Trade relations between Kenya and Tanzania are expected to improve after President Jakaya Kikwete promised manufacturers that he would spearhead the removal of non-tariff barriers hindering movement of goods and labour.
Speaking during a dinner hosted for him by the Kenya Association of Manufacturers (KAM), the Tanzanian president said he would push to have the barriers slowing down trade removed.
“We have committed to trade with Kenya, see more investments into Kenya from Tanzania and into Tanzania from Kenya. When we have these problems, raise them and solutions will be found. I will look into all these issues and we will find solutions,” President Kikwete said.
Kenyan traders have over the years cited rigid customs clearance procedures and work permit scheme as hindrances to the smooth operation of their businesses in the region’s second biggest economy.
KAM chairman Polycarp Igathe said Kenyan manufacturers importing inputs through the preferential duty remission scheme and exporting final goods to Tanzania were being charged the common external tariff , which is meant for goods sourced from outside the bloc.
The scheme, popularly known as Tax Remission For Exports Office (TREO), is used by the Kenyan government to encourage local manufacturers to export their products.
It involves remitting duty and valued added tax (VAT) on raw materials used in the manufacture of goods for export and covers any process before the commodity is finally produced. This includes assembling, packing, bottling, repacking, mixing, blending, grinding, cutting, bending, twisting, joining or any other similar activity.
In Kenya, the exemption has mainly benefited importers of wood free paper, newsprint, cover paper and white lined chip-board used for making text and exercise books.
Others items include industrial sugar used to bake bread and biscuits and complete knock-down kits (CKDs) used in the assembly of motorcycles and bicycles. This remission was, however, not granted for the importation of plant, machinery, equipment, fuel and lubricants, or in respect of suspended or dumping duty.
The EAC customs union grants firms set up in the bloc the right to sell their goods in any of the five states without paying taxes or being subjected to administrative barriers.
Tanzania, however, argues that products that benefited from the TREO should be sold outside the EAC bloc.
It argued that with the coming into force of the EAC customs union and the full application of the common external tariffs (CET), it means that Uganda, Tanzania, Rwanda and Burundi are part of the domestic market and excluded from rules meant to help grow industrial exports in Kenya.
President Kikwete said the initial apprehension by Tanzania over regional integration had waned, saying the ‘‘bureaucratic and ridiculous’’ non-tariff barriers would be dealt with through the bilateral Joint Commission for Co-operation.
“What you are talking about today has already been taken care of and very soon you will get answers. We have to strengthen the Community and ensure that the treaty is being implemented,” said President Kikwete.
Kenyan authorities and traders have been lobbying to have the changes on the TREO scheme delayed to allow for a smooth transition by other partners such as Uganda who still enjoy preferential terms.
Uganda won concessions from her EAC partners to continue exempting its manufacturers from paying import duty on a list of 135 industrial inputs when the CET initially came into force in 2005.
Like the duty remission scheme, the list was to lapse at the end of last year but was extended after sustained pressure from the country’s industrialists.
KAM claimed that despite the extension, Tanzanian authorities continued to defy the arrangement. “As a result, Kenyan exports to Tanzania are being adversely affected,” Mr Igathe said.
Apart from the tax scheme, KAM said Tanzanian authorities were also stingy in issuing work permits and disregarded the common market protocol that promises traders and individuals right of movement and access to factors of production within the bloc.
Kenyan businesses operating in Tanzania are required to pay $200 (Sh16,800) for a Certificate of Temporary Assignment. Mr Igathe said this was punitive because salesmen, consultants, and drivers were from time to time required to cross the border on short assignments.
“The business community is appealing to the Government of Tanzania to consider waiving the visa charges for Kenyan businesses,” Mr Igathe said.
During the dinner, Kenya government officials, business leaders including bankers and tourism traders lamented to President Kikwete their experiences when doing business in East Africa’s second largest economy.
KCB Group chief executive officer Martin Oduor-Otieno said commercial lenders were being restricted from financing large projects in the region because of laws that require such projects to have guarantees from international lenders.
He said that KCB in Kenya was big enough to guarantee financing for large projects done by KCB Tanzania, calling for the rules to be revised.
Fred Kaigwa, the chief executive of the Kenya Association of Tour Operators, said tour operators from Tanzania cannot operate freely in Kenya and vice versa leading to higher costs that are then transferred to the tourists.