EAC CUSTOMS UNION: UPDATE ON TARIFFS

UNCLAS DAR ES SALAAM 001185

SIPDIS

STATE FOR AF/E AND AF/EPS
PASS TO USTR BILL JACKSON

E.O. 12958:N/A
TAGS: ETRD PREL ECON EFIN ECIN KTEX TZ
SUBJECT: EAC CUSTOMS UNION: UPDATE ON TARIFFS

REF: STATE 110285


1. Per reftel, econoff and commercial FSN spoke with the
East African Community (EAC) Director of Customs, Peter
Kiguta, and with Dr. Kaboyoka of the Tanzanian Ministry of
Industry and Trade (MIT) to solicit information on updated
tariff rates under the EAC's Common External Tariff (CET).


2. At the Heads of State Summit held in Arusha May 14, the
EAC was directed to consider proposals from member states
and other stakeholders regarding changes to the CET. Kiguta
explained that the EAC has received the proposals and has
come up with informal agreements on some tariff changes.
The new rate is still subject to further review and final
decision by the EAC Council of Ministers of Trade, Finance
and Investment, which will meet in Arusha next Monday, June

20. Technical meetings will begin in Arusha on June 18 to
discuss the proposals and come up with the recommendations
for consideration by the EAC Council of Ministers. The EAC
Council will not only discuss the CET but will discuss other
issues in connection with implementation mechanisms and
rules of origin. If the EAC Council approves the tariff rate
changes, they will go into effect on July 1, 2005.

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USED CLOTHING
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3. While Kenyan and Ugandan budget speeches noted that
duties on imported used clothes would be significantly
reduced, Tanzanian Trade Minister Mramba did not mention the
change in his speech. According to Kiguta at the EAC,
stakeholders have agreed to reduce duty on used clothing
(mitumba) from 75 percent or 60 US Cents per kg to 45
percent or 30 US Cents per kg. (Note: In Tanzania, the
value of used clothing is calculated by weight at the rate
of 55 US Cents per kg, making the 30 US Cents per kg
effectively a 55 percent tariff.) GOT officials support the
reduced rate (which remains higher than the pre-Customs
Union rate).

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PHARMACEUTICALS
--------------


4. Kiguta also noted that Kenya announced a unilateral
suspension on duties on pharmaceutical products, adding that
only the EAC Council of Ministers can legally suspend the
duty. Kaboyoka of Tanzania's MIT reported that Tanzania
petitioned the EAC Secretariat for clarification on Kenya's
move to suspend the 10 percent tariff on pharmaceutical
products (as well as duties on diapers, sanitary pads,
liquid petroleum gas and computer software). The GOT has
submitted its case to the EAC for settlement, arguing that
only essential drugs for HIV-AIDS, TB and Malaria should be
zero-rated and that there was no need to suspend tax on
other finished pharmaceutical products, diapers and sanitary
pads because it will only deny the government revenue.


5. Comment: Of the CET tariff rate changes, only used
clothing has gotten particular attention in Tanzania, both
from local dealers and US exporters. Pharmaceuticals are
generally imported as donations through tax-exempt NGOs. On
other items, Tanzania is likely to support higher tariff
rates if supported by the other member states in order to
maximize revenue. End comment.

OWEN