Examining the Effects of Politics on Trade in Regional Blocs’ Economic Intergration: a Case of the East African Communityand the European Union

EXAMINING THE EFFECTS OF POLITICS ON TRADE IN REGIONAL BLOCS’ ECONOMIC INTERGRATION: A CASE OF THE EAST AFRICAN COMMUNITYAND THE EUROPEAN UNION.

BY BEATRICE WOGGA ID NO. 626808

A Thesis Submitted to the School of Humanities & Social Sciences in Partial Fulfillment of the Requirement for the Degree of Master of Arts in International Relations

UNITED STATES INTERNATIONAL UNIVERSITY- AFRICA SPRING 2019

DECLARATION

I, the undersigned, declare that this is my original work and has not been submitted to any other college, institution or university other than the United States International University- Africa in Nairobi for academic credit.

Signed: ______Date: ______

Beatrice Wogga Student

This thesis has been presented for examination with my approval as the appointed supervisor.

Signed: ______Date: ______

Mr. Dan Odaba Supervisor

Signed: ______Date: ______

Dr. Martin C. Njoroge Dean, School of Humanities and Sciences

Signed: ______Date: ______

Amb. Prof. Ruthie Rono, Deputy Vice Chancellor, Academic Affairs

COPY RIGHT

This thesis research paper has copy right. It should not be reproduced by photocopy or through electronic or print media without author‘s permission. © Beatrice Wogga, 2019

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DEDICATION

I would like to dedicate this project to my husband Dr. Awuor of Kenyatta University for the moral, spiritual and financial support the he gave me. I also thank my friends for their full support in undertaking my Master‘s studies, and in carrying out this thesis research.

ACKNOWLEDGEMENT

I would like to acknowledge the overwhelming support and confidence my reader Professor Cassandra Veney gave me and ensured that I put in more energy to come to this level. I would also like to appreciate my supervisor Mr. Dan Odaba too, for the effort and guidance he offered me in writing this thesis and work. I want recognize all my lecturers who ensured that I put more commitment and effort in making a success to the completion of my studies. Lastly and most, I am greatful to the Almighty God for giving me a sound mind and good health without which I would not have undertaken this theses.

ABSTRACT

This study focused on the examining the effects of politics trade in East African Community (EAC) trade and economic integration, with the European Union (EU) examined as setting the pace and can be used as a model in helping other regions to achieve a robust Regional Economic Integration. Regional Economic Integration has enabled countries to focus on issues that are relevant to their state development in many African countries, as well as encourage trade between neighbors. The four main types of regional integration include: Free Trade Area which is the most basic form of economic integration. Members remove all barriers to trade between themselves but are free to independently determine trade policies with nonmember nations of The North American Free Trade Agreement (NAFTA). The second type regional integration is Customs Union which provides for economic cooperation as in free zone. Barriers to trade are removed between the member countries. The primary difference from the free trade area, is that members agree to trade with nonmember states, an example being The Gulf Cooperation Council (GCC) for Arab states. The third is the Common Markets that allows for the creation of economically integrated markets between member countries. Trade barriers are removed, as they are any restrictions on the movement of labor and capital between member countries. Like customs unions, there is a common trade policy for trade with nonmember nations. The primary advantage to workers is that they no longer need a visa or work permit to work in another member country of a common market, Common Market for Eastern and South Africa (COMESA). The fourth main one is the Economic Unions which is created when countries enter into an economic agreement to remove barriers to trade and adopt common economic policies, The European Union (EU), Economic Partnership Agreement (EPA) is a perfect example. This study was guided by the following research questions: What are the effects of politics on economic integration? What are the EAC‘s institutional constraints on trade and economic integration? What lessons can EAC learn from EU on trade and economic integration? The study utilized both qualitative and quantitative approaches. Data presented in this study was gathered from secondary sources, and analyzed using content analysis. The findings in this study have been presented using Tables, Figures and narrative presentation. Lack of political will is seen as a major impediment and hindrance towards a successful EAC trade and economic integration. Secondly, EAC institutional constraints lack authority, and financial resources, making it difficult to execute its mandate. Lessons from EU success include building independent regional institutions, developing consensus on Common Market, Customs Union, Fiscal and Monetary policy, and free movement of people, capital and investments. Regional Trade as a form of Regional Trade Agreement, is therefore seen as a critical factor that can be used as a policy tool to enhance countries globally to advance their industrialization, economic growth, social welfare and sustainable development. It is seen too as a facilitator in escalating trade liberation, which eventually lead to free markets through trade tariffs and non-tariff trade barriers. Although Regional integration is seen as good element in trade, politics also plays a major role in determining how trade agreement will be viewed by nations involved in the partnerships and trade agreements.

TABLE OF CONTENTS COPY RIGHT ...... iii DEDICATION ...... iv ACKNOWLEDGEMENT ...... v ABSTRACT ...... vi LIST OF TABLES ...... ix LIST OF FIGURES ...... x LIST OF ABBREVIATIONS ...... xi CHAPTER ONE ...... 1 1.0 INTRODUCTION ...... 1 1.1 Background ...... 1 1.2 Statement of the Problem ...... 9 1.3 Objectives ...... 12 1.4 Research Questions ...... 12 1.5 Justification of the Study ...... 13 1.6 Scope of the Study ...... 13 1.7 Chapter Summary ...... 14 CHAPTER TWO ...... 15 2.0 LITERATURE REVIEW ...... 15 2.1 Introduction ...... 15 2.2 Trade and Economic Integration ...... 15 2.6. Factors that Facilitate Trade and Economic Integration ...... 28 2.7. Theoretical Framework ...... 30 2.8. Chapter Summary ...... 36 CHAPTER THREE ...... 37 3.0. METHODOLOGY ...... 37 3.1. Introduction ...... 37 3.2. Research Design ...... 37 3.3. Data Collection Methods ...... 38 3.4. Data Analysis Methods ...... 39 3.6. Research Limitations ...... 39 3.7. Chapter Summary ...... 39 CHAPTER FOUR ...... 40 4.0. RESULTS AND FINDINGS ...... 40 vii

4.1 Introduction ...... 40 4.2. Rationale for EAC Formation ...... 40 4.3. Effects of Politics on Trade in Regional Economic Integration ...... 42 4.3.1. How the EAC Politics Shape Trade Policy and Economic Integration ...... 43 4.4. The EAC Institutional Constraints on Trade and Economic Integration ...... 50 4.5. Lessons EAC Can Learn from EU Trade and Economic Integration ...... 59 4.6. Chapter Summary ...... 67 CHAPTER FIVE ...... 70 5.0. DISCUSSION, CONCLUSION AND RECOMMENDATIONS ...... 70 5.1. Introduction ...... 70 5.2. Study Summary ...... 70 5.3. Discussions ...... 72 5.4. Conclusion ...... 77 5.5. Recommendations ...... 78 REFERENCES ...... 810

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LIST OF TABLES

Table 4.1: Total Intra-EAC Trade, 2013-2017 (US$ Millions and Percentage Change) .... 5352 Table 4.2: Restriction on Free Movement of Capital in EAC, 2014 ...... 55 Table 4.3: EAC Regional Integration Index, 2016 (Score/1) ...... 557 Table 4.4: Logistics Performance Index, 2014………………………………………………..57 Table 4.5: EU Member of Parliament per State ...... 60 Table 4.6: EU Stages of Trade and Economic Integration ...... 62

LIST OF FIGURES

Figure 4.1: Intra-EAC Trade, 2007-2011 (US$ millions)…………………………...... 51 Figure 2: Trade through Mombasa and Dar Ports, 2009-2013 ("000" Tonnes) ...... 58

LIST OF ABBREVIATIONS

AfCTA Africa Continental Free Trade Area AfDB African Development Bank AGRF Africa Green Revolution Forum AGOA Africa Growth and Opportunity Act AGTF Investment of the Africa Growing Together Fund ASEAN Association of Southeast Asian Nations, ASEAN AfCFTA Africa Continental Free Trade Area AU African Union BIAT Boosting Intra-Africa Trade CET Common External Tarriff CM Common Market COMESA Common Market for Eastern and Southern Africa CU Customs Union EAC East African Community EACJ East African Court of Justice EU European Union FDI Foreign Direct Investments GATTS General Agreements on Tariffs and Trade GCC The Gulf Cooperation Council (GCC) for Arab states GDP Growth Domestic Product GVCs Global Value Chains ICT Information Communication Technology IFDC International Development Finance Corporation IODC International Open Data Conference IMF International Monetary Fund KAA Kenya Airports Authority KICC Kenyatta International Conference Centre MKTE Magical Kenya Travel Expo NAFTA North American Free Trade Agreement OECD Organization of Economic Cooperation for Development SADC South African Development Community SCT Single Customs Territory

SDGs Sustainable Development Goals SMEs Small Medium Enterprises SSA Sub Saharan Africa ROA Return on Assets RTAs Regional Free Trade Areas TFA Trade Facilitation Agreement UN United Nations UNECA United Nations Economic Commission for Africa UNGA United Nations General Assembly UNIDO United Nations Industrial Development Organization WTO World Trade Organization

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CHAPTER ONE

1.0 INTRODUCTION

1.1 Background

In the past few decades the European Union (EU) has set a good pace and can be used as role model for other regional blocs to follow suit in enhancing sustainable regional economic integration. At 66% the EU is leading with ASEAN coming second as the most stable in

Regional Integration and Trade. Regional trading blocs have enhanced trade integration as a mechanism for consolidating strength of the regional economies and also bargaining power with other regional trading blocs. The move has not just been made towards achieving Free

Trade Area (FTA) zones, but also economic integration (Arosia, 2011). According to

Mundell (1961), trade intergration and result in lower transaction costs and exchange volatility. This is because, the more countries within a regional bloc, the more they benefit from the reduction in business and trade tranasction costs. One of the other advantages of using trade to enhance economic integration is that integration enables for high degree business cycle synchronization. In most instances, as has been argued by McKinnon (1963), economic integration is one of the ways for trading regional blocs to safeguard against losses that accrue from states inability to pursue economic integration policies. Additionally, regional trade enhances labor and wage mobility and flexibility within the economies. The effects of trade on regional blocs‘ economic integration is investigated in this paper. The hypothesis inherent in this study is that more trade within regional blocs will result in economic integration.

Trade between regional blocs helps achieve a more efficient allocation of economic and development resources, making both poor and rich countries to access and share resources

(Arosia, 2011). Globally, between the year 2000 and 2013, global imports and exports

1 gradually increased reaching $ 15 trillion in 2008 and $17 trillion in 2011. By 2016, the global trade volumes had reached $ 20.23 trillion (WTO, 2017). Over the last few decades, the world has changed in a more fundamental way, supporting sustainable development through trade still remains essential and relevant. According to the World Trade Organization

(WTO) global multilateral trade achievements have had a significant impact on economic blocs‘ regional integration (WTO, 2011). Trade between regional blocs is even more essential as it enables neighboring countries, or countries within a specific region or trading bloc to enjoy significant trade liberalization for members to access each other‘s markets without inhibitive trade tariffs, which makes trade more profitable, viable and sustainable (World

Bank, 2012).

According to WTO (2011), Principle 12 of the Rio Declarations placed more emphasis on the importance of open trade, and by extension, the need to avoid protectionism. This meant that governments had to commit to an open, non-discriminatory trading system that was equitable.

One of the reasons advanced for promoting open trade within regional blocs was the idea of enhancing economic integration. In the developed world, organizations such as the

Organization of Economic Cooperation for Development (OECD), the European Union (EU), and the North American Free Trade Agreement (NAFTA) have for decades engaged in open trade that has enhanced not only the sustainability of members‘ economic development, but also economic integration and interdependence (Adhikari, 2011).

One of the biggest regional blocs in trade is the European Union. The EU market was launched in 1992 in Brussels as an extension of the Common Market concept that aimed at eliminating trade obstacles within the EU member states (Adhikari, 2011). The EU economic integration began as a political project to institutionalize peace and cooperation using Coal and Steel Community as the initial means to this end. In the 1980s to 1990s at the end of Cold

War, EU priorities changed from peace cooperation to trade competitiveness. The Rome

Treaty made both political and ideological specifications for members, by committing each member to an economic organization, a market economy, or simply stated, an economic regional integration (Smith & Weeks, 2017).

The objective of trade within the EU was also to spur healthy competition, exploit economies of scale when dealing with other regional trading blocs, and forcing companies to increase the use of innovation and technology in production. Before the 2007/2008 global economic crisis, the intra-EU trade accounted for about a quarter of the global trade flows. Trade flow outside the EU have also grown by 52% between 2000 and 2013 (Aussilloux, Emlinger &

Fontagne, 2011). By 2018, intra EU trade had risen to €313.1 billion. According to Smith and

Weeks (2017), the openness of the EU trade regime has made EU the largest player on the global trade market. Further, this position has been solidified by the strong economic integration strategy. This means that EU members‘ states have achieved a stronger trade and economic position by acting together with one voice, rather than 28 separate members trade strategies. The EU had become a deeply economically integrated singular trade market.

According to Aussilloux et al. (2017), the removal of trade barriers, formation of Customs

Union and the creation of a Single market designed to enhance and stimulate trade between the member states.

According to Mariama Sow of the Brookings Institutition, trade within Sub-Saharan Africa is way below other global regions due to low skill set of labor, poor infrastructure, lack of technological specialization in domestic industries and lack of political will is seen a major hinderance to trade. In 2016, intra-SSA exports made up a paltry (18%) of the total exports compared to (69%) and (59%) intra-EU exports and intra-Asia exports (Sow, 2018). In as much as the trade within the EU region has significantly increased and attributed for

3 enhancing economic integration and stability, this has not been the case with inter-trade between African states due to politics which is basically controlled by the giants of trade in the global markets. According to Lesser & Moisé-Leeman (2009) Africa‘s GDP was approximately $1.6 trillion, however, this has been with minimal inter-trade between African states due to politics amongst the member state. In as much as trade is not a panacea for Sub-

Saharan Africa‘s development challenges, it is essential and neccesary for the economic integration and development. According to the Brookings Institutition (2016), trade can only be effective with essential support from the bigger regional bodies like EU not only the competitiveness of regional economic development, but also economic integration with smaller blocs like the EAC. The free movement of goods and people within the African states will also enhance competitive pressure on existing African firms in the region to create new innovations and possibilities for improved value-based production and manufacturing, an element grossly lacking in most African economies.

China‘s use of trade and investment links to expand its influence in Africa is fueling a growing concern in some European capitals. Most of these agreements are influenced by politics of treating most Africa countries differently with the effect of political differences amongst member states. If the EU is to seize the opportunities that East Africa offers in a way that is mutually beneficial, it will need to work with the continent‘s leaders to build a new kind of partnership that treats African countries as equals (Lopes, 2018). As of July 2018, the

EU was engaged in negotiations for 21 free-trade agreements. This includes talks initiated in the past seven years with six ASEAN countries - Indonesia, Philippines, Malaysia, Singapore,

Thailand and Vietnam that could pave the way for a future deal with the entire region.

The EU has also initiated talks with New Zealand and Australia. And it recently concluded comprehensive free-trade agreements with Armenia, Canada, Japan and Vietnam, as well as a

4 stand-alone investment agreement with China. But what about Africa? The continent‘s trade with the EU is already massive: together, African countries represent the EU‘s third-largest trading partner, after the United States and China, accounting for nearly 7 per cent of total extra-EU trade in goods, including 7 per cent of imports and 8 per cent of exports (Lopes,

2018). Though the EU ran a persistent trade deficit with Africa in 2000-2014, it ran a €22 billion ($25.5 billion) surplus in 2015 and a €22.7 billion ($25.84 billion) surplus in 2016.

Africa‘s trade with the EU is triple that of Canada, which amounted to €94.7 billion ($107.8 billion) in 2016. With the Comprehensive Economic and Trade Agreement, annual EU-

Canada trade is expected to increase by at least 8 per cent, or some €12 billion ($13.67 billion). But that is still the equivalent of just half the EU‘s trade volume with Egypt alone.

Intra-trade between regional bodies, does not only expand the growth of trade in East Africa, but also competitiveness between the industries resulting in the creating of economies of scale, weeding out weak and less productive players from the African market place

(Adhikari, 2011). Intra-trade strengthens industries‘ product value chains, in addition to establishing mechanisms for technological transfers, and knowledge via spill over effect from one country to the next. According to the WorldBank (2012), intra-trade can be a sufficient incentive that can spur infrastructural development, and as a result, attract foreign direct investments that contributes toward a country‘s sustainable economic development.

According to Moïsé and Sorescu (2013) during and after the global economic melt down,

Africa has experienced an estimated GDP growth of approximately 6.6 % in 2010. Africa achieved real annual GDP growth of 5.4 per cent; that rate held strong at 3.3 per cent in 2010-

2015. Today, Africa remains the world‘s second-fastest-growing region, after Asia. For

Europe, Africa‘s economic potential remains far from tapped. Spending by households and businesses, estimated at $4 trillion in 2015, is projected to reach $5.6 trillion by 2025,

5 reflecting 3.5 per cent annual growth. Also, according to the McKinsey Global Institute, investment opportunities stemming from infrastructure demand in Africa will amount to at least $150 billion annually over the next decade. Africa is also home to strategic natural resources for emerging low-carbon industries, and is well positioned to play a key role in renewable energy. The continous growth in African economies prompted the IMF to upgrade eight African countries three of them from East Africa as emerging markets. These countries included Kenya, Botswana, Ghana, Tanzania, Nigeria, Zambia, Uganda (Moïsé & Sorescu,

2013).

Serious concerns and issues are emerging on the Economic Partnership Agreement (EPA) of the EU with only Southern African ratified to the trade agreement. Progress on the others has stagnated, owing largely to a lack of political enthusiasm in other regional blocs like the

EAC. Some argue that the problem is more about timing, because the losses are likely to materialize immediately, and the possible benefits brought by increased access to the EU market will take longer to emerge. Given this, EPA proponents argue, a special fund should be established to compensate for some of the short-term losses. But research suggests that the best way for Africa to avoid losses is to focus on strengthening the AfCFTA and let the

EPAs die. To be sure, the EU is also taking steps to help strengthen the AfCFTA. It recently announced a sevenfold increase in assistance — from €7 million ($8 million) in 2014-2017 to

€50 million ($57 million) in 2018-2020 — for institutional and technical support, as well as for data collection and analysis (Lopes 2018). But, as African Union leaders confirmed at the

AU-EU Summit in Abidjan, Côte d‘Ivoire, Nov 2018, they are eager for the relationship to mature beyond the traditional dependency model. Though progress has been made in this regard, the EU still largely in control of the project, it sets the agenda and provides financial assistance to implement the project basically controlling it politically and financially.

The East African Community (EAC) is a regional intergovernmental organization consisting of six (6) States comprising of Kenya, Uganda, Tanzania, Burundi, South Sudan and Rwanda.

The EAC headqurters in Arusha, Tanzania (EAC, 2017). The EAC has an estimated population of 168, 848, 000 million people, a total GDP of US $ 155.189 billion, and per capita of US $ 919.(UNECA, 2017). One of the main objectives of EAC formulation is the creation of a common market that can be used to enhance EAC trade. The Common Market is the second Regional Integration milestone of the EAC, which has been in force since 2010, in line with the provisions of the EAC Treaty. It follows the Customs Union, which was ratified and became fully-fledged in January 2010. Other steps taken by EAC countries to promote trade amongst its members include: elimination and reduction of its tariffs, removal of tariffs equivalents charges on internal trade, exemption of special products, establishing and maintaining Common External Tariff (CET), elimination of non-trade barriers (NTBs) through the establishment of National Monitoring Committees in all member states. (EAC,

2010). The EAC main trading partners included industrialized (EU, USA), African Countries

(the SADC, COMESA), Asia and Middle East. The COMESA free trade area grants full exemption from custom duties and any charges of equivalent goods. Progress has been made on important areas to facilitate free movement, including visa relaxation. In 2015, intra

COMESA goods exports reached US$10 billion and intra-services‘ exports increased to

US$38 billion.

The common market protocol has made a provision for removal of tariffs, and other trade barriers that could inhibit trade and economic integration. However, so far, both the trade and economic integration has not taken root in the regional bloc. The situation is exacerbated by politics amongst the EAC where members still restrict each other from exporting commodities to partner states, as non-tariff barriers still hinder intra-EAC trade. In 2017, forty-four (44) countries signed the Africa Continental Free Trade Area (AfCFTA) in Kigali

Rwanda. The Kigali summit also endorsed an action plan aimed at Boosting Intra-Africa

Trade (BIAT) with seven key priorities: trade policy harmonization, trade facilitation, trade productive capacities, trade finance, trade related infrastructure, trade information and factor market integration (Tralac, 2017). The AfCTA equally intends to bring Africa‘s 55 member states into a common market of more than 1.2 billion people, and a combined GDP of more than US $ 3.4trillion. According to the United Nations Economic Commission for Africa

(UNECA), AfCFTA has the potential to boost intra-Africa trade by 52.3% since the common market will eliminate import duties and reduce non-tariff barriers (UNECA, 2017).

The background of EPAs comes from other countries from the ACP (Africa Carribbean

Pacific) group, trade between EACT and the EU was governed under successive Lome

Conventions from 1975-2000 which saw the region benefit from the non reciprocal access to the EU market, as well as the Sugar Protocol. By the end of 1990s it was found that these conventions did not promote trade competativeness, diversification and intended growth.

There was also the issue of breach of WTOs principles, as they were not reciprocal in nature and established discrimination between developing countries (European Commission, 2014).

GATTS provide for flexibility for developing countries in services trade liberalisation, but through an interim sigend by EPA in anticipation of a final agreement further in the future.

This triggered the EU Market Access Regulation. Under the interim, EAC had full access to the EU market for goods (with exception of sugar and rice), while the EAC committed to liberalising 82.6% of trade over a 25 year period, this was one of the elements of assymetry as mentioned ealier. (East African Policy Centre, 2018).

1.2 Statement of the Problem

In as much as the trade within the EU region has significantly increased and attributed for enhancing economic integration and stability, this has not been the case with inter-trade between African states due to politics which is basically a determining factor amongst EAC member states. Despite the existence of the East African Customs Union and Common

Market for trade, political differences amongst EAC members are stalling the EPA agreement with EU with other EAC members having the feeling of preferential treatment being the determining factor in ratifying the pact. Africans have serious concerns about how the EPAs would affect their industrial development and the African Continental Free Trade Area

(AfCFTA), signed by almost all African countries in March 2018. African leaders are right to be concerned. Though the EU claims that the EPAs will buttress the AfCFTA, research indicates that the trade gains brought by the EPAs, as negotiated, are likely to be concentrated in a few agricultural products only and to exclude the least-developed countries.

In most areas, the EPAs will actually hurt intra-African trade, weakening trade revenues and undermining trade-driven industrialization in Africa (Lopes, 2018). Another factor to consider is that the current RECs in Africa, on which EPA framework is based, are imperfect nature of current Africa‘s regional groupings. Firstly the RECs overlap creating ‗a spaghetti bowl effect‘ within the EAC for instance Kenya and Uganda are members of COMESA, whereas Tanzania left COMESA and joined SADC in 2001. On the other hand, th e politics in EAC states; Kenya and Tanzania has not been good in relation to Tanzania‘s border restrictions on Kenya, damaging bilateral trade in recent years between the two countries.

Kenya is forging ahead to build its strong economic links. EPAs based Regional Economic

Communities (RECs) in Africa are therefore an imperfect platform for trade with African regions. Lack of trust and political will is turbulence between Uganda and Rwanda especially

9 after they fought in the clashes in Kisangani, Eastern DRC in August 1999 and May 2000 where each opponent was backing their own rival local rebel armies. The 2013 war in South

Sudan and the conflict in DRC is seen to an effect that further aggravates the situation. (The

East African, 2019). Another factor that can be identified is that different regions and nations enjoy different preferences exporting to other markets which could easily undermine continental trade (IFT, 2018). The fact that other members have signed the EPA and others have not, prevents them from applying CET for EU imports, which in the long run would prevent the EAC Customs Union from delivering the economic benefits of streamlining customs procedures. Another political factor to consider that could influence such agreements is for the different rules of origin which would see accumulation of certain products areas, preventing other supply chains developing in that area. Poor funding by various EAC organs, including its legislative assembly has halted the activities of the agreement.

It also emerged that, Kenya, Rwanda and Uganda have been sustaining the operations of the

Secretariat by submitting more than half the contributions in the current financial year. The regional countries were given up to the end of last year to pay their outstanding budgetary contributions for the financial year 2017/2018. So far, it is only Kenya, Tanzania and Rwanda which have made this full payment, with South Sudan and Burundi still having more than $12 million of their expected remittances for 2017 budget pending. South Sudan still owes the

EAC Secretariat $7.37 million in 2017 budgetary contribution while Burundi‘s arrears stand at $4.4 million. Uganda has arrears of $54,495. At the May 2018 meeting, the regional countries were asked to disburse at least half of their budgetary contributions for the 2018/19 financial year by end of September to enable the EAC organs and institutions discharge their mandates. From this directive, Kenya has so far disbursed 80 per cent or $6.68 million, while

Uganda has disbursed 53 per cent or $4.46 million. The other regional countries have not met this request, with Tanzania disbursing 26 per cent, while Rwanda sent $2.09 million. South

Sudan and Burundi are yet to disburse any funds to the Secretariat. The ministers are now considering sanctions against defaulters in a bid to enforce timely remission of funds.

EAC trade is still low (8%) compared to other regional blocs (with EU – 66%, EAST ASIA

– 55%, ASEAN -27% and SADC – 13%, NAFTA – 44%, ASEAN (World Bank 2009);

Keane et al. 2010; Sally 2010). Despite the fact that EAC member countries have over the years since following the revival of its custom union in 1999 putting more emphasis in developing policies to enhance trade transactions among its members and reduce politics. The main objective of transforming the EAC into an integrated economic and political entity was influenced and triggered by the fact that EAC member states were willing come together as a community to attain sustainable and equitable growth and development that would gradually improve the standard of living of people through increased competitiveness, valued added production, trade and investment (EAC, 2010). But with all these efforts, the EAC seem to be dragging behind in terms of economic growth. Additionally, Common Market and

Customs Union have not resulted in regional economic integration as compared to EU. Trade has been touted as critical in enhancing and accelerating regional blocs‘ economic integration

(Africa-Business-Pages, 2016). Extensive literature has been documented on the impact of trade on economic integration particularly for EU and its member states (Schandler et al.,

2005; Read & Bradley, 2001; Young & Peterson, 2006) including growth in intra trade volumes, reduced competition and transaction costs, and single market policies and strategies and single monetary currency policy. However, minimal research exists on the effect trade politics on regional economic integration.

Scholars such as Moïsé and Sorescu (2013) have argued that intra EAC trade is important for the realization of Common Markets, however, they did not explore the extent to which trade politics within member states have impacts or affects regional economic integration. Intra-

EAC trade constitutes as little as 9.4% of the total trade within the regional bloc compared to

15% to EU bloc. More so, intra EAC trade continued to fall since 2013, and by 2015 it had fallen by 13% from a value of US $ 5.8 billion to US $ 5.06 billion in 2015 raising significant concerns with regional economic sustainability. Muluvi, Kamau, Githuku, and Ikiara (2012) concluded that intra-EAC- trade was significant in economic development, however, transborder barriers and tarrifs are a major stumbling bloc towards regional economic integration. This study sees to examine and disect the effects of politics on trade in the EAC regional economic integration, the challenges the EAC faces in regional economic intergration, why the region has not achived full economic integration, examine how the EU achieved its trade and economic intergration and what lessons the EAC can learn from the

EU.

1.3 Objectives

This study will be guided by the following specific objectives

i. To examine the effects of politics on trade in the EAC economic integration.

ii. To examine the EAC institutional constraints on trade and economic integration.

iii. To examine lessons the EAC can draw for the EU successful trade and economic

integration.

1.4 Research Questions

This study will be guided by the following research questions:

i. What are the effects of trade politics on economic integration?

ii. What are the EAC‘s institutional constraints on trade and economic integration?

iii. What lessons can the EAC learn from the EU trade and economic integration?

1.5 Justification of the Study

This study will be important to scholars and policy makers‘ in the regional economic and development studies, international relations scholars, and both the EU and the EAC member states seeking to enhance regional trading blocs and economic integration. Because this study seeks to examine why the EAC has not achieved economic integration despite having a

Common Customs Union and Common Markets, the EAC secretariat will be able to benefit from this study by adopting recommendations provided to address trade and economic integration challenges. Scholars and researchers will also benefit from this study in that they can adopt the findings of this study for their literature, and as reference materials during similar studies. Other scholars and academicians can also rely on this study to test their hypothesis determine politics, trade and regional integration. This study will also be beneficial to policy makers within the EAC and the EU member states as they can adopt the findings of this study to establish policy frameworks that promote trade and regional economic integration.

1.6 Scope of the Study

This study examines the effects of trade on regional blocs‘ economic integration. The study will focus on the EAC regional trade bloc, and use the EU as a determining factor in the

Economic Partnership Agreement. This study will examine effect of trade politics on regional economic bloc integration from 2009 when the EAC signed the Common Market Protocol, to

2019. Challenges that the EAC faces in regional economic integration when trading, Factors that have contributed to the successful EU will be explored, and what lessons that the EAC can pick from the EU as the leader global regional economic integration in trade.

1.7 Chapter Summary

This chapter has presented the background of the study on the regional trade, with particular emphasis on the EAC and the EU. The statement of the problem that necessitated this study has also been presented. The EAC region has minimal trade as compared to the EU with similar Common Custom Union and Common Market, yet, the EU has achieved economic integration while the EAC has not. The objectives and research questions that will help in guiding this study have also been presented in this chapter. Finally, the justification and scope of the study has also been presented.

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

Literature review presented in this chapter covers work done by other scholars on this subject of trade and regional integration. First literature review on the concept of trade and economic integration has been presented, followed literature review of factors that contribute to success of regional trade and economic integration, not only in EAC and EU, but in other regions too.

2.2 Trade and Economic Integration

Globally, there is a general consensus in the economic literature that draws strong links between trade, economic growth and sustainability (Adhikari, 2011; Beck, Buyuk Karabacak,

Rioja, & Valey, 2012; Clemets, Radelet, Bhavnani & Bazzi, 2012). A study by Beck et al.,

(2012) shows that countries that have liberalized trade, have an outward oriented strategy, and as a result, produce more for goods and services targeting the outside market.

Increasingly, these countries also have economic growth pegged on intra trade (exportation) either to regional blocs, or to intercontinental trade. China is the best example of a country that embraced trade in the early 1970s and has gradually opened up to intra trade with other

East Asian countries, Africa, Europe, and America. Currently, because of trade, China is the largest exporter of goods and services to the world. As a result, China has fortified its economic growth majorly on trade (Adhikari, 2011).

According to Clemets et al., (2012), there are many channels through which intra trade leads to economic growth and sustainability. In most instances, intra trade between regional blocks act as the vehicle or mechanisms through which countries within an economic bloc can exploit comparative advantage particularly in employing resources more efficiently and in a profitable manner. Intra trade enhances the utilization of labor, which is an abundant resource

15 in developing countries. China leveraged on the abundant labor to enhance production efficiency sufficient to supply global market (Adhikari, 2011). Similarly, Beck et al., (2012) argues that in a market where there exists labor and production efficiency, demand and consumption are spurred both internally and externally.

The external market intra trade is important in that it enables a country to grow economically without heavy over reliance on the domestic market for economic growth and sustainability.

While it is in order for a country to grow its exports, import from regional bloc or from intercontinental arenas allows a country to have access to a wider range of goods and services, which in some times do come with newer technologies that can be used locally to enhance production and competitiveness (Cali M and D.W Te Velde, 2011). Enhanced productivity and competitiveness has the potential of enhancing goods and product output essential for intra trade with regional economic blocs. Intra trade is significant to economic development in that it stimulates the private sector; trade creates jobs and foster industrialization which in most instances helps attract foreign direct investments (FDI) into a country, which is essential for economic growth and sustainability.

Intra trade between regional trading blocs creates an environment of openness, growth, competitiveness, and efficiency, which are necessary components of economic growth and sustainability (Higgins and Prowse, 2011). There are numerous ways through which intra trade can enhance economic growth and sustainability, impact employment, wages, and countries GDP (World Bank, 2009). Martuscelli and Winter (2014) argue that there is a compelling evidence that intra trade helps boost economic development of countries.

However, the rate of development is dependent on internal trade policies, and rate at which trade related production is taking place.

Intra trade has to be driven by trade liberalizations; however, trade liberalization in itself is not a magic wand that transforms developing countries into economically sustainable states

(Cali and Te Velde, 2011). In as much as intra trade does lead to internal economic growth, sustainability of such growth is pegged on both hard and soft infrastructures in place that can be used to connect regional and global markets, in addition to developing vibrant private sector production firms that can exploit these markets (OECD, 2014).

Kenya hosted the first ever labor migration conference in July 2018 in collaboration with the

UN Agency for Migration-(International Organization for Migration (IOM), a move that will see EAC states enhance free movement of labor within the RECs. Various scholars have examined the subject of intra-trade among developing countries, and the impact this trade has on economic integration (Beverelli, Neumueller, & Teh, 2015; Velde, 2009; Lesser, Moisé-

Leeman, 2009). In their study, Beverelli, Neumueller, and Teh, (2015) examined how developing countries, joint trading profile has changed over the last two decades (1990‘s to

2014). The study noted that that has been an enhanced developing countries trade (South to

South trade) that accounted for almost half of all the world export trade in 2014, compared to similar periods in 2000, and late 90s. The study noted that emerging economies that still fall in the South to South bloc, like China, Brazil, and India have been the main engines propelling the trade growth. The study goes further to note that China‘s massive economic growth and sustainability has been predicated on South to South intra-trade between 2000 and 2012 where China‘s trade tripled its share in global exports.

However, Velde (2009) contends that in as much as the South to South intra-trade has increased, most of this trade can only be attributed to emerging economies such as China,

India, Brazil, and South Africa. Most of the other Southern countries have done less to enhance their trading capacities, and thus, still lag behind in trade. Equally, Lesser, and

Moisé-Leeman (2009) study notes that the significance of South to South is much less particularly, when one examines trading in services. Service export intra trade from developing countries is still dominated by North-South Pattern. This means that Southern countries have not yet developed service capabilities that can match that of developed countries. To compete effectively, and to make significant gains in economic growth and sustainability, reliance should not be mainly on products and goods that can be exported, but also intra-service trade. A study by

Shishir Priyadarshi of WTO, on the ‘South to South trade and implication on trade and world economy‘ noted that in recent years, there has been an increase in the importance of South to

South intra trade, but mostly related to East Asian economies (Priyadarshi, 2015). This study shows that in 2013 alone, 75% of South to South Intra trade emanated to or from East Asian economic region. Within this period, China alone accounted for 27% of all South to South intra trade. Priyadarshi draws a link between the increasing importance of South to South intra trade to economic growth and sustainability, by pointing to the increasing foreign direct investment (FDI) that flow to Southern countries to enhance infrastructure and globalization of trade. Further, Priyadarshi argues the increase in FDI over the last 15 years (2000-2014) from 20% to 55% of global FDI flows has not only enhanced trading capacities of Southern countries, but also enhanced their economic growth.

A study conducted by Bardhan Ashok Deo, Dwight Jaffee, and Cynthia Kroll (2004) on ‘The impact of globalization and high-tech economy’, have argued that increase in South to South intra trade and its related investments can be attributed to another more significant development in international trade, namely, the Global Value Chains (GVCs), which is the international fragmentation of production. This means that, as technological innovations increase and spread across the globe, trading costs have sliced up the production process

18 unique trade competencies and capabilities spread across the globe (Deo, Jaffe, & Kroll,

2013). Consequentially, the GVCs, generally measured in value-added or intermediate goods had continued to increase. The contribution of Southern countries to GVCs has also been significant. For instance, in 1995, only 40% of developing countries goods were related to

GVCs. However, in 2008, this figure increased to 54%. Intra trade in intermediary goods account for regional value chains that serve as final product demand in East Asia developing market.

The developing countries rely mostly on primary commodities such as oil, gas, coal and petroleum products, particularly in Africa, Latin America, and the Middle East (World Bank,

2009). This primary products fuel the intra South to South trade. The challenge facing South to South intra trade is the over reliance on primary commodity exporting to China. When

China faces slow economic growth periods, South exporting countries do feel the economic meltdown. One of the ways to mitigate such situations is having Southern countries trade more among each other, than China. Additionally, Priyadarshi (2015) notes that for South to

South intra trade to be enhanced there is need for full implementation of the WTO Trade

Facilitation Agreement (TFA) that was agreed upon by in Bali during the WTO Ministerial

Conference in 2013.

The main aim of the TFA was to lower the costs associated with shipping goods across borders, by adopting more simplified customs procedures. As had been noted by John Page, custom procedures are extremely cumbersome, and at time, involving multiple government agencies, making it difficult to shift goods across borders within reasonable time (Page,

2011). The argument by Page and Priyadarshi is further validated by a study by Organization for Economic Co-operation and Development (OECD, 2014) that noted that implementation of TFA would lead to a reduction in intra trade by 12.5% to 17.5%, a gain which would

19 benefit mostly southern countries that need to enhance cross border trading. It is also argued that intra trade cost reduction would lead to increase in exports since TFA would lower fixed costs associated with cross boarder trading. Reduction in fixed costs also helps developing countries to diversify the range of their exports (Lesser, & Moisé-Leeman, 2009).

Regional integration is one of the foremost advantages associated with intra trade. According to World Bank (2009) regional value chains are enhanced as a result of intra trade, which in term enhances the interconnectedness of regional economies leading to solidification of regional economic integration. As such, it is advantageous for developing economies such as

Latin America, Africa, and South Asia to pursue and enhance regional economic integration in addition to creating cross border trade liberalization, that is essential for enhance intra trade dependency (Priyadarshi, 2015).

E-commerce an advanced technological approach in global trade, supplies and value chains, has been a success in facilitating intra trade between countries particularly, in the developed world (Velde (2009). E-commerce is therefore a potential avenue for developing countries to engage in enhanced intra trade, which is, selling of goods and services over the internet. A study by OECD (2014) shows that e-commerce is essential in economic sustainability as it increases market access and participation of local firms at a regional or global level. While it is the case that e-commerce products still have to be shipped, it makes access to market information more feasible, while at the same time increases market efficiency. It should be noted that electronic policy and legislation in the developed world is well established, and thus why, trading through e-commerce is at advanced stage compared to developing countries.

Thus, to foster e-commerce, policy makers and legislators need to develop an ICT policy, infrastructure, in addition to improving regulatory framework concerning issues like security

20 of online payments, and other related financial payments. E-commerce helps in the strengthening of regional integration, and in the development of regional of value chains, which play a major role in enhancing sustainable intra trade, and economic sustainability

(World Bank, 2009). Just as discussed earlier in the case for East Asia, regional value chains driven by technology can enable South to South trade to grow. This means that it is in the interest of South to South countries to pursue trade liberalization so as to enhance stronger production of goods and services and by extension, foster intra trade linkages among themselves (Deo, Jaffe, & Kroll, 2013).

2.3. Africa Regional Trade Integration Various scholars have written on regional intra-trade and the benefits attributed to this integration; Kimenyi, Zenia, & Routman, (2012); Page & Moyo (2010) Van Der Geest &

Nunez-Ferrer (2010). Kimenyi, Zenia and Routman (2012) study has focused on establishing the concept of intra-Africa trade. In their argument, they note that intra-Africa trade is a panacea for African development, and thus good for economic growth and sustainability.

Further, Kimenyi, Zenia and Routman have argued that intra-trade is important for developing countries in that they enhance industry competitiveness by creating economies of scale, and by extinguishing out producers who are less productive to the market place. On the other hand, Page and Moyo (2010) have argued that regional integration is important for intra trade in that helps to strengthen product value chains between various countries, enhance technological transfers and knowledge spillover effect of economic growth. In their study, they however, argued that Africa intra trade integration and are very low due to unnecessary sub regional trade tariffs and quota that hurt trade development.

According to a study by Velde (2009) on Africa‘s regional growth, and concentration noted that Africa is characterized by large number of landlocked countries that interdependent on each other for trade, and transfer of goods. Velde also argues that one of the reasons as to

21 why regional integration and regional trading blocs emerged was to enhance intra-trade within different economic development through trade. The importance of regional integration and trade is that it enhances economic diversification through trade. According to Van Der

Geest and Nunez-Ferrer (2011) lack of economic diversification is one of the greatest challenges facing intra-trade between regional blocs. One of the reasons there is less intra- trade between African states, is the prevalence of political conflict that diminishes the capacity for this states to engage in meaningful intercontinental trade, and intra trade. Poor infrastructure is one Africa, is also one of the major issues facing Africa. Infrastructural deficiencies do reduce economic growth and productivity which is essential for trade. Poor infrastructure has been and continues to be an inhibiting factor in production. When a country lacks adequate mechanism for production, it diminishes its capacity to engage in meaningful intra trade with other states. According to a study conducted by UN Economic Commission for Africa in 2010, approximately 30% of African roads were paved. As a consequence shipping a vehicle from Japan to Abidjan port could costs as much as $ 1, 500; whereas, shipping a vehicle from Addis Ababa to Abidjan would cost $ 5, 000 (UN Economic

Commission for Africa, 2010).

A study conducted by Taiwo and Moyo (2012) noted that intra trade is essential for economic regions peace, stability and economic development. The study noted that customs environment is major impediments for intra-Africa trade. In most instances, high customs charges levied on intra- African trade contributes poor intra trade between Africa states.

Similarly, according to Doing Business 2011, Sub-Saharan Africa is the most expensive region for intra-trade due to trade and customs barriers. Equally, the report notes that the delays in doing trade in Africa is three times as long as other regions like Europe, Asia and

Middle East. High intra trade costs are attributed to excessive bureaucracy that stifle easy of cross border intra trade. Intra trade between Zambia and Zimbabwe, members of South

Africa Development Community (SADC) in 2011 involved 15 government agencies before final intra-trade of goods and products could be cleared (World Bank 2011).

According to Page and Moyo (2010), African Union (AU) is a large economic bloc with numerous sub regional trading blocs that are geared at enhancing intra trade. However, politics lack of cohesive singular trade policy hinders the development of intra trade.

Additionally, Page and Moyo noted that, lack of structural changes in terms of movement of low productivity employment to high productivity employment, which is a key factor in economic growth that spurs trade. The study further notes that for more than two decade,

Africa has lagged behind in structural intra trade changes, as compared to Asia regional bloc, where movement of employees from countries with lower productivity to higher productivity has been credited for rapid intra trade and economic growth. Africa structural intra-trade changes has for many decades moved in the opposite direction, with labor shifting from higher productivity to lower productivity, as such, reducing economic growth and trade.

Similarly, McMillan and Rodrik (2011) have argued that without significant changes in the economic structures, Africa cannot enhance intra trade cannot grow; Africa cannot create jobs that enhance movement of factors of production that is essential to intra trade. As such, without significant changes in Africa economic structures, intra trade will remain a mirage.

Africa will not be able to create sustainable jobs without significant investment in labor markets, training and capacity building. On the other hand a report by UNIDO (2009) for regional intra trade to take root, the competitiveness challenge has to be examined. He study shows that in Africa, the average manufacturing in terms of labor productivity is more than three times that of agriculture, yet majority of Africa states lack industrial manufacturing competitiveness experienced by other continents such as Asia, Europe, and America. UNIDO study further notes that since 1980s when there was a significant shift in manufacturing production in developing world, the share of African continent GDP is less than half of other

23 developing countries, and declining. This decline has led to a situation with a corresponding decline in labor diversity and sophistical. Decline in labor diversification impact a countries ability to engage in effective trade (McMillan & Rodrik, 2011).

Some of the factors that enhance intra-trade is industrialization. Countries that have industrialized, or have developed significant amount of industries do engage in export of goods and products within their regional or in continental trade. According to a study World

Bank (2009), Africa intra trade can be supported by enhanced investment in industrialization rather than selling of raw products to European, Americana and American markets. Similarly, a study by Page (2011) noted that Africa lacks significant free movement of goods and services across border. Free movement of goods enhances competitive pressure on local firms within a given region to engage in new possibility task-based production that is forced on extra regional markets. The challenge for cross border trading in Africa has resulted in situations where Africa does not produce for Africa, but for extra continental market. This kind of trading reduces intra African trading abilities.

Lesser, Moise-Leeman (2009) has equally established that many African countries are land locked, with poor infrastructure, weak institutions, and weak legal framework to enhance trade corridors. The prevalence of ineffective customs administrations, competition policy, and transport regulation makes intra trade related ventures a challenge. Incoherent customs administration in Africa coastal countries relied upon by landlocked countries make it difficult to do effective trade. Additionally, inefficient cross border transport regulation, coupled with informal taxes place more burden on cross border importers to engage in profitable business. In their recommendation on what African countries can do to enhance intra African trade, McMillan and Rodrik (2011) have argued that African governments need to rationalize the membership of regional trading blocs in addition to empowering the trading

24 blocs with coherent trade policies that can be used to intra-trade. On the other hand, Lesser,

Moise-Leeman (2009) argue that regional blocs need to develop strategies for comprehensive taxation, transport infrastructure investment, in addition to other bankable projects that enhance manufacturing and production ability of African countries

2.4. Status of Trade and the challenges facing Economic Integration in the EAC

Increased intraregional trade and lower tariffs are paving the way for faster growth (IMF,

2011). Over the past decade, lower tariffs within the East African Community (EAC) have boosted regional trade, offering the five member countries a route to faster growth.

According to the IMF‘s latest projections, growth in the EAC region is expected to reach

5.9 percent in 2011—a noticeably faster growth rate than in the rest of sub-Saharan

Africa. During the period 2000 to 2010, intraregional exports between Burundi, Kenya,

Rwanda, Tanzania, and Uganda tripled—from nearly $700 million to nearly $2 billion.

Rwanda‘s exports have grown the most during this period, from about $1.6 million to

$156 million, but are still a fraction of those of the region‘s largest economy, Kenya‘s exports to the other EAC members were about $1.2 billion in 2010. At the same time,

EAC countries have been exploiting new markets, including those within the region.

Exports to other EAC countries are now as high as exports to the euro area, followed by exports to the rest of Africa and developing Asia. Challenges facing economic integration.

In her scholarly writings, (Angela, 2015) concluded that the overlapping RECs membership by partner states continue to pose harmonization and coordination challenges. In addition this indicates that there is lack of political will and commitments by some member states. It is also noted that EAC institutions are weak as they lack capacity to enforce sanctions against partner states who fail to implement agreements. The selection process of the member institutions is not democratic enough as they are handicapped by the absence of citizens and public views and contributions. Finally issues on Non Trade Barriers (NTBs), poor

25 infrastructure and limited private sector participation and engagement are impediment to economic growth and in the EAC region, despite its perceived importance in the increasingly globalized world. Thus partner states need to take integration not only as a Pan-African ideology but more importantly as an economic survival strategy.

2.5. The Role of Trade in Development

Trade is an important element in poverty reduction. According to the World Bank and World

Trade Organization (2015), the expansion of international trade is essential to development and poverty reduction. Markets for goods have Markets for goods and services have become increasingly integrated through a fall in trade barriers, with technology helping drive trade costs lower. But trade is not an end in itself. People measure the value of trade by the extent to which it delivers better livelihoods, through higher incomes, greater choice, and a more sustainable future, among other benefits. For the extreme poor living on less than $1.25 a day, the central value of trade is its potential to help transform their lives and those of their families. In this way, there is no doubt that the integration of global markets through trade openness has made a critical contribution to poverty reduction. The number of people living in extreme poverty around the world has fallen by around one billion since 1990. Without the growing participation of developing countries in international trade, and sustained efforts to lower barriers to the integration of markets, it is hard to see how this reduction could have been achieved.

Although the drivers of poverty are multi-dimensional, the basic requirement for sustained poverty reduction is economic growth. Opening up to trade increases a country‘s GDP because it allows each country to use its resources more efficiently by specializing in the production of the goods and services that it can produce more cheaply, while importing the others. Trade also affects long term growth since it gives access to more advanced

26 technological inputs available in the global market and because it enhances the incentives to innovate. Trade contributes directly to poverty reduction by opening up new employment opportunities, for example for agricultural producers, with the expansion of export sectors, and by bringing about structural changes in the economy that increase employment of low- skilled, poor workers in the informal sector. Trade also provides better access to external markets for the goods that the poor produce. Understanding these channels helps us trace through the impact that trade can have on the extreme poor. Trading into sustainable development (UNCTAD, 2016) suggests that for countries to succeed in economic prosperity, they should achieve in all three dimensions, that is, economic, social and environmental, simultaneously.

In this context, international trade is expected to play its role as a means of implementation for the achievement of the SDGs. ―Means of implementation would‖ include factors that facilitate countries‘ progress towards the achievement of sustainable development, such as public and private financial resources, capacity‐ building, and transfer of environmentally sound technologies. In practice, however, it remains a considerable challenge to trade policymakers to map out interlink between trade policy and sustainable development, let alone to ensure that trade policy outcome positively influence sustainable development.

An overview of the report examines to what extent sustainable development concerns are integrated into today‘s trade policymaking. The researchers here look into how those concerns are treated in trade agreements at multilateral, regional and bilateral levels. It then discusses opportunities as well as challenges in using market access conditions to meet sustainable development objectives. They go further to discuss the use of tariffs for trade and development purposes, and provides comprehensive statistical information on the trade- related ―indicators‖ for the reviewing and monitoring of the implementation of the 2030

Agenda. NTMs can act as an important ―policy interface‖ within the trade-SDG nexus at home as well as that of trading partners. The majority of NTMs are domestic regulations that cater for social and environmental development objectives. Finally ways to achieve synergies between policy measures for achieving the SDGs and enhancing trade flows across countries have been recommended.

2.6. Factors that Facilitate Trade and Economic Integration

2.6.1. Economic Infrastructure According to Buys Deichmann and Wheeler (2006), and Shepherd and Wilson (2008) have established that improvement in road infrastructure has a significant impact on regional trade volumes. The importance of effective transport and communication system is that it links trade routes making it possible to transfer goods and services from one country to another, or from region to region. Additionally, road rehabilitation in the domestic market can also enhance rural trade and consumption, thus raising incomes of the poor through effective transportation of agricultural goods and products from the rural regions to towns for consumption and export. Availability of adequate and reliable train transport system, Cargo airports, and marine transport also play a major role in advancing regional trade and economic development prospects as was the case in EU economic integration case (Meunier,

2005).

One of the other major infrastructures that are essential in enhancing intra trade is investment in electricity. Lower costs of electricity enhance a countries ability to engage in profitable production, and to remain competitive enough within an economic trading zone (Hallaert et al., 2011). Higher costs of electricity make it difficult for industries to produce products at competitive prices. Therefore, investing in low cost energy has a direct link to enhanced production and trade (OECD, 2014). In developing countries, unreliable electricity puts much

28 pressure on industries to invest in generators which are also unreliable and can cause substantial damage to machinery or equipment used in production process.

2.6.2. Productive Capabilities

Building productive capabilities is one of the essential components of enhancing production and trade (Hallaert et al., 2011). For a country to be able to produce products that are competitive at a regional or global markets, well-developed skills, knowledge and capacities are imperative. For instance, in developing countries, agricultural commodities remain key economic activity for trade. Therefore, internal improvement in agricultural farming techniques, technology, and management practices; in addition to increased organizational market efficiencies are critical to intra trade. De Janvry et al., (2010) study found that investing in fostering agriculture is an effective strategy for economic sustainability for developing countries. Though, it is usually argued that industrialization is the most potent route to economic sustainability, developing countries relies heavily on agriculture.

Similarly, strengthening the capacity for financial institutions at domestic level to provide credit to industries and agricultural commercial production is important in intra trade. For trade to grow, access to finance is an important factor (Cirera & Winters, 2014).

2.6.3. Private Sector Development Factor

The private sector plays a major role in trade and economic sustainability. According to

WTO (2015), private sector has been considered as a primary factor in the promoting of intra trade and economic growth and sustainability both in the developing and developed world.

The UN Agenda 2030 notes the importance of leveraging private sector capabilities to enhance trade capacities and value chains. Additionally, international trade, intra-trade and continental trade, helps in enhancing transfer of production technologies essential for trade.

With the increase in globalization, a growing number of companies are looking cross border 29 production capacities that will enable them enhance cross border trade (Hallaert et al., 2011).

Thus, private sector organizations have a role to play in developing trade related infrastructure, and quality standards in goods production. International firms more to intra trade growth by building trade capacities, and by increasing trade fluidity and investments in supply chains. It is therefore worth noting that transfer of capital, knowledge and skills, from private sector enhances cross border trading, particularly efficiency in in production, and supply chain management (OECD, 2014.

2.7. Theoretical Framework

2.7.1. Regional Integration Theory

The literature of Regionalism covers contributions in economics, international relations and political economy. It also helps us analyzing regions in terms of their sustainable economic development status, which begins with the customs union theories formulated by Viner

(1950), Meade (1956) and Lipsey (1957), which have more recently been extended to include imperfect competition by Baldwin (1997b), Schiff and Winters (2002) and others.

Secondly the Regional Integration Theory also helps us in identifying the impact of trade barriers, both tariff and Non-Trade Barriers (NTBs) on trade, welfare and competition with

Regional Free Trade Areas (RTAs). In relation to this context, it identifies what motivates regional integration, examines the negative and discriminatory effects of regionalism and finally it examines the cost/price effects of barrier removal within customs union and the importance or limits of regionalism. The determinant and factors of integration include;

Economic determinants (Coordinating Macroeconomic policies and harmonizing or integrating them with other policies including industrial, social, transport and environmental).

The size of participating countries is also assumes that the larger (in economic terms) the participating countries are, the more substantial benefits of integration will be.

According to Abdel, Jaber (1971, p.262), if the size of the economy is measured by the gross national product, integration benefits for developing countries are negligibly small. Balassa on the other hand claims that integration gains depend not only on the size of the countries participating in the integration arrangement, but also on their rate of economic growth. Thus, as developing economies tend to grow at higher rates than already developed ones, the benefits of integration for them would be even bigger (Balassa, 1961, p.38).

Other determinants include; Market related determinants (Employment and productivity effects, Production Specialization, Protection of Domestic Industries and Global competitiveness). Trade-related determinants (trade diversion - removal of tariffs thereby increasing their savings. The effect of all these, however, must be weighed against the loss of tariff revenues (Elkan, 1975, p. 59), which is particularly important for developing since most of those countries rely on them as their main source of revenue in the budget). Initial Trade

Levels - Meade assumes that the higher the initial rates of tariffs between countries entering an integration agreement are, the higher the expected benefits of integration among them will be (Meade, 1955) –because the removal of the tariff will have a greater impact in terms of both welfare and intraregional trade. This is specifically important when it comes to developing countries because the national tariffs of most of them are rather high, mainly due to their desire either to increase revenue or to protect national production.

Intra-regional trade- researchers (Balassa, 1965; Abdel Jaber, 1971) list several factors that restrict trade among developing countries, arguing that if these barriers are removed, trade flows between developing countries engaged in an integration process will likely increase.

These factors include: first, the low level of economic development; second, inadequate

31 transport infrastructure and facilities; third, foreign currency control and other restrictions on imports; fourth, inadequate marketing; fifth, the lack of standardization.

2.7.2. International Cooperation Theory (ICT)

This study will adopt the International Cooperation Theory (ICT). The international cooperation theory notes that cooperation in the international arena occurs among different entities including organizations, political parties, and nation-states. Intergovernmental organizations (IGOs) work with regional bodies and governments on issues such as intra trade, environment, and security among others. ICT is a direct challenge to neorealism that views states as majorly anarchic, that states only cooperate to advance selfish power interest.

The international cooperation theory shows that cooperation among states is possible under rational approaches, particularly in cases where the international actors share common analytical objectives. According to Milner (1991) and Powell (1994), the international system is anarchic, but argues that anarchic system does not always lead to conflict. Cooperation among different self-interested states, the international cooperation theory assumes that in as much as states are unitary actors, non-state actors and local or domestic politics influence states interests in cooperation with others (Lake & Powell, 1999).

To this extent, the ICT makes the assumption that states in the international system act based on their conception of rationality, which means, in as much as states cooperate, most often, the cooperation is usually consistent with states pursuing their objectives (Snidal, 2002). The international cooperation theory both from realism and liberalism, first, by making cognizant of the fact that issues such as national security, and prosperity. The liberal bend to ICT is that assumption that cooperation promotes ideation, and consideration such as economic benefits, and enhanced trade. More generally, international cooperation theory can be used to explain

32 the behavior of states and international actors. Factors such as long term benefits of cooperation, and the shadow of the future which in most instances, creates incentives for states to cooperate in the anarchic system (Axelrod, 1984). Additionally, ICT notes that reciprocity among states build reputation that further enhances cooperation. On the other hand, ICT can be used to explain irrational behavior of this actors based on examining state based constraints, or actor driven goals that influence action or inaction. Other factors such as domestic politics can trigger irrational behavior of states towards trade and cooperation.

In conclusion both Regional Integration and The International Cooperation theory are essential to this study in that it will guide us understanding and explaining the contextual aspects of intra trade among EAC member states. Intra-trade significantly relies on cooperation among states, failure to which, trade will not be effective, Secondly, the international cooperation theory will help explain both the perspectives of rational actors towards intra trade, vis-à-vis realist persuasion of anarchy as a driver towards every engagement states have in the international system.

2.7.3. Theories Linking to trade to Sustainable Development

Figure 1: Key linkages between trade competitiveness and sustainable economic growth 1.1.Country-based trade theories: orthodox mercantilism Key Assumptions Competitiveness drivers  Exercising restrictive import policies  Government policy to ensure trade are sources of competitiveness surplus (orthodox mercantilism) 1.2.Country-based trade theories: classical mercantilism – Key Assumptions Competitiveness drivers  Capacity to produce various goods and  Domestic production support measures services (Comparative Advantage)  Export subsidies  State-trading enterprises

 Knowledge and technology monopoly 1.3.Country-based trade theories: neo-classical trade theory Key assumptions Competitiveness drivers  Same technology (perfect information) across Constellation of factor endowment (labor and countries capital)  Perfect competition (due to constant returns to scale and full divisibility of factors of production) 2. Firm based trade theories – Steffan Linder Key assumptions Competitiveness drivers  Key theories in this group include  Competitiveness drivers country similarity, global strategic  Policy rivalry, imperfect competition, product  Localized technologies differentiation, Porter‘s competitive  Skilled labor advantage of nations, product life  Specialized infrastructure cycle, scale economies  Networks of factor markets (suppliers)  International trade flows are explained  Product quality by many factors (see competitiveness  Positioning of products in product life cycle drivers)  Product differentiation  Brand name  Technology is an explicit and endogenous factor of production; with imperfect mobility (across firms, countries)  Factors of production (such as labor) are perfectly mobile across sectors, within a given country (Competitive Advantage)

3. Investment Theories Competitiveness drivers Key assumptions  Ownership of productive assets (ownership  Key theories in this category include advantage theory) ownership advantage theory,  Costs associated with market access and market entry (internationalization theory)

internationalization theory and eclectic  Cost advantage, ownership advantage, theory internationalization advantage (eclectic  Competitiveness is driven by various theory) factors 4. Keynesian theories Key assumptions Competitiveness drivers  Linear relationship in Income-savings-  Capital intensity investments-production -economic growth  Government (interventionist) policy  Existence of market imperfectness cannot be  Government spending corrected by the market  Investment  Economic growth is circular, characterized by ups and downs  Labor and capital are complementary factors of production 5. Neoliberal theory Key assumptions Competitiveness drivers  Market is a better allocator of resources than  Private sector the government  Aid and learning from developed capitalist countries

2.7.4. Summary of theories  Country-based trade theories assert the reliance of economic welfare on the

production of goods and services that position a country favorably in the international

trading system.

 Firm-based theories use several additional factors (related to firm resources and

products, technology localization, specialized infrastructure) to explain the

determinants of trade flows.

 Investment theories associate competitiveness with international investments inflows.

 Development theories introduce several other issues for understanding the process of

development, including the role of the state, science and technology, culture, trade,

foreign direct investment including aid.

2.8. Chapter Summary

This chapter has presented literature based the writings of various scholars on the subject of intra trade, and its contribution to economic sustainability. Literature on Intra trade and economic sustainability is presented first, followed by intra trade in developing countries, and finally intra trade and regional integration. The next chapter presents the study methodology that will be adopted for the study.

CHAPTER THREE

3.0. METHODOLOGY

3.1. Introduction

The methodology that will be used to carry out this study is presented in this chapter. The chapter begins by presenting the research design that will be adopted and the reasons why the design is appropriate for this study. This is followed by articulation of data collection methods that will be used to collect data, the techniques and methods that will be used to conduct data analysis, and the research procedure that will be adopted to carry out the study.

Finally, the chapter summary will also be provided.

3.2. Research Design

Kothari (2004), defines research design as the framework or blueprint that guides a researcher on the methodology he/she need to select, to be able to answer the study objectives. On the other hand, Kirumbi (2018) defines a research design as a set of methodologies and procedures that a researcher adopts in collecting and analyzing data for various variables as described in the study objectives. Similarly, Cooper and Schindler (2014) noted that a researcher has to have an effective research design to be able to march his study objectives with a methodology that would guarantee achievement of the objectives. Research designs can either be descriptive, experimental, correlation, review and meta-analytical. Descriptive studies are either case studies, surveys, or naturalistic observation (Kothari, 2004). A case study is an in-depth analysis and review of a single element or an entity so as to provide a broader understanding of the element or phenomenon on a given set of guidelines or criteria

(Bryman, 2012). Thus, a case study provides a researcher with an opportunity to examine the intricate details of a given phenomenon and to provide findings that better unveils further understanding of the phenomenon. A case study was essential for this study in that it will allow the researcher to have the opportunity to examine the effects politics of trade within

EAC regional bloc on economic integration, while at the same time, do a comparative case study on the effect of trade on EU regional bloc on economic integration.

This study utilized both qualitative and quantitative research methodologies. Quantitative approach was used to document trade and economic integration in terms of type of trades, polices, regional blocs GDPs, and size of economic integration. On the other hand, qualitative approach was used to document underlying factors and effects of trade and economic integration within the EAC and the EU regional blocs. Triangulation of qualitative and quantitative made it possible present evidence based findings that make sense and meaning.

This study relied on the interpretivist approach to make sense of the data findings.

Interpretivist in this case entailed examining both the statistical numeric data and triangulating it with the qualitative data findings so as to make comprehensive meaning to the findings. Kothari (2004) notes that in research, interpretivist gives meaning to phenomenon by extracting meanings that respondents give to the data, or meanings already inherent in given sets of data available in both secondary and primary sources. Therefore, interpretivists approach will be appropriate for this study.

3.3. Data Collection Methods

For a researcher to be able to answer his/her study questions or objectives, data has to be collected seeking to answer the questions. Cooper and Schindler (2014) define data collection methods as the process of collecting data that answers the study research questions. The Data collected for this study was based on methods including review of literature from secondary data which was used to answer the study objectives. Secondary data was sourced from the

EAC and the EU trade reports, books, magazines, newspapers and the EAC and the EU trade and economic integration scholarly journals.

3.4. Data Analysis Methods

Qualitative and quantitative approaches was used for data analysis in the study. Quantitative data from the policy papers, journals and reports with the qualitative data generated from literature reviewed which assisted in guiding and categorizing themes according to the research objectives reported in narrative form along with quantitative presentations.

Secondary data was found important to this study to help in analyzing various trade reports within the EAC and between the EAC and the EU using content analysis to establish emerging themes, views, opinions, and other previous reports or statistical findings.

3.5. Validity and Reliability

Mugenda and Mugenda (1999) defined reliability as a measure of the degree to which a research instrument yields consistent results or data after repeated trials. Validity on other hand is the degree to which results obtained from the analysis of data collected previously actually represent the phenomenon. For the quality and accuracy of data to be collected, reliability and validity procedures in research was an important element to the study.

3.6. Research Limitations

Only secondary data was used for this study, and in some instances, the information provided was more historical than current. To mitigate this limitation, data finding was collaborated with other multiple data sources to ensure validity and reliability of the information, so as to present a more concise and clear picture on the findings of the study.

3.7. Chapter Summary

Research methodology that guided this study has been presented in this chapter. Of importance, a case study research design adopted for the study has been presented. Both qualitative and quantitative research methodologies have been presented, which entailed review of secondary data sources. Data that was collected and analyzed using content analysis for emerging themes, views, reports and statistics.

CHAPTER FOUR

4.0. RESULTS AND FINDINGS

4.1 Introduction

This chapter presents the results of this study. Specifically, this study had examined why the

EAC had not achieved economic integration despite enjoying a common market union and a common market. Secondly, this study has also examined how the EU achieved trade and economic integration and the lessons the EAC can draw from EU approach. Third, this study has examined the effects of economic integration, and finally, this study has examined how the EAC can solve trade and economic integration challenges. This chapter is organized in the following manner: The rationale for the EAC formation is presented first, followed by an examination on why the EAC has not achieved economic integration despite

Common market union and a common market; a comparative analysis with the EU‘s economic integration, the effects of regional economic integration and finally, how the EAC can solve its challenges on economic integration.

4.2. Rationale for EAC Formation

The East Africa Community (EAC) was initially founded in 1967 to promote trade between

Kenya, Uganda and Tanzania; promote common services such as railway transport, facilitate free movement of people to the region, and finally promote a forum where regional economic and political discussion would take place (Lesser & Moisé-Leeman, 2009). Prior to this, the

Kenya, Uganda and Tanzania had enjoyed a long history of co-operation which included a

Customs Union between Kenya and Uganda in 1917, which was followed by Tanganyika in

1927. The three countries had the East Africa High Commission (1948-1961) and the East

Africa Common Services Organization (1961-1967). The EAC as officially formed in 1967,

40 however, Uganda, Kenya and Tanzania drifted from the agreement due to divergent political and economic ideologies leading to dissolution in 19771. A Mediation Agreement was negotiated for the distribution of Assets and Liabilities accrued during the ten-year period

(1967-1977) and signed in 1984. However, despite the dissolution, the three member states

(Kenya, Uganda, and Tanzania) agreed to explore future co-operation on trade and common market. In 1996, a Permanent Tripartite Commission for East African Co-operation was established to revive the EAC trade and economic integration dream. The Treaty for the establishment of the EAC was signed in Arusha on 30th November 1999. However, the

Treaty entered into force on 7th July 2000 after the ratification and deposit of the Instruments of Ratification with the EAC Secretary General by all the parties2. In 2004, the EAC Summit signed a protocol for the establishment of the EAC Customs Union, which came into force on

January 1st, 2005. On July 1st, 2007, Rwanda and Burundi became full members of EAC, and subsequently joined EAC Customs Union on July 1st, 2009. On November 30th, 2013, the

Protocol for the establishment of EAC Monetary Union was signed and adopted. In April

16th, 2016, the Republic of South Sudan joined the EAC and became a full member on

September 5th, 20163

The EAC is guided by seven main organs namely: the summit of heads of states, the council of ministers; the coordination committee; the sectoral committee; and the secretariat (Njura,

2016). The summit of the heads of states is composed of presidents of member states, who have the final decision-making authority on all matters pertaining to economic development and political cooperation among the members. On the other hand, the council of ministers is composed of ministers from member states in charge of EAC dockets for their respective

1 https://www.eac.int/eac-history 2 https://www.eac.int/eac-history 3 https://www.eac.int/eac-history 41 governments. The ministers are in charge of implementing policy directions as determined by the summit, and in keeping constant review and monitoring of EAC programs4.

4.3. Effects of Politics on Trade in Regional Economic Integration

Domestic politics shape trade and trade policy for countries and regional economic and integration blocs (Alkin, M., Arias, E. & Rosendorff, P.B, 2015). Domestic politics are essential in defining the parameters of trade policy. This has well-been established in both economics and political science. In most cases, international relations and international trade are usually not solely determined by a country‘s executive. This means that trade policy and economic integration between regional and economic integration blocs is not isolated from the pressure domestic politics. According to Atsiaya and Angela on challenges of regional economic integration, trade and trade policy that determines regional economic integration, like many other domains of public policy, are determined by the interplay between domestic economic interests, political interests, institutions and information available to players within the integration economic bloc (Atsiaya, 2010). Research agenda in the recent past has focused on identifying not only domestic political matters in politics, but also why it matters.

This study goes beyond this stage by examining the effect of politics on trade within a regional economic block, and the extent to which the effect influences states position and action towards economic integration.

Essentially, in international relations, it is important to first understand who the important player in the trade policy of different states within a regional bloc. It is also important to establish what the interest of these players are in the policy decisions and their preferences in the process. In most instances, process and preferences vary from state to state, and from different actors and their influence on the process, depending on nature of political clout or influence. According to Alkin, Arias and Rosendorff (2015) the ability of political groups to

4 ibid 42 influence the outcome of a trade policy or agenda is most often determined by political structures, and ability to lobby, or transmit their preference into policy formulation. In essence, information generated through lobbying, canvasing and adoption of specific preferences is transmitted through trade policy. In as much as policy positions may differ from state to state, they are ideally, political alignments of interest groups shaping trade outcomes. Other scholars like Mansfield and Mutz argue that regional bloc trade agreements that are designed to govern trade policies in themselves do generate political information that impacts how these policies are chosen.

To understand how domestic politics matter in regional economic trade and trade policy, this study examines the crucial interactions of states interests and the institution of trade policy within EAC. Further, the study examines the convergence of states interests from domestic political institutions, to not only shape trade policy, but also enlist economic integration and cooperation.

4.3.1. How the EAC Politics Shape Trade Policy and Economic Integration

In 1967, EAC emerged as one of the most post-colonial regional integration economic blocs with the signing of the EAC Treaty. However, political maneuvering and challenges in decision-making between the then Heads of States for EAC (Uganda, Kenya, Tanzania) led to the collapse of the EAC in 1977. According to Odhiambo (2011) decision-making difficulties were rooted in divergence in ideological and political differences, as there was lack of multi-level consensus in decision-making processes. As had been argued by Joseph

Nye in his book ―Pan-Africanism and East Africa integration‖, the modern way of establishing success of regional integration is through multi-level consensus in decision making processes (Nye, 1966).

Despite the collapse of the EAC in 1977, the Heads of States revived their cooperation in the

1990s. To safeguard against the initial collapse, the Heads of States signed and ratified a

Protocol on decision making processes in 2001 as articulated in Article 12 and 15 of the

Treaty (The Citizen, 2014). However, collective consensus did not last long as individual state‘s interest began to take shape. For instance in 2013, Kenya, Uganda and Rwanda formed the ―coalition of the willing‖ sidelining Tanzania and Burundi, whom they accused of dragging efforts for economic integration.

Although Tanzania has historically been a key member of the EAC, Tanzania did not attend a regional infrastructure and Single Customs Territory (SCT) held in Mombasa in August

2013. Similarly, Tanzanian President failed to attend another meeting in June 2013 held in

Kampala where the Heads of States discussed regional infrastructure. However, in addressing

Tanzanian parliament, President Kikwete lamented that Tanzania was being sidelined deliberately by the coalition of the willing:

‗Do they want to create another coalition? Are they angry with me or my county, or do they want to push us out?‘ (Business Insider, 2013).

The head of government information services Mr. Vedastina Justinian further noted that the

EAC ―coalition of the willing‖ was operating in contravention of Article 7(1) of the EAC

Protocol:

‗In as much as the EAC Article 7(1) allows members states to enter into bi-lateral or tri-lateral agreements, the issue must be discussed and agreed with all the EAC members‘ states (Shinyekwa, 2013).

According to Isaac Shinyekwa, a research fellow at the Economic Policy Research Centre

(EPRC), the question on why Tanzania is perceived to be dragging her feet towards economic integration and trade is a political one:

‗First of all, the issue of land is political one for Tanzania. The EAC states must come clear on land matters. Tanzania knows very well that there is a problem with land ownership in Kenya and Uganda, where only the rich and elite acquire large chunks

of land at the expense of the common citizens. People in this countries are fighting over land, and Tanzania has seen all this. In Tanzania, land is the property of the state, and there is no the state is going to allow other the EAC citizens who don‘t have land in their countries to come over and occupy the land‘ (Shinyekwa, 2013).

According to Fredrick Golooba-Mutebi, a Kampala based political researcher, Tanzanians view Kenyans as frightening in so far as moneymaking opportunities are concerned. There is a feeling that once Tanzania agrees to full trade and economic integration, Tanzanians will have no chance against aggressive Kenyan traders; Tanzania will be turned into a market to be exploited by Kenyan industries. As for Burundians and Rwandans, Tanzania holds the view that citizens from this country are over populated with little land; they will flood their country in search for land and place to resettle (The East African, 2014).

Golooba-Mutebi further notes that most Tanzanians agree that full EAC integration would be beneficial, however, they blame their political elite for pandering to the fears of EAC integration, instead of offering capable and visionary leadership.

Conversely, those who support coalition of the willing argue that, Tanzania and Burundi are dragging their feet on trade and economic integration of EAC, and thus should be sidelined and allowed to catch up at their pace (Golooba-Mutebi, 2014). However, the former the EAC

Secretary General Hon. Richard Sezibera noted that in a regional economic integration, members participate at free will, and can adopt components that work for them, while placing reservations, and seeking consensus on matters they are uncomfortable with, rather than stalling the process:

‗Kenya, Rwanda and Uganda are seemingly more interested and committed to regional EAC trade integration. However, the EAC is under stress for unreasonable causes, for which, Tanzania is mostly to blame. We all appreciate the fact that regional integration is a political matter and politically driven…in this case, Tanzania is free and should feel free to opt out openly from any integration component it finds unrealistic, or unreasonable, and do it at its own time. However, this has not been the case. Instead, Tanzania either blocks or delays decisions on the EAC integration, preventing Kenya, Rwanda, and Uganda who want to move with speed...now it is

very unfortunate that Tanzania is crying wolf and accusing the other members of trying to isolate her, when in reality, Tanzania is isolating itself‖ (Cooksey, 2016:15).

On the other hand, Rwengabo argues that side stepping regional consensus by establishing

―coalition of the willing‖ is challenging in that it may impose new diplomatic resource and technical demands on the coalition states. Secondly, the coalition partners have to figure out how to establish policy areas below the EAC. Finally, coalition partners may unwittingly adopt group-think as members take biased position on non-coalition members, further complicating cohesion, and such, present opportunity for future fracture and disintegration

(Rwengabo, 2016).

4.3.2. The Logic of Consensus

As noted earlier, negotiated consensus is one of the ways in which states within a regional block make decisions regarding economic integration and trade policy. Some of the ways through which negotiated consensus happens is through adoption of majority decisions, review and adoption of expert opinion, lobbied positions, and hegemonic impositions

(Rotich, 2012). It could also be argued that use of consensus is paramount in building relationships and cooperation where every member is comfortable. According to Joseph Nye, consensus should be safeguarded because it prevents imposition of decisions on states by other states (Nye, 1966). Secondly, consensus promotes consultative approach to realizing regional economic integration aspirations that would be possible through majority votes, where regional hegemons are likely to dominate, or impose their will and interest on others.

However, in as much as consensus is the cherished way of getting every the EAC member on board, it has been criticized for allowing some members to drag their feet on integration process, as has been the case for Tanzania and Burundi (The Citizen, 2014). Those who subscribe to the stakeholders argument would note that the slowest pace of some members is in order as it is meant to safeguard their sovereignty (Haftel & Thomson, 2006).

The concept for respect for state sovereignty and independence are to ensure a permanent and more collective and continued ownership of the EAC decisions. However, I would argue that safeguarding of state sovereignty has been hijacked by states that are not either willing to integrate for other unspecified state interest. A case in point, as argued by Shinyekwa (2013)

Tanzania‘s slow pace could be attributed to issues to do with land, trade, and free movement of people. However, it has not tabled any objections, or reservations for deliberations by other members. For instance, when the East Africa Legislative Assembly (EALA) passed a

Trans boundary Eco-System Bill for the first time in 2010. Tanzania vetoed it. This resulted in a protracted engagement for lack of consensus (Rwengabo, 2016). Which begs the question: Do all EAC members have political will to engage in robust and frank discussions on individual states reservations? Causal observation shows the existence of deviation in approach consensus on economic integration. Whereas Kenya and Rwanda are perceived as too ambitious to have the integration fully functional, Tanzania and Burundi are perceived as too reluctant, and requiring more time.

Secondly, key dynamics in the politico-security engagements and agreements affects the

EAC regional integration, particularly, instances where members do not seem to agree on specifics on any given mater. For instance, in 2012, Tanzania was reluctant to sign the

Mutual Defense Protocol noting that amendments it had proposed in 2011 December Head of

States Summit had not been implemented. Tanzania wanted clarification on what would happen in case where a member went to war, whether this would mean that the entire the

EAC was at war. In as much as the amendment to Article 17 was made in December 2012 allowing members to negotiate and conclude the MDP, the pact is still awaiting consensus

(Rwengabo, 2016).

4.3.2. Other Political Challenges

One of the political challenges facing the EAC integration is the lack of clarity and defined and consensus roadmap on trade, MDP, and political federation. According to Mwapachu

(2012), while the EAC Treaty has been ambitious in calling for a political federation, it does not entail or clarify what this federation will seek to accomplish in terms of trade and other economic advantages. In most instances, a political federation means that member states shall cede some power and level of authority to a central authority (such as the foreign policy, common market affairs, and other services such as common infrastructure), while at the same time maintaining authority on matters such as domestic justice systems, health system, wildlife, and tourism among others (Kasaija, 2004).

Despite the fact that the political elites are committed to trade and regional integration within the EAC, there exists a paradox to the extent that some members are not willing to cede trade tariffs to the common market authority. There exists a significant focus on equitable distribution of costs and benefits, which indicates that self-interest still dominates consensus process (Reith & Boltz, 2011). For instance, on the issue of trade and tariffs, mutual agreements are yet to be implemented, largely because, politics get in the way of secretariats and technical experts work. This can be illustrated with a case between Tanzania and Kenya banning each other‘s goods from accessing their respective countries market.

In 2017, Kenya in a move to streamline unregulated and unstandardized cooking Liquefied

Petroleum Gas (LPG) and wheat coming from Tanzania, banned the products. In a rejoinder,

Tanzania banned unprocessed foods, cigarettes, milk products coming from the later. The bans were only lifted after intervention of President Magufuli and Kenyatta. This should not be the case. The EAC has a fully functional secretariat and technical policy and trade experts who are supposed to deal with this matters. However, political interventions, whether positive

48 or negative still affect, and influence the EAC‘s trade, and trade policy and economic integration (The Citizen, 2018).

In the most recent trade row, Uganda and Tanzania introduced taxes on Kenyan goods, particularly confectioneries such as ice cream, chocolate, sweets, and even biscuits, over what they alleged, was Kenyan companies were using industrial sugar imported under 10 percent duty remission scheme. Further, they contend that this products do not met the required local certification under rules of origin for them to trade within the EAC economic bloc (The

Citizen, 2018).

Some of the other political challenges that inhibit trade and economic integration within EAC emanate from history of conflicts within the region. Most of the violet conflicts within EAC members have been within member states. This includes genocide in Rwanda, and Burundi, locally instigated ethnic violence and population displacements in Kenya, terror groups and insurgency in Uganda have to a greater extent destabilized the region, diminishing member states ability to engage in constructive dialogue on regional integration. According to

Mwapachu (2013), the complexity and vestiges of volatility and instability the region has experienced have placed fundamental constraints on collective efforts towards trade, economic and political integration.

Social-cultural differences within the EAC states have been point of contentions that has elicited political undertones in terms of describing Tanzania as ―dragging her feet‖. A study conducted by Cooksey (2016) in examining Tanzania in the East African Community: A comparative political economy, revealed how the social cultural disparities affect integration.

The study revealed that Tanzanians were viewed or perceived as less aggressive or inquisitive as compared to Kenya or Uganda. They are laid back, overly cautious, proud and patriotic and nationalistic, which tends to get in the way consensus on trade and economic integration.

The struggle between existential choice between competing regionally and internationally, or protecting local industries from completion, undermine Tanzania‘s quest for compliance with the EAC trade protocols.

After the failure of the EAC in 1977, several Regional Economic Communities (RECs) were formed including the Economic Community of Central Africa States (ECCAS) which

Burundi is a member; the South Africa Development Community (SADC) in 1992 to which

Tanzania is a member; the Common Market for Eastern and Southern Africa (COMESA) in

1994, to which all the EAC members are members with the exception of Tanzania. The challenge with members belonging to multiple custom unions means that one or other unions are just tactical, rather than embracing and espousing deeper integration for cooperation. To this critics argues that:

‗Having overlapping membership complicates economic integration since preferential agreements for each economic group differs…a country and importers therefore opt for regimes with lower tariffs, which leads to massive smuggling and cheating on customs as a member can switch and use different customs at will‖ (Odhiambo, 2011:30).

―…overlapping membership has created a web of challenging competing commitments…this results in high cost of intra trade and undermines trade facilitation…to move forward, members need to resolve the issue of overlapping regional integration, so as to arrive at a common acceptable custom tariffs…‘ (Mwapachu, 2012:11).

4.4. The EAC Institutional Constraints on Trade and Economic Integration

World over governments thrive on loyalties, bureaucracy, and patronage systems and tariffs to raise revenues, which is in itself, a factor that hinders smooth cross-border, or regional economic integration (Ackello-Ugutu, 2000). This section focuses on institutional constrains on trade, trends, competitiveness, and the competitive business environment. The Economic

Partnership Agreement (EPA) allows duty free, quota free access of EAC products access markets in the European Market. The pact requires that all EAC countries sign and ratify for

50 it to take effect but has stalled since 2016 after the East African Judical Court (EACJ) dismissed a petition seeking reinstatment of an appeal of the case with most EAC member states arguing that EPA would cause irreparable economic loss or violation of the regional treaty. So far with political differences amongst EAC states, only Kenya has signed the agreement but not ratified it. Kenya, the region‘s biggest exporter to the European market, has been allowed temporary access to the European market under special arrangements after

Tanzania, Uganda and Burundi failed to sign and ratify the agreement citing various country- specific concerns (The East African, 2019).

According to the data from Policy Forum (2013) Kenya dominates trade within the EAC, followed by Uganda, while Tanzania has a poor third. In as much as Tanzanian exports to the rest of the EAC partners show a rise from US$ 409 million in 2011 to US$ 1.1 billion in

2013, while at the same time imports rose from US$378 million to US$ 410 over the same years, the figures are still dwarfed by leading players Kenya and Uganda as illustrated in

Figure 4.1

Figure 4.1: Intra-EAC Trade, 2007-2011 (US$ millions)

Source: Policy Forum (2013)

As indicated in the Figure 4.1, Kenya intra-EAC trade grew from US$1.1 billion in 2007 to

US$1.82 billion in 2011. This was followed by Uganda (US$650million to US$1.2billion);

Tanzania (US$250 million to US$790 million); Rwanda (US$250 million to US$420 million) while Burundi (US$150 million to US$220 million).

The latest figures (2013-2017) show that total intra trade in the EAC region has increased for all members apart from Burundi. Kenya had 81.7% average increase in imports to USD 589.5 which was largely attributed to sugar, dry beans, raw materials for animal feeds, while imports from Tanzania were ceramic products and paperboards. However, Kenya experienced 7.4% decrease in exports. The decrease is majorly attributed to the ban on

Kenyan milk products and confectioneries that was imposed on Kenyan manufactured goods by Tanzania. Over the same period, Tanzania had an average decrease in imports by 18.6% majorly as a result in increase in industrialization, while exports grew by 37.3%. Uganda on the other had an average increase in import by 6.2%. This was mainly attributed to petroleum products, cement, iron, steel and pharmaceutical products from Kenya. Uganda equally had an increase in exports by 18.4%.

Burundi had an average decrease in imports by 3.9% and 4.1 on exports. The Rwanda 2.2% increase in imports were dominated by imports from Uganda and Kenya they included salt, cooking fats, soaps, cooking, steel and iron sheets, paper and plastics, and 3.3% increase exports over the same period. Finally, South Sudan had a 15% to US$ 462.5 million, which accounted for 80% of all total imports over the period, with Kenya and Uganda being the main trading partners with products consisting of maize, sugar, and other manufactured commodities. Similarly, South Sudan had a 24% decrease in exports over the same period as summarized in Table 4.1.

Table 4.1: Total Intra-EAC Trade, 2013-2017 (US$ Millions and Percentage Change)

Despite the positive outlook of intra-EAC trade, there exists institutional constraints that inhibit trade and economic integration. Some of this institutional constraints include competitiveness in logistics and trade, poor infrastructure, restrictions on free movement of capital and people, and the institutions of the EAC.

4.4.1 The Institutions of the EAC

One of the challenges facing EAC secretariat is the institutional authority to carry out its mandate. According to (Mwangi, 2016), the EAC lacks the authority to coordinate regional initiatives because governments of the member states are not willing to delegate real authority to EAC. As such, neither East Africa Legislative Assembly (EALA) nor the EAC secretariat have the powers to override or overrule decisions made at a national level by individual states on trade or economic integration. More so, laws passed by EALA on trade or any other matter, have to be endorsed by respective parliaments of the member states, and

53 then enforced. This is highly problematic. According to study findings by Brian, Cooksey

(2016) on Politics, Patronage and Projects in the EAC, policies and laws that are drafted to promote trade can be watered down, changed, amended, or blocked altogether by parliaments or presidents of member states (Cooksey, 2016).

There are no repercussions, or sanctions that the EAC secretariat or institution can bring to bear on members for noncompliance of any EALA law of charter. An institution in such a weak position makes it difficult to enforce compliance. For instance, in 2012, Tanzania decided to unilaterally flood the regional market with sugar and rice with no EAC consequences. Similarly, the EAC advisory and policy advisory from technical experts within its structures has on most occasions been overtaken by political interests of the EAC member states. EALA is thus, mostly vulnerable to national politics of patronage. On this, The Citizen reports that:

‗In January2014, the president of Uganda, Yoweri Museveni proposed Ms. Margaret Zziwa to be the speaker of EALA, a post that rotates between the EAC members. However, EALA members from Kenya and Tanzania found Ms. Zziwa very arrogant high handed and disrespectful, and had set in motion a processes to have her impeached. However, in May 2014, six members from Tanzania withdrew their support for the impeachment motion, on the pretext that motion movers failed to substantiate allegations against Zziwa. Hon. Peter Mathuki, responsible for the motion responded: ―it is clear that Tanzanian members have been compromised and I challenge them to state in the open what principles they stand for‖… However, on the 3rd of June 2014, Kenyan President Kenyatta wrote an advisory to Hon. Joseph Kiangoi, chairman of Kenya EALA members to immediately withdraw all signatures they had for the censure motion. When Hon. Kiangoi was asked whether President Kenyatta had such authority to direct what happens on the floor of EALA parliament, Kiangoi responded: ―EALA and the executives from each state have independent authority. Our job is to offer oversight on EAC matter based on laid down procedures and regulations.‘ (The Citizen, 2014, June 16).

As noted above, the weaknesses of the EALA is that instead of being a symbol of the EAC aspirations and integration, it was vulnerable to patronage politics, impeding effective function.

4.4.2 Capital and the People

Within the EAC membership, individual states laws and regulations present significant barriers intra trade and foreign direct investments between members. The process to eliminate capital movement and investment restriction has been painstakingly slow, with members changing or introducing new obligations that requires time to build consensus (Hellen, 2014).

A recent the EAC scorecard that focused on the degree of members‘ compliance on the

Protocol on the movement of people and goods. The scorecard concluded that the process of trade and economic integration was slow, and the Tanzania was the slowest member (World

Bank, 2014). According to the scorecard, Tanzania has 14 restrictions. This includes restriction on purchase by residents of foreign shares or other securities; local purchase of non-residents of shares and other securities; restriction of residents in IPOs in foreign capital markets; restriction on local sale by non-residents of foreign shares or other securities; restriction on foreign sale by residents of shares or other securities; local purchase of bonds and other debt instruments by non-residents; local sale of bonds and other debt instruments by non-residents; sale of bonds and other debt instruments by non-residents and local purchase or sale of money market instruments by residents.

Other restrictions by Tanzania include local sale or issue by non-residents of collective investment schemes; lending abroad by residents; inward direct investments; outward direct investments; and personal capital transactions. In total Tanzania had a score of 22% on free movement of capital within the EAC, same as Burundi. Conversely, other EAC countries had a high score on free movement of capital that was essential for trade and economic integration. This was led by Kenya (94%), Rwanda (83%); and Uganda (83%) as summarized in Table 4.2.

Table 4.2: Restriction on Free Movement of Capital in EAC, 2014

As indicated in table 4.2 Tanzania and Kenya are the most creators and eliminators of non- tariff barriers (NTBs). As indicated, two-third of NTBs that restrict trade emanate from

Kenya and Tanzania. In as much most of the NTBs are marked as resolved, it is not clear that all of the NTBs are usually resolved, or just suspended to be reintroduced later under a different guise (EAC Report, 2014). For instance, while speaking at the East Africa Business

Summit (EABS) on EAC Fiscal Policy in Kigali (October 2014), David Tarimo noted that:

‗Simpler tax regulations and cessation of abrupt changes in the tax regime mostly affects trade movement. Tanzania‘s decision to impose Value Added Tax (VAT) on goods in transit, while Kenya had zero rated these goods is an example of how disharmonious policy making on trade looks like at the EAC. To cover and cushion themselves, customers were switching from Dar to Mombasa port‘ (Tarimo, 2016).

When the EAC members were compared on regional integration index (scale of 0-1),

Tanzania and Burundi were still below the average score. Kenya was leading with 0.66, followed by Uganda 0.58; Rwanda 0.55; Burundi 0.48; and Tanzania 0.43. As indicated in

56 the Africa Development Bank (2016) EAC Integration Index findings, trade integration does not happen in isolation of other fundamental trade factors; these includes regional infrastructure that could support trade, to which Burundi had the highest score of 0.84; followed by Uganda 0.48; Kenya 0.44; Rwanda 0.37, and Tanzania 0.36. On Productive integration, which is a countries ability to produce tradable goods, Kenya was leading with

0.84; followed by Uganda (0.73); Tanzania 0.45; Rwanda 0.41; and Burundi 0.33. On free movement of people, Kenya and Rwanda were leading with a score of 0.8, followed by

Burundi and Uganda with 0.70, and finally Tanzania with 0.58. On financial micro-economic integration, Rwanda was leading with 0.50; followed by Kenya, 020; Uganda 0.05; Burundi,

0.03, while Tanzania had a score of 0.00 as summarized in Table 4.3

Table 4.3: EAC Regional Integration Index, 2016 (Score/1)

Source (Africa Development Bank, 2016)

As indicated by the EAC integration index, regional trade facilitating institutions, and mobility of capital and people is still a major challenge, to which some members are not inclined to address.

4.4.3. Logistics and Trade Competitiveness

Most of the EAC members depend on Mombasa and Dar es Salaam Ports for movement of both import and export goods. The central purpose of the EAC regional integration is to remove trade crippling barriers so as to free up and make the movement of goods and services cheaper across the region. It is envisaged that enhanced free trade within the EAC, will not only stimulate trade, but economic growth, and job creation which is essential for

57 poverty reduction in the region (Schwab, 2014). According to David, Cooksey, and Golooba-

Mutebi (2014), weak trade and logistic agencies have a major constrain on economic integration. In most instances, logistics and trade agencies have poorly trained officers, while others are engaged in various levels of political patronage and corruption, which weakens the effectiveness of both Mombasa and Dar es Salaam ports. The logistics performance index is highlighted in Table 4.5.

Table 4.4: Logistics Performance Index, 2014

When compared to the global logistics and competitiveness standards, none of the four EAC states in the study performs well. According to Hoffman and Kidenda (2014), Kenya and

Rwanda outperforms Tanzania and Burundi when compared to the 86th percentile globally.

However, Dar es Salaam port underperforms compared to Mombasa port. In 2009, Mombasa port moved 16, 507 tonnes of imports compared to 6, 181 tonnes for Dar port. In 2011,

Mombasa port moved 16, 938 tonnes of imports compared to 8, 086 tonnes for Dar port. In

2013, Mombasa port moved 19, 150 tonnes of imports, compared to 10, 443 for Dar port as indicated in Figure 4.2.

Figure 2: Trade through Mombasa and Dar Ports, 2009-2013 ("000" Tonnes)

The poor cargo capacity handling of Dar es Salaam has been attributed to management and government reluctance to embrace port fundamental reforms. Additionally, the study by

Hoffman and Kidenda (2014) further revealed that Tanzania local freight companies actively resisted the regions establishment of Single Customs Territory (SCT) on the pretext that the companies were not involved in the SCT process. The other argument placed by Tanzanian companies was that most EAC members were landlocked, and SCT would enable placement of revenue authorities from this countries at Dar es Salaam port. Jimmy Mwalugelo from

Tanzania Freight Forwarders Association (TAFFA) a noted as follows:

‗Allowing Rwandan clearing and forwarding agents in Dar port would be very risky for Tanzanian security…opening this possibility could allow this landlocked countries to pass dangerous good at our port‘ (Cooksey, 2016: 30).

Equally, Stephen Ngatunga, President of TAFFA weighed in on the matter stating as follows:

‗It is no doubt, all members from EAC landlocked countries are yearning to come to Dar es Salaam port to do clearing and forwarding with their respective customs. What will the local Tanzanians do?‘ (Cooksey, 2016:30).

However, this arguments are flimsy as Tanzania can place reservations on clauses it deemed unfit for their port.

4.5. Lessons EAC Can Learn from EU Trade and Economic Integration

The European Union is one of the most successful trade and regional economic integration bloc globally. The EU began as a peacekeeping endeavor among the then six European countries struggling in the aftermath of World War II in 1950, has evolved into a 27 member regional political and economic integration. The uniqueness of the EU lies in the continuous deepening of its economic integration processes despite the recent occurrences of the Brexit

(Britain leaving the EU). The other uniqueness of the EU is that though the 27 members are sovereign states, they have ‗pooled‘ some of their sovereignty in order to gain more strength and benefit from the size of the union. Pooling sovereignty in this case means that member

59 states have delegated some of their decision making capabilities and powers to the shared institutions, so as to have joint interest made democratically at the European level (EU,

2017).

4.5.1. The EU Institutional Structure

The EU is governed through various institutions that do not directly represent member governments, but operate through supranational and intergovernmental structure. This institutions include The European Council, The European Commission, The Council of

European Union, and The European Parliament. According to Europa 2018 report, the EU institutions function as follows:

The European Parliament: The EU parliament is composed of 754 members elected directly by the citizens of the member states for a period of five year-term. The members bear the responsibility of representing the voices of the citizens. The parliamentary seats are allocated based on members share to EU population. The current members are distributed as indicated in Table 4.5

Table 4.5: EU Member of Parliament per State

The European Council: The EU Council is composed of Presidents or Head of State, or

Government from each of the member states in addition to the president of the EU commission, which forms the EU Summit responsible for setting the strategy, political direction. The EU Council is located in Brussels.

The European Commission: The commission is the executive arm of the EU. It is politically independent and represents the interests of EU by proposing laws, policies and agreements for action. It is also responsible for implementing decision of EU parliament and the council. The EU Commission is composed of a college of commissioners, one from each member state.

The Council: The Council is composed of ministers from EU member states who meet to discuss EU matters, and make decisions and pass laws. In most cases, this ministers have authority to commit their government to any action that is agreed upon. The presidency of the council rotates among members every six month.

According to Balassa (1961), there are seven states of economic integration, to which the EU has gone through six over the last sixty years. In 1951, the EU started by establishing preferential access to Coal and Steel. In 1957, a European Economic Community was established as a Free Trade Area (FTA) so the elimination of tariffs and quotas from all goods and services with participating countries. In 1968, a Customs Union was formed for the purposes of harmonizing external tariffs through a European Customs Union (ECU). In 1992, a Common Market was established to allow for free movement of goods, services, capital, and labor, a process that established the European Union (EU). In 1999, an Economic and

Monetary Union (EMU) that established a single currency and monetary policy adopted, after harmonization of various national policies such as the Fiscal Compact (FC), Competition

Policy, and Agricultural Policy. The last stage, a Political Union (PU), which aims at

61 transferring national sovereignty to a supranational authority has not yet been achieved. The stages are highlighted in Table 4.6

Table 4.6: EU Stages of Trade and Economic Integration

When one examines the EU model at a state‘s member level, it appears that members differ in efforts and capabilities to the same laws and regulations. Infringement proceedings were opened against 15 members between 1993 and 2012, however, over the 20 years, most of the members reduced infringement cases.

According to Breuss (2011) the EU single market exercising four fundamental freedoms

(movement of goods, services, capital and people) is one of the most striking economic integration, and has been emulated by various regional blocs, including EAC, as a core integration architecture. The economies of scale achieved through this integration has enabled

EU members to have enhanced efficiencies in production, product specialization, elimination of non-tariff barriers and tariffs to trade, which has contributed significantly to growth of trade in the regional bloc. The other benefits accrued by members from the common market include product innovation due to competition, which lead to a reduction in prices levels and

62 economic growth (Boltho & Eichengreen, 2008). The following sections explores factors that have contributed to a successful economic integration. This includes political goodwill, faster implementation of the Customs Union (CU) and Common Market (CM), Political convergence, infrastructure integration and EU collective identity through public participation.

4.5.2. Political Goodwill of EU Members – Social Inclusion

One of the factors that stand out in the EU economic integration model is the political goodwill among the members. According to Holtemoller and Zeddies (2013) lack of political goodwill is a major impediment in regional economic integration. States must be willing to cede some of their sovereignty to the supranational structures established within the regional bloc for trade and economic integration to work. Political will was manifested in the way the

EU members agreed to cede some of their sovereign authorities to regional institutions to actualize the EU dream.

However, when compared with the EAC, ceding of some form of sovereignty to the EAC supranational institutions is still a major challenge. Some of the EAC states still want to wield both the economic and political power at the national level, which is against the spirit of economic integration.

According to Laursen (2003), economic integration progress within the EU focused on formation of institutional structures that were biased and favorable to smaller states. In the

EAC, this does not seem to be the case. Kenya, Uganda, and Tanzania do not seem open to ceding institutional power to pull smaller states such as Rwanda, Burundi and South Sudan.

This is evidenced by the tag of perpetual disagreements among the members on best approach towards Single Customs Territory (SCT). Kenya, Uganda, and Rwanda are on board on SCT, while Tanzania and Burundi are opposed. The main bone of contention for Tanzania is that the country is not willing or ready to cede the port of Dar to SCT operations (Cooksey, 2016)

One of the other factors that enhanced harmonious political agreements is the sequencing of integration events and process. For instance, the EU Customs Union was established in 1968; it took 24 years (1992) before the Common Market was established. The purpose of time was to ensure that contentious issues has been ironed out and consensus achieved. For the EAC, in 2000 the EAC Treaty commits members to establish Customs Union (CU), Common

Market (CM), and ultimately Monetary Union. In 2004, the CU Protocol was signed, and come into force in 2010. In 2009, The Common Market Protocol was signed in Arusha calling for the free movement of people, capital, goods, and was to be fully implemented in

2015, which is yet to happen due to reservations and lack of cooperation from Tanzania and

Burundi on the same. As a result, the ―Coalition of the willing‖ emerged in 2013 between

Kenya, Rwanda and Uganda, sidelining Tanzania and Burundi, who were accused of dragging their feet in realization of trade and economic integration in the region.

As noted earlier, political will by the EU members took time to establish. However, one can argue that EU had more countries with diverse political ideologies, and therefore, the need for time to build political consensus. The EAC has six countries, but does not seem to be investing more time in building political will and consensus. This has been demonstrated by the frustrations of the ―coalition of the willing‖ (Kenya, Uganda, and Rwanda) with Tanzania and Burundi lack of political will to progress with the adopted pace of trade and economic integration. According to Laursen (2003), the sequence at which integration processes and activities are done is equally important in building consensus among members. South Sudan on other side has been treated as the youngest nation in the bloc‘ to gain independence recently in 2011 and is therefore considered as new kid in the EAC regional integration.

South Sudan also acceded to the Treaty mostly recently on 15th April 2016 to become a full member in the EAC. South Sudan being a landlocked country with adverse security issues in the region, is having challenges in the integration setup. Most often, partners‘ degree of

64 ambition for integration is usually determined by perceived benefits, and when some of the members cost of engagement outweighs benefits in the short term, they might be reluctant to engage at the pace of ambitious members. The EAC members need to learn from the EU on how to build a long term political consensus processes that brings all members on board.

4.5.3. Enforcement of Customs Union (CU) and Common Market (CM)

Faster implementation and enforcement of a Customs Union (CU) and Common Market

(CM) is essential for realization of trade and economic integration. The EU formulated its CU in 1968, and the CM in 1992. In as much as it took 24 years between the two, there was adequate mechanism for enforcing compliance. This was done through placing penalties on non-compliant members. The formation of the Common Market enhanced free mobility of capital, people, goods and services which enhanced realization of an economic union. The

CM was a realization of one of the objectives of the Treaty of Rome that was signed in 1958.

The two processes namely realization of Custom Union and Common Market are listed in the history of EU economic integration as major milestones that enabled successful economic integration.

Currently, harmonious realization of Customs Union is still a challenge as noted by

Odhiambo (2011) and Cooksey (2016) due to divergent member interests. The ―Coalition of the willing‖ (Kenya, Uganda, Rwanda) are already moving forward with the Single Customs

Territory (SCT), while Tanzania and Burundi are not on board. As noted by Mwapachu

(2012) Tanzania is hesitant to allow other EAC members to set up their customs union staff at the port of Dar es Salaam. As long as this issue if not resolved through consensus, economic integration will continue to be a challenge for the EAC. The EU members are united in promoting a common interest: intra trade and economic opportunities and growth which member states were going to provide for each other. Having access to a larger market equally

65 meant access to high competition, production efficiencies, and innovation. These were the common interest attributes that coalesced members around the integration objective. The

EAC members want to enjoy the benefits of trade and economic integration, but still beholden to their national policies and tariffs on trade, including countering tariff for tariff of member goods.

4.5.4 Economic Policy and Infrastructure Integration

In the EU, the success of economic integration is equally attributed sound economic policy converged with infrastructure integration. This means that the EU did not just focus on setting up policies for economic integration, but also policies for institutional infrastructure that would support the integration (Mare, 2003). This policies include the EU Fiscal policy, monetary policy, immigration policy, rail and road development infrastructural policy, communication, agricultural policy and trade economic integration. In the EU, there existed sufficient levels of political will (as most members were on the same page) towards institutional infrastructural development.

In the EU, the achievement of joint economic policy and the union budget enabled members to plan and prioritize common interests that needed funding. When compared to the EAC, joint economic policy is still a challenge. Members paying their fees on time is still a big problem. The Citizen reporter notes that:

‗…the disturbing thing about EAC is the dire financial situation the organization finds itself in over and over again…it is even more disturbing because the body cannot pay workers and hardly has the authority to command serious issues under its mandate…members failure to pay on time have been cited as one of the reasons the secretariat has found itself in a precarious state‘ (The Citizen, 2015).

Similar sentiments are recorded in The East African by Salim Said Salim, an activist from

Zanzibar who noted that:

‗…we (EAC members) are very good at signing Treaties and Protocols, but very poor at following through. The liquidity situation at EAC has worsened due to non-

payment of annual fees by members. EALA (a key organ of EAC) was forced to cancel scheduled sitting in Zanzibar due to lack of funds‘ (The East Africa, 2018: 1).

One of the other challenge the EAC has been facing is the harmonization of economic policies of the region as a requirement for a single Monetary Union. In as much as EAC signed the East African Monetary Union (EAMU) in 2013, it is supposed to come into effect in 2023. However, fundamental factors such as harmonization of monetary and economic policies, financial accounting systems, payment and settlement systems, statistical standards, and establishment of EAC Central Bank are still a challenge. There is need to learn from the

EU on how to deal with issues to do with currency disparities, and process of harmonization of both fiscal and monetary policy (European Union, 2008).

Comparatively, the EU countries were advanced in the road and railway system that promoted and boosted trade, even prior to joining the EU membership. This infrastructure was essential for economic integration, communication, movement of capital and people as opposed to EAC infrastructure status (Cooksey, 2016). According to Odhiambo (2011), the proposed the EAC joint infrastructure like Standard Gauge Railway, Pipeline, Port expansion projects are constantly hitting deadlocks, member disagreements, members pulling back and forth because of political disagreements and poor financial commitments. This has hampered significant progress on integrated infrastructural development, trade economic integration.

4.6. Chapter Summary

This chapter has presented findings based on the research objectives this study sought to examine. On the effects of politics on trade and economic integration, this study has established that national state politics has significant influence of the operation and function of the EAC and the secretariat. The EAC lacks the authority to coordinate regional initiatives because governments of the member states are not willing to delegate real authority to the

EAC. As such, neither East Africa Legislative Assembly (EALA) nor the EAC secretariat

67 have the powers to override or overrule decisions made at a national level by individual states on trade or economic integration. This means that the EAC can be held hostage by national politics of any member state. This has been evidenced by the rift between the ―coalition of the willing‖ (Kenya, Uganda, Rwanda), and those feeling sidelined (Tanzania and Burundi) to hold a stale mate on the way forward on economic integration particularly on customs, and free movement of people and capital. South Sudan on the other hand is being treated as a young and new player in the EAC regional integration having gained independence in 2011 and having ratified to the EAC Treaty mostly recently in May, 2016.

This study also sought to examine the EAC institutional constraints to achieving trade and economic integration. The study has established that the EAC secretariat is grossly under financed making it difficult to execute its mandate. The EAC technical and policy advisors work at the behest of their governments, and not in the collective interest of the regional integration. The EAC parliament and secretariat have not succeeded in building consensus on the issue of free movement of capital, people and goods. Infrastructure and logistical integration equally faces major challenges and members still pull back and forth on which infrastructure to give priority, and how to finance roads, railway lines, and oil pipelines among others.

This study sought to examine lessons the EAC could learn from the EU successful economic integration. One of the lessons the EAC could learn is that the EU is governed through various intuitions that do not directly represent member governments, but operate through supranational and intergovernmental structure. The 28 members have been willing and have ceded some form or authority and sovereignty to the supranational institutions, who run and promote common interest of the members.

Secondly, the EU member states has exercised significant political will to solve issues by consensus through independent institutions that are well funded, and resourced to execute

68 their functions. This is contrary to the EAC that relies on members annual contributions, where members are in default, or pay too late for the EAC effective functioning. Thirdly, the

EU developed a raft of policies that enabled effective trade and economic integration. This included the fiscal policy, monetary policy, immigration policy, rail and road development infrastructural policy, communication, agricultural policy and trade economic integration.

The EAC should take this lessons on board to enable for well-structured effective and progressive trade and economic integration. The next chapter presents discussion, conclusion, and recommendations based on the findings of the study.

CHAPTER FIVE

5.0. DISCUSSION, CONCLUSION AND RECOMMENDATIONS

5.1. Introduction

The study discussion, conclusion and recommendations are presented in this chapter based on the research findings in chapter four. The summary of the entire study is presented first, followed by discussion on effects of politics on trade and economic integration, EAC institutional constraints on trade and economic integration, and finally, lessons EAC can draw for successful integration of the EU. Study conclusion and recommendations are presented in the same order.

5.2. Study Summary

The main objective of this study was to examine the effects of politics on trade in the EAC economic integration. This study was guided by the following research questions: What are the effects of politics on economic integration? What are the EAC‘s institutional constraints on trade and economic integration? What lessons can the EAC learn from the EU on trade and economic integration?

This research was a case study design focused mainly on the EAC, while drawing comparative analysis to the EU. The study utilized both qualitative and quantitative approaches. Data presented in this study was gathered from secondary sources, and analyzed using content analysis. This enabled the researcher to establish emerging themes for each of the research question. The findings in this study have been presented using Tables, Figures and narrative presentation.

The fist research question examined the effects of politics of trade and economic integration in the EAC. The study established that established that national state politics has significant influence of the operation and function of the EAC and the secretariat. The EAC lacks the

70 authority to coordinate regional initiatives because governments of the member states are not willing to delegate real authority to the EAC. As such, neither East Africa Legislative

Assembly (EALA) nor the EAC secretariat have the powers to override or overrule decisions made at a national level by individual states on trade or economic integration. This means that EAC can be held hostage by national politics of any member state. This has been evidenced by the rift between the ―coalition of the willing‖ (Kenya, Uganda, Rwanda), and those feeling sidelines (Tanzania and Burundi) to hold a stale mate on the way forward on economic integration particularly on customs, and free movement of people and capital.

The second research question focused on the EAC institutional constraints to achieving trade and economic integration. The study findings show that the EAC secretariat is grossly under financed making it difficult to execute its mandate. The EAC technical and policy advisors work at the behest of their governments, and not in the collective interest of the regional integration. The EAC parliament and secretariat have not succeeded in building consensus on the issue of free movement of capital, people and goods. Infrastructure and logistical integration equally faces major challenges and members still pull back and forth on which infrastructure to give priority, and how to finance roads, railway lines, and oil pipelines among others. The study also established that the EALA‘s legislative agenda is largely influenced by national state members‘ home politics and interest. Often, agenda passed in the

EALA are either stalled in national assemblies during adoption, or rejected all together, making it difficult for EALA to work for common interest of the EAC trade and economic integration.

The third research question focused on lessons the EAC can learn from the EU successful trade and economic integration. One of the lessons the EAC could learn is that the EU is governed through various intuitions that do not directly represent member governments, but

71 operate through supranational and intergovernmental structure. The 28 members have been willing and have ceded some form or authority and sovereignty to the supranational institutions, who run and promote common interest of the members. Secondly, the EU member states has exercised significant political will to solve issues by consensus through independent institutions that are well funded, and resourced to execute their functions. This is contrary to the EAC that relies on members annual contributions, where members are in default, or pay too late for the EAC effective functioning. Thirdly, the EU developed a raft of policies that enabled effective trade and economic integration. This included the fiscal policy, monetary policy, immigration policy, rail and road development infrastructural policy, communication, agricultural policy and trade economic integration. The EAC should take this lessons on board to enable for well-structured effective and progressive trade and economic integration. The next chapter presents discussion, conclusion, and recommendations based on the findings of the study.

5.3. Discussions

5.3.1. Effects of Politics on EAC Trade and Economic Integration This study sought to examine the effect of politics of EAC trade and economic integration.

As highlighted in the study summary, the findings show that domestic politics have significant influence on how member states within a regional economic bloc perceive or cooperate on trade and economic integration. Most of the member states like the idea of trade and economic integration, but majority have not shown sufficient commitment over and above rhetoric and talk. In this case, I am referring to tangible commitments for ceding some of the each of the member states sovereignty to the supranational EAC institutions to manage the EAC affairs, and economic integration matters. This findings is in line with the argument posed by Alkin et al. (2015) who noted that in regional economic blocs, domestic politics shape trade and trade policy. This means that trade policy and economic integration

72 agreements made or yet to be made within the EAC are not divorced from local national politics.

One of the other challenge established in this study, is the lack of political will for members to build consensus on contentious issues such as Single Customs Territory (SCT), tariff and non-tariff barriers, and economic integration supportive infrastructure. For instance, as established by this study, Tanzania is still vehemently opposed to the idea of free movement of people, capital and investment, until the issue of land ownership issues, which are domestic to Tanzania are resolved. Equally, on the issue of SCT, Tanzania is still opposed to the issue of losing significant revenue from customs, should SCT agreements sail through.

The fear is built on the foundation that landlocked countries will invade Tanzania for land and take port jobs from citizens. However, what Tanzania is not doing, is presenting tangible reservation amendments or proposals for members consideration.

Other political issues are stylistic disagreements and executive interference in the operation of the EAC and its secretariat. A decision on who should be the leader of EAC, speaker, secretary general etc. should be determined based on established rules that favor all members.

This is the case in the EU as noted by Odhiambo (2011) and Cooksey (2016). However, in the EAC, Presidents from member states can summon and give directions on their representative in the EAC secretariat and parliament, sometimes in blatant disregard to the rules and operating guidelines of the organization. This kind of cases will continue to mire trade and economic integration if not solved.

Finally, mistrust build between members states have to be resolved. Tanzania seems uncomfortable with Kenya citizens and business aggressive nature. They perceive this as a threat to survival of their businesses and jobs for their citizens. Rwanda and Uganda are still embroiled in border conflicts and accusation and counter accusation of espionage. This has

73 been execrated by continuous deportation of Rwandan nationals living and doing business in

Uganda. In reiteration, Rwanda has continued to block Ugandan transit goods to Rwandan market, further escalating Kigali and Kampala disagreements. Burundi and South Sudan on the other hand is embroiled in domestic political conflict and instability to actively engage the

EAC on trade and economic integration. Tanzania on the other side seems to be more enthusiastic and engaged with SADC, than it does for the EAC. Split allegiances means that one regional bloc does not get deserving attention for integration, which in this case, is the

EAC.

5.3.2. EAC Institutional Constraints on Trade and Economic Integration

This study sought to examine institutional constraints that exists within the EAC, and how this impacts on trade and economic integration. The findings show that the EAC lacks strong institutions that can guide successful trade and regional integration. For instance, the EAC secretariat is grossly under financed making it difficult to execute its mandate. Poor financial status of the EAC is a testament to poor institutional structures and enforcement of agreements. The annual fee approach adopted by the EAC is problematic as majority of members are either in default, pay late, or do not pay at all. The EU approach of members payments based on trade and budgets seems to be a better approach as it has borne results for the EU economic integration.

The EAC technical and policy advisors work at the behest of their governments, and not in the collective interest of the regional integration. The EAC parliament and secretariat have not succeeded in building consensus on the issue of free movement of capital, people and goods. Infrastructure and logistical integration equally faces major challenges and members still pull back and forth on which infrastructure to give priority, and how to finance roads, railway lines, and oil pipelines among others.

Additionally, the EALA that is supposed to set legislative body establishing laws that will guide trade and economic integration. However, largely, this mandate has not been fulfilled due to lack of consensus on myriad of trade issues like tariffs, free movement of goods and customs. As noted in the findings of this study, often, the agenda passed in the EALA on any matter, usually gets stalled in national assemblies of member states during adoption, or are rejected all together, making it difficult for the EALA to work for common interest of the

EAC trade and economic integration.

As had been posited by Balassa (1965); and Jaber (1971), regional integration institutions are extremely important in achieving economic integration. This institutions must have significant independence to deliver their mandate without interference. In their writing,

Balassa (1965); and Jaber (1971) had indicated that tariff and non-tariff barriers are usually one of the major obstacles in the success of trade and regional economic integration, which has proved to be the case with EAC. Secondly, the scholars had argued that inadequate transport infrastructure inhibits trade and integration. Based on the findings of this study,

EAC still lacks significant railway systems for transporting goods at cheaper prices, making cost of business higher compared to other regions.

Failure to adopt the Single Customs Territory (SCT) has also inhibited the EAC‘s ability to fast tract Customs Union. This means that goods heading to Rwanda via Dar Salaam port and charged differently from similar goods heading to Rwanda via Mombasa port. This is not supposed to be the case in a SCT for countries seeking to finalize on Customs Union agreement and to full trade and economic integration.

5.3.3. Lessons EAC Can Draw from EU Successful Economic Integration This study also sought to examine lessons the EAC can draw from the EC successful trade and economic integration. The study established that the success of the EU was built on various factors. First, the EU members exhibited significant consensus agreements on

Common Market agreement, Customs Union, free mobility of People, Capital and

Investments, factors the EAC is still lagging behind. As noted in previous discussions, the

EAC has not built consensus on Common Market and Customs union despite signing and adopting protocols on the same. Some of the reasons why this has is the case emanate from members disagreements on the Common Market tariffs, non-tariff barriers and the Single

Custom Territory (SCT) is based on individual members political and national interest that override collective good of the regional integration. As long as issues to do with land tenures and free movement of people and capital is not resolved, it will be difficult for the EAC to achieve what the EU has achieved on economic integration.

Secondly, the EU member states exercised significant political will to solve issues by consensus through independent institutions that are well funded, and resourced to execute their functions. The EAC still relies on member contributions that are not effective. Thirdly,

EU raft of policies enabled for establishment of effective trade and economic integration.

This included the fiscal policy, monetary policy, immigration policy, rail and road development infrastructural policy, communication, agricultural policy and trade economic integration. The EAC members still don‘t agree on this policies. Consensus should be established by allowing members to place reservations on areas they feel impede on their national economy or growth. This will allow for expeditious agreements and adoption and implementation of policies and laws meant to realize trade and economic integration.

As had been argued by Mare (2003), the EU did not just focus on setting up policies for economic integration, but also policies for institutional infrastructure that would support the integration. This means that the EAC should engage a multi-faceted approach towards trade and economic integration. Trade will not work in a vacuum without sufficient infrastructure, and policy framework. Integrating infrastructure, while at the same time empowering

76 independent the EAC institutions to carry on their mandate is one of the key lessons to that should be adopted.

5.4. Conclusion

5.4.1. Effects of Politics on the EAC Trade and Economic Integration This study sought to examine the effect of politics of the EAC trade and economic integration. As highlighted in the study summary, the findings show that domestic politics have significant influence on how member states within a regional economic bloc perceive or cooperate on trade and economic integration. This study concludes that lack of political will is a major stumbling block for the realization of the EAC trade and economic integration. As long as members‘ states recoil back to their nationalism and states singular interest, realization of the EAC integration will continue to be a mirage.

5.4.2. EAC Institutional Constraints on Trade and Economic Integration This study sought to examine institutional constraints that exists within the EAC, and how this impacts on trade and economic integration. Based on the findings, this study concludes that EAC lacks strong, well-resourced, and independent institutions that can guide the regional bloc into successful trade and economic integration.

5.4.3. Lessons EAC Can Draw from EU Successful Economic Integration This study also sought to examine lessons the EAC can draw from the EC successful trade and economic integration. The analysis of the findings leads to the conclusion that the EU succeeded because of various factors which include consensus agreements on Common

Market agreement, Customs Union, free mobility of People, Capital and Investments, factors the EAC is still lagging behind. The EAC still lags on all this factors. The Single Custom

Territory (SCT) is still a contentious issue including members imposing tariffs and non-tariffs on each other, which was not the case in the EU.

5.5. Recommendations

5.5.1 Recommendation for Improvement 5.5.1.1 Effects of Politics on the EAC Trade and Economic Integration

Since this study concluded that lack of political will is a major stumbling block for the realization of the EAC trade and economic integration, the following recommendation should be considered as a way of harnessing more political will for trade and economic integration:

I. Building Consensus: - There is need for members to allow policy technocrats to work on harmonizing contentious issues so as to build common interest on EAC policy proposals. II. Nationalism: - Members like Tanzania should create more awareness on importance of EAC integration versus patriotic nationalism that has continued to stifle competition, trade and economic growth. Tanzania should put forth recommendations on how to deal with issues of national interest, so as to have them integrated into the EAC trade policy. III. Use of Reservations: - In selected cases, members should be allowed to place reservations on issues that policy technocrats have not reached regional consensus. This will allow for the trade and economic integration process to proceed instead of the current stalemate on such issues.

5.5.2 EAC Institutional Constraints on Trade and Economic Integration On the issue of EAC institutional constraints on trade and economic integration, this study concluded that EAC lacks strong, well-resourced, and independent institutions that can guide the regional bloc into successful trade and economic integration. Based on this conclusion, the following recommendations are proposed:

I. Independence of EAC Institutions: - There is need to delink the EAC institutions

from manipulation and influence from individual national governments. The work of

the EAC secretariat, the EALA, and technocrats should be for the collective interest

of the region. Delinking the EAC institutions from executives influence should be

done through review of institutions mandate and authority, and how the tenure of the

bearers of this authority is arrived at by all members.

II. Sufficient the EAC Institution Funding: - The EAC secretariat and policy technical

teams should have independent budgets and qualified human capital to promote

collective interest of members, and ensure the EAC trade and economic integration is

progressive towards established timelines.

5.4.3. Lessons EAC Can Draw from EU Successful Economic Integration On the question on the lessons the EAC can draw from the EU successful economic integration, the study concluded that the EU succeeded because of various factors. These factors included consensus agreements on Common Market agreement, Customs Union, free mobility of People, Capital and Investments, factors the EAC is still lagging behind. Based on this conclusion, this study recommends that:

I. Eliminate Tariffs and non-tariff Barriers on Trade: - The EU succeeded by

eliminating tariffs and non-tariff barriers on Trade. The EAC members should fast

track regional agreements on the same to avoid current scenarios where individual

states can arbitrarily impose or counter impose trade tariffs and non-tariff barriers on

each other, further undermining the spirit of Common Market.

II. Adoption of Single Customs Territory (SCT):- There is need to fast track adoption

of SCT as a way of harmonizing customs within the region. This will ensure that all

members within the economic bloc have access to similar treatment regardless of the

port though which their goods are imported or exported.

III. Free Movement of People, Capital and Investments: - There is need to provide

necessary safeguards within policy and law that can be adopted by all members in the

region on free mobility of people, capital and investments. Trade and economic

integration will not be realized is members from one state cannot invest, or conduct

business in another member‘s state. If there are any reservations on the extent to

which this policy should be adopted, it should be stated in member‘s accession

documents. Policy on issues such as land, use of public institution, education, and

health should also be addressed. Members should be given time to plan and debate

this within their national jurisdiction. However, the time should not be blanket and

endless. Just like the EU, other members have joined the union over time after they

have fulfilled entry requirements. This should equally apply within the EAC, so as not

to stall the integration process.

5.5.2. Recommendation for Future Studies

This study focused primarily on the effects of politics on the EAC trade and economic integration. Specific objectives also examined the EAC instructional constraints, and lessons that can be drawn from the EU successful trade and economic integration. Future studies could focus on how to deal with contentious issues of land and capital and investments, and whether EAC political integration is still viable in the near future.

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