Assessment of the Effect of the EAC Common External Tariff Sensitive Products List on the Performance of Domestic Industries, Welfare, Trade and Revenue

The paper aims to establish whether the protection given to the list of sensitive products since 2005 has increased the regional capacity of the East African Community (EAC) to produce, reduced the importation of the same products from the rest of the world, increased intra-EAC trade, and/or improved welfare. This paper adopts two analytical approaches: a trends analysis of intra-EAC exports and the SMART WITS analytical framework. The results demonstrate a significant increase in intra-EAC export trade after 2005, although Partner States performance is not uniform, with Kenya dominating the other member states. Imports of the same products from outside the EAC region increased by an even larger factor. This increase implies that the demand for sensitive products exceeds the intra-EAC regional supply, resulting in a deficit that is met by imports from the rest of the world. Notwithstanding the growth in intra-EAC exports of the sensitive list products, there is a deficiency in the regional capacity to produce within the bloc. The total welfare effect is equivalent to US $3.1 billion; however, this amount is disproportionately distributed, with Kenya being the main beneficiary. It is recommended that the EAC review the CET sensitive products list considering the negative effects it is likely to have on manufacturing and on consumption welfare, that they design and formulate strategies to support the development of regional supply capacities to enhance the production of products in the sensitive list and that they develop a rational framework that is empirically based to determine which commodities should be included or excluded from the list.