The presidents of Kenya, Uganda and Tanzania signed an agreement Tuesday on common tariff rates, in an effort to boost trade and economic growth in the region.
The three East African countries have agreed not to charge a tariff on imports of raw materials, such as cotton. But they will levy a 10 percent tariff on imports of semi-processed goods, such as yarn, and a 25 percent tariff on finished products, like cloth.
These tariff rates would apply only to goods traded among the three countries.
Under the East African Community's Customs Union protocol, Uganda and Tanzania will also be able to charge an additional tax on Kenyan products for a five-year period. This is because Kenya's manufacturing sector is much more developed than theirs.
According to a program officer at the Nairobi-based Institute of Economic Affairs, John Ochola, the new customs union is expected to boost trade. "We have access to a much wider market, a market that has 90 million people in it. When we have this customs union, we get rid of the border patrols and checks that actually distort trade, so it will actually make trade between the three East African countries much easier, much faster, much more efficient," he said.
Mr. Ochola said the wider consumer base means businesses will be able to sell more of their goods, and also produce their goods more efficiently.
Ultimately, he said, all three countries are expected to benefit, as are consumers, who he says will, on average, pay lower prices for goods and services produced and sold in the region. "In theory, then, the economic performance of the three countries should improve, because it means, now, there's increased economic activity, we're selling more goods and services, and then we're able to earn more from the goods that we're trading," he said.
Mr. Ochola also said the customs union could pave the way for agreements in other areas, such as common interest rates and perhaps even adopting a single currency.
But the three countries also have concerns about some negative things that could happen as a result of the customs union.
For instance, Kenya is concerned that cheaper imports from Uganda and Tanzania might take some business away from domestic producers.
Uganda and Tanzania are concerned they will lose money on the reduction in taxes on Kenya's goods, although they are allowed to charge an additional tax on Kenyan products for five years.
But in the long term, the benefits of the arrangement in increased business and lower prices are designed to help all three countries.