Is The East African Community (EAC) Ready For A Customs Union? Or Is EAC Integration Nearing Collapse? Lessons From Kenya -Uganda Milk Dispute

Background

In his recent speech  Kenya’s president gave certain directions regarding agriculture  and the speech read in part as  follows;

“ In the agricultural sector, our farmers have continued  to get high milk yields. However due to  the excess supply , they are receiving very low prices for their milk. The situation has  been exacerbated by the incursion of powdered milk which is smuggled into Kenya from outside our Eastern Africa Region. This has caused financial hardship to dairy farmers. As part of my intent and pledge to the milk farmers , I have given three practical directives:

One, I have directed the National Treasury to release 500 million shillings to the new KCC to purchase excess milk to convert it into powder milk for future use.

Two I have directed the National Treasury to release further 575 million shillings to new KCC  for two milk plants , one in Nyeri and one in Nyahururu, to enhance their processing capacity. In sum, my intent is to boost the milk industry with 1.07 billion shillings in the immediate run as a way of supporting their efforts.

Three and to  protect our milk producers  from illegal imports , I have directed  the National Treasury to impose 16 % VAT on milk products that have originated from outside the EAC.  I have further directed KEBS , Customs and DCI to impound any powdered milk or milk products that does not meet Kenyan standards.

It is the last part of the directive that  has caused storm. It is reported that soon after the speech the Kenyan authorities descended on the milk products at the border particularly those under “LATO” brand, confiscated the detained them on the grounds that these products were counterfeit. This action has led to what some have called  a small scale “ Trade War”  with Uganda threatening [albeit briefly] a retaliation unless the seized products are released and allowed to be move unconditionally. The Kenya authorities (backed by the Presidential directive) have remained put.

It is important to contextualize the pronouncements alluded to  above. Before this directive by President Kenyatta, there had been complaint by dairy farmers about the low prices of raw milk and the influx of milk from Uganda. The Milk from Uganda has been retailing locally at a much lower price compared to that from Kenya and thereby slowly but steadily competing effectively with the Kenya’s milk.

The above complaints then led to the Kenya’s Ministry of Trae sending a delegation to Uganda for a fact-finding  mission on why the was influx of Milk from. It is reported that the meeting,  reportedly held on 20^th December, 2019 , resolved to allow Kenya to levy 16% VAT  on Milk   from  Uganda. The basis of the agreement was the fact that Uganda was also levying the same duty [ of 16%] on Milk from Kenya.

It would seem  at this point that there was a feeling that some milk ( mostly milk powder) was coming form outside the EAC  and this leading to this influx. However, the so-called delegation to Uganda did not establish whether the milk  from Uganda was originating from outside the EAC.  If this were the case then  the 16% VAT or even more  would  perhaps be justified, subject of course, to identifying the right products are required by.

Rules of Origin( ROO)  

According to World Trade Organization , Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.

If the issue is that of Rules of Origin then it cannot be  addressed by  the seizures on allegations of counterfeit products at the border. And the EAC is yet to comprehensively operationalize ROO.

What is not so clear and which is worth finding out is whether all this ‘excess milk’ from Uganda leading to influx is indeed wholly from Uganda. It would seem that the Kenya delegation never  found out this. Yet the President’s directive on the face of it assumes that the milk is not entirely from Uganda as it  states that. “ I have directed  the National Treasury to impose 16 % VAT on milk products that have originated from outside the EAC…”

This statement did offer a glimpse of  hope in the sense that  the duty is aimed at countries outside the EAC. However, from the  actions  by the authorities it would appear  that  Uganda was the prime target. By now it should reasonably be expected that EAC Partner States ought to treat EAC as  one domestic market for purposes of competition. It actually ought to have one single competition authority  and a standards body. This way the Partner states can stop inward looking tendencies. This however  cannot be achieved with the prevailing suspicions that the Partners have toward one another. But this is a story for another day!

Remedies for Uganda

One of the  questions that is worth addressing is  whether  Uganda has remedies against this directive. And the answer is  Yes it does. It also worth mentioning that  Uganda does not compare to Kenya when it comes to milk consumption. Indeed, not so long as ago Kenya was importing milk from Uganda to meets its shortfall. Perhaps this was an incentive for Uganda dairy industry to grow.And before  venturing into the remedies it is worth exploring whether the approach by Kenya has violated the Treaty Establishing the East African Community and the various protocols.

Action by Kenya  contrary to  EAC Treaty

The  Treaty Establishing the East African Community  states in Article 6 that the fundamental principles that  guide the community are (a) mutual trust , (b)peaceful co-existence  and good neighborliness , (c) peaceful  settlement of dispute s (d) good governance(e)equitable distribution of   benefits  and (f) co-operation of mutual benefits. The above sets  the “ ethos”  which should guide the EAC partner states in their dealings. But as shall demonstrated , they remain just that, ethos.

Uganda has complained bitterly about the seizure of its milk arguing that the action by Kenya violates the East African  Community (EAC) Customs Union  Protocol.

 Violation of  the EAC Customs Union Protocol

The East African Community , established via the 1999 Treaty after the collapse of the initial EAC, has  four integration pillars namely Customs Union, Common Market , Monetary Union and Political Federation.  Article 5 of the Treaty  stipulates there were to be achieved progressively, starting with the customs union and ending in a Political Federation. This  Article provides that [ In pursuance of the provisions of Article 1],

the Partner States undertake to establish among themselves and in accordance with the provisions of this Treaty, a Customs Union, a Common Market, subsequently a Monetary Union and ultimately a Political Federation in order to strengthen and regulate the industrial, commercial, infrastructural, cultural, social, political and other relations of the Partner States to the end that there shall be accelerated, harmonious and balanced development and sustained expansion of economic activities, the benefit of which shall be equitably shared. 3. ..”

In terms of operationalizing  the Customs Union, Article 75 of the Treaty mandate the Partners states to come up with a [customs union] protocol to include chiefly application of principle of asymmetry, elimination of internal tariffs and other charges of equivalent  effect , elimination of non-tariff barriers , establishment of common external tariffs , Rules of Origin  , dumping , subsidies and countervailing duties , security and other restrictions of trade , competition , duty drawback , refund and remission of duties and taxes , customs co-operation , re-exportation of  goods and simplification and harmonization of trade documentation.

By virtue of the Customs Union Protocol , Kenya and indeed other partners states are supposed to ensure that the goods from other partner states pass into their territories without unnecessary hindrances . Any therefore any measure , directive and policy that undermines this free flow offends the Customs Union Protocol and by extension the EACC Treaty. The decision by Kenyan authorities to impound milk from Uganda  following the Presidential directive is therefore a violation of the  Protocol.

The East African Court of Justice Needs Testing

The Treaty in Article 23  mandates the East African Court of Justice { EACJ} to ensue adherence  to laws  in the interpretation of and compliance with the Treaty. It is reported that Uganda Trade Ministry  has sent a protest  note to Nairobi demanding unconditional release of the seized  milk There has also been threats for retaliation. It is not clear  whether Kenya had yielded. Interestingly Uganda’s president has apparently  declared there  will no retaliation by Uganda.

Should this issue be just wished away by if there are  structures set by the  EAC Treaty to address such? Perhaps not. If the Partner states want to salvages what has remained of the EAC then institutions set under it need to be tested. More specifically the East African Court of Justice needs to develop  jurisprudence that can put a stop the these [whimsical] decisions.

In this  regard it easy to  see that   this dispute falls within the jurisdictional arms of the EACJ. Under Article 28(3) of the Treaty   a party state may refer for determination by the Court, the legality of any Act , regulation , directive , decision or action on the ground that it is ultra vires or unlawful or an infringement of the provisions of the treaty or any rule of law  relating to its application or amounts  to misuse abuse of powers.

In fact, there are even more options  in approaching the  judicial body; any natural or legal person or a  legal entity can approach it. By dint of Article 30, any person who is  a resident in a partner state may  refer for determination by the Court  the legality  of any Act, regulation , directive , decision or action  of a partner state  or an institution  of the community on the grounds that  such an Act, regulation , directive , decision or action is unlawful or is an infringement of the provisions of the treaty.

Countries don’t Trade, Businesses Do

It is important to note that whereas the Treaty was negotiated by the Partners states, its primary beneficiaries are  the businesses that engage in trade such as  the  milk producers. And because of this fact, it is incumbent upon the business   and business associations such as Association of manufacturers to  take a proactive role in trade matters. This can be achieved by these entities approaching the relevant institution such as the East African Court of Justice to ensure that the Treaty is respected. We don’t see much activisms from the business community. Yet under  the treaty any legal person can approach the Court for interpretation and /or intervention.

EAC Integration Remains Elusive

When the EAC was revamped and the treaty  established, there was a lot of hope in the region. However,  at times passes  the dreams and aspirations espoused in Article 5  that is to widening and deepening co-operation among the Partner States in political, economic, social and cultural fields, research and technology, defence, security and legal and judicial affairs, for their mutual benefit seems to have faded. Increasingly the Partner States are taking stands that are indeed protectionist and inwardness .Yet in summits meetings the heads of states usually portray a picture of togetherness.  Will the community  hold together? Only time will tell.