The EAC: Regional Engine, African Model

The EAC: Regional Engine, African Model
The flag of the East African Community.
The East African Community (EAC) provides a useful lens through which to examine the prospects for broader regional integration in East Africa. The current EAC is built on a long history of regional cooperation, including a High Commission (1948-1961), a Common Services Organization (1961-1967) and even a previous attempt at an EAC, which was formed in 1967 and managed to build shared institutions before collapsing in 1977 under the weight of trade imbalances and ideological differences. In spite of the collapse, the three founding countries -- Kenya, Uganda and Tanzania -- agreed to explore and identify areas for future cooperation, and an East African Cooperation Commission was established in the early 1990s to coordinate efforts toward renewed regional cooperation. The EAC subsequently re-emerged as a regional economic community in 1999, and quickly adopted an ambitious regional integration agenda, leapfrogging the traditional starting point of a free trade agreement to move straight to a customs union. Rwanda and Burundi joined Kenya, Uganda and Tanzania in 2007, and South Sudan and Somalia have applied to join. Since being reconstituted, the EAC has largely remained true to its goal of a political federation of East Africa, steadily rolling out a series of regional mechanisms that have included: the establishment of the East African Community Customs Union, followed by a Common Market, a nontariff barrier monitoring and removal mechanism, currency convertibility, joint infrastructure projects, harmonization of standards for goods, harmonized national budget preparations, mutual recognition of health certificates, adoption of an East African passport, temporary travel documents for intraregional travel by EAC citizens, harmonized immigration procedures, joint military exercises and shared criminal intelligence. The EAC’s members have also established regional institutions such as the East African Court of Justice, the East African Legislative Assembly, the Science and Technology Commission, the Health Research Commission, the Civil Aviation Safety and Security Oversight Agency and a Chief Justices Forum. The EAC’s dynamism has helped to propel efforts toward the most ambitious African trade project yet: the so-called Tripartite Free Trade Area, which has been proposed to encompass the existing regional economic blocs of the South African Development Community (SADC), the Common Market for Eastern and Southern Africa (COMESA) and the EAC. Momentum in this direction seems to have finally brought the goal of a continental economic initiative within reach or at least within sight. The African Union declared in 2012 that an African free trade agreement would be launched in 2017. But the region’s policymakers must first resolve several challenges. Foremost among them is the overlapping membership of regional integration arrangements in southern and eastern Africa, which is almost without parallel. Seven regional economic communities (RECs) with various levels of harmonization are effectively operating within the region, creating a tangled network of integration arrangements with the EAC at the center. For example, Kenya, Uganda, Rwanda and Burundi are not only EAC members but also part of COMESA, while Tanzania is a member of both the EAC and SADC. Kenya and Uganda are additionally members of the Inter-Governmental Authority for Development, and Rwanda and Burundi are part of the Economic Community of Central African States. Furthermore, Rwanda, Burundi and the Democratic Republic of the Congo are members the Economic Community of the Great Lakes Countries, which was revived in 2004. The most significant and challenging overlaps, however, are with COMESA and the SADC. Meanwhile, a separate alphabet soup of trade agreements threatens to undermine progress on rationalizing the organizational boundaries of the RECs in eastern and southern Africa. In particular, the member states of SADC, COMESA and the EAC are all negotiating comprehensive trade agreements with the European Union, one of the region’s biggest trading partners. These economic partnership agreements (EPAs) create multiple groupings within the SADC and COMESA, largely caused by the existing REC overlaps. Only the economic partnership agreement between the EU and the EAC aligns with an existing REC. The region is therefore at the center of two broad, complex trade policy agendas with reciprocal impacts on each other: deeper African regional integration and African-European trade relations. The East African Community The EAC grouping is unique for its stated objective of forging a political federation. Its integration plan envisioned the establishment of a customs union, followed by a common market, then a monetary union and finally a political federation. The first two phases have already been realized, with the customs union launched in 2005 and the common market in 2010. Yet though the customs union was supposed to be fully operational by January 2010, in reality there remain significant obstacles to the free circulation of goods within it due to the lack of a regional mechanism for the collection, accounting and sharing of customs revenue. A study aimed at identifying a suitable mechanism is ongoing. Implementation of the common market is also lagging, due to delays in harmonization of national laws, standardization of reporting frameworks and finalization of the schedules on free movement of workers and services to conform to the EAC Common Market Protocol. Citizen concerns regarding differences in land tenure systems of partner states are also undermining grass-roots support for implementation. Monetary union negotiations commenced in 2010 and are also ongoing, with outstanding matters including macroeconomic as well as legal and institutional frameworks. The original goal of establishing a common currency by 2012 was not met, and there remains a long list of issues to be resolved. It is envisaged that a Central Bank and Federal Treasury will be established to support this. Although the original EAC target date of 2013 for the formation of a political federation will not be met, member states have already made progress on building the common political foundation necessary to support such a federation. Interim steps already taken include cooperation on such issues as conflict prevention, management and resolution; refugee management; and combating the proliferation of illicit small arms and light weapons. Formal institutional advances include the establishment of an EAC Forum of Electoral Commissions, a Forum of National Human Rights Commissions, Anti-Corruption/Ombudsman agencies and a Forum of Chief Justices. Meanwhile, in addition to a peace and security protocol signed in early 2013, EAC member states are also due to conclude protocols on combating and preventing corruption, promoting good governance and advancing defense cooperation. Nevertheless, more progress will be necessary if the political federation is to be realized on a fast-tracked basis as proposed. Economically, intra-EAC trade has grown since the launch of the customs union in 2005, from roughly $1.6 billion in 2006 to roughly $3.8 billion in 2010. Meanwhile, the share of intra-EAC trade in total trade rose from 7.8 percent in 2006 to around 11.4 percent in 2010, according to official EAC figures, with the share of intra-EAC exports to total exports rising from 14 percent in 2006 to around 20.2 percent in 2010. Intraregional investment flows have similarly risen. Kenyan firms in particular are adopting regional strategies, with Kenyan investment now ranking No. 2 in Tanzania and among the top five in Uganda. Key areas of Kenyan investment have included distribution, insurance and banking. Nonetheless, trade among EAC countries is dominated by primary products. Burundi’s key exports include gold, tea and mate, sugar, coffee and hides and skin. Rwanda’s are tea, coffee, ores and concentrates, hides and skins and petroleum products. Tanzania’s main exports to EAC member states are fish, tea, cotton, halogen salt, maize and textile products. Uganda’s key export commodities are vegetables, steel, maize and tobacco, imported by all the countries in the EAC. Kenya is the most diversified exporter in terms of value-added products, with its main exports to EAC partner states being petroleum products, apparel, construction materials such as lime and cement, steel and soaps, cleansers and polishes. Clearly the EAC region needs to focus on value addition to complement its primary products. The share of industrial products in the region’s GDP grew only slightly from 2006 to 2010. To further facilitate intraregional trade, joint infrastructure investments have been identified, and transport and communications policies are being harmonized, though there are significant obstacles to overcome. Transport, water, energy and information and communications technology are all areas where the region needs to improve. Logistics performance indicators for eastern Africa, measuring quality of infrastructure and competence, for example, are lower on average than those for all other regions in sub-Saharan Africa, due to cumbersome customs procedures, dilapidated infrastructure and poor logistics competence. Energy generation capacities have also not kept pace with the energy needs of the region. The outlook for communications is better, however, with Internet and mobile phone penetration growing rapidly and a protocol on information, communication and technology networks approved in late-2012. The EAC’s development strategies, too, have been hampered by a range of challenges. These include budgetary constraints, mismatches between regional and partner state development planning and inadequate national-level capacities to domesticate regional policies. Further challenges include supply-side constraints, weak legal, regulatory and dispute-settlement mechanisms and related problems in enforcement of community obligations and decisions. Linked to this shortcoming is weak institutional infrastructure and inadequate enforcement machinery and sanction mechanisms, and lengthy decision-making systems and processes. Crucial private sector constraints include limited supply capacities to take advantage of the regional market and an underdeveloped regional infrastructure. Public sector challenges include a lack of timely and reliable regional statistics coupled with a weak information-sharing culture among partner states. Overall, the EAC has made solid progress toward economic integration, though many challenges remain as it seeks to move toward a full political federation. Even so, it could serve as a template for deeper integration across the broader region. The Tripartite FTA In early February 2008, the EAC Secretariat called for the creation of a free trade area encompassing the EAC, COMESA and SADC in order to resolve regional trade bloc differences and deal with conflicts related to external trading arrangements with trade partners. Leaders of the three blocs officially launched the Tripartite FTA (TFTA) at a summit later in 2008. According to the African Union, the three regional economic blocs constitute 58 percent of the continent's GDP, 57 percent of its population and more than half of the AU membership. Twenty-two of the 26 Tripartite states are already covered by the FTAs of COMESA, the EAC and the SADC, with the four additional members being Angola, the Democratic Republic of the Congo, Ethiopia and Eritrea. The extent of the coverage by the three pre-existing FTAs is an important factor, as it lays the basis for consolidating them into the new Tripartite FTA. In theory, this should allow for the usually painstaking process of trade negotiations to be considerably shortened, in that further negotiations will only be necessary between member states that do not currently have any preferential arrangement. Four key areas of cooperation were called for: harmonization of trade regimes; free movement of businesspersons; joint implementation of regional infrastructure projects and programs; and legal and institutional arrangements for regional cooperation. The summit’s participants agreed on the establishment of an FTA with the ultimate goal of establishing a customs union involving all Tripartite member states. Although the negotiations are already running about six months behind schedule, the three secretariats hope to conclude the talks by early 2014. South Africa has placed an emphasis on practical integration, through infrastructure development and trade facilitation. As noted, however, countries in eastern and southern Africa formed regional groupings for the purpose of negotiating EPAs with the EU, which only overlap with already-existing RECs in the case of the EAC. These comprise an Eastern and Southern Africa EPA configuration; a Southern African Development Community EPA configuration; and finally, an EAC configuration. To safeguard the integrity of the EAC grouping, Tanzania left the SADC EPA to join its EAC partner states in their own EPA. The pre-existing overlap of REC memberships already generates conflicting implementation agendas; because the integration obligations differ from one REC to the next, multiple memberships often lead to a country having to implement conflicting obligations. Further conflicts in jurisdiction are created where similar institutional mandates exist, while legal uncertainty is also created in cases where more than one trade arrangement and attendant obligations apply to trade between two countries. Such uncertainties undermine the aim of establishing rules-based dispensations and add considerably to transaction costs and duplication. This increases the burden on member states, which often already lack the necessary capacity and resources. These problems are exacerbated by the added layer of misaligned EPAs. Harmonization of EPA positions among the regional groupings would require them, first, to agree on the same common external tariffs toward the EU; second, to align liberalization schedules wherever possible; and, third, to align exclusion baskets. This is unlikely to occur, not least because it would require reopening negotiations with the EU, which could trigger additional EU requests and years of further negotiation. The EPA negotiations are already overdue for conclusion, having started in 2007. The drive toward a unified SADC, COMESA and EAC FTA -- and a possible customs union -- becomes more understandable in this context. The only alternative would be to try and rationalize both the EPAs and the RECs, and for many TFTA states, the eventual launch of a SADC customs union would force them to choose between different RECs, a decision many have been successfully avoiding for decades. A TFTA complemented by a customs union offers a convenient way to bypass the RECs component of this tangle, although the route to a final TFTA is likely to take some time, given the number of players. Toward Deeper Regional Integration For the EAC, the most pressing overlap to resolve is that of Tanzania’s continued membership in SADC. It was only after a protracted struggle that Tanzania joined the EAC EPA, and efforts to convince Tanzania to surrender its SADC membership have been unsuccessful. It is possible that the TFTA, if successfully implemented, will finally present an alternative solution. While there are technical reasons for Tanzania’s position, its continued membership in the SADC highlights the fact that economic arguments are not the only factor determining membership in regional trade blocs. Parallel memberships are maintained because a single bloc does not satisfy all the strategic, political and economic needs and objectives of the member state. Traditionally, Tanzania and Kenya have been distrustful of each other’s economic and sometimes political intentions. An SADC membership has seemingly allowed Tanzania to counter Kenya’s historical regional economic dominance through a closer political and economic relationship with South Africa, with which Tanzania has strong historical ties. That the EAC has made such progress in the face of this disunity may be attributed in part to the efforts of Uganda and its president, Yoweri Museveni, who has consistently supported and championed the cause of a Federation of East Africa. A potentially similar rivalry lurks in the TFTA among South Africa, Kenya and Egypt. This proposed FTA marks the first time that these three large African economies will be joined within the same regional integration arrangement. The process will have to very carefully managed, politically and economically, to avoid unnecessary antagonism and shallow integration. In this context, the EAC offers some pointers as to the useful ingredients or variables that appear to facilitate and deepen regional integration. The extent to which these variables are unique to the EAC is key to whether the same “fast-tracked” comprehensive integration could be attempted in other regions. The first variable would appear to be a dominant ruling party and a divided or weakened opposition, combined with a weak civil society, within the countries of the proposed FTA. These kinds of power relations lend themselves to fast-tracking of regional integration by the political elite. For the integration to be sustainable and stable, however, the opposition and civil society must be included in the process. The second necessary variable would be acceptance by the political elite of some reduction of sovereignty. Without this, integration will founder. Moreover, it is vital that the political and economic benefits of integration occur fast enough to offset any loss of sovereignty. The third apparent variable is that the REC’s strongest or dominant business sector must be solidly behind the integration initiative. In the same vein, the presence of a reasonably dominant economy appears to provide both a driver for integration and potential market access opportunities that would attract the support of smaller economies in the REC. Ideally, however, the level of dominance must not be overwhelming. The fourth variable is history, meaning a common regional past that binds the parties together in some way. The fifth is the need for a determined champion, which the EAC has in Museveni. The sixth is that of visible delivery. There must be rapid and tangible benefits that can be ascribed to the integration in order to boost and sustain popular support for the project. The creation of an effective technocratic web of integration that includes harmonization and policy coordination forms the seventh variable. An eighth would seem to be linguistic and cultural commonality to some degree. Finally, a possible ninth variable would be an understanding that a pooled economic zone is necessary in the face of some external threat, whether it be a trade partner or a process, such as globalization or marginalization. If the EAC were to be successful in negotiating a political federation within a Tripartite Customs Union, it could provide a working model for the political and economic future that pan-Africanists have long dreamed of. It remains an ambitious project, as the goal of a regional political federation has never been successfully implemented in Africa, and seldom outside the continent in the modern era. Although large challenges remain, it is evident that the political will and technical machinery are in place to propel the EAC forward as a driver of this process. Although the target of 2013 may drift to perhaps 2018, it is very likely that the EAC will remain committed to its integration agenda and goal of political federation. Although the EAC has a unique history of integration to build on, it is still as reliant as other African RECs on sound decision-making, technical capacity and political will. In this respect it provides an encouraging example of what can be accomplished. From the day it achieves political federation status, a new chapter will have begun in African history. Pearl Thandrayan is a research partner with Emet Consulting, based in Durban, South Africa, which specializes in industrial, trade and labor market policy and consults for clients from government, NGOs, academia, business and civil society. She was previously director of International Development Cooperation at the Department of Trade and Industry in Pretoria.

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