exemption from exchange controls on payments for—
(i) receipts of export processing zone exports;
(ii) payments for raw materials, intermediate goods, tools, and spares, supplies, construction equipment and construction materials, capital equipment, office equipment, repatriation of royalties, management fees, technology transfer fees, profits, dividends, advertising expenses, inspection fees for quality control, debt service and any other legitimate business expenses; and
(iii) capital transactions, except on capital funds raised form Kenya residents subject to exchange control in which case remittance of dividends, profits, debt service and any other returns to such capital invested shall be subject to the Exchange Control Act (Cap. 113);
(h) exemptions from rent or tenancy controls; and
(i) any other exemptions as may be granted by the Minister for the time being responsible for finance by notice in the Gazette.

See related article here on the Kenyan experience on EPZs.

Meanwhile Mauritius can be considered one of the most successful stories in the context of the African continent on EPZs. In the past Mauritius has grown on average by 6 per cent, relying on several growth engines which include export processing zone (EPZ), the sugar sector, tourism and the emerging financial services sector. The EPZ can be credited with diversifying the Mauritian economy from the traditional sugar sector and leading to the industrialization of the country.

Saturday, March 19, 2016

Positioning Services Reforms and Negotiations for Development

This is dated but I thought I should post it here for my records. Positioning Services Reforms and Negotiations for Development presented in Nairobi Kenya.

A Positive Agenda for Trade Facilitation Negotiations in Africa

This paper I wrote is a little dated but the concision is still useful given the conclusion of the WTO Trade Facilitation negotiations. The paper can be assessed here.

Trade facilitation is definitely a potential source of growth promotion in Africa and African countries need to continue focus on an integrated and coherent approach. Progress achieved in such a broad approach does not, however, necessarily mean multilateral binding. It is important to provide adequate policy flexibility in the rules to enable countries commit according to own priorities and capabilities. Members should be allowed to pre-commit, with the option of linking pre-commitments to effectiveness of capacity building efforts. A multilaterally agreed monitoring framework will be necessary. Such a review needs to monitor and evaluate the commitments made, the implementation capacity and the availability of technical and financial assistance. Experience with ongoing trade facilitation programme suggests that the cost of ambitious multilateral agreement on trade facilitation will be high and certainly beyond the capability of African countries. 

There is, therefore, a need for trade facilitation fund to cater for necessary adjustment costs arising from the expected new commitments in the final WTO trade facilitation agreements. The next steps for adequate participation of Africa in these negotiations would be to document the situation in a selected group of countries that have made relatively good progress in these areas and that could provide “best practice” examples. These case could be used to design a comprehensive programme that a typical African country would have to undertake in order to comply to a multilateral agreement on trade facilitation with elements in proposals being tabled are to become binding. Additionally, submissions to the negotiating group on trade facilitation can be made specifically to address concerns of African countries and present possible positions following the needs assessment exercise.

See other comments I have made on trade facilitation here.

Thursday, March 10, 2016

India Files WTO Challenge Against US Visa Fee Increases

India has has filed a dispute against the US under the WTO Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) which constitutes Annex 2 of the WTO Agreement and has requested consultations with the US.

According to the dispute, under the Consolidated Appropriations Act of 2016, Washington increased fees for L-1 type visas by US$4500 and for H-1B type visas by US$4000 for companies with 50 or more employees in the US, if more than 50 percent of their employees are non-immigrants employed on such visas. It was signed into law by President Barack Obama in December 2015, with the measures in place through September 2025.

H1B is work permit for temporary specialty workers while L1 visas are issued for intra-company transfers that allows companies to relocate qualified employees to US offices.

India claims that these measures, along with earlier fee increases between August 2010 and September 2015, appear to violate the US’ commitments under its Schedule of Specific Commitments under the WTO’s General Agreement on Trade in Services (GATS) – the set of global rules involving services trade- along with being inconsistent with other GATS provisions. 

India claims that the visa fee increases: 

appear to: (i) be inconsistent with the terms, limitations and conditions agreed to and specified by the United States in its Schedule of Specific Commitments under the GATS, (ii) accord to juridical persons of India having a commercial presence in the United States treatment that is less favorable than that accorded to juridical persons of the United States engaged in providing like services in sectors such as the Computer and Related Services sector with respect to which the United States has taken commitments in its Schedule of Specific Commitments, and (iii) affect the movement of natural persons seeking to supply services in a manner that is inconsistent with the United States' commitments in its Schedule of Specific Commitments. These measures also appear to nullify or impair the benefits accruing to India directly and indirectly under the GATS. 

In its complaint, India said that the current measures (of visa fee hike) result in less favorable treatment for Indian companies with commercial presence in the US in comparison to US companies engaged in providing like services and according to the GATS Schedule. 

This violates the principle of ‘national treatment’ embedded in multilateral trade rules, which lays down that foreign companies will be treated on a par with local firms. 

The Government of India is of the view that these and comparable measures, taken by the United States are not in conformity with at least the following provisions of the GATS: Articles XVI, XVII, XX, and paragraphs 3 and 4 of the GATS Annex on Movement of Natural Persons Supplying Services. These measures also appear to be inconsistent with Articles III:3, IV:1 and VI:1 of the GAT 

Furthermore, New Delhi is also claiming that recent US changes to its numerical commitment for H-1B visas – specifically due to modifications Washington has made under FTAs with Singapore and Chile – also are inconsistent with its GATS schedule. 

According to the consultations request, the US included under its horizontal commitments regarding mode 4 – that involving the movement of natural persons – that it would permit up to 65,000 people annually on a worldwide basis under the category of fashion models and specialty occupations. 

Under the two FTAs mentioned above, these “numerical commitments” have allegedly been changed. According to India, US homeland security officials must now set country-specific limits for both countries, with these numbers taken away from the global total of 65,000 receiving H-1B visas.

BRICS Bank now operational

The New Development Bank BRICS (NDB BRICS), formerly referred to as the BRICS Development Bank is now operational. The Bank is a multilateral development bank founded by the BRICS states (Brazil, Russia, India, China and South Africa) as an alternative to the existing US-dominated World Bank and International Monetary Fund. The Bank is set up to foster greater financial and development cooperation among the five emerging markets. Unlike the World Bank, which assigns votes based on capital share, in the New Development Bank each participant country will be assigned one vote, and none of the countries will have veto power.

The five big emerging market economies (BRICS) have strengthened co-operation with a constant goal in mind: to challenge the West’s grip on the Bretton Woods institutions by creating their own monetary fund and development bank.

They chafe at their under-representation at the IMF; the voting rights of China, the world’s second-largest economy, are not even a quarter of those of the US. An IMF reform that would slightly correct the imbalance has been languishing for three years. A battle seems to have a foregone conclusion because of the composition of the IMF executive board, which names the managing director. It is dominated by Europeans and Americans.

The BRICS Bank shall in its role mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging economies and developing countries, complementing the existing efforts of multilateral and regional financial institutions for global growth and development.

To fulfill its purpose, the Bank shall support public or private projects through loans, guarantees, equity participation and other financial instruments. It shall also cooperate with international organizations and other financial entities, and provide technical assistance for projects to be supported by the Bank.

Even though the bank has 5 founding members, the Bank shall be open to members of the United Nations, in accordance with the provisions of the Articles of Agreement of the New Development Bank and shall be open to borrowing and non-borrowing members.

To fulfill its purpose, the Bank is authorized to exercise the following functions:

(i) to utilize resources at its disposal to support infrastructure and sustainable development projects, public or private, in the BRICS and other emerging market economies and developing countries, through the provision of loans, guarantees, equity participation and other financial instruments;
(ii) to cooperate as the Bank may deem appropriate, within its mandate, with international organizations, as well as national entities whether public or private, in particular with international financial institutions and national development banks; 
(iii) to provide technical assistance for the preparation and implementation of infrastructure and sustainable development projects to be supported by the Bank; 
(iv) to support infrastructure and sustainable development projects involving more than one country; 
(v) to establish, or be entrusted with the administration, of Special Funds which are designed to serve its purpose. 

The Bank has its headquarters in Shanghai.China and the Bank may establish offices necessary for the performance of its functions and as such the first regional office is in Johannesburg, SA.

The Bank shall have a Board of Governors, a Board of Directors, a President, Vice-Presidents as decided by the Board of Governors, and such other officers and staff as may be considered necessary. With India providing the bank’s president, the bank’s four vice-president’s come from each of the other Brics member countries (Brazil, Russia China and SA). SA’s vice-president is Leslie Maasdorp, who, as chief financial officer, will be responsible for treasury and portfolio management as well as the finance, budgeting and accounting functions.

The Bank in its operations may provide financing in the local currency of the country in which the operation takes place. 

The Bank shall possess full international personality and enjoy wide immunities.

Friday, March 4, 2016

Proposed Levy on Imports to Finance EAC Secretariat

From Business Daily. See more here.

The cost of imported goods looks set to rise as the East Africa Heads of State agreed on a new import levy to finance secretariat operations which have long been hit by unreliable donations and member subscriptions.

The Heads of State on Wednesday called for the conclusion of a more sustainable financing plan for the EAC budget.

The summit directed the council to finalise the work on the modalities required to establish a sustainable financing mechanism for the East African Community based on various options, including a hybrid of a levy and equal contribution with a commitment to increase the budget, that encompasses the principles of equity, solidarity and equality, and submit a report to the next summit for consideration.

EAC Treaty Articles 132:4 and 133 state that the EAC budget shall be funded by equal contributions by the Partner States and receipts from regional and international donations and any other sources as may be determined by the Council. Other resources shall include grants, donations, funds for projects and programmes, technical assistance and income earned from activities undertaken by the Community. 

The region’s council of ministers has previously proposed that member states should consider levying one per cent import duty on goods from non-member states.

The push for a new levy could come with pain for consumers in Kenya and other EAC countries where most of essential goods attract value added tax (VAT) after governments scrapped previous exemptions. 

Consumers in Kenya are already subjected to the recently introduced 1.5 per cent railway development levy (RDL) and the 2.5 per cent import declaration fee charged by the Kenya Revenue Authority (KRA). 

The additional one per cent levy would push up the prices for imports — including inputs for making essential commodities. 

Kenya in 2014 unsuccessfully tried to impose the RDL on all imports passing through the port of Mombasa. 

The KRA was forced to review the RDL collections after regional traders filed a complaint with the EAC Council of Ministers citing breaches to the regional common market protocol. 

A regional lobby group, the East African Business Council (EABC), argued that the 1.5 per cent levy imposed on imports was inconsistent with the EAC Customs Union Protocol, because it is a charge of equivalent effect that partner states agreed to remove. 

The customs union protocol enables goods produced within the region to be sold across the borders without duty while imports from non-EAC states are subjected to a three-band common external tariff structure. 

Raw materials attract no duty, intermediate goods are charged at 10 per cent while finished products are allowed into the region at 25 per cent tariff. 

Kenyan traders further said the RDL, which KRA imposed on top of other levies such as the 2.5 per cent import declaration fee, was tilting the competition landscape in the shared market in favour of their neighbours. 

KRA gave in to the pressure in early March 2014 and ordered all its officers to stop imposing levy on goods entering Kenya from the other four member states of the EAC.

Thursday, March 3, 2016

South Sudan Admitted as Member of the EAC

At the 17th Ordinary Summit of the Heads of State of the EAC on March 2nd 2016, South Sudan was admitted as a member of the East African Community and the Treaty of Accession was signed with the Republic of South Sudan. Earlier South Sudan's membership application was put on hold after the technical team cited poor market economy structures, weak governance institutions and insecurity. It is not immediately clear whether South Sudan comes in as an observer or a full member. Articles 3.3 and 3.4 of the EAC Treaty on membership do not specify the stages of new membership into the community but instead specify that the conditions of entry are:

The EAC Partner States may, upon such terms and in such manner as they may determine, together negotiate with any foreign country the granting of member ship to, or association of that country with, the Community or its participation in any of the activities of the Community. 

The matters to be taken into account by the Partner States in considering the application by a foreign country to become a member of, be associated with, or participate in any of the activities of the Community, shall include that foreign country’s: 

(a) acceptance of the Community as set out in this Treaty; 
(b) adherence to universally acceptable principles of good governance, democracy, the rule of law, observance of human rights and social justice; 
(c) potential contribution to the strengthening of integration within the East African region; 
(d) geographical proximity to and inter -dependence between it and the Partner States; 
(e) establishment and maintenance of a market driven economy; and 
(f) social and economic policies being compatible with those of the Community. 

The granting of observer status to a country is the prerogative of the summit. 

South Sudan applied to join the EAC in 2011 following the gaining of her independence before she conducted any impact assessment studies. The EAC is now a customs union and is working on forming a monetary union. It is questionable if South Sudan is adequately stable and has the institutional capacity to function adequately in a dynamic regional economic bloc like the EAC. 

See more here and other resources on EAC's accession here.

EAC Launches E-Passport for International Travel

The East African Community (EAC) Heads of State have announced the internationalization of the EAC passport and launching of the electronic-East African passport for the region’s citizens by January 2017.

The e-passport which will apparently phase-out the national passports, will allow citizens of Tanzania, Kenya, Rwanda, Uganda and Burundi to travel across the regional and the passport will also allow international travel.

The new digitized passport replaces the old EAC travel document, which was restricted for travel within the five member states. The e-passport will ease movement within and outside the community, fulfilling the mandates of the EAC Treaty Article 104:3 and the Common Market Protocol on the free movement of people Article 8. The EAC e-passport is expected to have additional security features to protect against identity theft and data skimming. The e-passport will also have an electronic chip that holds the same information in bio metric form that is printed on the passport’s bio data page, including the holder’s name, date of birth, passport number and what the holder does for a living, among other things. It will also contain a bio metric identifier, a digital photograph of the holder and security features to prevent unauthorized reading or scanning, which will in turn reduce cases of forgery.

The African Development Bank has also just launched the first Africa Visa Openness Index, report which shows how Africa remains largely closed off to African travelers. On average Africans need visas to travel to 55% of other African countries, can get visas on arrival in only 25% of other countries and don’t need a visa to travel to just 20% of other countries on the continent.

The report highlights regional and geographical differences. Currently, 75% of countries in the top 20 most visa-open countries on the continent are in West Africa or East Africa. Already citizens from Kenya, Rwanda and Uganda can use national identity cards to travel in these states without the use of passports.

Wednesday, March 2, 2016

WTO Trade Facilitation Agreement and Facility

The WTO Trade Facilitation Agreement (TFA) adopted In December 2013 in Bali is the first multilateral trade agreement to be concluded since the WTO was established 20 years ago. WTO members also adopted on 27 November 2014 a Protocol of Amendment to insert the new Agreement into Annex 1A of the WTO Agreement. According to the WTO Agreement, a Member formally accepts the Protocol by depositing an “ instrument of acceptance” for the Protocol with the WTO. The Trade Facilitation Agreement enters into force once two-thirds of members of the 162 have completed their domestic ratification process, that is 108 members. As of writing, 70 countries have completed the ratification process and deposited their instrument of acceptance with the WTO.

The agreement aims to clarify and improve relevant aspects of Articles V, VIII and X of the GATT 1994 with a view to further expediting the movement, release and clearance of goods, including goods in transit. It also sets out measures for effective cooperation between customs and other appropriate authorities on trade facilitation and customs compliance issues. Among the issues addressed in the Agreement are:
  • norms for the publication of laws, regulations and procedures, including Internet publication
  • provision for advance rulings
  • disciplines on fees and charges and on penalties
  • pre-arrival processing of goods
  • use of electronic payment
  • guarantees to allow rapid release of goods
  • use of "authorized operators" schemes
  • procedures for expedite shipments
  • faster release of perishable goods
  • reduced documents and formalities with common customs standards
  • promotion of the use of a single window
  • uniformity in border procedures
  • temporary admission of goods
  • simplified transit procedures
  • provisions for customs cooperation and coordination.
The agreement is groundbreaking in that for the first time in WTO history, the commitments of developing and LDC's are linked to their capacity to implement the TFA. In addition the agreement states that capacity building support should be provided to these countries to help them implement the TFA provisions.

To benefit from Special and differential Treatment (SDT), a member must categorize each provision of the Agreement, as defined below, and notify other WTO members of these categorizations in accordance with specific timelines outlined in the Agreement.

  • Category A: provisions that the member will implement by the time the Agreement enters into force (or in the case of a least-developed country member within one year after entry into force) 
  • Category B: provisions that the member will implement after a transitional period following the entry into force of the Agreement 
  • Category C: provisions that the member will implement on a date after a transitional period following the entry into force of the Agreement and requiring the acquisition of assistance and support for capacity building.

In order to assist developing and LDCs secure assistance and support to implement the provisions of the TFA, the WTO has established the Trade Facilitation Agreement Facility through which the WTO and other partners will expand its traditional technical assistance programmes to assist with matchmaking of donors and recipients.