1 Legal and Institutional Framework

LEGAL AND INSTITUTIONAL FRAMEWORK: A CASE STUDY OF UGANDA’S SUGAR TRADE UNDER THE CUSTOMS UNION PROTOCOL WITHIN THE EAST AFRICAN COMMUNITY.

CHRISTOPHER OPIT 2012/HDO9/729U

A DISSERTATION SUBMITTED FOR THE PARTIAL FULFILLMENT

OF THE REQUIREMENT FOR THE AWARD OF THE DEGREE

OF MASTER OF LAWS OF MAKERERE

UNIVERSITY

2018

TABLE OF CONTENTS TABLE OF CONTENTS ...... i

DECLARATION ...... Error! Bookmark not defined.

APPROVAL ...... Error! Bookmark not defined.

DEDICATION ...... vi

ACKNOWLEDGEMENTS ...... vii

ABSTRACT ...... viii

LIST OF ACRONYMS/ABBREVIATIONS ...... ix

LIST OF TABLES ...... x

TABLE OF STATUTES...... xi

CHAPTER ONE: INTRODUCTION ...... 1

1.1 BACKGROUND TO THE STUDY ...... 1

1.2 STATEMENT OF THE PROBLEM ...... 5

1.3 OBJECTIVES OF THE STUDY ...... 6

1.3.1 GENERAL OBJECTIVE...... 6

1.3.2 SPECIFIC OBJECTIVES ...... 6

1.4 RESEARCH QUESTIONS ...... 6

1.5 SIGNIFICANCE OF THE STUDY ...... 6

1.6 SCOPE OF THE STUDY ...... 7

1.7 LITERATURE REVIEW ...... 7

1.8 THEORETICAL/CONCEPTUAL FRAMEWORK ...... 14

1.9 METHODOLOGY ...... 16

1.10 SUMMARY OF CHAPTERS ...... 17

CHAPTER TWO ...... 19

HISTORICAL BACKGROUND OF SUGAR PRODUCTION ...... 19

2.0 INTRODUCTION ...... 19

2.1 SUGAR PRODUCTION IN AFRICA ...... 21

2.2 SUGAR PRODUCTION IN UGANDA ...... 22

2.3 SUGAR PRODUCTION, CONSUMPTION AND POPULATION IN UGANDA ...... 24

2.4 UGANDA'S SUGAR PRICE………………………………………………………….....28

2.5 CUSTOMS UNION ...... 29

2.6 BENEFITS OF THE CUSTOMS UNION ...... 30

2.7 CHALLENGES OF THE CUSTOMS UNION ...... 31

2.8 EFFECTIVENESS OF THE LEGAL FRAMEWORK UNDER THE CUSTOMS UNION PROTOCOL ...... 31

CHAPTER THREE ...... 39

EFFECTIVENESS OF THE INSTITUTIONAL FRAME WORK OF THE CUSTOMS UNION PROTOCOL ...... 39

3.0 INTRODUCTION ...... 39

3.1 THE DIRECTORATE GENERAL OF TRADE AND CUSTOMS ...... 41

3.1.1 THE DIRECTORATE OF CUSTOMS………………………………………………..41

3.1.2 PROBLEMS IN THE DIRECTORATE OF CUSTOMS ...... 43

3.2 THE DIRECTORATE OF TRADE...... 43

3.2.1 PROBLEMS IN THE DIRECTORATE OF TRADE ...... 45

3.3 THE CUSTOMS ADMINISTRATIONS ...... 45

3.4 OTHER GOVERNMENT AGENCIES ...... 46

CHAPTER FOUR ...... 51

CHALLENGES FACED IN SUGAR TRADE BY TRADERS IN UGANDA UNDER THE CUSTOMS UNION ...... 51

4.0 INTRODUCTION ...... 51

4.1 CHALLENGES FACED IN SUGAR TRADE IN UGANDA ...... 52

4.2 CONCLUSION ...... 61

CHAPTER FIVE ...... 62

COMPARATIVE ANALYSIS OF SUGAR TRADE WITHIN SADC AND ECOWAS 62

5.0 SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC) ...... 62

5.1. ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS)...... 64

5.2. PARALLELS OF SADC AND ECOWAS WITH THE EAC CUSTOMS UNION…………………..67

CHAPTER SIX ...... 69

CONCLUSION AND RECOMMENDATIONS ...... 69

6.0 INTRODUCTION ...... 69

6.1 GENERAL CONCLUSION ...... 73

BIBLIOGRAPHY ...... 74

GENERAL BOOKS ...... 74

JOURNAL ARTICLES ...... 75

GOVERNMENT AND INSTITUTIONAL PUBLICATIONS……………………………...77

UN PUBLISHED WORK……………………………………………………………………………………………………………79

iii iv

DEDICATION

THIS RESEARCH IS DEDICATED TO MY FATHER MR. OMODING ROBERT, MY MOTHER MRS. OMODING TINO IRENE, BROTHERS AND SISTERS FOR THE IMMENSURABLE SPIRITUAL AND FINANCIAL CONTRIBUTION IN THE ACCOMPLISHMENT OF MY STUDIES. MAY THE ALMIGHTY LORD BLESS YOU ABUNDANTLY.

ACKNOWLEDGEMENTS

I wish to express my sincere appreciation to all those who financially, psychologically and academically contributed to my career particularly in the conducting and compiling of this research. Above all I acknowledge my supervisor, PROFESSOR DAVID JUSTIN BAKIBINGA and co-supervisor, Dr. RONALD KAKUNGULU MAYAMBALA for their immeasurable support in tirelessly correcting and guiding the writing of this research report, I do appreciate the criticisms; they were a great aid in the accomplishment of this research.

I extend my particular appreciation to my father, mother, brothers and sisters for your concern and care during my time of studies. Thanks a lot for the financial support and inspiration.

Further acknowledgements to my fellow classmates and friends for their special contribution in my studies. I appreciate you all in your different capacities for the psychological and academic support rendered. Thank you for your love and kindness.

I cannot fail to acknowledge my respondents particularly from the Ministry of Trade, Tourism and Trade, URA, Uganda Sugar Cane Technologist‟s Association as well as those from KACITA for the special contributions in providing information which was relied upon in the compiling of this report.

May God Abundantly Bless You.

vii

ABSTRACT

The study was undertaken to examine the legal and institutional frame works governing sugar trade under the customs union protocol and challenges faced in the sugar trade by traders in Uganda under the East African Community. Both secondary and primary data sources were relied on in collecting data. To acquire primary data an interview guide was used, while for secondary data, textbooks, statutes, journals and online materials were relied on and document review as method of data collection was used.

From the study, it is notable that though customs union is in place, the law is inadequate in the protection of the sugar trade, hindering its protection of the sugar industry, which situation is aggravated by the EAC states being partner states of other regional blocks such as COMESA and SADC. There is also reluctance by the partner states to enforce the law that is in place due to selfish interests which will affect the sugar trade in the EAC and trade at large.

The institutions governing the sugar trade though have endeavoured to foster protection and growth of the sugar trade, are ineffective due to the fact that they have no power to implement their recommendations, coupled with limited funding to carry out their activities, limited trained personnel and corruption.

Traders in sugar trade within the EAC are faced with various challenges which include price fluctuations, smuggling and undeclared sugar, limited export markets, cash bonds, lack of specific legislation on sugar trade, poor road infrastructure, the presence of non-tariff barriers, lack of political will within the region, lack of sea port and corruption which issues need to be addressed in order to promote and protect sugar trade within the EAC.

The study recommends that member states ensure that their national laws are consistent with the Customs Union protocol, the Ugandan Parliament should ensure the enactment of the Sugar Act, which should be in conformity with the Customs Union protocol, increase trained personnel, increased funding in institutions, Improvement in physical infrastructure, and Political heads need to strengthen institutions with sufficient political authority.

viii

LIST OF ACRONYMS/ABBREVIATIONS

CET: Common External Tariff

CM: Common Markets

CMA: Customs Management Act

COMESA: Common Market for Eastern and Southern Africa

CU: Customs Union

EAC: East African Community

ECOWAS: Economic Community of West African States

EUs: Economic Unions

FTAs: Free Trade Areas

GDP: Gross Domestic Product

ITBs: Internal Trade Barriers

KACITA: Kampala City Traders Association

NTBs: Non- Trade Barriers

NTEs: Non Traditional Exports

PTAs: Preferential Trade Agreements

RIAs: Regional Integration Arrangements

ROOs: Rules of Origin

SADC: Southern Africa Development Community

SCOUL: Sugar Corporation of Uganda Limited

WTO: World Trade Organization

LIST OF TABLES

Table 1: UGANDA SUGAR PRODUCTION 2002-2011 ...... 24

Table 2: UGANDA SUGAR PRODUCTION ACTUAL, 2002 TO 2011 (2012 ESTIMATED) 2011...... 24

Table 3: UGANDA-SUGAR PRODUCTION, CONSUMPTION AND POPULATION ...... 26

Table 4: PRODUCTION AND CONSUMPTION IN AFRICA OF SUGAR ...... 27

Table 5: SUGAR PRICE IN UGANDA SHILLINGS PER 50 Kg BAG AND US $ PER Kg ...... 28

Table 6: SUGAR PRICES IN MAJOR TOWNS ...... 29

TABLE OF STATUTES NUNMBER STATUTE PAGE

1. East African Competition Act, 2006 43

2. East African Community Customs Management Act 39 & 40 (2004)

3. East African Community Standardization, Quality 43 Assurance, Metrology and Testing Act, 2006

TABLE OF TREATIES/PROTOCOLS/POLICIES NUMBER TREATY/PROTOCOL/POLICY PAGE

1. Customs Union Protocol 31, 34, 35, 36, 37 & 38

2 Treaty for the Establishment of the East African 30 & 48 Community, 1999

3 The Uganda National Sugar Policy, 2010 50

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY The Treaty for the Establishment of the East African Community was signed on 30th November 1999 by Kenya, Tanzania and Uganda to re-establish1 the East African Community. The Treaty entered into force on 7th July 2000. In 20072, Burundi and Rwanda joined the membership of the East African Community.

The objectives of the Community are to develop policies and programmes aimed at widening and deepening co-operation among the partner states in political, economic, social and cultural fields, research and technology, defense, security and legal and judicial affairs, for their mutual benefit.3

The EAC has a population of about 133 million, land area of 1.8 million square kilometers and nominal GDP of $79 billion (2010). Kenya‟s nominal GDP is US$32.1 billion (41 percent of total EAC GDP), which makes it the largest economy in East Africa. Measured in GDP per capita, Burundi is the poorest member, with an average nominal per capita GDP of US$180, less than one-third of the EAC average (US$590). The majority of the population lives in rural areas across the region. Three of the countries: Burundi, Rwanda and Uganda are landlocked.4

It is assumed that regional integration yields economic benefits for all its members such as access to wider markets, larger and diversified investment and production, social-economic and political stability and bargaining power for the countries involved but this is not always

1 In 1977, the Treaty for the East African Co-operation establishing the East African Community was officially dissolved, the main reasons being lack of strong political will, lack of strong participation of the private sector and civil society in the co-operation activities and the continued disproportionate sharing of benefits of the community among partner states due to their differences in their levels of development. See paragraph 4 of the preamble of the East African Community Free Trade Agreement, available at http://www.worldtrade law.net. 28th Summit of East African Community Heads of State held on 30th November, 2006 in Arusha, Tanzania. The summit of East African Community Heads of State decided to admit the Republic of Burundi and the Republic of Rwanda as full members of the East African Community effective 1st July, 2007. (www.eac.int/news/index.php?option=com_docman&task...). 3 Article 5(1) of the Treaty for the Establishment of the East African Community. 4 Catherine Mc Auliffe, Sweta C.saxena, and Masafuni Yabara (2012),‛The East African Community: Prospects for Sustained growth‛ page 6. Available at (www.imf.org).

1 true. However, it is only under certain conditions that cooperation produces positive macroeconomic effects5. These conditions include: efficient and non-discriminatory markets for products and factors of production, effective compensatory financing arrangements to make the domestic costs of adjustment affordable and equitably share the costs and benefits of integration, and fully incorporate the effects of exogenous shocks such as adverse weather, terms of trade, disease and external financing shocks including debt relief, enabling policies that reduce risk, development and retention of expertise.6

It is imperative to note that economic value addition is a core function of regional integration and the same applies to the EAC as well, the economic potential of which is subject to varying assessments.

Article 5(2)7 provides thus, The partner states under take to establish among themselves and in accordance with the provisions of this treaty, a customs union, a common market, subsequently a monetary union and ultimately a political federation in order to strengthen and regulate the industrial, commercial, infrastructural, cultural, social, political and other relations of the partner states to the end that there shall be accelerated, harmonious and balanced development and a sustained expansion of economic activities, the benefit of which shall equitably be shared.

In order to achieve this objective, various laws have been passed by the East African Legislative Assembly8 to include: the Customs Union Protocol and its annexures, regulations and directives, the East African Community Customs Management Act, 2004, the East African Community Customs Management Regulations, 2006 and the Common External Tariff (CET) to ensure that various trade barriers are abolished. In spite of the laws and institutions in place, internal trade within the EAC is weak and although higher than in many other regional organisations, it is still very low.

5 Cf. Rolf Hofmeier, ‚Regionale Kooperation und Integration,‛ Mir A. Ferdowsi (ed.), Afrika – ein Verlorener Kontinent? (Munich: UTB, 2009), 213-247. 6Mothae Maruping, Challenges for Regional Integration in Sub-Saharan Africa: Macroeconomic Convergence and Monetary Coordination available at http://www.fondad.org/uploaded/Africa%20in%20the%20World%20Economy/Fondad-AfricaWorld- Chapter11.pdf. 7EAC Treaty, Supra., note 1. 8 Article 49(1) of the Treaty for the Establishment of the East African Community.

In 2005, internal exports accounted for only 15 per cent of the total exports of member states9. In 2006 internal trade actually fell by 12.5 per cent, before rising sharply in more recent years. The total volume of trade within the community grew by 37.6 per cent in 2008. In particular, Tanzania achieved slight growth and internal trade continues to be dominated by Kenya.10

In 2010/2011, the average economy in the EAC ranked 115th in the world with regard to the ease of doing business. The fact that the EAC‟s global ranking remained the same as the previous year is an indication that critical obstacles to entrepreneurial activity remain and that other regions have picked up the pace with improvements. Compared with other regional blocs, the EAC ranks better than the Common Market for Eastern and Southern Africa(126th) and Organization for the Harmonization of Business Law in Africa(167th) but falls slightly behind the Southern Africa Development Community(114th). Yet performance across the EAC countries varies. Rwanda is ranked 45th globally in the ease of doing business, followed by Kenya (109th), Uganda (123rd), Tanzania (127th), and Burundi (169th).11

The East African Community trade balances have slightly improved from a deficit of US $377.7 million in 2007 to a deficit of US $371.7 million in 2008 due to improved exports to Kenya. However, import share from EAC partner states to Uganda‟s total imports continued to decline from 16.8 percent and 15.1 percent registered in 2006 and 2007 respectively to 12.5 percent in 2008. The development underpins a need to increase production within the region to meet the ever-increasing demand for both capital and consumer goods12.

In 2008,13 Uganda‟s real growth rate remained almost stable at 8.3% compared to 8.2% in 2007. Kenya‟s real GDP grew by 1.7% in 2008 compared to 7.1% in 2007, and Tanzania‟s real GDP grew by 7.4% in 2008 compared to 7.1% in 2007. Rwanda‟s real GDP in constant

9By contrast, internal exports within the EU are about 60 per cent. Cf. Helmut Asche and JonneBrücher, ‚Myth and Reality of African Regional Integration,‛ Recht in Afrika, 12 (2009) 2, 169-186. 10Cf. Helmut Asche and Jonne Brücher, ‚Myth and Reality of African Regional Integration,‛ Recht in Afrika, 12 (2009) pg 97.(www.kas.de/wf/doc/kas-). 11Hamid R.Davoodi, the East African Community after Ten Years, Deepening Integration. Improving the investment climate in the East African Community: Using the Doing Business Surveys to priotise and promote reform by peterladegaardChapter9, page 95 at page 97. Available at http://www.imf.org/external/np/afr/2012/12712.pdf. 12 EAC Trade Report 2008. 13East African Community Trade Report, 2008 Page10. Available at http://www.eac.int.

3 prices grew by 11.2% in 2008 compared to 5.5% in 2007 while Burundi‟s real GDP growth was at 4.3% in 2008 compared to 3.2% in 2007.

Uganda is a member of both EAC and COMESA. The ratio of Uganda‟s trade flow to the COMESA has declined over the years, from 71.2 percent of the country‟s total exports to the world in 2003 to 37.6 percent in 2010. Likewise, the country‟s exports to the European Union dropped from 34 percent in 2002 to 22.6 percent by 2010, although this is narrower compared with the COMESA. Conversely, Uganda‟s exports to the EAC region grew by about 7.2 percent from 2001 to 2010. The drop in Uganda‟s trade flow to the COMESA could partly be attributed to the poor physical infrastructural network, which adds greatly to the costs of transporting goods.14

Sugar trade has changed the economic lives of people though not among the main exports in Uganda. There is therefore, the need to check whether the legal and institutional mechanisms in place sustain its trade in light of the developments within the East African Community.

Being a Partner State of the East African Community and a member of the Common Market for the Eastern and Southern Market (COMESA), Uganda also negotiated an Economic Partnership Agreement with the EU; hence the need to examine the issue of import and export of sugar by Uganda15.

Regional integration arrangements are critical to the improvement of the Uganda Sugar Sector; but will it be so since there is an external challenge in managing a more free trade environment? This may destabilize the sugar industry in Uganda, eventually crippling it, with all its accrued socio economic benefits.

Sugar unlike other food commodity, is consumed daily at different rates by all people regardless of their age, standards or classes. This makes sugar a commodity that enjoys certain importance from the agricultural, industrial, nutritive, economic, social, cultural and strategic point of view.

14Accelerating Growth through Improved Intra-African Trade (Brooking African Growth Initiative); Lawrence othieno, Barriers to Uganda’s Trade within the Regional Trade Blocs of EAC and COMESA page 24 available at www.brookings.edu. 15National Sugar Policy, 2010 Paragraph 2.2.4.

Sugar trade has gained importance in Uganda and International trade. In 2009, sugar production was 287,387 metric tones, 20% rise over 2008 production. The sugar industry is again forecasting a further increase in production during year 2010 to approximately 318,240 tones16.

The contribution of non-traditional exports (NTE‟s) to the total export earnings declined slightly from 73.2% in 2009 to 72.8% in 2010. Sugar‟s contribution was 3.7% of exports.17 The contribution of NTE‟s earnings to total export earnings declined further from 72.8% in 2010 to 68.6% in 201118. The contribution of NTE‟s to total formal export earnings improved from 68.6% in 2011 to 74.9% in 2012. Sugar and confectionary in total exports contributed 5.2% in 201219. From the above analysis it is ascertained that though trends seem to be unstable in the NTE‟s export sugar trade is on an increase. Hence the need for the study.

East Africa‟s annual sugar production is over 800,000 tones and anticipated to grow. To achieve growth targets, the sugar industry has been classified as a sensitive industry that requires effective safeguard measures. Sugar Industry being recognized as sensitive and the need to protect it from price fluctuations, dumping and other effects of regional integration, Special tariffs were provided for to ensure that the East African Sugar Industry that is still in its infancy is able to develop since return on investments in the sugar industry takes long. Safeguard measures have been devised both in the short and long run to protect the industry from predatory influences but still the Sugar industry is faced with problems of price fluctuations and dumping.

1.2 STATEMENT OF THE PROBLEM Sugar has been classified a sensitive commodity since it is consumed daily at different rates by all people regardless of their age, standards or classes. Sugar trade is one of the fastest growing trades and yet sugar is not among the major exports of Uganda. With the Customs Union in place, there is free movement of goods hence raising a situation of an external challenge in managing a more free trade environment. Even if safeguard measures have been devised both in the short and long term to protect the industry from predator influences, it is

16Supra., note 15. 17 Uganda Bureau of Statistics, 2011 Statistical Abstract. 18 Uganda Bureau of Statistics, 2012 Statistical Abstract. 19 Uganda Bureau of Statistics, 2013 Statistical Abstract.

5 nonetheless notable that Uganda has no Sugar law in place. Hence this study to analyse the adequacy of the legal and institutional frameworks under the Customs Union Protocol in the sustainability of the Sugar trade in Uganda relative to the East African Community.

1.3 OBJECTIVES OF THE STUDY

1.3.1 GENERAL OBJECTIVE The general objective of the research is to appraise the legal and institutional frameworks under the Customs Union Protocol and whether they provide a conducive environment for Sugar trade.

1.3.2 SPECIFIC OBJECTIVES The specific objectives of the study are to: 1. Examine the legal framework governing Sugar trade under the Customs Union Protocol; 2. Examine the institutional framework governing Sugar trade under the Customs Union Protocol; and 3. Analyze the challenges faced in Sugar trade by traders in Uganda under the EAC.

1.4 RESEARCH QUESTIONS 1. How effective is the legal framework governing Sugar trade under the Customs Union Protocol? 2. How effective is the institutional framework governing Sugar trade under the Customs Union Protocol? 3. What challenges are faced in the Sugar trade by traders in Uganda under the East African Community?

1.5 SIGNIFICANCE OF THE STUDY The study undertakes to contribute information and knowledge in regard to the sugar trade in line with the legal and institutional frameworks to ensure sustainable sugar trade and provide an analysis of the challenges faced in the sugar trade and also how the trade is of great economic importance to Uganda‟s economic sector.

1.6 SCOPE OF THE STUDY The study will analyse the challenges faced in Sugar trade by traders in the East African Community and the legal and institutional frameworks under the Customs Union Protocol in light of Uganda‟s Sugar trade relative to Uganda‟s trading activities within the East African Community. This is due to the fact that sugar trade is growing at a terrific rate, justifying the need to check whether the existing legal and institutional frame works are adequate to sustain the trade.

1.7 LITERATURE REVIEW The literature on regional integration dates back to Viner (1950), who suggested that the effects of regional integration can be either trade creating when trade replaces or compliments domestic production, or trade diverting when partner country production replaces trade from the rest of the world. If a country becomes a member of a region that “diverts” trade to its members, it would have been better to liberalize globally.20

It is argued that protectionism could expand globally and eventually result in world-wide economic warfare,21 or undermine the progress that has been made in the context of the GATT.22 While most scholars reject the prophesy of world-wide economic warfare, this debate suggests that in the new era of regionalism, law and legal institutions must play a critical role in international affairs, specifically with regard to the settlement of inter- governmental trade disputes.23 This too was an argument for the establishment of the East African Community. Maiteki notes that, Since domestic markets are too small which cannot allow for industrialization policy makers in developing countries, many scholars dealing with issues of regionalism have advocated for regional integration among developing countries as a “training

20Dirk Willentevelde, ‚Regional Integration, Growth and Convergence‛ Journal of Economic Integration, vol.26,No.1 \(march 2011)pp.1-28 at pg. 3. Center for Economic. Integration,SejongUniversity.http://www.jstor.org/stable/23000906. 21 Joseph L.Brand, ‚The New World Order of Regional Trading Blocs‛, 8 Am.U.J.INT’L.L.& POL’Y 155(1992) 22Research and Policy Committee of the Committee for Economic Development, The United States in the Global Economy: A Rallier of Nations 31(1992). The committee observed that ‚US focus on regional economic arrangements, the European Community’s progress toward achieving a single regional market, and Japan’s increasing investment in Asia have fostered fears that the three major economic powers will devote increased energy to developing integrated regional trading arrangements, at the expense of GATT‛. 23Kevin Featherstone &Roy H.Ginsburg, TheUnitedStatesandEuropeanCommunityinDitto1990’s 117(1993).

ground” for the industries within the regional group. They have viewed intra-regional trade expansion as beneficial in itself and even advocated for trade diversion (Linder 1970, Jaber 1970). This is based on the quality control, marketing techniques, tax policies and promotion of governmental intervention, which are essential for competition in the world market. Morewetz, (1974) maintains that intra-industrial specialization through product diversification, may improve the competitiveness of extra-regional exports; though this training ground argument in the former EAC did not prove to be correct as Kenya never benefited in international competitiveness in the manufactured goods which it exported intra-regionally.24

In this regard therefore, this study undertakes to analyse the legal and institutional frameworks under the customs union protocol on their sufficiency to protect the market of sugar in regards to export and import mechanisms hence sustaining the sugar trade which in the long run will provide continuous employment and also increase on the governments‟ Gross Domestic Product.

Most literature is on the economic benefits that a country derives from the trade in Sugar but there is little or no literature evident on the legal and institutional aspects to ensure the sustainability of Uganda‟s sugar trade within the Customs Union.

Many benefits of an expansive sugar industry will accrue in the form of a reduction in the foreign exchange cost of supplying, partly by imports. Increase of sugar into the export market offers a very good chance to diversify exports and stabilize export earnings which in the long ran improves on the balance of payments of the country, since it depends more on debt from the International Monetary Fund and the World Bank enabling the Country to provide better social amenities in terms of better transport and communication facilities, health services etc.25

In terms of GDP, contribution in Kenya is 4.7%, Tanzania 0.13% and Uganda 4%. However, for the government to achieve this, it has to control imports and exports in the country with

24Maiteki Bigirwa George (2009), African Economic Integration: The Legal and Institutional Perspectives of the Common Market for Eastern and Southern Africa (COMESA) LLM Dissertation Makerere University page 7. 25Charles R. Frank, JR (1965), The Sugar Industry in East Africa: An Analysis of Some Problems and Policy Questions Relating.to the Expansion of the Sugar Industry in a Developing Economy. East African Institute of Social Research, Nairobi.

8 the relevant policies and laws. This study is different in that it specifically analyses the effectiveness of the legal and institutional frameworks under the Customs Union Protocol in regard to sustainability of the infant sugar trade within the context of the East African Community.

Sugar production leads to production of by- products such as molasses being distilled for medicinal spirits and for alcohols used in gin distilleries. Some molasses is being exported as cattle feed. Baggase is used as a fuel in the production of electricity in that it contributes 50 Megawatts to the national grid. Since the 1990‟s there has been an interest in electricity co- generation from baggase generated in sugar industries due to the need to find affordable means of providing electricity due to high fuel costs or because of high cost of producing electricity from conventional sources to remote areas26. This increases revenue for sugar industries instead of the baggase being discarded. The increase in electricity on the national grid also impacts the environment positively since there is reduction in deforestation hence increase in rainfall amounts which subsequently leads to increased yields of the sugar. However, this study is different in that it is not analysing the benefits derived from the Sugar trade but focuses on the effectiveness of the legal and institutional frameworks under the Customs Union Protocol in regard to sustainability of the sugar trade within the context of the East African Community.

The sugar sector has helped in absorbing the rapidly increasing numbers of people seeking employment in East Africa. Sugar production is labour intensive, about one man for every eight tons of sugar produced. In Uganda, the sugar industry provides around 20,000 direct jobs out of which it is estimated that 8,000 are permanent and 12,000 are casual jobs. The sugar industry in Tanzania provides around 25,000 jobs almost 50% of these are employed as field and estate workers and for operating the sugar factories in the country. The remaining are self-employed cane farmers and those employed by the cane farmers. The sugar industry in Kenya is estimated to support approximately 2 million people, representing 6% to 8% of the total population. The industry currently provides close to 35,000 direct jobs and an estimated 70,000 indirect employment27. This shows how important the sugar industry is to the economic development of the country as it improves the standards of living of the masses.

26Supra., note 25. 27Sugar Factories Surplus Bagasse Utilization for Co-generation Processes for Sugar Industries in Eastern Africa,(February 2001). Common Fund for Commodities, Technical Paper No.12 (Available at www.common-fund.org, accessed on 20th November, 2013).

However, it is important to note that Uganda as a country has no sugar law and yet there is the fast tracking of the East African Community and among others there is the Customs Union Protocol which promotes free trade among member countries. Therefore, the study undertakes to examine the legal and institutional frameworks under the Protocol in regard to sustainability of the infant sugar trade within the context of the East African Community.

Kenya Anti-Corruption Commission28 undertook a review of the policy, legal and regulatory framework for the sugar sub-sector. It was established that un-competiveness, poor governance, low productivity, corruption, weak policy and legal frame work were some of the challenges facing the sub-sector. It was further noted that corruption and mismanagement permeate nearly all institutions connected to the sub-sector. Corruption was evident in the appointment of chief executives of mills, employment and promotion of staff in the mills, loss/theft of sugar from factories, and the process of accessing loans which is in contravention of the guidelines in the Sugar Act 2011, and the study recommended as a matter of urgency to seal corruption loopholes in the system of institutions connected with the sub-sector and to improve governance and management of the sub-sector. In contrast this study undertakes to examine the effectiveness of the legal and institutional frameworks under the Customs Union Protocol in context to the sugar industry trade in Uganda within the East African Community.

Trade barriers include unfavorable foreign rules and regulations, high tariff barriers (mainly restrictions related to national security) and inadequate property rights protection are ranked higher relative to such items as arbitrary tariffs classifications and unfavorable quotas and/or embargoes. High costs of customs administration and restrictive health, safety and technical standards fall in between.29 However, there is no literature on the adequacy of the legal and institutional frameworks to sustain the Sugar trade in Uganda relative to the developments within the East African Community hence the study.

28 Review of the Policy, Legal and Regulatory Framework for the Sugar Sub-sector in Kenya: A case Study of governance controversies affecting the sub-sector. (February 2010). 29For relative ranks see Annex 12 of OECD (2006), Background Draft Report of the OECD-APEC Joint Project on ‚Removing Barriers to SME Access to international markets‛ CFE/SME (2006) 9/REV 2, Paris, pg 91.

Luke and Okukuyankori30 and The EAC Development Strategy (2001-2005) identified NTBs related to administrative and bureaucratic inefficiencies and standards and technical requirements to be the major impediments to trade within the region, others being poor infrastructure and communication networks. Article 1331, provides that all the member countries agreed to remove all the existing NTBs to trade and not to impose any new ones.

Relative to this, Lawrence Othieno asserts that,

The primary barrier to Uganda‟s trade with its regional partners is the poor physical infrastructure development in terms of quality, maintenance and connectivity within the region. For example, Uganda lacks railway connection to Tanzania, Burundi, Rwanda, the DRC, Sudan and Ethiopia. These deficiencies have increased trade transaction costs and depressed trade opportunities within the region. For example, inland transportation and handling for Uganda costs $2,150 during exportation and importation (World Bank and International Finance Corporation 2011).

Conversely, in Malawi it costs $1,000 for export-related inland transportation and handling ($1,900 for import-related) and only $900 for export and import inland transportation and handling in Lesotho, both of which are landlocked countries whose expenses are much lower than those of Uganda.32

30Luke Okumu, J.C. Okuknyankori (2010), Non-Tariff Barriers in EAC Customs Union: Implications for Trade Between Uganda and Other EAC Countries, Economic Policy Research Center, Uganda. 31 EAC Customs Union Protocol. 32Op.cit., note 14.

Othieno further asserts,

There is persistent interference with ground transportation, especially truck transportation, which is characterized by arduous customs and roadblock checks. For example, it takes four and five days, respectively, to secure export and import customs clearance and technical controls in Uganda (World Bank and International Finance Corporation 2011). In addition, there are about six truck scales from Mombasa to Malaba, including those in Mariakani, Narok (mobile), Gilgil (Static), Eldoret (mobile), Webuye (static) and Amagoro (mobile, but permanent). In Uganda, there are three truck scales between Malaba and Kampala located in Malaba (permanent) just before customs, Busitema (permanent) and Iganga (mobile). Likewise, there are about 13 checkpoints in Kenya staffed by security agencies (mainly Kenyan police and administration police), which are located in Mombasa (town exit), Miritini, Mazeras, Voi, Konza, Athi River (before the truck scale), Mai-Mai, Mau escarpment, Mai-Mahiu, Gilgil, Salga, Timborwa and Kandui. Likewise, in Uganda, there are more than seven checkpoints, which include Malaba (Special Protection Revenue Unit, SPRU), Busitema (Uganda Revenue Authority, URA), Busitema (Police, 1 kilometer from URA checkpoint), Kitende (police), Lukaya (URA/ SPRU), Kyazanga (police), Mbarara (URA) and Kabale (police). These holdups act as avenues for corruption, consequently undermining the efforts toward trade facilitation practices at border entry and exit points, roadblocks and truck scales (Uganda Freight Forwarders Association 2011)”33.

In light of the study, the issue of infrastructure is an important element in trade because as a result of delays in transportation, there can be a change in the purchase price to the detriment of the traders which issue is not addressed. Hence this study to examine the legal and institutional frameworks under the Customs Union Protocol on how to address issues that arise out of the delays so as to sustain the growing infant sugar industry trade in Uganda with the emerging developments within the East African Community.

33 Supra., note 32.

Kafeero asserts that, Successful trade effectively requires effective communication. And effective communication requires mastery of language. Article 137 of the EAC Treaty — 1999 stipulates English as the official language, while Kiswahili is the lingua franca of the EAC. Currently, however, almost all EAC laws are available only in English – and that is a problem! It is noted here that not all stakeholders are conversant in and with English. For example Rwanda and Burundi had for long French as their national language. It would, therefore, be a very big contribution to trade facilitation if EAC customs laws were translated into Kiswahili and French. In this connection, Kiswahili should be emphasized, especially for the stakeholders in Uganda. There is already a strong move to popularise Kiswahili in Uganda.34

From the above, it is important to note that effective communication greatly promotes trade but there can be no trade without a proper law regulating its mode of business. Though there is a new wave of development in light of the East African Community, where there is free trade as brought in by the Customs Union Protocol, which comes with both positive and negative effects, this study undertakes to analyse the legal and institutional framework embedded therein relative to the sugar trade in the absence of Sugar law in Uganda.

Border procedures which are outdated and inefficient, poor infrastructure which at worst is also inadequate and unreliable logistics services often mean high transactions costs and long delays, particularly for landlocked economies hence making it more costly and time- consuming to export or import and more difficult it is for local companies to be competitive and to reach international markets35 but this does not address the legal and institutional frameworks under the Customs Union Protocol.

Many business surveys on trade barriers draw attention to the fact that import tariffs continue to cause problems for companies that wish to access foreign markets. 37% of small US manufacturing exporters participating in a 2004 poll conducted by the National Federation of

34 Edward Kafeero(2008); Customs and Trade Facilitation in the East African Community( EAC), World Customs Journal, volume 2, Number 1 available at www.worldcustomsjornal.org. 35 Doing Business in the East African Community: Smarter Regulations for Small and Medium-Size Enterprises, World Bank and the International Finance Corporation.

Independent Business reported that tariffs limited their ability to increase export sales.36 Based on OECD work on tariffs affecting merchandise trade, developing country SMEs seeking to export to other developing countries are likely to face a tariff rate that is almost three times higher (11%) than those encountered in developed country markets by either developing-country or developed-country exporters (5% and 4.4%) respectively.37 However, this does not take into account the legal and institutional aspects as barriers to trade and unlike the necessary interventions that have been put in place such as removal of non-trade barriers, and reduction in tariffs. There is no significant change in the trade as there is still uneven growth trade trends in the EAC and in Uganda in particular hence this study.

1.8 THEORETICAL/CONCEPTUAL FRAMEWORK Sangeeta etal notes that regional integration increases intra-regional trade, which in turn enables development and economic growth through the economies of scale, pool the fragmented markets and the under-utilized resources, and promote industrialization. The concept of integration theory is embedded in the work of Balassa (1961) who synthesizes this process into stages of integration: a free trade area; a customs union; a single market (with the four freedoms of movement of goods, services, capital and labour); economic and monetary union; and political union.38

The above several forms of economic integration are well elaborated in the works of Ricarddo as noted below.

Preferential Trade Agreements (PTAs) These are arrangements through which member countries receive reductions in tariffs or preferential treatment within quantitative restrictions on their trade with other member countries while maintaining their normal level of trade restrictions against third parties. This type of arrangement frequently applies only to a group of products and is unilaterally granted.

36National Federation of Independent Business (NFIB)(2004), International Trade, NFIB National Small Business Poll, Volume 4, Issue 1,2004, pg 4. 37OECD (2006), South-South Trade: vital for development, policy BriefAugust2006, Paris. 38Nello Susan Senior,(2010), EU Enlargement and Theories of Economic Integration. DEPFID Working Papers. Available at http://www.depfid.unisi.it/working papers/ISSN 1972-361X.

Free Trade Areas (FTAs) These are accords by which member countries eliminate trade barriers among themselves while maintaining their individual national barriers against third countries. The disparity in the level of discrimination against third parties makes critical the control of trade flows coming through the different partners into the FTA. Normally, strict rules of origin and expensive customs inspection are necessary to prevent trade deflection.

Customs Unions (CUs) Within this type of accord, member countries remove all barriers to trade among themselves and adopt a common set of tariffs to be applied to third countries; consequently, the adoption of intra-CU rules of origin and the need for customs inspection become obsolete. The level of the common tariff is critical in determining the economic outcome of a CU and may be relevant in defining other domestic economic policies given its potential impact on public revenues (although CUs do not imply per se any harmonization of domestic policies).

Common Markets (CMs) These are arrangements that comprise all the characteristics that define a CU, but also allow for full mobility of factors of production. By the same token, member countries within a CM define common policies regulating factor flows with third countries. The need for domestic policy harmonization is more compelling in this case than in the CUs case. However, there is no formal obligation for member countries to move in this direction.

Economic Unions (EUs) These constitute the most complete form of economic integration. Besides comprising the characteristics of a CM, EUs imply the complete harmonization of monetary, fiscal, industrial, and welfare policies, as well as, the establishment of a common pattern of foreign relations.”39

39Arguello Ricardo, (2000), Economic Integration: An Overview of Basic Economic Theory and other Related Issues. [email protected].

The theory of Customs Union is defined by Lipsey at page 496, "as that branch of tariff theory which deals with the effects of geographically discriminatory changes in trade barriers".40 Viner (1950, p. 41) notes that Custom Unions impact on economic welfare among both free-traders and protectionists. This is due to the ambiguous net economic result they produce in terms of improving or deteriorating economic welfare.41

According to El-Agraa, “Trade creation (TC) is the replacement of expensive domestic production by cheaper imports from a partner, and trade diversion (TD) is the replacement of cheaper initial imports from a partner. It is the relative strength of these two effects that determines whether or not CU formation should be advocated since (TC) does not affect other countries i.e. the world parse and (TD) is harmful”.42

From all the above, it is imperative to note that at the commencement of a customs union, trade barriers are removed hence encouraging free trade which leads to a change in domestic prices in member countries which as a result influence world location of production and consumption.43 Customs union also has an impact on the improving or deterioration of economic welfare. Depending on the laws in place this may promote trade. Therefore, this study is undertaken to analyse the legal and institutional frameworks under the customs union protocol on the sustainability of the sugar trade in Uganda.

1.9 METHODOLOGY Both qualitative and secondary data was collected from statutes, text books and cases. Document analysis as a method of data collection was used, using a thematic guide and the data collected was analyzed electronically.

Qualitative, quantitative, primary and secondary data was collected from various stakeholders including traders, manufacturers to wit, Agricultural Manager and Out-Growers Manager Kakira Sugar Limited; Officials in the ministry of trade, tourism and industry to wit, Senior industrial officer and Senior Assistant Secretary at the Ugandan Ministry of East African

40Lipsey,Richard G,(1960), ‚The Theory of Customs Unions: A General Survey‛, EconomicsJournal,70,PP.496-513. 41Viner,Jacob(1950), The Customs Union Issue, Anderson Kramer Asssociates; Washington ,DC 1961 edition. 42 El-Agraa Ali, (2011b), The Theory of Economic Integration pp.83-101 at p.84. 43 Richard G.Lipsey, (1957), ‚The theory of customs union: Trade diversion and welfare‛, Economica, New series, Vol.24, No.93,pp.40-46 available at www.development.wne.uw.edu.pl.

Community Affairs; Officials in Uganda Revenue Authority to wit, Customs Valuation Officer and Customs Liason Officer and Representatives in various associations such as Chairperson Kampala City Traders Association, Secretariat Manager Uganda Sugar Cane Technologist‟s Association and the Chairperson Uganda Sugar Manufacturers‟ Association.

In-depth interviewing using an interview guide and document analysis using a thematic guide shall be used to gather information. The data collected was analyzed electronically and coded.

It is important to note that ethical considerations were taken into perspective in that the names of the respondents were withheld where necessary to prevent hiding information and assuring them that it is basically for research purposes and this assurance was accompanied by an introduction letter from the School of Law indicating that it is a research for an award of a Master of Laws degree.

There are certain limitations to the research such as language barrier but this was solved by use of an interpreter, and some who traders did not have the time to meet personally, I conducted telephone interviews in that regard.

1.10 SUMMARY OF CHAPTERS CHAPTER ONE Chapter One covers the introduction, which includes the Background to the Study, Statement of the Problem, Objectives of the Study, Significance of the Study, Scope of the Study, Literature Review, Theoretical/Conceptual framework and Methodology.

CHAPTER TWO Chapter Two presents the background of the Sugar industry in Uganda; the establishment of the Customs Union, benefits that accrue; challenges faced within the Customs Union and an analysis of the effectiveness of the Legal framework under the Customs Union in light of Uganda‟s Sugar trade, in light of the developments within the East African Community.

CHAPTER THREE Chapter Three examines the effectiveness of the institutions in place to ensure sustainability of the Sugar trade both in Uganda and East Africa in general.

CHAPTER FOUR Chapter Four analyses the challenges faced in sugar trade by traders in Uganda in light of the developments in the East African Community.

CHAPTER FIVE Chapter Five deals with a comparative analysis of sugar trade within SADC and ECOWAS.

CHAPTER SIX Lastly, Chapter Six gives proposals for reform and the general conclusion of the Study.

CHAPTER TWO

HISTORICAL BACKGROUND OF SUGAR PRODUCTION

2.0 INTRODUCTION Sugar cane is a tall grass cultivated in the tropical and sub-tropical regions of the world due to its ability to store high concentrations of sucrose, or sugar, in the internodes of the stem.44

Sugar Cane growing is evident in Brazil, India, United States of America, Thailand, Mexico, Australia, Egypt, South Africa, Mauritius and Uganda among others.

There is a craving for sweet foods which has spurred the growing of Sugar Cane, which therefore intrigues to understand the historical background of Sugar Cane growing.

Various authors have undertaken to study the history of sugar cane growing. Before the discovery of sugar made from sugar cane, honey was the only sweetening product. It is believed that sugar was brought from India into Arabia around 600 A.D by the Arabs and introduced in the lands of their conquests, including Spain where sugar was first refined in 650 A.D.

In France, sugar became more available in 735 A.D and in 1380. It is unclear whether France obtained its sugar from Venice or imported it directly from the Greek islands. The sugar monopoly of Venice began in 1498, when Vasco de Gama introduced Indian sugar to Portugal, and refining its own sugar started in Lisbon.

In 1502, sugar cane was planted in Madeira and the Canary Islands in Portugal and from there it traveled to Brazil and the coast of Africa.

In 1493 sugar cane was introduced to the West Indies by Columbus, on his second voyage to America, and by 1509, sugar was being produced in Haiti and the Dominican Republic.45

44The Biology and Ecology of sugar cane (saccharumspp.hybrids) In Australia, December 2004. Available at www.ogtr.gov.an. 45 Virginia Mescher (2005), “How sweet it is” A History of Sugar and Sugar Refining in the United States including A glossary of sweeteners. Available at www.raggedsoldier.com.

Sugar has a direct correlation with slavery in the New World. In Spain, the Spanish used the native population to produce cane but soon exhausted the available labor pool and yet sugar cane growing required an abundance of cheap labor. Henceforth, slaves were imported from Africa and by 1512 they were bringing slaves into Hispaniola.

In 1512, the Portuguese imported slaves into Brazil to work on the five sugar plantations, and 350 sugar plantations were in Brazil by 1623 which required slaves.

In two hundred years, millions of slaves had been imported from Africa into the New World just to work on sugar plantations.46

Galloways asserted that the Sugar Industry began about A.D.700 around the shores of the Mediterranean. The industry flourished in the Levant, North Africa, and Europe before scrambling to pressures of competition from new plantations in America due to pressures of population around the coast lands in the sixteenth Century.

Historians of the medieval and early modern Mediterranean have neglected the ideals in the sugar industry. Perhaps this can be explained by the fact that sugar cane was only one of many Mediterranean crops, a dominant in a few localities, and there were clashes of empires and religions around the shores to hold the attention of historians.

However the Mediterranean sugar industry can be seen as a school for the colonizers of Madeira, the Canaries and tropical America and Africa.

The development of the sugar cane industry in the Mediterranean, contributed to the agricultural revolution that begun in the Middle East under the aegis of the Arabs. This arose from the founding of Islam, which spread to the peninsulas and islands of southern Europe and along the coast of North Africa. This was characterized by the cultivation of many tropical and subtropical crops brought from the East and with the introduction of irrigation; cultivation would still be carried out during the summer months47.

46Op.cit., note 2. 47J.H. Galloway, (1989), The sugar cane industry, An historical Geography from its origins to 1914. London, Cambridge University Press. Available at www.smjegupr.net.

In North Africa, sugar cane growing was first reported in Morocco and by the eleventh century, sugar cane production existed around Gabes and Djalula in Tunisia and around Ceuta in Morocco; the most significant area of production was in southern Morocco in the Sous and neighboring valleys on the flanks of the High Atlas.48

Due to competition from more efficient producers in the new European colonies in the Atlantic and America the Mediterranean sugar industry declined. This explanation of the decline appears overly simplified when set against the changing geography of sugar cane cultivation during the last phase of the Mediterranean industry.

The production of sugar decreased in importance in Egypt, Palestine and Syria during the fourteenth century. However there was a subsequent increase in production in Cyprus, Crete and the western Mediterranean which led to the final collapse of the sugar industry in the late 16th Century.

Nevertheless, to account for the early decline of the industry, factors other than competition must be considered. This included among others warfare, plague, the policies of the Mamluk sultans of Egypt and technological stagnation.49

2.1 SUGAR PRODUCTION IN AFRICA In Africa Sugar cane growing is more pronounced in the Republic of South Africa; the sugar industry was established in Natal in the mid-nineteenth century. By the 1980‟s, South Africa produced 2 million metric tons of sugar per annum and, directly or indirectly supported almost one million people. This amounted for almost half the sugar produced in the 1970‟s which later declined during the 1980‟s as a result of low prices forcing the industry to consider alternative uses for sugar cane50.

Kenya‟s Sugar Industry has its roots from the Asian Agricultural Settlement. Asians were first used as laborers by the British to build the Rift Valley Railway line during the colonial period. They first settled at Kibos in the present day Nyanza Province where the first sugar production on a commercial basis was started upon the establishment of Miwani Sugar Mill

48 Supra., note 47. 49Op.cit., note 4. 50 Colin A.Lewis, The South African Sugar Industry. Available at www.eprints.ru.ac.za.

21 in 192251 run by the Hindocha family. Associated Sugar Company Limited was later established in 1927 at Ramisi in Kwale District of the Coast Province and managed by the Madhvani Group International of India. However, after independence, the state directly participated in the sugar industry leading to its rapid development52. In Tanzania, the first plantations started around 800 AD when the Arabs started planting sugarcane and clove in Zanzibar. Between 1881 and 1919, the Germans who ruled Tanzania (by then Tanganyika) intensified farming and developed railways to improve the infrastructure53. To date, sugar production is concentrated mainly in Marogoro, Kagera and Kilimanjaro. However most sugar is produced for home consumption and only a small proportion is exported to service foreign debts. It is important to note that during the 1983/84 season, the country produced slightly over 130,000tons of processed sugar, but in 1988/89 production had dropped to just about 96,000 tons. During the 1990‟s (1991/92-1993/94), production increased in response to the trade liberalization Policy of the Country54.

2.2 SUGAR PRODUCTION IN UGANDA In Uganda, rubber was the first important plantation crop, but due to competition from Malaya, production declined sharply and has never recovered. This was followed by coffee though this is still grown on a number of small estates of one to ten acres. The owners of coffee estates were severely hit by the depression of the 1930‟s coupled with the spread of the leaf rust disease and it was at this time that sugar and tea became the leading plantation crops of Uganda. They were less strongly affected by the depression than rubber and coffee, which were grown almost entirely for export since they were largely grown for the local market55. Commercial production of sugar cane dates from 1921though being grown on peasant farms. Sugar production began at Lugazi in 1924 when the first sugar factory was established in Uganda and East Africa known as Uganda Sugar Factory Limited and later changed to the Sugar Corporation of Uganda Limited (SCOUL).This was established by the late Nanji

51Odada, J.E.O. et al. (1986), Incentives for increased Agricultural Production: The Case of Kenya’s Sugar Industry. French Ebert Foundation, Nairobi. 52 Peter Wanyande, Management Politics in Kenya’s Sugar Industry: Towards an Effective Framework. Afr.j.polit.sci.(2000) vol.6,No.1,123-140. Available at http://eropository.uoubi.ac.ke. 53 (Anonymous) Chapter 2, Background of agro-industry institutions in Tanzania. Available at http://dissertations.ub.rug.nl. 54AkwiliniJ.P.Tarimo,YasuoT.Takamura, ‚Sugarcane Production, Processing and Marketing in Tanzania‛ African Study Monographs, 19(1):1-11, May 1998. Available at http://jambo.africa.kyoto-u.ac.jp. 55A.M.O’Connor, (1965), ‚The Geography of tea and sugar production in Uganda, Some Comparisons and Contrasts‛ E.Afri.Geogr.Rev.No.3. Available at www.macalester.edu.

Kalidas Mehta who came to Uganda from India in 1901 and since then, acrage under sugar cane crop has risen almost every year and exported in substantial quantities.

In 1930, the second sugar factory was opened at Kakira established by the late Muljibhai Madhvani who also came to Uganda from India in 1908.Sango Bay sugar establishment in Rakai District in 1972 and at Kinyara in Masindi District initiated in 1960‟s and implemented in the early 1970‟s followed. However, in 1973 Sugar production at Sango Bay was shut down following the expulsion of the Asian owners during the Idi Amin government.56

Imperative to note is that sugar was mostly sold to Kenya within the East African Common Market and in 1963, exports were worth £2 million though sugar prices have been extremely variable. The system of „Out growers‟ made some progress, though small farms still accounted for less than 5 percent of the acrage early in 1964 though this has been on increase.57

In 1968, Peak production reached 152,000 metric tonnes, and by 1969, Uganda was able to export about 48,000 metric tonnes of sugar. In the 1950s and 1960s, with just SCOUL and Kakira Sugar Works, Uganda was one of the world leaders in the sugar industry with production at a tune of 140,000 metric tonnes of sugar per year. However, sugar production declined during the Amin and Obote II regimes and it was almost zero by 1983 when the country became entirely dependent on imported sugar. However, the Sugar industry regained its roots following the return of Asians in the mid-1980s which sugar industry underwent a rehabilitation programme following the Economic Recovery Program initiated in 1987 and the Structural Adjustment Program of the early 1990s.

By late 2005, Uganda had three operational sugar factories SCOUL, Kakira Sugar Works (1985) Ltd, and Kinyara Sugar Works Ltd. In the second half of 2006, a new company known as G.M. Sugar Limited, located at Nakibizzi in Buikwe District, emerged as the fourth local sugar factory. Unlike the other three operators, this fourth factory does not have a nucleus sugarcane plantation. Instead G.M. Sugar Limited buys all its sugarcane from out-growers. Mayuge Sugar factory and a sugar factory in Kaliro are the recent additions of the sugar factories though they entirely depend on the out growers. It is imperative to note that, three

56Supra., note 55. 57 Ibid.

23 issues influence productivity of the sugar sector in Uganda. These include yield per hectare, sugar recovery ratios and import-export demand58.

2.3 SUGAR PRODUCTION, CONSUMPTION AND POPULATION IN UGANDA Sugar production in the country dropped by 27,605 tonnes (9%) in 2011, the lowest in 3 years at a growth of 3% which was lower than 20% increase each year in 2008 and 2009. The main reason for the contraction was the general harsh weather experienced at the end of 2010 and early months of the year 2011. Additionally, there were accidental cane fires at Kinyara that destroyed over 3000 hectares and caused a loss of approximately 30,000 tonnes of sugar. At Kakira Sugar Works Limited and SCOUL, some of the registered out grower farmers diverted cane either to jaggery mills or to Mayuge Sugar factory and there were cases of harvesting immature cane that had ripple effects on recovery. All the big three sugar factories produced much lower than the production levels forecast in 201059.

Table 1: UGANDA SUGAR PRODUCTION 2002-2011

Source: USCTA Annual report 2011

From the analysis of table 1 & 2, it can be deduced that since the customs union protocol came into force on 1st January 2005, before the implementation of the protocol, Sugar production in metric tonnes was low. However, after 2005 when the Customs Union protocol came into place, an increase in Sugar production was noticed though this has been attributed to expansion in activities in the Sugar manufacturing areas. However, the question arises as to whether the legal and institutional frame works under the Customs Union Protocol are sufficient to protect and promote the Sugar Industry in Uganda.

58 Op.cit., note 12. 59 The Uganda Sugar Cane Technologists’ Association, Fourteenth Annual Report, 2011.

Table 2: UGANDA SUGAR PRODUCTION ACTUAL, 2002 TO 2011 (2012 ESTIMATED)

USCTA Annual Report 2011 Table 3 indicates Uganda‟s Sugar Production, Consumption and population. However it is notable that more sugar in future has to be produced as the economy and the population increase. Uganda‟s population growth is estimated at 3.56% per annum and by 2020, it is projected that Uganda will have a population of about 39 million. This will raise sugar consumption to about 553,370 tonnes while production growth at about 40% to 523,500 tonnes60 . This signifies that consumption will be more than production hence echoing the same question on the effectiveness of the legal and institutional frame works under the Customs Union Protocol in protecting and promoting the Sugar Industry in Uganda.

60 USCTA Fourteenth Annual Report, April 2012.page 5.

Table 3: UGANDA-SUGAR PRODUCTION, CONSUMPTION AND POPULATION

USCTA Annual Report 2011

Table 4

Table 4 shows production and consumption of sugar in Africa though specific interest is in reference to the EAC partner countries especially Kenya, Tanzania and Uganda.

From the table, it is indicated that Uganda imported and exported 15,000 tonnes of sugar in the year 2011/2012, the population was at 33.4 million people and produced 350,000 tonnes. This clearly implies that Uganda produces what it consumes.

In regards to Kenya and Tanzania, they had more imports than exports which implies that there is an available market in both countries though it is imperative to note that Kenya is also a member state of COMESA and Tanzania a member state of SADAC hence leaving a question; How the Sugar industry in Uganda is protected under the Customs Union Protocol?

Table 4: PRODUCTION AND CONSUPTION IN AFRICA OF SUGAR

USCTA Annual Report 2011

2.4 UGANDA’S SUGAR PRICE

World sugar prices skyrocketed between 2008 and 2010, surging to a high of US$ 850 per tonne and falling to a low of US$ 430 per tonne as recently as May 2010. Domestic prices have on the other hand not been stable61.

Table 5 and 6 below represent the sugar prices at the factory and various prices across the major districts in Uganda. The factory gate price of sugar in local currency experienced a rise during the latter half of 2011 due to inflationary forces , while in US $ terms the cost of sugar fell below the Uganda shilling level for the first time in 10 years. The temporary abnormal prices of sugar in Uganda during the period of June to September 2011 were artificially created by speculative wholesalers until imported sugar arrived. The import parity price of international sugar and the volatility of the US $ have all contributed to the price of domestic sugar.

Table 5: SUGAR PRICE IN UGANDA SHILLINGS PER 50 Kg BAG AND US $ PER Kg

USCTA Annual Report 2011

61 Forward by C.R.B Orr (Chairman), The Uganda Sugar Cane Technologist’s Association, Thirteenth Annual Report, 2010.

Table 6: SUGAR PRICES IN MAJOR TOWNS

USCTA Annual Report, 2011

2.5 CUSTOMS UNION Customs Union is a legally binding voluntary commitment/ agreement of cooperation by neighboring countries to dismantle trade barriers amongst themselves and adopt harmonized trade regimes amongst themselves and apply common trade regimes to third parties62. The Customs Union has four major elements: (1) the establishment of a Common External Tariff (CET); (2) the establishment of EAC Rules of Origin (RoO) criteria, including Certificates of Origin and Simplified Certificates of Origin; (3) the internal elimination of tariffs for goods meeting the EAC RoO criteria and (4) the elimination of Non-Tariff Barriers (NTBs). The

62 Kenneth Bagamuhunda; EAC Customs Union: Achievements and Challenges, Available at www.psfuganda.org, accessed on 27th March, 2014.

29 primary objective of the Protocol establishing the Customs Union is to facilitate inter and intra-regional trade in goods and to operationalise the customs union, the EAC Customs Management Act was enacted63.

Article 75 of the EAC Treaty establishes a Customs Union detailed in a Protocol which shall, inter alia, include the following: The application of the principle of asymmetry which was adopted to phase out internal tariffs, in order to provide firms located in Uganda and Tanzania to cope up with competition, The elimination of internal tariffs and other charges of equivalent effect; The elimination of non-tariff barriers; Establishment of a common external tariff; Rules of origin; Dumping; Subsidies and countervailing duties; Security and other restrictions to trade; Competition; Duty drawback, refund and remission of duties and taxes; Customs co-operation; Re-exportation of goods; and Simplification and harmonisation of trade documentation and procedures and on 2nd March 2004 the protocol establishing an East African Customs Union was signed which came into force on 1 January 2005.

As stipulated in paragraph 5(1) of the EAC Treaty64, the main objective of the Customs Union is formation of a single customs territory. Henceforth trade being at the core of the customs union to enable partner states to enjoy economies of scale.

2.6 BENEFITS OF THE CUSTOMS UNION It creates a large single market base for the countries for their products; level the playing field for the region‟s producers by imposing uniform competition policy and law, customs procedures and external tariffs on goods imported from third world countries, which should assist the region to advance its economic development and poverty reduction agenda. Promote cross-border investment and serve to attract investment into the region, as the enlarged market with minimal customs clearance formalities, shall be more attractive to investors than the previously small individual national markets. In addition, the Customs Union will offer a more predictable economic environment for both investors and traders across the region, as regionally administered common external tariff and trade policy will tend to be more stable65.

63 Makame ,A. 2012. The East African Integration: Achievement and Challenges. Great Insights, Volume 1, Issue 6, August 2012. 64 Which aims at widening and deepening co-operation among the partner states in political, economical, social and cultural fields, research and technology among others. 65 East African Community Customs Union: Implications and Benefits of the EAC Customs Union available at www.eac.int.com. Accessed on 27th March, 2014.

2.7 CHALLENGES OF THE CUSTOMS UNION The Customs union will minimize discretionary powers earlier enjoyed by partner states which had created uneven playing ground for firms. Such powers, in particular, relate to granting of exemptions from customs duties. While the Customs union will generate major benefits, it will also bring about greater competition among domestic firms. In the short run, the firms that stand to gain most are those that are already competitive66. Attainment of free circulation of goods is hampered by retention of internal boarders and some key tax and trade related regimes and policies are not yet harmonized.

2.8 EFFECTIVENESS OF THE LEGAL FRAMEWORK UNDER THE CUSTOMS UNION PROTOCOL

Article 12 provides that the partner states shall establish a three band common external tariff with a minimum of 0%, a middle rate of 10% and a maximum rate of 25% for raw, intermediate and finished goods respectively in respect of all products imported into the community who shall undertake to review the maximum rate of the common external tariff after a period of five years from the coming into force of the customs union. However, the partner states shall use the Harmonized Customs Commodity Description and Coding System referred to in Article 8 of the protocol67 which has its roots from the International Convention on the Simplification and Harmonization of Trade also known as the Kyoto Convention and The Arusha Declaration (Guidelines to combat customs-related corruption and other malpractices) in the East African Community geared towards trade facilitation. However much as these instruments are developed by these bodies to facilitate trade, they are not legally binding but advisory in nature.

Under Article 8(1), partner states agree to harmonize their Customs Union nomenclature and standardize their foreign trade statistics to ensure comparability and reliability of the relevant information. The Harmonized Commodity Description and Coding System specified in Annex 1 to the protocol shall be adopted as noted in Article 8(2) of the protocol. This helps to categorize the goods and know what tariff treatment is to be applied. The exact treatment for sugar as per annex 1 to the Customs Union Protocol is in HS Code 1701, Jaggery (1701.11.10) has an agreed duty rate of 35% and direct consumption sugar (1701.11.90) a

66 Supra., note 65. 67 Article 12(4) of the Customs Union Protocol.

31 duty of 100% orUS$ 200 per metric tonnes of CIF price at EA port of entry, whichever is the higher. Industrial sugar is taxed at 10% of CIF value at EA port of entry.

The Customs Union provided for COMESA and SADC preferential tariff treatment to continue to apply on eligible goods. As a safeguard measure, initially only 200,000tonnes of COMESA sugar per annum, designated as “Gap Sugar” was allowed into Kenya on a duty free basis for a 2 year period, later extended to 28th February 2008,when the safeguard measure was due to be lifted. However, the Kenya Sugar Board, concerned that the lifting of the “Gap Sugar” duty free limit would damage their sugar industry, negotiated and won a further 4 year extension of a modified safeguard measure with COMESA and be increased by 40,000 tonnes per annum which is one that is on a steep slide to full liberalisation by March 2012 when there will be no safeguard at all. Some of the smaller inefficient producers may well disappear if that occurs. This inevitably will create political problems when and where mill closures are experienced. This is a very serious concern and should continue to be assessed and addressed by Uganda and the Community at large at every level of Trade negotiations.

To complicate matters further as far as sugar trade is concerned, there is a new development to create a tripartite free trade area between COMESA, EAC, and SADC. The first Tripartite Summit of the Heads of State of the Governments of these three trading blocs was held in Uganda on 22nd October 2008. A decision was taken to expeditiously establish a free trade area (FTA), with the ultimate goal of establishing a customs union. There is no doubt the ultimate objective is an African Economic Community. The original road map envisaged that the FTA would be operational by 1st January 2012. The fact that Africa consumes 60% more sugar than it produces, provides the Uganda sugar industry with some comfort68.

However, it is important to note that there are no restrictions on the volume of sugar being imported into Uganda because it observes a policy of free market forces when it comes to international trade, except there is a Common External Tariff (CET) of 100% for all but COMESA sugar entering the region. Consequently URA permits the sugar trade to follow normal supply and demand pressures under the CET safeguard measure69.

68 The Uganda Sugar Cane Technologists’ Association, 2010. 69 Ibid.

However, it imperative to note that in Uganda, the cost of production of sugar is too high unlike in Kenya where, there is subsidization of the cost of production. Kenya and Uganda among others are in membership with COMESA countries while Tanzania is a member of SADAC, which in itself is still a problem in the effectiveness of the Customs Union Protocol.

This is because these countries are low cost producers such as Angola, Swaziland etc. coupled with the high level of industrialization among the COMESA sugar producing countries. Natural factors play to their advantage in that we have no control over the sunshine hours which play a big part in the cost of production analysis in that countries that are near the equator have a long sunshine period and are 1kilogram of sugar ahead of Uganda in production of complete sugar.

On 23rd March 2012, a session of the Ministerial EAC Sectoral Council on Trade, Industry, Finance and Investment was concluded which granted Rwanda an additional six months waiver on sugar imports which extension stayed the application of the CET on 38,000 metric tonnes of sugar imported in Rwanda following a report that the country could not take full advantage of a previous EAC allowance import of 50,000 metric tonnes duty free due to logistical issues70. 200,000 metric tonnes of COMESA sugar was allowed in 2008 which was later increased by 40,000 metric tonnes per annum to end by 201271 and it is also imperative to note that in 2011, there was a crisis of sugar in the country and sugar imports were duty free so as to reduce the shortage.

Burundi and Rwanda have each one sugar factory which creates a suitable market for our sugar. However due to other trade agreements with other trading blocs, this has hindered the protection of the sugar industry in Uganda in that due to concessions of duty free sugar to be imported in the partner states, it enables over importation of sugar quantities beyond what is authorised from low cost sugar producing countries outside the EAC. For example Egypt produces 2,000,000 tonnes, Angola 100,000 tonnes and Mozambique 400,000 tonnes which destabilizes the sugar market within the EAC and a low market for Ugandan sugar in Burundi and Rwanda which in the long run renders even the anti-dumping measures under Article 16

70 EAC Grants Rwanda extension of Duty waiver on sugar, Available at www.eac.int accessed on 28th March, 2014. 71 Ibid.

33 and East African Community Customs Union (Anti-Dumping Measures) regulations specified in Annex IV to the protocol useless.

Article 17(1) of the Customs Union Protocol provides that a partner state can grant or maintain any subsidy so long as it does not directly or indirectly distort competition by favoring certain undertakings or production of certain goods in the partner states and shall notify the extent and nature of subsidization, estimate effect of the subsidization, quantity of the affected product or products exported to the partner states and the circumstances making the subsidization72. However the community can levy a countervailing duty on any product of any foreign country imported into the Customs Union73. The question then arises; what of the subsidies in the partner states? This will have the effect of going against the spirit of competition74 which in the end shall affect the commodities produced within the community especially sugar since in Uganda, the cost of production of sugar is high.

Article 20(2) provides that where there is evidence of a sudden surge in imports, or dumping, or export of subsidized goods by a foreign country into any of the partner states that threatens or distorts competition within the community, the affected partner state may request the partner state in whose territory there is a sudden surge in imports, or goods are dumped or subsidized, to impose anti-dumping duties or countervailing duties or safe guard measures on such goods. If the partner state to which the request is made does not act within 30 days of notification of the request, the requesting partner state shall report to the appropriate customs union authority which shall take the necessary action75.

The 30 days notification however is too long since its too much a time for a damage to be caused to the industry of a produced commodity within the EAC especially with EAC partner states being members of COMESA and SADAC which have countries that are low cost producing in sugar like Angola and Zambia hence affecting the sugar industry.

72 Article 17(2) of the Customs Union Protocol. 73 Article 18(1) of the Customs Union Protocol. 74 Under Article 21 of the Customs Union Protocol. 75 Article 20(3) of the Customs Union Protocol.

It is imperative to note that trade arrangements should not be in conflict with the protocol and where necessary amendments need to be made, the general assembly shall call a meeting within 90 days which days.76

Goods shall be accepted as eligible for Community tariff treatment if they originate in the Partner States as adopted by the East African Community Rules of Origin in annex III to the protocol77.

EAC Rules of Origin refers to a set of criteria that is used to distinguish between goods that are produced within the EAC Customs territory and are eligible to community tariff treatment against those produced outside the EAC customs territory that attract import duties specified in the Common external tariff78

There are four ways to determine the origin of goods within the East African Community member states and only one of them must be complied with for any goods to qualify for EAC tariff treatment79. The four criteria are as follows: (i) goods wholly produced or obtained in a Partner State (that is, no materials from outside the EAC have been used); or (ii) goods produced in the Partner States and the c.i.f. value of any foreign (that is, non-EAC) materials used does not exceed 60% of the total cost of all materials used in their production; (iii) goods produced in Partner States whose value added resulting from the process of production accounts for at least 35% of the ex-factory cost of the goods;(iv) goods produced in Partner States and are classified or become classified under a tariff heading other than the tariff heading under which they were imported, always provided that the change to the character and nature of the goods is such that it demands a change in the first four digits of the classification under the HS Tariff.

Sections 120-129 of the East African Community Customs Management Act, 2004 provides for computation of customs duty. There are several factors that affect the amount of duty to be paid on imported goods that are not within the EAC trade area and these include; the value of goods, the amount of ad valorem taxes collected depends on the customs value of the goods which is determined using the 4th Schedule of the EAC-CMA which prescribes six

76 Article 37 of the Customs Union Protocol. 77 Section 14 of the Customs Union Protocol. 78 EAC Manual on the application of East Africa Community Rules of Origin,2006. 79 Rule 4 of the East African Community Customs Union (Rules of Origin) Rules.

35 methods that can be used to determine the customs value of goods subject to ad valorem duties, Classification of goods, Origin of goods, Quantity of goods, Exchange rate and State of goods.

It‟s important to note that to qualify for preferential treatment, the trader has to produce a certificate of origin and other documents as proof of origin of the goods as per section 111 of the EAC-CMA In computation of duties collected by customs, the customs value is the CIF value of the goods (Cost + Insurance+ Freight). For goods imported by air, air freight is not included in the determination of the customs value i.e. Customs value for goods imported by air is C & I (Cost + Insurance) The duties collected by customs are computed using the following formulas; Import duty, ID Import Duty = Customs Value × Import Duty tax rate ID=CIF × ID tax rate Excise Duty on Imports Excise Duty= (Customs Value +Import Duty)× Excise Duty tax rate ED= (CIF+ID) × Excise Duty tax rate Value Added Tax; VAT VAT= (Customs Value +Import Duty + Excise Duty) × VAT tax rate VAT= (CIF + ID + ED) × VAT tax rate Withholding Tax, WT Withholding Tax = Customs Value × Withholding Tax WT= CIF × WT tax rate Domestic VAT, D-VAT D-VAT= (VAT on imports × 15%) × 18%

In the Customs Union, it is taxes that protect the domestic market. However with the allowance of free trade sugar, there is no protection of the sugar industry since there are no adequate administrative measures to check on the quota of imported cheap sugar which is later re-bagged.

Article 10 provides that the partner states shall eliminate all internal tariffs and other charges of equivalent effect on trade among them.

Article 13 provides that the partner states agree to remove with immediate effect, all the existing non-tariff barriers to the importation into their respective territories of goods originating in the other partner states, and thereafter, not to impose any new non-tariff barriers. The partner states shall formulate a mechanism for identifying and monitoring the removal of non-tariff barriers.

Article 10 and 13 of the Customs Union Protocol are geared towards trade facilitation. Trade facilitation as defined by the World Trade Organization is the simplification and harmonization of international trade procedures where the procedures are the activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade. The 1994 General Agreement on Tariff and Trade contains articles which are basically geared towards trade facilitation namely Article V on freedom of transit, Article VIII on fees and formalities connected with importation and exportation, and Article X on publication and administration of trade regulations. By 2012, non-tariff barriers were to be abolished and among others these included; delays in transit bond cancellation, numerous institutions involved in testing goods, existence of several weighbridge stations in the central and northern corridors, several police road blocks along northern and central corridors estimated at 36 between Mombasa-Kigali and 30 between Dar-es Salaam to Rusumo border, lack of interface within the customs‟ system in the revenue authorities in partner states, inadequate police escort mechanism, inadequate quality of infrastructural services and corruption along the Northern and Central corridors (Police roadblocks, weighbridge and border gates)80.

To improve on trade facilitation, ASYCUDA ++ was built as a risk management tool for customs clearance and has four channels for clearance. The red lane which is for physical examination/verification of goods before assessment and takes 9-12 hours, yellow lane which is for documentary check before assessment and release of the goods takes about 4-6 hours, green lane where goods are not subjected to physical examination of goods neither thorough documentary checks. They are assessed without being subjected to the processes for red or yellow lane entries. Nevertheless, the system has a customs control officer who may redirect an entry to go through the red lane which takes about 3-4 hours and in the blue lane, goods are cleared through the system the same way like the entries through the green lane but are

80 Status of Elimination of no-tariff barriers in the East African Community,2012, Available at www.eac.int, accessed on 5th April, 2014.

37 highlighted by the system for post clearance audit after the goods have been released81. This system of ASYCUDA ++ helps in determination of the rules of origin which in a way prevents dumping of sugar from other countries in the COMESA or SADAC although it should be noted that delays are caused due to failures in the system as a result of poor internet connectivity and in the long run subjecting it to physical checks and yet there is ill equipment in the system in terms of man power and yet exporters and importers have a tendency of not attaching all documentation.

Article 2(5)a puts in place the principle of asymmetry in considering protection of other countries in the EAC since they are at different levels of production, however there is no laid out procedure in determining exactly how this principle of asymmetry shall be applied since a country like Uganda is a land locked country and even costs of production due to its low level of industrialization was not considered.

81 Report by Samuel Setumba on NTV news at 9.00pm on 12/03/2014.

CHAPTER THREE

EFFECTIVENESS OF THE INSTITUTIONAL FRAME WORK OF THE CUSTOMS UNION PROTOCOL

3.0 INTRODUCTION The EU trade regime is blamed for ruining the livelihoods of millions of poor farmers because it dumps cheap products that have an unfair edge over competing commodities from developing countries.

Sugar is produced in 127 countries in the world and consumed in all of them. Only about 30 per cent of world output is traded internationally with the rest consumed locally, implying that the world market for sugar is residual82.

Brazil is the largest producer of sugar in the world, producing around 36 million tons per year. The country accounts for 25% of the worldwide production and about 50% of world exports. India is the second largest producer with around 16 million tons. Other important sugar producers are China, Thailand, and the United States.

These countries have a large influence on sugar prices and issue export subsidies in order to support the local market leading to low cost of production as compared to the EAC region83. For example, the US Sugar program relies on nonrecourse loans as its primary price support mechanism. Any sugar imports would lower the domestic price down toward the world price and might encourage U.S producers to forfeit their crops to the commodity Credit Corporation (CCC) “In lieu of repaying their nonrecourse price support loans”. The federal government is required by law to operate the sugar program at no cost to itself by preventing the accumulation of sugar acquired by the CCC84.

International prices of sugar are of significant importance and are extremely volatile, following an erratic path. After the historical peaks of 1974 and 1981, world prices for raw

82 Shaban R. Sserunkuma and Henry Richard Kimera, ‚Impact of EU Sugar trade on Developing Countries‛: A study with focus on East Africa (Kenya, Tanzania and Uganda). Available at https://germanwatch.org>Zu-afr06, accessed on 16th/06/2018. 83 Sugar Markets and Cash Price Information, Available at https://www.commoditybasis.com. Accessed on 23rd/09/2017. 84 Nadia B. Ahmad, ‚The International Sugar Trade and Sustainable Development”: Curtailing the Sugar Rush. Available at http://digitalcommons.pace.educ/lawfulty. Accessed on 22/09/2017.

39 sugar have fluctuated between €280 per tonne in March 1990 and €110 per tonne in 1999. Since 1995, prices have been on a decreasing trend. This is mainly explained by an overall excess of production over consumption, as measured by the rise in the stocks to use rate. By 2000/2001 prices had recovered to an average of €240 per tonne. There are other reasons explaining price volatility to wit, exchange rate fluctuations can increase or decrease the price volatility of sugar for certain currencies. The steady growth in consumption is a fundamental driving force in the sugar market, but this has not necessarily translated into sustained import demand. Increase in consumption is much more pronounced in developing countries than in others and sugar imports are dependent on macro-economic factors85.

Internal trade among the major economic groupings in Africa like COMESA and SADC is increasing in significance due to deficits that exist in many developing countries with infant or stunted sugar industries. Due to the differing production environments by the various countries, lower cost production settings in Southern Africa now pose a major threat to their Eastern and Central African counterparts. With reduction in both tariff and non-tariff measures that made the traditional wall of protection crumbling, the sugar industry in Africa is expected to be completely realigned in the near future, not withstanding extra Africa market factors.86

The Sugar sector faces challenges as a result of, incoherent economic and trade liberalisation, regional integration and inefficiency in production that renders EAC sugar relatively uncompetitive. The biggest threat is external, stemming from the expected opening up of the sector to competition against products from low cost producers and considerable stocks of dumped sugar from a host of sources with surplus production.

This impacts on the management of the CET system especially where there is relaxation to enable one or more partner states to supplement supplies from outside the EAC market given the difficult situations and interests of each member state. Hence questioning the ability of the EAC members to maintain a stable and predictable application of CET and other customs union provisions, which will result in exemption and duty remission schemes leading to price disparities and encourage anti-competitive practices such as hoarding and smuggling.

85 Supra., note 82. 86 Ibid.

In the face of the volatile unstable sugar prices and stiff competition from low cost producers, such as EU, Brazil, India and Thailand, Sugar dumping and illegal trade or importation is evident and greatly affects the local sugar markets.

While efforts have been instituted by way of tariff barriers, this has not prevented some of the sugar from the residual market from entering East Africa. Stakeholders have suggested more measures including anti-dumping legislation, high tariffs and quotas and countervailing duties. However in the long run, they are not feasible as they can only be done within the bound tariff and quota limits that individual EAC member states have committed themselves at the World Trade Organisation yet EAC only has observer status at the World Trade Organization hence the objective to examine the effectiveness of the institutional framework under the customs union protocol in the protection of the sugar trade.

The East African Community Customs Management Act 2004 establishes institutions to enable the implementation of the Customs Union Protocol. The Directorate General of Trade and Customs, the customs authorities in each of the Partner States and other government agencies such as the ministries responsible for the EAC affairs and the ministries of trade play a great role in the implementation of the Customs Union Protocol. These aids in policy formulation and implementation to ensure the well-functioning of the regional market.

3.1 THE DIRECTORATE GENERAL OF TRADE AND CUSTOMS

3.1.1 THE DIRECTORATE OF CUSTOMS The Directorate87 is divided into three units which include: (i) Tariff and Valuation, (ii) Compliance and Enforcement, and (iii) Customs Procedures and Facilitation. Each of the Units is headed by a Principal Customs Officer who reports to the Director.

The Directorate of Customs is responsible for the initiation of policies on Customs and related trade matters in the Community and the coordination of such policies in the partner states.88 The Directorate of Customs is charged with the following functions: coordinating and monitoring administration of the Common External Tariff; Enforcement of the Customs law of the Community; Trade facilitation as provided for in Article 6 of the Protocol; Administration of the Rules of Origin; Compilation and dissemination of trade statistics;

87 Started in 2004. 88 Section 3, EAC-CMA, 2004.

Application and interfacing of information technology in customs administration; Trainings in customs related matters; Quality control in customs operations and enforcement of compliance; Customs related negotiations; and Activities of the Commissioners in implementing the East African Customs Management Act89.

The activities of the Directorate are coordinated by organizing review meetings and consultations with relevant organs of the Partner States, gazetting where necessary, publishing and dissemination of relevant documentations to various stakeholders which among others include: Customs Management Act 2004 and Regulations 2010, EAC Common External Tariff, Rules of Origin, Manuals, and Brochures. The Directorate has conducted various training programmes for Customs officials, clearing agents and other public and private agencies and spearheading harmonization of the tax systems of the Partner States to aid free movement of goods and competition90 to prevent levying of internal taxes as a result of abolished customs barriers which lead to discrimination of imports from other Partner States.

However though the Directorate is conducting all these activities, in the recent Uganda budget, there is an effort to raise more revenue to support the government activities. Consequently, the excise duty on sugar was increased from shs 25/= to shs 50/= implying that its activities are not far reaching or if so are falling on deaf ears which implies that a raise on sugar tax will lead to increase in the costs of production hence increase in price, making it so expensive for the local population to purchase yet sugar is a sensitive commodity that is enjoyed by a larger percentage of the population. This will in effect lead to low market for the sugar. Consequently, the sugar producers will not get a return on their capital. It will in turn lead to losses and collapse of the companies yet as it is in Kenya, the Ugandan sugar producers do not enjoy any government support. According to the Out-growers manager of Kakira Sugar Limited, Mr. Robert Omoding, there is a deficit of sugar in Kenya. However, Kenya is failing to allow entry of the Ugandan sugar into their market which in essence is limiting the market of the Uganda sugar. This is not in line with the principles of the customs union and the East African Community at large.

89 Section 4(1), EAC-CMA, 2004. 90 This is in line with Article 15 of the Customs Union Protocol which provides guidance on non-customs fiscal barriers by prohibiting imposition of internal taxation of such nature as to afford indirect protection.

3.1.2 PROBLEMS IN THE DIRECTORATE OF CUSTOMS The Directorate has limited capacity to ensure that Partner States do actually honour their commitments to implement the CU in terms of staff and enforcement powers. It only depends on the good will of the partner states.

There is absence of an institutional structure responsible for tax harmonization and other indirect tax issue However, effective coordination and liaison with Partner States on taxation issues requires a specialized unit in the Directorate to handle issues related to harmonization of the tax systems of the Partner States. Because of the absence of harmonized taxation, the Minister of finance of Uganda, Honourable Maria Kiwanuka imposed an additional tax on excise duty of shs 25/= to increase to shs 50/= on sugar in the budget of 2014/201591.

In an interview with Mukwana92, he pointed out that the directorate has limited trained personnel in terms of customs and tax administration, limited funds to conduct training and problems of crafty businessmen and women who smuggle sugar from low cost producing sugar countries such as some COMESA countries and Brazil on the pretext that it is for industrial use. It is then repackaged and sold at a low price. This affects the market price of the locally produced sugar making it hard to coordinate and monitor administration of the common external tariff and enforcement of the customs law coupled with limited funding of the directorate.

3.2 THE DIRECTORATE OF TRADE The Directorate93 is mandated to promote intra-EAC trade which is in line with Article 74 of the East African Community Treaty. This provides for the development and adoption of an East African trade regime as well as cooperation in trade liberalization and development. The directorate carried out the Coordination of the first EAC Trade Policy Review by the WTO, workshops and other activities to promote intra-EAC trade. It has also been at the centre of the discussions of the Tripartite Meeting, which is seeking to harmonise trading regimes of the EAC, COMESA and SADC regional integration blocks.

91Budget Speech, FinancialYear2014/2015, Theme: Maintaining the momentum: Infrastructure investment for growth and social economic transformation. Delivered at the meeting of the 4th session of the 9th parliament of Uganda, By Honourable Maria Kiwanuka, Minister of Finance, Planning and Economic Development on 12th June,2014. 92Customs Liaison Officer at Uganda Revenue Authority. 93 Established in 2004.

The Directorate managed to push for the enactment of the East African Community Competition Act 2006, the Standards, Quality Assurance, Metrology and Testing Act 2006 and related regulations to operationalise these pieces of legislation. It also helped to put up appropriate structures for elimination of non-tariff barriers, including constitution of an EAC Standards Committee and an Accreditation Board with the private sector participation to facilitate trade94.

The East African Community Standardization, Quality Assurance, Metrology and Testing Act is an Act of the Community to make provision for ensuring standardization, quality assurance, metrology and testing of products produced or traded in the community in order to facilitate industrial development and trade; to make provision for ensuring the protection of the health and safety of society and the environment in the community; to establish the East African Standards Committee and the East African Accreditation Board; and to provide for related matters. This piece of legislation is a great achievement in that it aims at promoting quality standardization of goods to the accepted quality of the East African Community. However, the standards in East Africa will be compromised since the Act allows each partner state to designate a national quality system institution yet there is a vice of corruption and lack of skilled labour to work in the quality system institutions95.

The East African Community Competition Act, 2006 is an Act of the community to promote and protect fair competition in the community, to provide for consumer welfare, to establish the East African Community Competition Authority and other related matters. The objects of the competition policy and practice in the Community among others are:96 protecting all market participants‟ freedom to compete by prohibiting anti-competitive practices; protecting the opening of Partner States‟ markets against the creation of barriers to interstate trade and economic transactions by market participants; and enhance the competitiveness of Community enterprises in World markets by exposing them to competition within the Community.

94Evarist Mugisha et al, An evaluation of the implementation and impact of the East African Community Customs Union, Final Report, March 2009. 95 Section 6(1) of the East African Community Standardization, Quality Assurance, Metrology and testing Act, 2006. 96 Section 3 of the East African Community Competition Act, 2006.

The Act applies to all economic activities and sectors having cross-border effect which includes sugar though it does apply to: any conduct of persons acting in their capacity as consumers; collective industrial bargaining; and sovereign acts of the Partner States. The Act further does not apply to restraints on competition imposed by and resulting from a Partner State‟s regulation of specific sectors or industries to the extent that the anti-competitive conduct is required by such regulation within their own Jurisdictions which is against the spirit of the Act of promoting fair competition97.

Section 16(2) (a) provides that a partner state shall not grant any subsidy for the promotion of exports or imports between partner states. Section 17(1) provides that Section 16 shall not apply to subsidies granted for less developed regions among others. However, the Act does not define what amounts to a less developed region. It is notable that, apart from Kenya, now designated a middle income state, the other East African Countries are developing countries98.

3.2.1 PROBLEMS IN THE DIRECTORATE OF TRADE Despite the achievements outlined above, The Directorate‟s mandate is limited in that it does not handle technical issues such as research and analysis. There is Lack of a regional structure for implementation of the relevant legislation in line with monitoring and enforcement powers.

In an interview with Musafiri99, he noted that the directorate has limited funding to send delegates to attend harmonization meetings and end up sending a small number yet Kenya sends many delegates which affects Uganda‟s voting power and that there is a sugar policy in place though it is not enforceable since there is no law to operationalize it hence remaining as a guideline to be enforced based on the good will of the sugar producers.

3.3 THE CUSTOMS ADMINISTRATIONS Revenue authorities are responsible for customs administration as well as administration of domestic taxes. The revenue authorities issue certificates of origin and simplified certificates to cross-border traders and also administer or enforce the Common External Tariff as directed

97 Section 4 of the East African Community Competition Act, 2006. 98 East African Community Competition Act, 2006. 99Senior Industrial Officer, Ministry of Trade.

45 by the Council. However, there are challenges faced by the customs administrations. These include inadequate coordination with other government agencies in that agencies involved in cargo clearance which causes delays since each agency works independently, problems of information exchange in that there is no systematic means for officers on the ground to access the information exchanged which is maintained at headquarter level (such as information of stolen vehicles), fraud in respect of rules of origin and other Customs offences and in- adequacies in dissemination of materials particularly the Customs Management Act and the Common External Tariff books to various stations and business people. Most of the importers crossing with goods into the country across the border are small traders who may lack awareness or no understanding of the requirements relating to rules of origin and the commodities they deal in often do not have adequate labeling to indicate their origin so as to justify their preferential treatment. This makes it difficult to determine the tariffs to be applied on consignments. Akiyo100 notes that this makes it hard for the revenue authorities to enforce the rules of origin which, coupled with corruption, leads to increased dumping of the sugar from low cost sugar producing countries. This in turn will lead to loss of market for the locally produced sugar in that there is a tendency of repacking the sugar dumped in packing bags of the locally manufactured sugar leading to the collapse of the existing sugar industries.

3.4 OTHER GOVERNMENT AGENCIES MINISTRIES OF EAST AFRICAN COMMUNITY AFFAIRS The respective national Ministries of East African Community Affairs handle matters relating to regional integration. They are mandated to ensure effective implementation of the CU and establishment of the EAC Common Market, Monetary Union and Political Federation within the region by coordinating, monitoring, harmonizing and evaluating the implementation of EAC programmes, projects, activities and promote the fast-tracking of EAC integration.

However, a number of factors constrain the performance of these ministries and these include serious shortage of professional staff related to trade and customs. For example in Uganda, the approved structure of the Ministry is 63 staff however only 27 of these were recruited; meaning that a number of posts are vacant which makes it hard for the Ministry to implement its mandate for lack of the requisite number of staff. In Kenya, the Ministry of East African Community Affairs has 89 employees out of the required 176 staff. This undermines the

100Customs Valuation Officer, Uganda Revenue Authority.

46 awareness and sensitization the ministry is supposed to undertake in order to keep all stakeholders abreast with developments in the EAC integration process. In Tanzania because of other stakeholders, communication between various national implementing agencies and the EAC Secretariat is done without knowledge of the Ministry thereby making its coordination role difficult.

There is also lack of financial resources making it hard for the Ministry to carry out stakeholder sensitization meetings and workshops on the benefits and challenges of EAC regional integration; and also lack of an elaborate system of handling complaints from local traders and business persons101. In an interview with Kagumire102, he noted that there is a good drive to foster the customs union though there is lack of good will among some member states such as Tanzania which is also a member state of SADAC which has low cost producing sugar countries where it imports most of its sugar from since sugar produced in Uganda is at a high cost. Kenya at times restricts entry of Ugandan goods into their market yet Uganda cannot impose any of the restrictions on Kenya since Uganda needs Kenya more. This results into Ugandan businessmen dancing at the whims of the Kenyan policies which hinders the trade of sugar. Kagumire103 further noted that the ministry faces a shortage of professional skilled staff in the field of economic integration and limited funding to train and equip officials with the necessary knowledge about economic integration.

MINISTRIES OF TRADE The respective national Ministries of Trade are empowered to formulate and review appropriate policies, legislation and standards for the sustainable development of trade. They handle trade policy issues and are mandated to develop, promote and facilitate both internal and external trade, with particular emphasis on export promotion and diversification. In Uganda, the Ministry of Tourism, Trade and Industry is mandated take the lead on all trade policy issues which it handles through its Department of External Trade. The Ministry has been at the forefront to ensure that Ugandan exports to the other Partner States are not unjustifiably blocked entry into these regional markets. It has also been closely involved in the creation of awareness about the CU among the Ugandan business community.

101Op.cit., note 90. 102Senior Assistant Secretary at the Ugandan Ministry of East African Community Affairs. 103Ibid.

In 2010, the Ugandan Ministry of Tourism, Trade and Industry formulated the National Sugar Policy whose mission was to have sustainable, diversified, harmonized, modern, and competitive sector to meet domestic regional and international sugar requirements104 and to develop and sustain growth of the sugar industry, through profitable trade at domestic, regional and international levels with the ultimate aim of creating wealth, employment, and enhancing social transformation105.The overall objective of sugar policy is to institutionalize harmony among all the Sugar industry stakeholders in order to promote and sustain steady industrial growth and development, and transform and diversify the sugar Sector to become competitive and modernized106.

Uganda is a member State of other economic blocs including the Common Market for the Eastern and Southern Market (COMESA). In the Policy, it was noted that there is a need to address the issue of import and export of sugar by Uganda and regional integration arrangements are critical to the improvement of the Uganda Sugar Sector.107The policy prohibits the establishment of new sugar factories within a radius of 35 kilometers from the existing ones though the trade ministry continues to issue licenses for the establishment of new sugar factories in the vicinity of the existing ones, in contradiction of the law. It was noted by the Chairman of the Uganda Sugar Manufacturers Association, Mwine Kabeho and Dr. M.R Reddy, the agricultural manager of Kakira Sugar, revealed that the Government had issued 13 licenses for the establishment of new sugar industries while presenting a paper on sugar production and consumption in Uganda.108This is a setback for the policy in the infant stages of its implementation. Kabeho noted that failure to enforce the policy causes „poaching' by some factories in that they take on the sugar cane that is grown by the out growers helped by the already established sugar factories.

According to Musafiri109, though all measures are being undertaken to promote sugar trade within the customs union, the sugar policy formulated in 2010 is only directory as a guideline, and not enforceable but only implemented at the good will of the sugar

104 Clause 3.0 of the Uganda National Sugar Policy. 105Ibid., Clause 3.1. 106Ibid.,Clause 3.2. 107 The Uganda Sugar Policy, 2010. 108 Anonymous, ‚Uganda: Industry wants sugar legislation implemented‛, NewVision News Paper, 04/09/2013. 109Op.cit., note 95.

48 manufacturers since it does not have an enabling law. The policy does not take into account aspects of an open market in terms of how to deal with the export and import of sugar.

MINISTRIES OF FINANCE The respective national ministries of finance are responsible, among other things, for economic, fiscal and monetary policies, investment policies, national budget coordination and control, bilateral and multilateral development finance, etc. They play a key role in the coordination of development planning, mobilisation of public resources, and ensuring effective accountability for the use of these resources.

In the Financial year 2014/2015 Budget Speech delivered by Honourable Maria Kiwanuka110 on the 12th June 2014, under the theme: Maintaining the momentum: InfrastructureInvestmentforgrowthandsocialeconomictransformation, the government‟s budget strategy was built on four key inter-linked interventions among others. These include: leveraging government assistance to agriculture, agribusiness, agro-processing, tourism, industry and services such as ICT. The Honourable minister proposed an increase in excise duty on sugar from Ugshs. 25/= to Ugshs.50/= ; a measure expected to generate about 7 billion shillings. This in essence signifies the importance of the sugar industry and a need for its protection since it is a source used to generate government revenue. However, this is a double edged sword since though there will be an increase in the government revenue, the increased duty increases the costs of production which is totally against the background of the budget strategy of leveraging government‟s assistance to agriculture. In furtherance of this, while commenting on the 2014/2015 budget, Dr. M.R. Reddy111 noted that Uganda high cost of production due to lack of research in the sugar industry in high yield sugar variety and mechanization. The unit cost of production per tone in Uganda is $600-$800, South Africa‟s unit cost of production per tone is $300 while that of Brazil the largest sugar producer that dictates the world‟s sugar price has a unit cost of less than $200 per tonne. Hence an increase in the excise duty makes the Ugandan sugar producers less competitive due to the increased high cost of production.

110 Minister of Finance, Planning and Economic Development. 111Agricultural Manager Kakira Sugar Limited.

EAST AFRICAN COURT OF JUSTICE The East African Court of Justice is established under article 23 of the Treaty and has jurisdiction over the interpretation and application of the Treaty. A Partner State112, the Secretary General113 or legal or natural persons114 may make reference for the determination of the Court. However, the Court‟s jurisdiction does not include the application of any interpretation of the Treaty to jurisdiction conferred by the Treaty on organs of the Partner States115.

It is imperative to note that there are no trade disputes so far referred to the Court whose jurisdiction seems to be limited to Partner States as opposed to individual traders who may wish to seek redress in case of infringement in the course of their transactions and there is no laid out procedure how the Court handles individual complaints or any linkages between the dispute settlement mechanisms and the Court for example where goods are detained at entry points for long and traders have to incur huge demurrage charges while awaiting decisions. This weakens both the integrity of the community system and diplomatic negotiations resulting in differing interpretations and inconsistent enforcement of the basic legal instruments, undermining the uniformity of community law. According Evarist Kayondo116, though the East African Court of Justice is in place, most of the people in the business community are ignorant of its mode of operation and only conversant with the national courts.117

In conclusion, it is imperative to note that efforts have been put forward by various institutions to ensure the implementation of the customs union protocol as enumerated above. However, these have been hampered by the selfish interest of partner states. By having individual State interests superimposed over the interests of the community the implementation of the Customs Union Protocol has rather become very difficult. An additional impediment is limited skilled labour within the relevant institutions and dependency on the good will of partner states for the implementation of the various policies.

112 Article 28 of the EAC treaty. 113 Article 29 of the EAC treaty. 114 Article 30 of the EAC treaty. 115 Article 27 of the EAC treaty. 116Chairman Kampala City Traders Association. 117Case Reference No.8 of 2013 Uganda Traders Association of South Sudan Ltd and 3 Others Vs The Attorney General of Uganda and 5 Others is the only case by Ugandan traders in the East African Court of Justice premised on Article 3(3)b of the treaty which requires for memberships that a country must adhere to universally accepted principle of good governance, democracy, rule of law and observance of human rights and social justice but contrary to these dictates, the Republic of South Sudan as a country does not adhere to these principles.

CHAPTER FOUR

CHALLENGES FACED IN SUGAR TRADE BY TRADERS IN UGANDA UNDER THE CUSTOMS UNION

4.0 INTRODUCTION The Uganda National Sugar Policy, 2010, provides that sugar cane growing areas shall be planned within a radius of 25kms, and new sugar mills shall not be licensed within 25kms radius of an existing mill118.

Government through UIA shall issue licenses to new sugar factories, within a nucleus estate of at least 500 hectares or sizeable land to enable the factory to financially break even, grow cane and produce sugar119. Further, all sugar mills shall have binding contracts with farmers120.

The radius is to curb „cane poaching‟, stimulate growth across the country, enable factories expand and enjoy economies of scale. However, government has continued to issue licences to new sugar firms within the zones of the already existing ones. For example, the establishment of Kamuli sugar in 2010, in Kamuli District and Sezibwa Sugar mill 2011, in Buikwe District.

As a result, farmers will not respect their contracts, exacerbating the vice of „cane poaching‟, leading to low production targets by sugar factories.

Government shall regulate importation of Sugar through appropriate tariff regimes121, and in order to reduce the cost of sugar production, to levels of other countries like Swaziland, a lot of sugar cane research has to be done to produce high sucrose, low fibre and early-maturing cane varieties that can grow well under Uganda‟s climatic conditions122.

The National Sugar policy responds to the concerns that Uganda has had no national policy for the sugar sub sector to meet the challenges and global competitiveness in the sub sector. It aims at bringing harmony among all the key players in Sugar Industry so as to promote and sustain steady Industrial growth, development and transformation of the Sugar Sector to

118 Clause 4(i) of the National Sugar Policy 2010. 119 Clause 4(ii) of the National Sugar Policy 2010. 120 Caluse 4(iii) of the National Sugar Policy 2010. 121 Clause 4.4(ii) of the National Sugar Policy 2010. 122 Clause 4.6 of the National Sugar Policy 2010.

51 become modern and competitive in the domestic and regional markets. However, there is general lack of a strategic and regulatory institution to coordinate and harmonize business transactions for all the sugar stake holders which undermines business collaboration that is necessary for the growth of the sub sector across the entire value chain.

Furthermore, the land locked nature for Uganda aggravated by the poor state of the roads and railway, increases the cost of transport of machinery and other inputs hence increasing the overall cost of production in relation to other world class producers and industries like Brazil, India and Thailand.

As earlier observed, Sugar is an important commodity that is used in day today consumption by the majority section of the public. Livelihoods are therefore affected on daily basis by the presence or absence of sugar on the market. In trade changes in the sugar sector inclusive of: scarcity and availability in large quantities are associated challenges and impacts at both national and international level.

Sugar trade has thus gained importance in Uganda and international trade. For instance in 2009, sugar production was 287,387 metric tons which reflected a 20% rise of production over the previous years.123 Nevertheless, sugar trade continues to be affected by numerous factors including: price fluctuations, smuggling and undeclared sugar, limited exports, unnecessary cash bonds, lack of legislation and poor road infrastructure. Thus sugar trade under the customs union in light of the developments under the East African Community continues to be affected.

4.1 CHALLENGES FACED IN SUGAR TRADE IN UGANDA 4.1.1 Price Fluctuations

Annually, 135 million tonnes of sugar are produced globally, with the highest production being from sugar cane. Currently, there is an over production of 4 million tons worldwide.124

Consumption has been growing steadily at 2-3% per annum for the last 20 years. This in the result requires the production of 3 million tons of sugar each year if production is to keep pace with consumption.

123Op.cit., note 16. 124 David Gas Tongaat, ‚Challenges and opportunities for the African Sugar Industry‛ available at www.agritrade.org, accessed on 17th February 2015.

Despite the above trends of production, the world sugar market is distorted. Of the 135 million tons, only 20-30 million tons are traded on the world market. The world market for sugar is dumped, and price does not bear any resemblance to either the costs of production or fair price for the product.

Domestic sugar prices are set by different methods all over the world. However, in only two cases is there zero tariff protection from the dumped world price for the local sugar producers. The first is made visible in domestic prices which are usually set on the basis of costs of production (which is always higher than the world prices), import substitution, and secondly, price determination based on the needs of the local sugar producing industry. So many questions such as whether sugar prices on both the domestic and international markets will be fair or not arise.125

In the recent past, sugar prices have not been stable. Fluctuating prices have thus extensively affected the cost of living of the people, nationally and regionally. In 2011, prices of sugar escalated so high between Ugshs.7, 000/= (Seven Thousand Shillings) and Ugshs.10, 000/= (Ten Thousand Shillings) ($3-5) per kilogram up from Ugshs.2, 500/= (Two Thousand Five Hundred Shillings) ($1) in most markets across the country.126The price escalations left the consumers at the mercies of traders. One of the supermarkets in Ntinda-Kampala was charging Ugshs. 5,000 ($2) per Kg and one had to take a maximum of only two kilograms. If one took one kg and bought other items less than Ugx 5,000, he or she could not walk out with that sugar.127

A trader in sugar called Frank in Kakira town council noted that in 2011, aKakira-branded 50kg bag of sugar cost Shs 140,000/= (One Hundred Forty Thousand Shillings) ($56) and a 50kg bag of the imported sugar was costing at Shs 223,000/= (Two Hundred Twenty Three Thousand Shillings) ($89.2). This meant that while the factory price of a kilogramme of sugar was at Shs 2,800 ($1.12), a consumer needed to have between Shs 6,000 and 7,000 ($2.4 and

125 Supra.

126 Stella Nassuna,‛ New Sugar Producer ‘forces fall in prices’‛, NewVision Newspaper, November 2013 available at http://www.newvision.co.ug/news/649994-new-sugar-producer-forces-fall-in-prices.html accessed on 4th July 2014.

127 Uganda Online Website Directory, ‚The Price of Sugar is Biting in Uganda‛, Thursday 15, September 2011 available at http://www.ugandaonline.net/news/view/11543/the_price_of_sugar_is_biting_in_uganda Accessed on 4th July 2014.

$2.8) to buy a kilogramme on the market. In the same year, a lot of sugar traders suffered massive losses due to changes in sugar price. A sugar trader identified as Mama Irene who trades across the country lamented that she obtained a loan of Ugshs.20,000,000 (Twenty Million Shillings) ($8,000) to restock sugar.128 However, due to the rapid changes in prices, she did not make any profits, No sooner had she bought the sugar from Kakira Sugar works at Ugshs.140,000/= (One Hundred Forty Thousand Shillings) ($56) than it dropped to Ugshs.120,000/= (One Hundred Twenty Thousand Shillings) ($48) per bag at factory price within a period of one week. This implied that she had to sell her sugar at a loss of Ugshs.20, 000 (twenty thousand shillings) ($8). The stock had to be cleared early before the prices would drop further and any delay would mean that there would be a higher loss.

The same challenge of price fluctuations was echoed by Kamusiime and Komakech129 who are whole sellers in Kikuubo, a downtown market in Kampala city. They noted that sugar prices are volatile and there is a lot of uncertainty, that sugar trade has become a game of chance to profit.

4.1.2 Smuggling and Undeclared Sugar

Uganda has seen an influx of imported sugar, which according to domestic producers, is either smuggled into the country or undeclared sugar that has not been subjected to import duties. The difficulties to apply import regulations is exemplified by the official figures quoted by the international sugar organization which reports imports of 20,000 tons in 2000 from “unknown” origins. According to industry analysis, in 2001 and 2002 Uganda‟s sugar industry faced stiff competition from smuggled and undeclared sugars which were offered at 10-15% discount prices against domestically produced sugar.130 In showing the impact of the problem of smuggling and undeclared sugar, re-known businessman, a one Hajji and Kyakulaga noted that the sugar business in Uganda is widely affected by unscrupulous business men who smuggle sugar into the country and sell it at a lower price when compared with the trading price of genuine traders. They further lament that this has thus affected the turnover output of their businesses leading to low sales of their stock.131

128 Interview with Mama Irene on 3rd December 2014. 129An interview carried out on 9th December 2014 in Kampala. 130Shaban R. Sserunkuma and Henry Richard Kimera ‚Impact of EU Sugar Trade on Developing Countries‛. A study with focus on East Africa(Kenya, Tanzania, and Uganda) available at www.germanwatch.org. accessed on 17th February 2015. 131Interviewed on 6th January 2015.

4.1.3 Limited Export Markets

Another challenge facing sugar trade are limited export markets. According to Mr. Omoding132, Uganda produces an average of 25,000 bags of sugar each day. When compared with the per capita consumption which stands at 9 kgs of sugar per day, it is lower than average. He asserts that there is a crisis of sugar in Kenya but Kenya is nevertheless hesitant to buy Ugandan sugar.133 He observes that this mentality has defeated the spirit of trade within the EAC. He further asserts that Rwanda only has one sugar factory and therefore in need of sugar.134 Nevertheless, it imports sugar from COMESA countries, which avail their sugar at a lower cost, a fact attributed to their low costs of production.135 This as he observes has resulted in a limited or lack of diverse market for Uganda‟s sugar.

The challenges associated with exportation of Uganda‟s sugar further reveals that EAC States are not fully committed to the customs union protocol. The common practices of EAC States in sugar trade thus contravene Part D of the protocol, covering articles 10 to 13. Specifically the articles provides for removal of internal tariffs within EAC. In the wake of rejection of Uganda‟s sugar by Kenya and the preference of sugar from other economic blocs by Rwanda as opposed to that of Uganda shows frustration of markets within the region. With the trend or behaviour in the aforementioned is a clear implication that there is limited and continues to be limited markets for Uganda‟s sugar.

4.1.4 Cash Bonds

There is a challenge of the cash bond instituted by the Kenya Ports Authority (KPA). KPA is charging huge amounts of money from Ugandan traders who use Mombasa Port. According to traders, the cash bond is an illegal tax because EAC member States according to the customs union protocol and the common market protocol are supposed to enjoy free movement of goods.136 Indeed, the cash bonds runs contrary to the article 4 (2) (a), article 10 on elimination of internal tariffs and article 14 on rules or origin and eligibility for

132Out-growers Manager Kakira Sugar Limited, in an interview carried out on 21st February 2015. 133Ibid. 134Ibid. 135Supra., note 128. 136Article 6 of the common market protocol.

55 community tariffs of the customs union protocol.137 Hence the question, why do we waste our time in East Africa that we are creating an economic block called the “East African Community”? Everest Kayondo, the chairperson of Kampala City Traders Association (KACITA), said the Kenyan government has not been very clear on why they are charging the traders. Richard Sezibera, the secretary general for the EAC has noted that, “When Ugandan traders failed to clear for the goods that were held-up in Kenya recently, there was a shortage of goods notably sugar, which the traders took advantage of to speculate hence leading to the spike in the price of sugar from Ugshs. 2, 800 to Ugshs. 4, 000”.138 During the study, Kiyingi and Kyakulaga who both deal is sugar trade in Jinja district noted further on the challenge of cash bonds that, due to the unnecessary levies imposed by Kenyan authorities, it discourages engagement in the business since it leads to unnecessary price fluctuations since all the unnecessary levies charged are transferred to the consumer through imposition of very high consumer costs which encourages corruption and other illicit trade activities such as smuggling.139

4.1.5 Lack of Specific Legislation on Sugar Trade

According to Mubiru and Musafiri140, there is a problem of lack of specific legislation in the sugar sector.141 They further note that in the sugar industry being like any other business is conducted and driven by desires of attaining high profit forgetting that it affects all the consumers in the country and, therefore, left to the market forces of demand and supply. They contend that the associated problems of demand and supply are a result of lack of specific legislation. In the result, industrialists and traders have to take advantage of the loopholes within the sector. It follows that in the absence of specific and appropriate legal framework on sugar trade within the region Trade in sugar has not yielded the anticipated results. Challenges continue to affect its progress and consumers continue to be treated unfairly through unfair trade prices. For instance, even the sugar policy adopted in 2010 lacks efficacy as it does not have an enabling law. Under the customs union protocol, general

137 The article provides that; Partner States are to co-operate inter alia by, adopting uniform, comprehensive and systematic tariff classification of goods with a specific description and interpretation in accordance with internationally accepted standards. 138Julius Businge, Business Sector Decries Regional Challenges ‚Trade barriers, low standards, poor infrastructure threaten regional integration‛ available at www.independent.co.ug (accessed July 4, 2014). 139Interview carried out on 6th January 2015. 140Senior Industrial Officer, Ministry of Trade, interviewed on 5th November 2014. 141Mubiru, The Secretariat Manager, Uganda Sugar Cane Technologists’ Association, in an interview carried out on the 23rd February 2015.

56 provisions on trade within the EAC can be applied amidst the absence of specificity on the interplay of sugar trade. Hence the sugar trading, whether on favourable or unfavourable terms is entirely reliant on the mercy of the sugar manufacturers in terms of implementation.

4.1.6 Poor Road Infrastructure

Movement of goods, capital, labour and persons, including the facilitation of trade within the EAC region is purely dependent on road infrastructures. This is attributed to the fact that there is a wide break-down of railway infrastructure and movement using other means of transport is not sophistically developed. Nevertheless, though with current measures to ensure construction and maintenance of good roads within the region, they are still poorly done and a lot is desired if the recommended shape is to be attained. These measures are taken in line with article 6 of the customs union protocol on trade facilitation which, among others, provides that Partner States shall initiate trade facilitation by “ensuring adequate coordination and facilitation of trade and transport activities within the Community”142 According to the budget speech by the former Finance Minister, Honourable Maria Kiwanuka, the time taken to transport cargo from Mombasa to Kampala had been reduced from 18 days to 4 days. She also noted that the East Africa Community Ministries of Finance agreed on a number of decisions during the pre-budget meeting, including introduction of a 1.5% infrastructure levy on selected imports into the EAC to finance railway infrastructure development.143 The state of road infrastructure has been expressed by Kamusiime and Komakech in as far as they have pointed out that though the government is taking all possible measures to maintain good roads to ensure smooth transportation of the goods, there is a lot of embezzlement of funds by officials leading to poor quality standards of roads and a lot of maintenance work has to be carried out which causes delays on the road.144

142 Article 6 (c) of the Customs Union Protocol. 143 Budget Speech, Financial Year 2014/2015, Theme: Maintaining the momentum: InfrastructureInvestmentforGrowthandSocialEconomicTransformation. Delivered by the minister for Finance and Economic Development in Uganda at the meeting of the 4th session of the 9th Parliament of Uganda on Thursday, 12th June, 2014. 144Op.cit., note 125.

4.1.7 The Presence of Non-Tariff Barriers

According to the customs union protocol, EAC States are to take all measures that are aimed at removing all existing non-tariff barriers (NTBs).145. For instance within Tanzania and Kenya are numerous weigh bridges, which delay trade. Kenya still sticks on yellow fever vaccination requirements for persons moving across borders. Police checks are very common within EAC States, which also delays free and fast movement of persons across the region.146 In his foreword, Richard Sezibera notes that “In a nutshell the publication shows Fifty Nine (59) NTBs have been cumulatively resolved, Twenty two (22) remain unresolved while eight (8) new ones have been reported as of September, 2014 as reflected in the EAC Time Bound Programme in the Elimination of NTBs.”147 Sugar is not an exceptional commodity. Across the region in Rwanda, Kenya, Burundi and Tanzania, sugar from Uganda, may not move freely into and around other EAC States as individual States need to sell off their sugar. Indeed this has been the case especially in Tanzania and Kenya though made visible in the reluctance to accept Uganda‟s sugar on the local markets of the two countries.

According to Mubiru148 and Kayondo149 , though EAC countries resolved to abolish NTBs to ease the transportation of goods which among others include sugar, more weigh bridges are never the less being established such as, the newly created weigh bridge at Musita along Iganga-Jinja road in Mayuge District. Other countries in East Africa are even worse as they have numerous weighbridges.150 Constant police checks according to the study have even worsened the free and quick transportation of goods.151 This calls for the need for continuity of Partner States in holding bilateral meetings which usually have a significant impact on the elimination of NTBs.152

145 Except as may be provided for or permitted by this Protocol, each of the Partner States agrees to remove, with immediate effect, all the existing non-tariff barriers to the importation into their respective territories of goods originating in the other Partner States and, thereafter, not to impose any new non-tariff barriers. (2) The Partner States shall formulate a mechanism for identifying and monitoring the removal of non-tariff barriers. 146 East African Community, Status of Elimination of Non-Tariff Barriers in the East African Community Volume 7– September 2014. Available at http://www.trade.eac.int/index.php?option=com_docman&task=doc_download&gid=47&Itemid=124 (accessed March 11, 2015). 147Ibid. 148Op.cit.,note 137. 149Interviewed on 23rd February 2015. 150Ibid. 151Ibid. 152Ibid.

4.1.8 Lack of Political Will within the Region

It is common knowledge that all major and political decisions are a preserve of the Heads of State (HoS) of EAC States. It follows that all social, economic or political decisions within the EAC are dependent on political will of Heads of State. Indeed every regional decision that is successful is based on consensus of all EAC HoS. While the customs union protocol and the common market protocol are in place, there is little that can be realized from them unless HoS can show political commitment and ensure that the different protocols become fully operational. Musafiri asserted that though there is a renewed drive to foster economic integration, there is lack of political will among the member states such as Tanzania and Burundi and member state leaders place personal and selfish political ambitions over national interests.153 According to Musafiri, the absence of political will amongst the regional leaders has crippled regional trade and economic integration in whole. As such, it is only expected that until political will is renewed and rebirthing leaders‟ commitment to regional trade and economic integration, will it suffice to state that the customs union and the common market are fully functional as primarily intended. Otherwise, currently, smooth trade within the EAC region is far from reality. Provisions in the protocols continue to remain on paper and practicalities are far from reality. With commitment to political will, the protocols will become functional with political commitment to their aims and objectives. Trade will become a functional reality that will in turn impacts lives of East Africans. Uganda‟s sugar will also benefit and find market elsewhere within the region. HoS should thus renew and be fully committed to promoting trade within the region. They should, accordingly, work towards ensuring that all protocols that facilitate trade within the region are fully functional.

4.1.9 Lack of a Sea Port in Uganda

Uganda is a land locked country without a sea port. Similar to it are Rwanda and Burundi unlike Tanzania and Kenya which are bordered by the Indian Ocean. The latter two countries thus have a comparative advantage over the former States. This accounts for the cash bonds levied on Ugandan sugar traders in Mombasa as earlier observed. While Tanzania and Kenya do not have to go through other States to market their goods such as sugar, Uganda, Rwanda and Burundi have to go through their neighbouring States in order to effectively trade in their goods. The trends of trade and routes of trade mean higher costs of trading and, therefore,

153Op.cit., note 136.

59 discouraging trade within the region. Mubiru154 noted that the sugar trade in Uganda is facing challenges because of lack of a sea port and surviving at the mercy of Kenya and Tanzania. He further noted that even when Kenyan authorities restricted the export of Uganda‟s sugar into their country in October 2014, the Ugandan government could not retaliate by placing any embargos on Kenyan goods since it is dependent on the Mombasa port. Despite the presence of a customs union protocol as well as a common market protocol, Uganda cannot competitively and favourably trade within the region when compared to Kenya and Tanzania. The customs union protocol even ceases to make sense as it is overridden by natural advantages. It follows that for trade to be promoted within the region, all EAC States need to adhere to the requirements spelt out in the customs union protocol. Equally customs duties amounting to measures having an equivalent effect within regional trade as provided under the Customs Union Protocol and the common Market Protocol should be abolished.155 It follows that, sugar trade just like any other trade will be promoted.

4.1.10 Corruption

There is a lot of smuggled and undeclared Sugar on the local markets as noted by a one Hajji and Kyakulaga.156 It is not in doubt that the aforementioned challenge is not only as a result of individual motivated corruption but corruption as well especially at border posts. Officials at borders have been shown to practice very high levels of corruption within the region. This has for instance been at the borders between Uganda and Kenya.157 With corruption, an accounted for sugar finds its way onto the local Ugandan markets which directly affects sugar trade through offering of sugar at far much lower prices than that of sugar that is manufactured locally as noted by Kiyingi and Kyakulaga158. Corruption has thus become a major problem to reckon with in the sugar trade industry in the country. It is thus imperative that EAC States put in place strong and better measures, aimed at fighting and combating corruption if trade, including sugar trade is to be facilitated and promoted. The prevention and combating of corruption will in turn have positive effects that promote sugar trade within the EAC region, as local manufacturers will be protected. Furthermore there will be properly

154Op.cit., note 137. 155 See the Customs Union Protocol, articles; 1, 2 and 10. 156Op.cit., note 127. 157Masheti Masinjila, ‚Gender Dimensions of Cross Boarder Trade in the East African Community- Kenya/Uganda and Rwanda/Burundi Boarder‛ African Trade Policy Centre (ATC) Work in Progress No.78 available at www.uneca.org, accessed on 13th March 2015. 158Op.cit., note 135.

60 regulated flow of sugar within the region at both the national and regional level. The customs union protocol and its implementation will effectively begin to make sense in light of its aims and objectives.

4.2 CONCLUSION

Sugar trade is an important factor in the day to-day lives of all East Africans. However, it continues to be hampered by many problems as noted above. Outstanding to note is that the problem of volatile change in price is the major challenge that sugar traders face across East Africa. In that light, sugar prices continue to be governed by the market forces of demand and supply. This problem has been worsened by a lack of specific legislation on the sugar sector and the absence of government will to protect the common consumer. The sugar sector has thus started a war within it that requires for a common understanding and joint efforts of all East African governments if sugar trade is to make economic sense.

CHAPTER FIVE

COMPARATIVE ANALYSIS OF SUGAR TRADE WITHIN SADC AND ECOWAS

5.0 SOUTHERN AFRICAN DEVELOPMENT COMMUNITY (SADC) Southern African Development Community (SADC) comprises of; Angola, Malawi, Mauritius, Mozambique, South Africa, Swaziland, Tanzania, Zambia and Zimbabwe.

Under the SADC protocol, Sugar is classified as a sensitive good and exempted from the free movement provision of goods on account of its strategic importance, peculiar characteristic or high profile in the economies of the countries concerned.

The SADC Protocol under Annex VII embeds the Sugar Agreement with measures intended to increase co-operation and support for regional sugar producers.

The main objective of the SADC Sugar Cooperation Agreement is to enable an orderly growth of the sugar industries, in the light of their strategic importance to their respective economies, as well as the currently existing distortions surrounding various sugar markets.

SADC Sugar Cooperation Agreement has two basic components namely; market access159 and areas of cooperation160.

Market access can be reciprocal or non-reciprocal. In the former case, each of the SADC countries would open up their respective markets to each other on some agreed basis and in the latter case, one or some countries would allow market access without requiring reciprocal arrangements with other SADC countries.

Most of the sugar from the rest of SADC which does not go into preferential markets, tends to flow into the Southern African Customs Union (SACU)161 due to three considerations;

a) The SACU prices are higher than the domestic prices in the rest of SADC.

159 Article 6. 160 Article 7. 161 Article 4.

b) SACU has a very large market provided by South Africa as the biggest and most advanced economy.

c) All the adjacent SADC sugar producers with an exportable surplus have relatively lower production costs and can, therefore, readily access the SACU market.

Very little sugar has flowed from SACU into the rest of SADC. The South African sugar going into Mauritius is basically world market sugar. It may fetch a higher than world-market price as a result of a premium due to lower transportation costs as compared to other world- market sugar suppliers since this sugar is not going there under special preferential arrangements.

Given the above scenario, the main challenge to deal with then is how to ensure that sugar flows into SACU from the rest of SADC do not create instability where net social welfare ends up being lower than would have been the case otherwise.

A justifiable principle on which to base market access is relative exposure to the world market. The higher the exposure to the world market, the higher the access into the SACU market. This is an equitable principle to the extent that it recognises the pain of exporting to the world market where prices are not only considerably lower than prices obtainable from preferential markets, but are typically below production costs. It is also efficient to the extent that it encourages a better allocation of resources within SADC, given the multifunctional role played by the SADC sugar industries in their respective economies as well as the lower overall SADC costs vis-à-vis the rest of the world162.

Exposure to the world market can be proxied by net surplus production which is, in turn, defined to be excess of production over consumption and exports to preferential markets.

The areas of cooperation are meant not only to complement the market access component, but also to promote interaction among SADC sugar industries in the spirit of economic integration. Examples of these areas are sharing of training institutions, research facilities, sea-side export terminals, information on intra-SADC sugar flows, experiences pertaining to

162 Micheal Matxebula, ‚Key issues facing sugar industries in the Southern African Development Community‛. Available at https://core.ac.UK.

63 smallholder growers, transport to markets outside SADC and common approaches to international developments163.

It is in these areas of cooperation that additional avenues can be found to improve equity and efficiency within SADC. For instance, in the access of research and training facilities currently available in South Africa, a subsidized price can be charged to the rest of SADC sugar producers.

The cost of sugar cane varieties developed in South Africa and made available to the rest of SADC can be subsidized. Technical assistance for smallholder growers can be provided to the less developed areas of SADC. All these are examples of avenues for raising the capacity of the less developed sugar producers in SADC so as to bring more equity and efficiency in the trading relations164.

The implementation of the sugar agreement shall be managed by the Technical Committee on Sugar (TCS)165.

It should be appreciated that the Agreement is a stepping-stone towards incorporating the SADC sugar industries into the global trading system. Being largely underdeveloped, the SADC region needs a period over which it will strengthen itself for competing effectively in the global trading arena.

5.1. ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS). Economic Community of West African States (ECOWAS) member states include Cote d‟Ivoire, Ghana, Nigeria and Senegal. Its total exports are reliant on extractive products to include; petroleum, natural gas and gold; and a few agricultural commodities that include; Cocoa, Rubber and Cotton.

Cocoa is the top exported agricultural product accounting for 44% of the total agricultural exports and 59% of the total food exports. ECOWAS food exports represent only 10% of total exports, and almost 60% of this 10% is represented by Cocoa.

163 Supra., note 162. 164 Ibid 165 Article 9.

The European Union is an important trading partner of ECOWAS. EU member states absorb 32% of ECOWAS total exports, 43% of agricultural exports and 48% of its food exports.

Nigeria accounts for 73.5% of total ECOWAS exports, followed by Ghana and Cote d‟Ivoire, which represent only 8% of total exports each. Cote d‟Ivoire are the main ECOWAS food exporters largely due to cocoa, followed by Nigeria.

ECOWAS top 3 imports are crude and refined petroleum and cars, representing 20% of total imports. The top 3 agricultural and food products imported are rice, wheat and edible preparations, which represent 42% of the total food imported in the region. Sugar is mainly imported from Brazil and the United States of America.

According to a regional press report, an ad hoc committee of four nations, Cote d‟Ivoire, Ghana, Nigeria and Senegal, has urged the ECOWAS commission to include sugar on the product priority list for implementation of common regional tariff under the ECOWAS Agricultural Policy (ECOWAP).

In Nigeria, the government has offered a range of incentives to try and stimulate sugar cane production though 95% of sugar requirements are still imported. 90% of imports are raw sugar, in part due to the tariff sugar applied.

Nigeria‟s effective duty on imported refined sugar is 35% while the duty on raw sugar is only 5%. The tariff structure encourages an expansion of Nigeria‟s Sugar refining capacity, despite the lack of investment in domestic cane sugar production166.

The ECOWAS Trade Liberalization Scheme (ETLS) is the main ECOWAS operational tool for promoting the West Africa region as a free trade area, under which agricultural commodities and artisanal handicrafts can circulate freely.

The Common External Tariff (CET) is organized into five different tariff bands of 0%, 5%, 10%, 20% and 35%. 90% of the products in the 35% band are agricultural goods, while no

166 Carmen Torres and Jeske Van Seters, Overview of Trade and Barriers to Trade in West Africa: ‚Insights in political economy dynamics, with particular focus on agricultural and food trade‛ Available at www.ecdpm.org/dp195.

65 agricultural products are in the 0% band. As such, agriculture is relatively more protected than other sectors.

However, there is slow progress on the actual implementation of these regional commitments at national level. The ETLS is poorly respected by ECOWAS member states and the implementation of the CET is also patchy so far. This implies that, despite longstanding and strong commitments to “the removal of obstacles to the free movement of persons, goods, service and capital”, as worded in the ECOWAS treaty, there are still many barriers to trade.

This can be explained by a variety of factors. Some ECOWAS member states lack capacity to implement regional commitments, which require strong administrative structures. A lack of knowledge on regional customs and trade provisions has also been identified as an issue, no monitoring mechanism on trade policies exists in ECOWAS, nor an active dispute and binding sanctions mechanism, absence of real political commitment to the regional integration process167.

In conclusion, ECOWAS exports show little product diversity, with a heavy reliance on extractive products (e.g. petroleum and natural gas) and a few agricultural commodities (e.g. Cocoa, rubber and cotton). ECOWAS imports are more diversified, with a high share of industrialized products (e.g. refined petroleum, vehicles, ships, telecommunications, equipment) and food products (e.g. rice, wheat), with a fast deteriorating food trade balance.

The committee168 recommended that the ECOWAS commission maintain the status quo on their customs tariff applicable to raw and refined sugar and that the commission establish by 2018 a uniform duty rate of 35% on both raw and refined sugar. It also recommended that approaches to taxation on raw sugar should be accompanied by appropriate monitoring mechanism and measures to ensure proper implementation169.

167 Supra.,note 166. 168 The ad hoc committee of four nations, Cote d’Ivoire, Ghana, Nigeria and Senegal was set up in December 2011 explicitly to determine appropriate tariffs for the importation of sugar and sugar products into the region. 169 Recommendations on West Africa Regional Sugar Tariffs, 15th April 2012. Available at http://agritrade.cta.int/.

5.2. PARALLELS OF SADC AND ECOWAS WITH THE EAC CUSTOMS UNION. In economic integrations, member states are protected in terms of trade by rules of origin. Rules of origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports.170

Rules of origin are required to determine whether goods being traded are eligible for preferential treatment. They represent a legal framework within which the origin of goods is determined, both point of shipment and where they are deemed to have been produced.171

Goods classified as having been produced in the region according to set rules will be entitled to preferential tariff treatment, while those considered to be from outside of the area will attract the full import duties applicable.172

The rules serve an important purpose in that they ensure that goods that have been substantially transformed or “sufficiently processed” in the exporting member of the trading bloc receive favourable treatment. This is to avoid a mere channeling of goods into the preferential area from a third country.173

Article 12(4) of the Customs Union Protocol provides that partner states shall establish a three band common external tariff with a minimum of 0%, a middle rate of 10% and a maximum rate of 25% for raw, intermediate and finished goods respectively. Sugar is classified as a sensitive good and as per annex 1 to the Customs Union Protocol in HS code 1701, a tariff rate of 100% is charged on direct sugar.

The SADC protocol under Annex VII embeds the Sugar Agreement. Article 4(3) of the agreement provides that annual growth of the SACU market will be deemed to be 45,000 tons in marketing year one, 91,000 tons in marketing year two and 138,000 tons in marketing year three. In marketing years four and five the growth shall be renewed on the basis of the actual

170 World Trade Organisation. Available at www.wto.org, accessed on 20th/06/2018. 171 Mmatlou Kabala, Exploring the COMESA-EAC-SADC Trilateral Free Trade Area: An Approach to Rules of Origin. December 2009. Available at www.tips.org.za>files>An-Appro, accessed on 20th/06/2018. 172 Ibid. 173 Ibid.

67 growth in the SACU market during the prior three marketing years, with minimum access for these marketing years set at 138000 tons.

Article 5(1) provides that duty free access to the SACU Sugar market of 20,000 tons of sugar per annum shall be available to the non-SACU SADC surplus sugar producing countries and will be allocated according to each producer‟s relative net surplus production. In the event of the non-SACU SADC net surplus production being less than 20,000 tons, then the duty –free access to the SACU market shall be limited to the actual net surplus production.174

Under the Harmonised system of the ECOWAS Common External tariff and other schedules, Chapter 17, code 17.012, 17.01.13 and 1701.14, the duty rate of sugar is 35%.

From the above, the SADC model is the most developed in terms of protectionism of the sugar trade. Most of the sugar from the rest of SADC which does not go into the preferential markets, flows into the Southern African Union since the SACU prices are higher than the domestic prices in the rest of SADC, which sugar is later traded in the world market.175 This is a lesson that can be drawn by the EAC Customs Union by Kenya creating a union where all surplus sugar from EAC member states flows into and is traded on the world market hence protecting sugar traders from low cost producing sugar countries.

174 Atricle 5(3) of the sugar agreement. 175 Op.cit., note 161.

CHAPTER SIX

CONCLUSION AND RECOMMENDATIONS

6.0 INTRODUCTION It is assumed that regional integration yields economic benefits for all its members such as access to wider markets, larger and diversified investment and production, social-economic and political stability and bargaining power for the countries involved. The EAC has a large population of about 133 million which provides market for sugar.176

Sugar, unlike other food commodity, is consumed daily at different rates by all people regardless of their age, standards or classes. Regional Integration arrangements are critical to the improvement of the Uganda Sugar Sector. With the establishment of the EAC Customs Union whose major objective is to promote inter and intra-regional trade, sugar trade has gained importance both domestically and internationally. In 2009, sugar production was 287,387 metric tonnes, 20% rise over 2008 production. The sugar industry was again forecasting a further increase in production during the year 2010 to approximately 318,240 tonnes.177

The institutions governing the sugar trade though have endeavoured to foster protection and growth of the sugar trade, are ineffective due to the fact that they have no power to

176 Catherine Mc Auliffe, SwetaC.Saxena, and Masafuni Yabara (2012), ‚The East African Community: Prospects for sustained growth‛ Page 6. Available at www.imf.org. 177 National Sugar Policy 2010.

69 implement their recommendations, coupled with limited funding to carry out their activities, limited trained personnel and corruption.

Traders in sugar trade within the EAC are faced with various challenges which include price fluctuations, smuggling and undeclared sugar, limited export markets, cash bonds, lack of specific legislation on sugar trade, poor road infrastructure, the presence of non-tarrif barriers, lack of political will within the region, lack of sea port and corruption which issues need to be addressed in order to promote and protect sugar trade within the EAC.

To promote sugar trade under the customs union, the following reforms need to be under taken.

A) LEGAL FRAME WORK. The partner States should come up with an estimated figure of subsidy to be granted or maintained to favour undertakings or production of goods especially sugar to ensure fair competition so as to do away with unjustifiable subsidies of various partner states to out compete other industries in relation to section 17(1) of the Customs Union Protocol.

In relation to section 20(3) of the Customs Union Protocol which requires a partner state to act within 30 days upon request by another partner state as a result of a sudden surge in imports, or goods dumped or subsidised, to impose anti-dumping duties or counterfeiting duties or safeguard measures. The 30 days notification period should be reduced to 10 days and the time for calling of the general assembly as per section 37 of the customs union protocol should be reduced from 90 days to 30 days period.

Member states should ensure that their national trade laws are consistent with the customs union protocol. This needs to be done quickly since when some member states delay in harmonising their laws with the customs union, this hinders the effectiveness of the Customs Union Protocol.

Parliament in its principal role of making laws should ensure the enactment of the Sugar Act, which should be in conformity with the customs union protocol.

B) INSTITUTIONAL FRAME WORK. Under the directorate of customs, there is need to increase trained staff to enforce the customs union protocol and not to depend on the goodwill of the partner states. Furthermore, tax harmonisation across all EAC countries should be done coupled with trained skilled

70 personnel in tax matters and increase in funds for the directorate of customs to run its activities.

To improve management under the customs administration, ASYCUDA ++ was built as a risk management tool for customs clearance and has four channels for clearance. The red lane which is for physical examination/verification of goods before assessment and takes 9-12 hours, yellow lane which is for documentary check before assessment and release of the goods takes about 4-6 hours, green lane where goods are not subjected to physical examination of goods nor thorough documentary checks. They are assessed without being subjected to the processes for red or yellow lane entries. This helps in determination of the rules of origin which in a way prevents dumping of sugar from other countries in the COMESA or SADAC. However, it should be noted that delays are caused by failures in the system as a result of poor internet connectivity and in the long run subjecting it to physical checks and yet there is lack of equipment in the system in terms of man power and yet exporters and importers have a tendency of not attaching all documentation. This calls for improvement in the ASYCUDA ++ system. Instead of having 4 channels for clearance, only one should be adopted which connects to the origin of the goods and class which entails serialisation of the commodity coupled with good internet connectivity so as to ensure systematic exchange of information among customs officers.

There is need for increased funding to train personnel in the directorate of trade and enable the directorate send many trained personnel at various EAC committee meetings so as to have a high voting power similar to Kenya which is able to send a big number of delegation. Similarly, there is need for increased funding and trained personnel in the ministries of East African Affairs to foster sensitisation of the EAC activities to the traders.

There should be amendments to reflect the appellate system under the East African Court of Justice so that an aggrieved party can seek further action if it feels justice has not been achieved.

C) CHALLENGES FACED IN SUGAR TRADE BY TRADERS IN UGANDA UNDER THE CUSTOMS UNION. The Ugandan government needs to address the quality of its physical infrastructure affecting the efficiency of its producers and traders. This requires extensive investment in the road and railway sectors through a public–private partnership framework.

Additionally, there should be a joint venture among partner states to construct highways and rail networks to connect the regional market. This could work through forming a trust infrastructure fund under the management of the EAC Secretariat.

The prevailing nontariff barriers, such as arbitrary police roadblocks and unnecessary checks along highways, cash bonds and customs border posts, violate Articles 10 and 13 of the EAC Customs Union Protocol. Political will and commitment are central to the implementation of trade agreements. These barriers can be removed through political interventions. It is imperative to note that the staff of committees charged at national levels with monitoring the elimination of these barriers do not have any political authority to ensure enforcement. Therefore, the political heads need to strengthen institutions with sufficient political authority to deal with such barriers to improve trade flow. Furthermore, it is notable that with the presence of political will, the lack of sea port by Uganda shall be mitigated since partner states at the sea port shall not impose unnecessary cash bonds and also restrict exports of partner states without sea port.

According to Robert,178 to protect the sugar manufacturers and traders, the government should establish a sugar board whose functions would be to: regulate, develop and promote the sugar industry, facilitate the export of local sugar; monitor the domestic sugar market. The purpose of this is to identify and advise the government and interested parties on any distortions in the market and to monitor the production, importation and consumption of sugar and its by-products with a view to ensuring a viable industry. With the establishment of the sugar board, it shall be in position to check on the volatile changes in the sugar price by advising government on the necessary actions to be undertaken such as subsidies to be offered to the sugar manufacturers and traders. This is evident in Kenya where the Kenya Sugar Board, a public body, was set up by the Sugar Act, 2001, under the Ministry of Agriculture The Board is mandated to regulate, develop and promote the sugar industry, coordinate the activities of individuals and organisations in the industry and facilitate equitable access to the benefits and resources of the industry by all interested parties. However, it is notable that although the Uganda Sugar Board is established, it needs to be an independent body, without any political influence, if it is to perform its functions effectively.

178 Out-Growers Manager Kakira Sugar Limited.

There is need for increased research on the sugar industry to introduce high yield varieties of sugar cane which in the long run increases the sugar production to check on the market forces of demand and supply which have an influence on price of sugar.

6.1 GENERAL CONCLUSION It should be notable that EAC has made admirable strides to ensure trade facilitation. This is by allowing free movement of labour, promoting peace and security, creating a very good environment for production, development and mobility of labour. However to promote sugar trade under the customs union protocol, there is a general need to strengthen the political will among the partner states, enforcement of the customs union protocol and strengthening the various institutions to ensure promotion of the sugar trade.

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Budget Speech, Financial Year 2014/2015, Theme: Maintaining the Momentum: Infrastructure Investment for Growth and Social Economic Transformation. Delivered at the meeting of the 4th session of the 9th Parliament of Uganda. By Honourable Maria Kiwanuka, Minister of Finance, Planning and Economic Development on 12th/06/2014.

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Maiteki Bigirwa George (2009), African Economic Integration: The Legal and Institutional Perspectives of the Common Market for Eastern and Southern Africa (COMESA) (Master of Laws Degree Dissertation Makerere University).

Uganda Online Website Directory, “The Price of Sugar is Biting in Uganda”, Thursday 15, September 2011 available at http://www.ugandaonline.net/news/view/11543/the_price_of_sugar_is_biting_in_uganda