Identifier
Created
Classification
Origin
05DARESSALAAM315
2005-02-15 04:09:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Dar Es Salaam
Cable title:  

Hike on Used Clothing Duties in Tanzania

Tags:  BEXP ECON ETRD TZ 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000315 

SIPDIS

STATE PLEASE PASS TO USTR
USDOC FOR DOC/ITA/TD/OTEXA/FLAATEN
NAIROBI FOR FCS

SENSITIVE

E.O. 12958:N/A
TAGS: BEXP ECON ETRD TZ
SUBJECT: Hike on Used Clothing Duties in Tanzania

REF: A) USDOC 00408 B) 04 DAR ES SALAAM

C) OWEN-FLAATEN E-MAIL

Sensitive but Unclassified (SBU); Please protect
accordingly.

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000315

SIPDIS

STATE PLEASE PASS TO USTR
USDOC FOR DOC/ITA/TD/OTEXA/FLAATEN
NAIROBI FOR FCS

SENSITIVE

E.O. 12958:N/A
TAGS: BEXP ECON ETRD TZ
SUBJECT: Hike on Used Clothing Duties in Tanzania

REF: A) USDOC 00408 B) 04 DAR ES SALAAM

C) OWEN-FLAATEN E-MAIL

Sensitive but Unclassified (SBU); Please protect
accordingly.


1. (SBU) Summary: US exporters and local importers were
caught by surprise when duties on used clothing imports
increased on January 1, 2005 as a result of the East African
Customs Union (EACU). Duties increased from 25 percent to
USD 0.75 per kilo or 50 percent, whichever is greater.
Local dealers, including members of the American Business
Association in Tanzania, have raised the issue with the
Tanzanian government and with the US Embassy. Nearly 250
containers of used clothing remain at the Dar es Salaam port
as the dealers appeal to the government for amnesty. Charge
d'Affaires and Econoff have met with the Tanzanian Finance
Minister and the Commissioner of the Revenue Authority to
discuss the issue, which has been covered extensively by the
local press. According to local businesses, the new duties
will put an end to the used clothing business in Tanzania.
End Summary.

--------------
New Rate Implemented without Notice
--------------


2. (SBU) The Tanzania Revenue Authority (TRA) began to
charge new duties on used clothing beginning January 1,

2005. The previous rate of 25 percent was changed to USD
0.75 per kilo or 50 percent, whichever is greater. The
Commissioner General of the TRA told econoff that the new
rate was required by the East African Customs Union (EACU),
which lists used clothing as a sensitive product. He said
that Kenya had insisted on the higher rate. In Tanzania,
the new rate is effectively over five times higher than the
previous rate of 25 percent. Used clothing is valued (for
customs purposes) by weight, at USD 0.55 per kilo. A tariff
of USD 0.75 per kilo will always be greater than a tariff of
50 percent, and represents an effective duty of 136 percent.


3. (SBU) The details of the new EACU duty rates were only
finalized in late December (see reftel B),days before the
January 1 implementation date. In the rush to reach a last-
minute agreement, the GOT neither consulted nor informed
local importers of the new duty rates until TRA suddenly
began to charge the higher rate in January. Currently,

nearly 250 forty-foot containers of used clothing remain at
the Dar es Salaam port as local importers refuse to pay the
exorbitant new tariff.

--------------
Local Dealers Fight Back
--------------


4. (SBU) In mid-January, the Mitumba Dealers Association
(mitumba is the Swahili word for used clothing) began an
organized campaign against the new duty rate. One member of
the association (an American citizen and member of the
American Business Association in Tanzania) contacted econoff
for assistance. The Mitumba Dealers Association also
contacted the press, placed articles in local newspapers,
and arranged television interviews. The local dealers
complained that there was no notice of the change, that the
duty is arbitrary and does not protect any local interest,
and that the industry will not survive if the new duty
continues. The American Business Association Chairman also
wrote a letter to the Finance Minister and Trade Minister,
urging a review of the new policy.

--------------
Embassy Advocacy
--------------


5. (SBU) Post met with GOT officials to clarify the
situation regarding the new duty rate. Charge d'Affaires
met with Finance Minister Basil Mramba in mid-January and
brought up the used clothing issue. Minister Mramba was
well aware of the situation and mentioned that local
business people had already been complaining loudly. He
said that the duty hike was required by the East African
Customs Union agreement and made it clear that the GOT was
not happy with the increase either. He noted that since
Tanzania does not have a strong garment industry, the only
beneficiaries of this increase would presumably be Ugandan
and Kenyan garment makers. He added that Kenya and Uganda
have been pressing for this increase for several years, but
it was only done now because of the EACU. Minister Mramba
also mentioned that the GOT had announced that the change
should go into effect by March 1, but that the TRA had gone
ahead with immediate implementation. The Minister noted
that there is a provision within the EACU for countries to
appeal tariff changes that are damaging to their economy; he
held out the prospect that the GOT might appeal this
increase at some point, but probably not immediately.


6. (SBU) Econoff met with TRA Commissioner General Harry
Kitilya in late January to discuss the issue further. The
Commissioner General explained that the TRA had been under
much criticism over the issue, but that TRA was not to
blame. He said that TRA had warned the government that the
rapid implementation of the EACU duties would cause
problems, but that TRA's obligation is to enforce the law
(in this case the January 1 implementation date of the
EACU). He noted that the Finance Minister had visited with
him on the subject, asking if waiving the duties until March
would be possible. According to Kitilya, he told the
Minister that he could only waive duties upon agreement of
the EAC Council of Ministers (i.e., all three Finance
Ministers). Kitilya lamented again that the TRA is being
harshly criticized for doing its job efficiently.


7. (SBU) Note: In fact, the TRA had already gone on the
offensive by issuing official statements in the Swahili
press on the issue. These statements claimed that the
increased rate was only 50 percent, and that the used
clothing dealers were misleading the public about the extent
of the duty hike. The statements concluded that good
citizens should stop complaining and pay taxes for the
development of the country. End note.

--------------
Used Clothing Industry in Peril
--------------


8. (SBU) The U.S. exports about USD 10 million worth of used
clothing to Tanzania, about one-third of Tanzania's total
used clothing imports. Canada and Germany are the next
largest used clothing exporters to Tanzania. Used clothing
is the primary source of clothing for most Tanzanians. The
local textile industry is small, export-oriented, and could
not begin to fulfill the needs of the Tanzanian market. GOT
officials have said that the agreement was not intended to
protect local industry, but was only to appease Kenya.
Local importers have said that the used clothing trade will
completely stop in Tanzania if the new duty rates continue,
arguing that local consumers will not be able to afford the
higher prices. They argue that only the Kenyan garment
industry will benefit, while Tanzanian traders and consumers
suffer.


9. (SBU) Comment: It appears that in the rush to sign the
EACU, Tanzania allowed Kenya to use the EACU to increase the
protection of its garment industry. Working level trade
officials seemed as surprised as the importers at the sudden
change and its impact on the local used clothing industry.
As public opinion against the EACU grows, the GOT faces a
dilemma: applying for numerous exceptions to the common
external tariffs weakens the whole idea of the Customs
Union, while agreeing to harmonized tariffs that hurt
Tanzanian business weakens the public's support of the
Union. GOT officials are only now realizing that it will be
very difficult to undo the damage of its rushed approach in
the EACU negotiations. End comment.

OWEN