EAC SAYS IT IS READY TO MOVE FORWARD ON THE US-EAC TIFA

UNCLAS SECTION 01 OF 03 DAR ES SALAAM 001531

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SUBJECT: EAC SAYS IT IS READY TO MOVE FORWARD ON THE US-EAC TIFA


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Summary
--------------

1. (U) The Secretary General of the East African Community (EAC),
Ambassador Juma Mwapachu, told Assistant United States Trade
Representative (AUSTR) for Africa Florie Liser November 13 that the
proposed U.S.-EAC Trade and Investment Framework Agreement (TIFA)
would be at the top of the agenda of the EAC's next summit meeting.
SG Mwapachu gave Ms. Liser a few suggested EAC changes to the draft
text, which she promised to have USG colleagues review upon her
return to Washington. The EAC staff offered an update of the
ongoing discussions on the Economic Partnership Agreement (EPA) with
the European Union. Liser urged the EAC to review its Common
External Tariffs for used clothing and almonds and encouraged the
EAC member countries to work cooperatively, especially in the
textile and apparel sectors, to improve value-added production
chains and exports under AGOA. End summary.


2. (U) AUSTR Liser was in Arusha to attend the African World
Business Congress and Tanzania Investment Forum. In her remarks at
the November 12 opening of the conference, she mentioned that the
USG was still waiting to hear from the EAC on the USG offer, first
made in June 2006, to undertake a TIFA between the United States and
the EAC. Tanzanian President Kikwete, who was also at the opening,
intervened to publicly ask Liser, from the dais, "what the hold-up
was" with the TIFA. When she replied that she honestly did not
know, he indicated that he would be following up with Secretary
General Mwapachu, who it turns out was also at the opening.
President Kikwete was seen meeting with Mwapachu immediately after
the conference.


3. (U) Thus it was no surprise that Mwapachu was eager to discuss
the TIFA in his previously scheduled November 13 meeting with Liser
at the EAC Headquarters in Arusha. The Secretary General explained
to Liser that the EAC trade ministers had requested that the TIFA be
drafted as an agreement between the United States and the East
African Community, rather than bilaterally with member states as in
the original draft. Liser noted that the United States has TIFAs
with other regional economic organizations in Africa, such as
COMESA, and therefore has no objection to doing the TIFA with the
EAC. She reminded Mwapachu that the possibility of an EAC TIFA was
initially raised by USTR at the June 2006 AGOA Forum in Washington
DC and the original draft was sent to the EAC and its members in
August 2006. In late June 2007, USTR's William Jackson met with EAC
officials in Arusha, where he learned of the EAC Members' preference
that the agreement be with the EAC rather than with its members. In
August 2007 USTR transmitted to the EAC an updated version of the
draft TIFA reflecting this change.


4. (SBU) SG Mwapachu assured Liser that "at the political level the
TIFA is endorsed." He stated that since USTR submitted the updated
language in August, the draft TIFA has been circulated to all EAC
member countries and would be on the agenda at the next ministerial
level Sectoral Council of Trade, Investment and Finance. He noted
that, the previous day, President Kikwete had expressed to him that
the TIFA should have the highest priority on the EAC agenda.
"Yesterday President Kikwete inquired whether the Sectoral Council
was ready to consider the TIFA and told me that we must open up to
the United States," Mwapachu said. Kikwete asked that once a date
was set for the EAC summit, the TIFA should be discussed by the
heads of state at the pre-consultative meeting. Mwapachu added that
Uganda's President Museveni, the current chair of the EAC Summit,
had also indicated his intent that the U.S.-EAC TIFA be a top agenda
item for the EAC.

EAC Common External Tariff: Almonds, Used Clothing
-------------- --

5. (SBU) AUSTR Liser raised with Mwapachu U.S. concerns about
increased tariffs on some U.S. exports to EAC countries since the
establishment of the EAC Customs Union and its related Common
External Tariff (CET) in January 2005. She noted that the U.S. has
asked the EAC to reconsider the classification of almonds under the
CET and to place almonds in the "semi-finished" product category.
She also asked that the EAC look closely at the extraordinary
tariffs imposed on used clothing under the Customs Union. The EAC
staff commented that in mid-2005, the tariff was lowered from 50
percent to 45 percent, or an average of about 30 cents per kilo, and
that a number of other taxes (e.g. excise) had also been removed as
a result of the CET. The tariff reduction was primarily in response

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to strong lobbying by East African used clothing importers and
middlemen who claimed the higher tariff hurt not only their
businesses but severely affected the buying power of lower-income
consumers. (Comment: Despite the modest mid-2005 reduction, the
EAC tariff on used clothing is still substantially higher than
before the EAC Customs Union and continues to serve as a hindrance
to U.S. exports of this product to the region. End comment.)


6. (SBU) SG Mwapachu insisted the higher CET on used clothing was
still needed for the moment: "The textile industry is only now
beginning to revive; we need to have a breathing space." Ms. Liser
countered that studies show that suppressing the used clothing
market usually does not yield the intended result. Often the gap
between locally produced textiles and apparel is filled by cheap,
poorly made imports, predominantly from China.


7. (SBU) The EAC secretariat staff said a comprehensive review of
the used clothing tariff is now underway. The review includes a
thorough analysis of all textile and apparel sectors and is being
conducted by the members' respective Ministries of Finance. A key
goal is to assess the utilization of used clothing at current tariff
levels and the capacity of the region. SG Mwapachu pointed out the
need for the review to also analyze results through a
country-by-country breakdown.

EPA Discussions with European Union
--------------

8. (U) In response to AUSTR Liser's request for an update on the
EAC's negotiations with the European Union on an Economic
Partnership Agreement, the EAC staff commented that an October 11
meeting in Nairobi had been key. At that time, an EAC harmonized
offer on access was presented to and accepted by the EU; all EAC
trade ministers had signed the document. EAC Deputy SG Julius Onen
was currently in Brussels to lead the final negotiations supported
by the trade representatives of Tanzania, Uganda and Kenya.


9. (SBU) SG Mwapachu said an interim EPA was the goal because the EU
had realized that none of the regional entities were yet ready to
conclude the broader WTO-compliant agreement that the EU is seeking.
Only certain market access issues would be agreed to; other issues
will continue to be negotiated after January 1. The EAC goal is not
to liberalize too quickly, to seek exceptions for sensitive goods,
and to eliminate certain subsidies.

African Support Needed to Secure WTO Waiver
--------------

10. (U) Liser appreciated African nations' willingness to liberalize
trade and emphasized that the U.S. wants to give as much preference
as possible to sub-Saharan African nations for as long as possible.
She added that USTR has been watching the EPA negotiations carefully
since, ultimately, the United States would also look toward
reciprocal agreements with African nation partners. At present,
AGOA has been approved by Congress until 2015 with no reciprocal
obligations. However, the United States must obtain a WTO waiver to
continue the AGOA preferences. The U.S. request for a waiver is
still pending in the WTO, with Paraguay being one of the last
hold-outs standing in the way of the waiver. Ms. Liser urged that
the EAC countries press Paraguay to remove its objections to the
waiver.

Textiles and Apparel
--------------

11. (SBU) USTR Liser reiterated the need for EAC and all
AGOA-eligible countries to take advantage of opportunities in the
apparel sector. "There is a bright market for African-produced
textiles in the United States." She also noted the need to work
cooperatively to guard against counterfeits: "I saw many fake
textiles in West Africa, particularly in Nigeria, that had been
copied by hand, then counterfeited, often by Chinese companies."


12. (U) Liser stressed that textiles and apparel can enter the U.S.
duty-free under AGOA and noted that a number of AGOA-eligible
countries have increased their apparel exports within the last two
years, including several East African countries. However, nearly
96% of the fabric used in AGOA apparel exports was from non-AGOA
countries. "Africa has a huge under-utilized capacity to produce
African-grown cotton and cotton-blend textiles." She strongly
encouraged SG Mwapachu to guide the EAC members to produce more

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textiles and apparel for export.

EAC Strategy and Cooperation is Key
--------------

13. (SBU) AUSTR Liser also challenged Ambassador Mwapachu to focus
on increasing cooperation among AGOA-eligible countries within the
EAC: "One country can produce the cotton, another can spin the yarn,
another can weave the fabric, and yet another can transform the
fabric into apparel for export. Strategize to take advantage of
AGOA and create an aggressive regional approach from the cotton
farms all the way through the value-added chain," she suggested. SG
Mwapachu agreed that such an approach should be a central industrial
and investment policy for the EAC. While adding that many of the
needed instruments are in place, the SG still queried: "How do we
make the shift?" Liser stressed the USG is ready to work with the
EAC through OPIC, USAID and other USG agencies to support a
coordinated East African regional strategy to increase AGOA exports.


Timing
--------------

14. (U) SG Mwapachu indicated that the regularly scheduled November
2007 EAC meetings, both Sectoral Council and the Summit, might be
postponed due to the ongoing presidential and parliamentary
elections in Kenya. "The Kenyans, from President Kibaki downward,
are very involved in the campaign," he said. Consequently, the
Summit might not be convened until early 2008 which could lead to a
slight delay in approving the TIFA. "But rest assured it is an
extremely high priority for the EAC," Mwapachu concluded.

GREEN