Uganda-Kenya trade wars and the need for a comprehensive Trade Remedies framework in the EAC

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From milk, to maize, to poultry bans, the latest trade war in the East African Community (EAC) is here in the now award-winning latest episode in the T.V series, “Keeping Up with Deepening and Widening Regional Economic Integration in the EAC”.

Trade liberalization under these preferential trade arrangements encapsulated in Free Trade Areas and Customs Unions comes with its costs. Domestic industries especially of developing and least developing countries take a hit as competition and pressure from products coming from elsewhere flow into their territories. Away from the theoretical concepts of “deeper and wider economic integration”, are these inescapable realities.

In order to preserve the integrity of international trade and guard against unfair trade practices, the multilateral trade system under the World Trade Organization (WTO) and even before under the General Agreement on Tariffs and Trade 1947 (GATT 1947) came up with Trade Defense Instruments.

These trade defence instruments are in the form of trade remedies; anti-dumping, countervailing and safeguard measures.

Trade Remedies are tasked with dealing with unfair trade practices resulting from imports and Safeguards assist a state in dealing with the negative effects of the increased importation of goods into its territory. Kenya and Uganda as members of the WTO are bound by these Trade Remedies and Safeguard measures.

 The World Trade Organization (WTO) has rules on how these Trade Remedies and Safeguards should be applied because they are prone to abuse by states and can take the form of protectionism by states. The members of the WTO concluded agreements on Anti-dumping, Subsidies, and Countervailing and Safeguards under the Uruguay Round of negotiations. What is in WTO speak termed as “Disciplines”. These Trade Remedies and Safeguards are thus far the most litigated issues under the WTO’s Dispute Settlement Understanding.

 The multilateral trading system it must be reiterated is “rules-based”.

Dumping in a nutshell occurs when a firm exports its goods/ products at a lower price than the normal value of the products. Anti-dumping measures are therefore aimed at counteracting dumping. Governments are allowed to take action against dumping where this dumping causes “material injury” to a competing domestic industry.

A Subsidy can be defined as government support which can take the form of financial aid, tax holidays, and generally export incentives among others provided to a trader. The trade distortionist and injurious effects of these subsidies are disciplined through the use of subsidies and countervailing measures and these can take the form of countervailing duties on the subsidized products. The key test is that for a subsidy to be withdrawn or for countervailing duties to be imposed, the complaining government must show that the subsidy has caused adverse effects on its competing domestic industry.

Safeguards on the other hand were designed to provide emergency protection from a surge in imports that cause or threaten to cause “serious injury” to a like domestic industry. For safeguards, it is “serious injury” as compared to anti-dumping which requires that there should be “material injury”. These safeguard measures are supposed to be temporary to allow the adjustment of domestic industries to this new market situation. They can take the form of tariff increases and quotas, to mention but a few. As this author explains later in this article, their application cannot be arbitrary, there are rules-based guidelines on their application. Their implementation is disciplined.

This time the Kenyan authorities as compared to their earlier ban of maize imports from Uganda have not provided any official communication regarding this poultry imports ban so it is not clear what trade policy instrument if any that they could have applied. This author assumes that since this involves import bans, the Kenyan authorities have though irregularly and illegally implemented Safeguards.

Besides the requirement of “serious injury or a threat of serious injury”[i], Safeguards measures must only be applied in “circumstances not reasonably foreseen”[ii], the rise in imports must have been “sudden, sharp, and significant enough”[iii] and they are time-limited, usually not more than four years or provisionally two hundred days. Perhaps even more importantly, Safeguards are applied “irrespective of source”[iv] on a Most Favoured Nation (MFN) basis-meaning that the Kenya ban should have for example applied to all poultry imports from every other country that exports poultry products to them.

Countries often conclude their own preferential Trade Remedies and Safeguards frameworks away from the multilateral trade rules under the WTO. It has also been argued that being in a Customs Union with Kenya, Uganda cannot apply the effective multilateral Trade Remedies and Safeguards rules under the WTO because of the concept of a Single Customs Territory in the mode Zambia managed to against Madagascar in a dispute over an upsurge in iron and steel products that were deemed as causing serious injury to the local industry in Zambia.

It is in this line that the East African Community (EAC) as a Customs Union has its own bespoke Trade Remedies and Safeguards legal regime as provided for under the East African Community Customs Union Protocol and the East Africa African Community Customs Union (Dispute Settlement Mechanism) Regulations (‘The Regulations’).

The Dispute settlement mechanism envisaged in the said Regulations is similar to that under the World Trade Organization particularly the Safeguards Agreement. Under the Regulations, it starts with Consultations, then where the Consultations fail, the matter is referred to the East African Community Committee on Trade Remedies and where that fails, the matter is finally referred to Arbitration[v]. It is important to note that due process is observed in all these proceedings as all the sides involved are given a fair hearing.

The Regulations in consonance with the notion that the EAC is a Customs Union exclude the EAC Partner States from invoking the WTO Trade Remedies and Safeguards dispute settlement processes when it comes to Trade Remedies and Safeguards disputes between the Partner States[vi].

Due to the sensitivity of Trade Remedies and Safeguards issues especially as far as international trade and regional integration is concerned, the Regulations make it mandatory that the above proceedings be confidential[vii].

Unfortunately, the East African Community Committee on Trade Remedies[viii] which is the central body under the Regulations is not yet functional, and therefore the Trade Remedies legal regime at the East African Community level cannot be invoked at the moment by an aggrieved Partner State. 

East Africa’s failure to fully activate its trade remedies legal framework should not be taken in isolation as it seems to be commonplace in Africa with only Egypt, South Africa, Morocco, and Tunisia being the exception. This excuse is that this area is quite technical and needs more capacity building.

It has been argued that there is a need to have domestic Trade Remedies and Safeguards legal regimes in the individual East African countries to activate the Trade Remedies and Safeguards legal regime at the East African Community level. It is only Kenya that has a Trade Remedies Act and has even gone ahead to establish its “Investigating Authority” called the Kenya Trade Remedies Agency.

A “Trade mind” would think that akin to what South Africa does in the Southern African Customs Union (SACU), Kenya would at least have tried to apply its Trade Remedies and Safeguards through its local legislation, but there is, unfortunately, no evidence to that effect. There is for instance no evidence of an “investigation” of say an upsurge in poultry imports into Kenya that has caused “serious injury” to the domestic Kenyan poultry industry as provided for under the Kenya Trade Remedies Act. In the SACU region, which is also a Customs Union comprising South Africa, Namibia, Botswana, Lesotho, and Eswatini, because there is no Trade Remedies and Safeguards legal regime at Customs Union level, the member states have agreed and often use South Africa’s Trade Remedies and Safeguards legal framework through its International Trade Administration Commission Act, 2002. These “Investigations” under undertaken by “Investigating Authorities” are often amenable to review before a domestic Court when it comes to Trade Remedies and Safeguards.

Africa started trading under the African Continental Free Trade Area (AfCFTA) on the 1st of January, 2021, but there are still outstanding issues concerning Rules of Origin and Tariff concessions ongoing. This means that the Trade Remedies and Safeguards legal regime thereunder under Annex IX to the AfCFTA Protocol on Trade in Goods is not a solution at the moment.

The African Union came up with an online tool for reporting non-tariff barriers to trade under the AfCFTA, this author has reported Kenya’s ban of Uganda’s poultry imports via that platform https://tradebarriers.africa/active_complaints. We must employ all the arsenal at our disposal to make the AfCFTA work.

Alternatively, one would argue that the Kenyan government was better off using competition law as an option to protect its poultry industry. In as much as the Competition law framework at the East African Community level has not taken off with the Partner States, except for two of them failing to enact Competition laws and the Competition Authority at the EAC still more or less non-existent, Kenya has a quite vibrant competition legal regime. Uganda and Kenya are also members of the Africa-leading competition legal regime under the Common Market for East and Southern Africa (COMESA). This author opines that it would have been tidier for the Kenyan government to use these competition law channels. 

From the foregoing, the solutions look a bit stretched for Ugandan traders. However, I opine that the clearest solution in the interim as especially the East African Community works on its Trade Remedies and Safeguards legal framework is the East African Court of Justice. I have advocated for the benefits of using this Court here http://nilepost.co.ug/2021/03/10/maize-ban-ugandan-traders-must-embrace-east-african-court-of-justice/ https://www.newvision.co.ug/articledetails/93804. Topmost about using that Court as a remedy is the fact it gives private parties standing before it-so an individual trader can take on the government of Kenya as in this case as long the matter is filed within two months from the date that the cause of action arose. The Trade Remedies and Safeguards legal regimes dispute settlement mechanisms under the WTO and as envisaged under the EAC Customs Union are state to state. This Court has in the recent past stated that it has jurisdiction over matters concerning the EAC Customs Union and that it is not just limited to adjudicating other matters concerning the integration of the EAC.

Clearly if indeed the government of Kenya attempted to apply Safeguards which though labelled the “Escape Clause”[ix] in reference to how states hide under Safeguards so as to indirectly apply protectionism, they were not applied transparently and in accordance with the rules. 

Trade governance in Africa is still for lack of a better word, a work in progress. This however does not mean that Africa continues dragging its feet as far as making its trade governance comprehensive.

Trade agreements are usually self-contained as far as finding solutions to any stalemates that might arise in their implementation. There is no need for political solutions, there are enough legal solutions if explored.

Politicians will always grandstand whenever these trade wars occur in the East African Community and perhaps find temporary solutions if any. The same trade problems eventually rare their ugly head again.

There is absolutely no reason why the institutions especially the dispute settlement ones that are important in providing trade predictability and certainty like the EAC Committee on Trade Remedies should not be fully functional over twenty years into the EAC. This is especially vital as Regional Economic Communities (RECs) like the EAC have been prized as the building blocks towards the AfCFTA.

The arguments about capacity simply do not cut it. Where there is a will, there is a way, and that will is called “Political Will” to set up and establish properly functioning, effective, and efficient trade institutions in the EAC.

 

 

 

 

 

[i] Article 4.1 (a) of the WTO Safeguards Agreement (‘SG Agreement’)

[ii] Article 3.1 of SG Agreement; U.S-Lamb Appellate Body Report, para. 76

[iii] Argentina-Footwear Appellate Body Report, para. 131

[iv] Article 2.2 SG Agreement

[v] Regulation 6-20 of the EAC Customs Union Protocol (Dispute Settlement) Regulations

[vi] Regulation 4 (3) of the EAC Customs Union Protocol (Dispute Settlement) Regulations

[vii] Regulation 14 of the EAC Customs Union Protocol (Dispute Settlement) Regulations

[viii] Regulation 3 and Regulation 8 of the EAC Customs Union Protocol (Dispute Settlement) Regulations

[ix] GATT XIX 1994; https://www.wto.org/english/res_e/reser_e/ersd200909_e.htm