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How Common Is the East African Community’s Common External Tariff Really? The Influence of Interest Groups on the EAC’s Tariff Negotiations:

How Common Is the East African Community’s Common External Tariff Really? The Influence of... Kenya, Tanzania, and Uganda founded a Customs Union in 2004 and apply a Common External Tariff (CET) on imports to the region. However, the CET has been increasingly destabilized by countries using unilateral exemptions on a wide range of strongly traded goods. This instability undermines progress in regional integration and creates an uneven playing field for business. The article discusses evidence for the influence of interest groups on the observed instability. This study takes a political economy perspective and tracks lobbying behavior from the domestic to the regional level. It looks at the influence of business membership organizations and other interest groups on CET negotiations. The article applies an exploratory, qualitative approach predominantly drawing on data gathered by the author in 25 interviews with experts in Kenya, Tanzania, and Uganda in January 2016. Keywords East African Community, Customs Union, Common External Tariff, interest groups, business membership organizations Clearly, CUs provide interesting case studies for the field of Introduction international political economy (IPE) to study the forces In 2004, Kenya, Tanzania, and Uganda agreed to form a behind trade policy-making. However, the relatively small Customs Union (CU) including the introduction of a number of existing CUs has limited the number of case stud- Common External Tariff (CET). Ten years later, countries ies thus far. Especially, little attention has been paid to the have to ask themselves how common their external tariff advances on the African continent. This article will address really is. In 2014, countries applied unilateral exemptions on the East African Community’s (EAC) CU in particular, as it more than a hundred tariff lines, among which were highly has often been referred to as the most advanced regional eco- traded goods such as vehicles, rice, and cement. The Union’s nomic community (African Development Bank, 2014) and Director General for Customs and Trade, Peter Kiguta, com- may serve as a model for other CUs on the continent. plains about this practice in an interview with the author This article will study the political economy of the EAC’s (Interview 9 ): “If the tariff keeps changing, this year it is CET after its establishment from 2005 to 2015. It focuses on like this, this year this country asks for that, then this instabil- discussing how interest group behavior has contributed to ity brings unpredictability for investors and trade.” This phe- the instability of the CET in this period. Since 2005, coun- nomenon is part of a larger issue in trade policy. Trade tries have made increasing use of CET exemption schemes. policy-making is rarely driven by considerations of welfare, Guided by domestic interests, they often unilaterally applied but is a popular tool for redistribution among different inter- a different tariff rate from the CET and avoided the task of est groups (Rodrik, 1995). consensus-formation on regional CET levels. However, when a country enters a CU, a level is added to Both the changes of essential tariff lines in the CET and the process of negotiating tariff levels. Tariff levels towards the wide use of exemption schemes indicate that the CET nonmember states are now determined in negotiations among the member states of the CU. Interest groups that were influ- Hertie School of Governance, Berlin, Germany ential in one state might not be in another while other groups Corresponding Author: might be able to align their positions across countries. Tobias Bünder, Hertie School of Governance, Pettenkoferstraße 7, Similarly, interstate bargaining and the CU’s institutional 10247 Berlin, Germany. rules and structures will shape the way that tariffs are set. Email: tobias.bunder@gmail.com Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open plays an important role in protecting certain interests. The The major challenge to the Stolper–Samuelson theorem article will ask how the instability in the CET can be explained comes from the Ricardo-Viner model. Due to the immobility and why member states tend to fall back into national exemp- of capital and labor, all actors’ preferences for trade policy tion schemes for some industries, but agree on regional CET depend on the industry in which they are situated. Thus, con- changes for others. The article shows that domestic interest flict is not along class lines or production factors, but along groups are effective in proactively influencing member states sectors. In a study of industrialized economies, Hiscox in their stance on external tariffs. The EAC’s institutional (2002) finds that trade conflicts have moved from class lines structure enables states to make use of exemption schemes to sectors with decreasing factor mobility since the mid-20th and to put national over regional interests in CET negotia- century. Mayda and Rodrik (2005) also present evidence for tions. A regional approach to tariff-setting is only taken if the Ricardo-Viner model. Conflicts also often occur within a domestic interests overlap or transnational industries put sector between manufacturers and traders at different stages pressure on governments to stick to harmonized CET levels. of the value-chain, which the article will also discuss in the In its analysis, the article will track lobbying behavior case of the EAC. Underlying all models is the assumption from the domestic to the regional level. The article will apply that interests are defined by economic gain. However, other a qualitative approach predominantly drawing on data gath- drivers for trade preferences of individuals exist like the ered by the author in 25 key informant interviews. To start, degree of nationalist sentiments (Mansfield & Mutz, 2009) the article will give an overview of the relevant literature. or a population’s education levels (Hainmueller & Hiscox, Subsequently, the article will explain the framework of anal- 2006). Likewise, other interest groups like civil society orga- ysis and its methodology. Diving into the case study, the nizations or international donors in a developing country set- article will provide background information on the EAC CU ting are often overlooked. and its CET. As a next step, the article will turn toward the analysis of the application of the CET from 2005 to 2015, Interest Groups in Trade-Policy Processes discussing interest groups in the founding Member States of Kenya, Tanzania, and Uganda, and then turn to the dynamics The extent to which interest groups may influence trade of CET negotiations on the regional level. policy outcomes depends on how they are organized and integrated into policy-making. Grossman and Helpman (1994, 2001) show that policy outcomes depend on a com- Literature Review petition between lobbying activities of different groups. Traditionally, the study of international institutions and This might include legitimate behavior (e.g., researching agreements looked at the level of interstate bargaining (Lake, on effects of trade policy options), as well as illegal aspects 2009). However, literature shows that multiple factors of (e.g., bribing ministers to protect special interests). The lat- domestic politics shape the national position in the interna- ter may be especially strong where institutions are weak tional arena (Aklin, Arias, Deniz, & Rosendorff, 2015). (Campos & Giovanni, 2008). Among them, interest group politics plays an important role. The main focus of trade policy analysis on this level has This literature review will discuss the underlying structures been on firms and industries. The organizational strength of of interest group competition in trade policy-making and consumers is limited by the free-rider problem and the wide- interest group involvement in political processes, and present spread of potential welfare gains (Baldwin, 1989). Consumers some insights on interest group politics on the regional level. may only exert an influence on trade policy through their voting behavior. In contrast, firms are often well-organized entities that have resources and channels to engage in policy Foundations of Interest Group Competition discussions and are directly affected by policies. The strength To understand the dynamics of interest groups within trade of industry lobbies depends on the motivation of the largest policy debates, one has to outline how losses and gains from firm (Bombardini, 2008) as well as industry characteristics trade policy are distributed. Trade theories can give a first like a large capital stock, an inelastic demand function, a hint. The Heckscher–Ohlin model predicts that trade patterns small number of capital owners, and that the industry is geo- depend on the factor endowments of an economy. Building on graphically concentrated. The immobile factors in the manu- these insights, the Stolper–Samuelson theorem suggests that facturing sector seem to be more concentrated in developing trade liberalization will benefit the owners of the relatively countries (Hung & Quyen, 2007) than the mobile factor. abundant factor and leave the owners of the relatively scarce Hence, capital and land are often better organized in devel- factors worse off. Resulting from this theory is a class-based oping countries than labor or small-scale farmers. In devel- division of policy preferences where owners of capital would oping countries, firm heterogeneity determines their mostly clash with labor over liberalizing or restricting trade involvement in policy-making: Factors like employment (Rogowski, 1990). This seems to have been a reasonable size, government ownership, age, or participation in business assumption in many industrialized countries like the United associations matter for lobbying influence (Hall & Deardorff, States (Leamer, 1984; Persson & Tabellini, 2000). 2006; Weymouth, 2012). Bünder 3 Domestic political institutions will affect trade policy- actors and processes in the background. Unlike confirmatory making by aggregating the preferences of interest groups and research, it cannot test hypotheses, but helps to form assump- determining if and how these groups can turn their interests tions and ideas (Stebbins, 2001). Thus, this article will limit into policy. Here, political systems matter with some evi- itself to setting out bold assertions (Emmel, 2013) for its dence pointing to stronger business influence in democracies analysis. It will then present and discuss evidence for and than autocracies (Keefer, 2007; Weymouth, 2012). On top of against those assertions gathered with exploratory methods. that, the type of representative framework plays a role. The research is built around 25 semistructured expert Lobbying tends to target different institutions depending on interviews that the author conducted in Kenya, Tanzania, and whether the country follows a majoritarian or proportional Uganda. The existing literature on the EAC CU is limited and representation system parties (Grossman & Helpman, 2001; focuses mainly on trade and welfare effects of the CU (Buigut, Persson & Tabellini, 2002). Yet, the structure of domestic 2012; Busse & Shams, 2003, etc.). Thus, for information on institutions in the EAC only partially reflects the political negotiation dynamics and industry-specific details, the author realities including issues like ethnic voting, corruption, or needed to collect new data. Expert interviews are considered overly dominant political leaders. Thus, the article will not an effective tool in exploratory research, as they provide fast go deeper into this issue when analyzing interest group poli- access to an unknown field and provide a high insight in tics in trade policy-making. aggregated and specific knowledge (Bogner, Littig, & Menz, 2009). Experts according to Meuser and Nagel (1991) are persons who have privileged access to information about Interest Groups on a Regional Level groups of persons or decision processes at stake. Moving up from the domestic level, the article will also In exploratory research, the selection of cases or inter- study the influence of regionally organized interest groups viewees cannot be random, but rather follows a purposeful on the CET negotiations. The European Union (EU) provides sampling strategy, as one wants to analyze the richest and an advanced case study of the impact of interest group influ- most telling cases (Emmel, 2013; Reiter, 2013) available. In ence in a regional integration context. Moravscik (1998) sees the case of this article, the author talked to representatives of domestic interest groups as the main driver of EU integra- ministries responsible for trade, revenue authorities, and pri- tion. Transnationally organized lobby groups often helped to vate sector stakeholders and selected other experts on the build bargaining agreements (Moravscik, 1993). With regard topic in all three countries. In addition, interviews were held to trade policy-making, Dür (2008) finds that EU trade pol- with key officers at the EAC Secretariat as well as with the icy strongly reflects the preferences of economic interest East African Business Council. While some key informants groups. Business groups that are active on multiple levels of were selected based on their positions within organizations, EU policy-making and target domestic as well as regional others followed by a snowballing method (Bogner et al., processes are the most successful in getting their voices 2009) meaning that already interviewed experts allowed heard (Eising, 2004). Resource-rich groups are the most access to additional interviewees. effective lobbying groups in the EU context. Likewise, busi- Interviewing experts as a layperson, as often the case in ness associations tend to be more active on the regional level exploratory interviewing, involves an asymmetry in knowledge, than civil society or other nonbusiness groups (Dür & Mateo, which makes it difficult for the interviewer to follow a struc- 2012). Michalowitz (2007) shows that interest groups were tured set of questions (Bogner & Menz, 2009). Thus, the author mainly successful in targeting technical aspects of policy used a basic set of interview themes tailored to the organization rather than more fundamental political directions. Yet, over- and position of the interviewees. It is important to understand all there is no clear tendency in the literature if integration that such exploratory interviews cannot generate completely has given interest groups better or worse access to political objective data. Hence, the article relies on anecdotal evidence processes (Eising, 2008). This article may contribute to the derived directly from the expert interviews, which the author overall discussion by discussing evidence from both the directly cites from the transcripts. To mitigate this pitfall of domestic and regional level in the EAC. exploratory research, the author triangulated interview state- ments by asking for confirmation from other interviewees or finding supportive information in the literature. Thoughts on Research Method and The author asked all interview partners for their consent to Model be interviewed, recorded, and quoted in this article with their The article will connect the instability in the CET to the poli- name. Those who did not want to be named are referred to as tics of interest groups discussed above. Given the very lim- an anonymous representative of their organization. The ited number of studies on interest group politics and the EAC appendix provides an overview of all interviews conducted. CET available, the article will adopt an exploratory approach Finally, for reasons of scope, resources, and political instabil- to research (George & Bennett, 2005; Stebbins, 2001). ity, the author did not manage to visit Rwanda and Burundi. Exploratory research can be a helpful approach to gain Due to their small economic size and their presence in transi- insights into previously unstudied fields and understand tion schemes, their omission should not distort results. 4 SAGE Open In the next section, the article will first outline the phe- commodities produced in the region. Agricultural goods nomenon it seeks to explain: the instability in the EAC’s attract a simple average tariff of 20.2%, while nonagricul- CET (composed of unilateral exemptions and CET changes). tural goods lie at 12.7% only (WTO, 2012). In addition, there Subsequently, it will explore evidence on how interest group is a list of sensitive products that included 58 tariff lines at behavior contributes to the observed CET instability both on the beginning, but has shrunk since (EAC, 2004b, 2012). The domestic and on regional level. Looking at the domestic list contains mostly agricultural goods as well as a selection level, the research will be guided by the following bold of locally manufactured items. The list’s items were widely assertion: produced in the region and should hence receive special pro- tection from imports. •• If domestic interest groups are strongly organized and The CU Protocol included one exemption to the CET, the lobby on tariff policy, government is more likely to duty-remission scheme (DRS): For the purpose of export pro- look out for special interests in tariff-setting leading to motion, countries can annually announce a selection of com- more CET instability. panies that may import specific products duty-free as input for manufacturing. In some cases (e.g., sugar for industrial Next, the article will explore why states use unilateral exemp- use), industries were chosen jointly as a region. Moreover, tions in some cases and regional solutions in others. Thus, countries apply for so-called “stays of application.” Originally, the article will look at both regional CET negotiation struc- those were meant to smooth the implementation of the CET tures and the role of regional interest groups following two and stay at some pre-CET levels for a transition period. Yet, it bold assertions: became accepted practice to use the channel to derogate from CET for other reasons. Theoretically, states have to prove that •• If tariff-setting is intergovernmental, domestic interest they cannot source enough of a product regionally to be groups will have a higher impact on tariff negotiations. allowed to apply a lower tariff rate or convince the other •• If regional interest groups are actively lobbying, countries that their industry needs special protection for a countries are more likely to prioritize regional solu- limited time. In practice, derogations are rarely based on evi- tions leading to less CET instability. dence. EAC stakeholders see this third channel as especially problematic and open for abuse (Interview 9). Any change of CET or a unilateral derogation of the CET The EAC CU and the CET has to be approved by the Council of Ministers, the main executive body of the EAC. Member states prepare their Design of the CU and the CET positions on the annual tariff negotiations in consultation The EAC dates back to colonial times when the British colo- with domestic stakeholders. Regional negotiations begin nial administration treated the region as one, building rail- among technical staff. However, the political level regularly way lines and establishing a CU in 1919 between what is makes amendments to their recommendations. Political now Kenya, Uganda, and Tanzania (Reith & Boltz, 2011). In vetoes are powerful as the EAC works with consensus-based 1967, the newly independent countries formed the first EAC. decision-making. The EAC Secretariat has no supranational After only 10 years, the community collapsed in 1977 due to power in trade and serves predominantly as a facilitator for structural and ideological conflicts (Kibua & Tostensen, the negotiations and gives advice on what would be benefi- 2005; Maasdorp, 1999; McKay, Milner, & Morrissey, 1998). cial for the Community. After Uganda settled internal conflicts and Tanzania moved Finally, countries have kept several national support away from socialism in the 1990s, the three EAC states schemes that are not regulated on regional level. Governments restarted cooperation efforts culminating in the formation of do not have to notify Partner States which industries receive the CU in 2005. rebates. Especially Kenya’s “Tax Remission for Exports It is governed by the Customs Union Protocol (EAC, Office (TREO)” has been named as causing distortions of the 2004a) as well as the 2004 Customs Management Act (EAC, regional market. Yet, this article will focus only on the dero- 2004b). Countries eliminated tariffs on intraregional trade gation channels that are accounted for in the CU. The lack of and have introduced a CET. All EAC states are members of regional oversight makes it hard to analyze schemes like World Trade Organization (WTO), but had large room to set TREO. tariff levels, as their bound tariffs lay far above the applied rates. Nonetheless, negotiating the specifications of the CET, Instabilities in the CET the countries had signed up to the idea of open regionalism aiming at a trade-friendly CET (Interview 9). This section will give an overview of the instability in the The EAC CET has three tariff bands: 0%, 10%, and 25%. CET stemming from both unilateral exemptions and CET As an orientation, the first category incorporates raw materi- changes between 2005 and 2015. Representatives of the als and capital goods and the second intermediate products. Secretariat (Interview 1) argue that only a fraction of tariff The third band includes most final goods and agricultural lines have been unstable since the beginning of the CU. Bünder 5 Uganda unilaterally increased tariffs on additional products for which no regional consensus could be reached. Cement used to be initially on the list of sensitive items, but was removed temporarily in 2008 and permanently in 2014. When asked to name sectors with regionally active interest groups, interviewees regularly came back to paper, cement, and iron and steel products. Accordingly, the subsequent dis- cussions in this article will often refer back to these indus- tries and discuss connections between these product lines and interest group behavior. Overall, each derogation and CET change appears very selective and industry- or even product-specific rather than being part of a greater trade policy agenda. This indicates that tariffs have increasingly been used to cater for domestic Figure 1. Data: EAC gazettes. or regional interest groups. The subsequent analysis will take Note. EAC = East African Community; CET = Common External Tariff. a closer look at this relationship. However, the changes incorporate many of the most impor- Analysis tant tariff lines for local industry and traders like steel, cement, transport equipment, and even some agricultural Domestic Level commodities. Private sector representatives also complain This section will discuss several explanatory factors for the that the CET is being undermined by exemptions and changes instability of the CET within domestic politics of tariff nego- (Interview 15; Interview 16). It is difficult to plan for the tiations before moving on to study the regional negotiation long term if tariffs can change every year. The Secretariat’s dynamics. It looks at evidence around the first bold assertion Director General for Trade, Peter Kiguta, worries, “For me presented earlier: If domestic interest groups are strongly as DG, I like to see stability in the CET. That it is predictable. organized and lobby on tariff policy, government is more That would let EAC have a better environment for trade and likely to look out for special interests in tariff-setting leading investors” (Interview 9). to more CET instability. The article will first give an overview Looking at Figure 1, one can see that the total instability of major interest groups and their preferences on tariffs in the has increased since the founding of the CU. For further anal- three countries. Thereafter, it will analyze how interest groups ysis, it is also interesting to focus on which industries have are organized domestically and to which degree that has been in the center of the fluctuations and in which countries helped them to realize their preferences in tariff negotiations. national approaches occur especially frequently. In Table 1, one can see that unilateral derogations from Mapping domestic interest groups and their tariff preferences. To the CET have strongly increased from only about 15 to 20 understand the landscape of interest groups, one has to estab- tariff lines in the first 5 years to 56, 107, and 73 in 2013- lish how the interests in tariff levels are distributed among 2015, respectively. Similarly, changes to the regional CET stakeholders. For this, we look at the manufacturing sector, have also been made more frequently. the agricultural sector, and government interests. Most man- Looking at the type of goods featured in Table 1, one can ufacturing industries favor higher tariffs on goods similar to identify several categories that appear prominently. First, the their production profiles, as they struggle to compete on agricultural commodities of wheat, barley, rice, and sugar price with imports. A competition between interests in manu- can be found in the unilateral derogations as well as in the facturing arises between vertically integrated companies and DRS. However, industrial goods make up the major share of processing companies. A product of Producer A might be an derogations. Three product categories appear to be especially input for Producer B. Producer A is interested in higher tar- interesting to single out for analysis: paper and paper prod- iffs to protect it from imports. Producer B, however, prefers ucts, cement, and iron and steel products. Paper has been in to import the same product cheaply and would like to see the DRS of all countries to provide their processing indus- lower tariffs. Kiguta (Interview 9) states that this was the tries with cheap inputs. In 2014, 36 tariff lines of paper prod- major line of conflict in the negotiations for the CET. Several ucts were reclassified from final to intermediate goods. Yet, industries identified in the section “Interest Groups on a Kenya as well as Tanzania immediately applied unilateral Regional Level” as having a highly unstable CET experience exemptions. Iron and steel products saw a similar develop- this upstream versus downstream conflict. ment. After a short period of unilateral import protection in This was, for example, the case for the regional paper the Kenya, Tanzania, and Uganda, the CET was increased on industry. A small number of paper producers in Tanzania and 17 tariff lines. Though, countries also made further unilateral Kenya managed to secure high tariffs on imports of raw changes to iron and steel tariff lines. Kenya, Tanzania, and 6 Table 1. Overview of CET Instabilities, Composed by Author, Data: EAC (2007-2015) Gazettes. 2007 2008 2009 2010 2011 2012 2013 2014 2015 Unilateral stay of application (increase compared with CET) Total 9 9 1 4 89 54 Kenya 1: tariff line 1: towers and masts 3: welding electrodes, 61: Iron and steel 34: paper products; changes overall: plastic tubes; towers products; engine electronic circuits; epoxide resins and masts filters; prefabricated iron and steel buildings; paper products; nets; engine products filters; smart cards; prefabricated buildings Tanzania 9 lines change overall: 8: pharmaceuticals; 20: iron and steel bars 15: paper; iron and steel pharmaceuticals; palm oil bars palm oil Uganda 1: olive oil 8: iron and steel 5: iron and steel products products Unilateral stay of application (decrease compared with CET) Total 10 7 16 15 21 25 52 28 19 Kenya 4: rice 6: wheat; rice 4: rice 4: rice 6: wheat; rice 30: rice; paper; wheat; 7: rice; wheat; glucose 5: rice; aluminum sheets glucose Tanzania 3: wheat; buses 4: Barley; hoes; 6: wheat; buses; 5: buses; tractors; 7: sugar, tractors, 4: wheat; buses 5: wheat; LABSA 8: Buses; wheat; 5: buses; sugar; LABSA buses trucks trucks wheat, trucks, LABSA; cash buses registers; electrodes Uganda 3: wheat; buses 3: palm stearin; 4: wheat; trucks 6: iron and steel 10: tractors; 15: trucks; wheat; 17: trucks; buses; 13: trucks; buses; 9: trucks; buses; LABSA; sodium sulfate; products; wire; trucks; wheat; hoes; iron and wheat; barley; wheat; barley; sodium sulfate hoes trucks; tractors hoes; rails; steel products; polymers; LABSA; polymers; LABSA wires wires; packaging; packaging; seed barley; buses coating Total unilateral 19 tariff lines 16 16 15 21 26 56 107 73 derogations CET changes 9: telephones; paper 10: palm stearin; 4: yoghurt; stove 16: paper inputs; 1: galvanized wire 10: copper alloys; 1: grindstones; railway 50: insecticide; paper; 21: plastic tubes; gas inputs; grinders; cement; oils; parts; clothing iron and steel wire; electrical equipment olive oil; welding containers; iron and screws sulfates; iron and products; paint energy electrodes; towers steel products ; rice; steel products; inputs; clothing and masts; crown sugar cement corks; bags; flour; cheese; matches; cement Note. CET = Common External Tariff; LABSA = Linear Alkyl Benzene Sulfonic Acid. Bünder 7 paper, while paper converters had to resort to make use of the An expert from the EU who was involved in the negotia- DRS or lobby for unilateral derogation of the CET (Interview tions on the EAC-EU Economic Partnership Agreement 15). In the iron and steel industries, a similar development (Interview 23) suggested that vested interests of govern- took place. The steel value-chain has four major production ments are a decisive factor in EAC trade policy-making. It is steps (Interview 12): Most of the smaller producers in the difficult to pinpoint where these interests are located exactly, three countries are active in processing intermediate steel but it is possible to highlight some sectors in each country products into construction material like roofing sheets or that are prone to private investments by government offi- wire mesh. Yet, a few larger companies are engaging in the cials. Transparency International’s Country Director for production of such intermediates from raw iron and steel. Kenya, Samuel Kimeu (Interview 10), argues that Kenyan These manufacturers have long been lobbying for protective policy-makers often use trade policy to protect their own tariffs, but politicians kept tariffs at 10%, mostly for the ben- business investments. Top statesmen in government and efit of downstream processors, the construction industry and opposition are often family members of business leaders. their electorate, which tends to be particularly price-sensitive Kimeu further argues, “In any conversation about trade there in low-income countries. is an uncle that will be missed” (Interview 10). Kenyan poli- For the agricultural producers, the interests are more ticians often come from Kenya’s richest families that have homogeneous. While there are larger producers in wheat or invested in agriculture, as well as into certain areas of manu- sugar, most farms are small scale. However, all groups facturing (Interview 10; New World Wealth, 2014). Kenyan depend on protection through tariffs. Lower tariffs on the president, Uhuru Kenyatta, in office since 2013, and his fam- import of staple produce such as beans or maize would ily dominate the regional dairy market, for example. Jensen, threaten the livelihood of many. In this sense, food is more Strycharz, and Keyser (2010) argue that vested interests are sensitive than manufactured products, as the majority of pop- particularly visible in this area. Dairy received stable protec- ulation works in agriculture in all three countries (ILO, tion in the CET with yoghurt and cheese as the only products 2012). Competition between interest groups enters via the to be added to the sensitive list since 2015. food-processing industries, which are interested in cheap In Tanzania and Uganda, politicians are less invested in imports of wheat, sugar, and barley. To give producers cheap productive industries (Interview 20). Political stability in access to these inputs without opening the door for consumer Kenya brought about elite networks in which business and imports, all countries use the DRS for these goods in most political power are often combined in a family or single per- years. In addition, Kenya has been derogating from the CET son (Spooner & Ngunyi, 2006), while politicians in Uganda nearly every year since its existence by applying lower tariffs and Tanzania have acquired wealth more recently. That also on rice and wheat, while Tanzania and Uganda did the same affects in which sectors politicians have become economi- for wheat alone. This could be linked to urban consumers’ cally active. In Uganda, the civil war of the 1980s has stopped interests in lower food prices which can be enabled by reduc- politicians from moving into long-term manufacturing ing import tariffs on selected staple food. investments. They are rather interested in real estate, tour- Thinking about different interest groups among produc- ism, or the transport sector (Interview 20; Interview 2). In ers and consumers, one has to take into account the particu- Tanzania, socialism made it difficult for politicians to lar interests of governments regarding tariffs, too. Two become players in business for a long time. Nowadays, poli- aspects could be especially relevant in this regard: consid- ticians’ personal interests can be found in construction, trans- erations of public revenue and private interests of govern- port and mining, as well as in former state-owned companies, ment officials. Revenue aspects were at the center of the especially in cash crops like sugar, for example (Cooksey & discussions of the CU, but ended up not being highly influ- Kelsall, 2011). In comparison, the degree of proximity ential. Since the existence of the CU, the shares of customs between private and public sector in Kenya is unique. and other import duties of total government revenue have Bagabo’s (Interview 2) opinion gives you a glance into this decreased in all three countries. Yet, there was consensus relationship: “When you are negotiating [with Kenya] you during the initial negotiations that revenue aspects should don’t know if you are talking to the government or the pri- not motivate CET decisions and undermine the policy of vate sector.” Their closeness may allow private sector play- open regionalism (Interview 9). The countries accepted that ers a better access to the negotiation table than in Tanzania or they had to look for alternatives to replace revenue losses Uganda. from lower tariffs (Interview 17). While certain tariffs, for This section has given an overview of different stakehold- instance, on vehicles (Interview 18), are still important er’s preferences in tariff-setting, showing that manufacturing from a revenue perspective, the influence of these consider- interests are less homogeneous than in agriculture and that ations has fallen. For example, cement used to be on the revenue interests have lost importance for governments, sensitive list with a rate of 55% and produced much reve- while their members’ private business interests may affect nue due to high consumption. Yet, its tariff rate has been tariff levels substantially. Based on this landscape of interest gradually reduced, as the affordability of construction proj- groups, the article will continue to study how the level of ects increased in importance. organization of these groups contributed to CET instability. 8 SAGE Open Organization of interest groups. In this section, the article will The main representative for the manufacturing sector is the analyze how the interest groups discussed above are orga- Confederation of Tanzanian Industries (CTI). Yet, compared nized and how that corresponds to the extent to which they with KAM, the organization has been less successful in unit- benefit from tariff-setting. ing the manufacturing sector. A source at CTI (Interview 14) In Kenya, unilateral tariff increases imply higher protec- stated that they compete with the Chamber of Commerce, tion from imports for a wide array of manufacturing indus- Industry and Agriculture (TCCIA) and the Tanzanian Private tries including iron and steel processors, paper manufacturers, Sector Foundation (TPSF) over which organization speaks or fishing net producers. The number of unilateral tariff dero- on the industry’s behalf on tariff issues. As a result, CTI gations has been higher than in the other two countries com- struggles with membership. Only about 300 of ca. 2000 bined (see Table 1). Even though its manufacturing sector is industrial companies with more than 10 employees are part the biggest in the EAC, with 12% of value-added to national of CTI. This creates free-rider problems and prevents a har- GDP and 7% of overall employment, it still makes up only a monized lobbying approach. Moreover, government is seen small share of the economy. Thus, the sector receives a dis- as less reliable and proactive in engaging with private sector proportional amount of import protection. Part of the reason organizations on tariff matters. For instance, CTI complained may be that the Kenyan manufacturers are strongly orga- about the government agreeing to a CET increase on iron nized and are highly engaged in the negotiations of the CET. products that were inputs for most local processors without The Kenya Association of Manufacturers (KAM) is the sole consulting CTI on such a proposal. According to CTI, some representative for the manufacturing sector, and almost all firms thus prefer to lobby via their private connections with companies channel their lobbying efforts through the asso- political decision-makers (Interview 14). In these cases, it ciation (Interview 19; Interview 15). KAM is described as might be easier for the government to protect cronies with politically well connected, having strong technical capaci- nontariff measures that also shield companies against Kenyan ties, and usually being the first private sector actor for the competition. CTI sees Tanzania’s local content clause on government to consult (Interview 24; Interview 2; Interview tobacco for cigarette manufacturing as an example for that 17). Kenyan public sector representatives have unanimously practice (Interview 14). stated that KAM is the most influential domestic negotiation Like in Kenya, agricultural interest groups are not as partner on tariff issues (Interview 13; Interview 17). All involved in discussions about tariffs, but tariff levels have major CET changes favoring Kenyan industry can be traced remained consistently high with some exceptions: Wheat back to KAM lobbying efforts. Thus, the organizational and sugar for industrial production were repeatedly imported strength of manufacturers in Kenya helps to explain CET at a below-CET rate. Moreover, the government issued zero- changes to manufacturing’s favor. duty import licenses for rice and sugar in 2011 and 2012 Agricultural tariffs have experienced less instability. without gazetting at the EAC to decrease consumer prices Kenya unilaterally decreased tariffs on wheat and rice in much to the disarray of local farmers (Cooksey, 2016). Yet, many years and allowed companies to import cheap sugar for most stakeholders are small-scale farmers and have limited industrial processing. Generally though, the tariffs remained capacity to organize (Interview 6). Their political interest is quite high. Yet, the Kenya National Farmers’ Federation mainly represented through associations of producers of (KENAFF) is less engaged in tariff negotiations compared export-oriented cash crops like horticulture, tobacco, or cof- with KAM. The Kenya Private Sector Alliance (KEPSA) fee (Interview 2), as well as in the case of small-scale farm- represents agricultural interests on the CET, but in KEPSA, ers working in outgrowing schemes for politically better agriculture is just one among many sectors (Interview 21). connected food-processing industries like sugar, for exam- The stable high tariff protection for farmers is more likely to ple. Nonetheless, given that 73% of Tanzanians work in agri- be connected to the political importance of agriculture in culture, there is a political motivation for keeping agricultural Kenya. With 59% of the working population in agriculture, tariffs high even without organized pressure. Thus, for farmers are a decisive electoral block that needs to be satis- Tanzania, the role of organized interest groups in tariff-set- fied. The voice of consumer groups is completely missing in ting is less clear. Special interests find their way into the tariff negotiations in Kenya, but politicians have an interest negotiations, but rather via more informal networks. For in keeping essential goods affordable to appeal to voters. instance, Bagabo (2012) states that the unilateral tariff reduc- This could help to explain the constant application of a tions on heavy-duty vehicles were mainly due to pressure below-CET rate on rice which is cheaper to import from Asia from powerful importers with direct links to government. than from EAC partners (Interview 17). Finally, in Uganda, unilateral tariff increases were rare In the case of Tanzania, the number of unilateral deroga- besides protection for some iron and steel products. However, tions was much smaller. In 2007 and 2008 pharmaceutical Uganda has had the highest number of unilateral decreases manufacturers and in 2014 and 2015 paper manufacturers as every year making imports cheaper. With the background of well as iron and steel processors received some tariff protec- Uganda being landlocked and dependent on imports, the tion. This corresponds to the observation that no interest association of traders, Kampala City Traders’ Associations group involved in the tariff negotiations is well organized. (KACITA), was observed to be influential in negotiations Bünder 9 lobbying for lower tariffs (Interview 9; Interview 11). The intergovernmental character of tariff negotiations allowed Uganda Manufacturers’ Association (UMA) is also involved for the CET instability to evolve, as it strongly facilitates in the tariff discussions, but faces capacity constraints. For influence of lobbying on the domestic level. instance, a board member of Roofings, the largest Ugandan All decision-making in the EAC remains completely manufacturer of steel products, told the author that he had intergovernmental: The full authority for trade issues lies personally to sponsor UMA delegations to be able to join with the EAC Council of Ministers (EAC, 2004b). While the regional tariff discussions. In the end, the only national excep- tariff negotiations are conducted on the level of technical tions achieved in the negotiations protected several products experts, the ultimate decision is taken by the national of Roofings. Due to the weakness of associations, large com- Ministers or even Heads of States. This creates a bottleneck panies are also more prone directly to approach government. prone to the influence of special interest groups which are Paul Bagabo, a local trade policy analyst, argues in an inter- well connected with high-level decision-makers. Moreover, view: “The firms no longer see the apex body as important. If all countries have to agree to any small amendment of the you have an issue, you go directly. President Museveni will CET: Every change of individual tariff lines needs full con- handle it at that level . . . Most of the powerful private sector sent from all member states. Thus, CET negotiations are people have access to him” (Interview 2). characterized by a quid pro quo of national exemptions. Agricultural groups appear also as less strongly orga- There are several examples for this practice. In 2014, the nized. A notable exception here is the sugar sector which is CET on paper was decreased from 25% to 10% for 36 tariff well-connected in Uganda (Interview 25). In general, similar lines making inputs cheaper for converters across the region. to Kenya and Tanzania, the political importance of agricul- In 2015, the tariff on 17 iron and steel tariff lines increased ture helps to keep agricultural tariffs high (Interview 11). from 10% to 25% protecting local manufacturers of these To conclude this section, let’s revisit the bold statement products. While these were steps toward more regional solu- from the beginning: If domestic interest groups are strongly tions, countries immediately undermined the agreements. organized and lobby on tariff policy, government is more Kenya and Tanzania continued to apply high tariffs on paper likely to look out for special interests in tariff-setting leading to protect politically well-connected paper manufacturers. to more CET instability. The analysis has found some evi- On iron and steel, all countries unilaterally derogated depend- dence in its favor: In Kenya, where manufacturing was well ing on the production profiles of their own companies organized, CET derogations to the group’s benefit occurred (Interview 12; Interview 16) leading to the spike in overall frequently. In Uganda, organized traders coincide with a derogations notable in Figure 1. Hence, derogations and large number of import-easing derogations. However, the exemption are used to build consensus. Tanzania could agree article also showed that tariff levels have been very favorable to CET reductions without ceasing to protect its politically to other interest groups that did not show high organizational important paper manufacturer. Similarly, countries could capacity: In agriculture, high tariffs are politically important settle for the lowest common denominator like in the iron due to the large share of rural voters in all countries. and steel case, as they have the security of falling back to the Moreover, a large share of fluctuations in the CET seems too exemption schemes. specific to be a result of organized group lobbying and might While derogation and the use of the DRS are a tool to be better explained by informal relationships between indi- build consensus, countries need consent to use them. For vidual companies and political decision-makers. Finally, instance, in the case of paper, Tanzania could not simply special interests of government individuals are harder to decide to continue to apply higher tariffs, but needed the con- detect, but highly influential in the negotiations nonetheless. sensus of all other states. Theoretically, that would give the Council of Ministers the opportunity to allow derogations only in rare and extreme scenarios, as specified in the Regional Level Protocol. According to the EAC Secretariat (Interview 1; In the previous section, the article showed that tariff prefer- Interview 9), countries have to prove that they cannot source ences in all EAC countries are heavily influenced by domes- enough of a product at an acceptable quality and price in the tic interest groups. All countries have strong domestic region before applying a lower tariff. However, in practice, a interests on their mind when entering the annual CET nego- form of logrolling takes place in the Council with respect to tiations. Subsequently, the author will demonstrate how the CET decisions (Interview 2): Countries will rarely veto the institutional structures of the EAC enable countries to stick request for an exemption, as each country has several similar to these national positions and how regionally active interest demands every year. The practice of mutually accepting uni- groups affect negotiations. lateral CET derogations goes back to the negotiations of the CU when Kenya and Tanzania gave into a last minute Institutional structure and derogations. The article will turn to demand by Uganda’s president Museveni even before the its second bold assertion: If tariff-setting is intergovern- Protocol had been signed (Interview 2). Since then, it became mental, domestic interest groups will have a higher impact virtually impossible to argue against national derogations. As on tariff negotiations. This section will show how the there is no supranational authority on tariff-setting, the 10 SAGE Open existing decision-making structures and accepted practices Regional lobbying uses two approaches: On one hand, enable the pursuit of national interests and give room to national associations have harmonized their proposals on tar- interest groups to affect CET policies by lobbying their iff levels to their respective domestic ministries. On the other national representatives on the domestic level only. Anthony hand, the regional association works through the umbrella Weru (Interview 21), of the KEPSA, suggests that lobbyists lobby, the East African Business Council (EABC), which have understood that there is no need to lobby regionally can also submit official proposals on the CET to the negotia- when national decision-makers have means to achieve tors. All in all, every important debate about wider CET almost all their objectives: amendments can be connected to the effort of a regional industry lobby. This finding supports what the article already Of course, EAC is intergovernmental when it comes to saw on domestic level: Private sector groups can actively discussions. Decisions are made by government officials, so you influence CET levels. Yet, most industries may find it easier get them at the domestic level. By the time they will be moving or less costly to lobby domestically. The existence of the to Arusha, even the ministry will be interested in protecting its exemption regime makes this option more likely to succeed. private sector. Industries that managed to organize regionally tend to be characterized by larger companies that have invested in mul- Regional lobbying and mutual interests. The previous section tiple EAC countries and a concentrated number of investors has outlined reasons why EAC Partner States manage to (Interview 1; Interview 16). Especially, Kenyan companies push for their national preferences and use exemption have established subsidiaries in Tanzania and Uganda. schemes. Nevertheless, harmonized CET changes have hap- Roofings, Uganda’s largest iron and steel company, stated pened in several cases. As unilateral derogations could be that they used to focus on domestic lobbying, but started to connected to domestic lobbying, regional solutions might be cooperate with regional players after they started to invest in linked to the pressure of regional interest groups. Accord- neighboring countries (Interview 12). In cement, several ingly, this section discusses the final bold assertion: If investors have shares in companies across the region. For regional interest groups are actively lobbying, countries are example, the French company Lafarge owns shares in all more likely to prioritize regional solutions leading to less three countries (Lafarge, 2016). Thus, being active in multi- CET instability. ple countries facilitates regional organization, but also means Most of the CET changes observed have affected manu- that a distorted CET through derogations makes it harder to factured goods like iron and steel products, paper, or cement. operate across countries. Hence, a regional presence Manufacturing is still in its infancy in East Africa, but some increases a firm’s preference for a stable CET and against of the larger industries have reached enough capacity to national exemptions. organize on regional level. Interviewees listed the iron and In agriculture, regional lobby groups also exist but are steel manufacturers, paper converters, sugar refineries, and overall less involved in CET negotiations. Nonetheless, there cement producers as being especially active on the regional are fewer cases of unilateral derogations by states than in level (Interview 1; Interview 16). In 2014, the EAC decreased manufacturing. While in manufacturing production profiles the CET on raw paper products, which was popular with differ more strongly and national interests diverge, farmers paper converters. In 2015, the EAC increased the CET on a across the region grow similar crops facilitating govern- wide range of iron and steel products. Those were the first ments’ agreement on protective tariffs. two incidences of a comprehensive use of CET to support regional instead of national industry interests. Representatives of the EAC Secretariat argue that this can mainly be contrib- Conclusion uted to the regional approach of the industries: Since its introduction in 2005, the EAC’s CET has been increasingly destabilized by unilateral derogations from the You would not believe it, but all the [iron and steel] associations CET in a wide range of strongly traded tariff lines. This in Partner States had the regional approach. They all told us the instability in the CET worries private sector and EAC repre- same things. Even when they are not manufacturing a product sentatives alike. The article has discussed how the influence they say there is a potential and you should protect. (Interview 1) of domestic interest groups may affect tariff negotiations and In the case of cement, the outcome is less obvious, as the the resulting CET instability. CET did not change to the industries’ favor. However, the Countries enter tariff negotiations with a strong domestic industries’ regional lobbying efforts lead to regional debates focus. Governments look out for organized business groups about CET levels on their products. The level of cement tar- and other vested interests. Institutions are susceptible to spe- iffs was one of the most contentious debates in the CET cial interests, and personal networks play an important role negotiations in 2014 and 2015 after a regionally organized for the outcome of policies. Kenya especially has a well- lobby effort of the industry (Interview 16). The EAC even organized manufacturing sector that manages to align its conducted a study that proposed an increase in cement tar- interests with decision-makers in government. Yet, the pref- iffs, but Partner States ultimately decided against it. erences of large and well-connected industries are accounted Bünder 11 for in the tariff negotiation positions of all countries. for most of the agricultural tariffs, where domestic interests Likewise, all governments seem to be interested to keep overlap and countries agree that the CET should remain high average agricultural tariffs high to protect a large rural elec- and stable to protect farmers and serve as an incentive to torate despite repeated derogations for particular sectors like invest in the sector. In manufacturing, a harmonized approach rice or sugar. Vested interests of government representatives to tariff levels mostly occurred where industry has managed also reflect in tariff fluctuations. to organize regionally and prefers a harmonized tariff over The strong influence of domestic interest groups projects national protectionist schemes. itself to the regional level. Discussing CET levels, govern- Finally, future research on the EAC CET could also take ments focus on securing protection for their specific local into account other explanatory factors. Interviewees raised industries rather than considering what is best for the regional issues like the impact of ideology, international market economy. Countries are willing to destabilize the CET to prices, or international trade negotiations on CET dynam- secure national tariff preferences by using exemption ics. Yet, the results of the paper already offer an interesting schemes to an extent that was never foreseen in the CU insight into the deeper integration dynamics. While lack- Protocol. Unilateral derogations from the CET have become ing ownership of the private sector was one of the key rea- an accepted tool to reach consensus in tariff negotiations. As sons for failure of the first EAC, it now actively shapes there is consensus-based decision-making in the EAC, each EAC politics. Behind all major changes in CET (e.g., country has the power to block decisions if it does not get its paper, steel), the article detected evidence for proactive will. Accordingly, countries have developed a practice of lobbying of private sector groups. The future success of logrolling from the start. Requests for derogations from the the EAC CU will depend on how well the member states CET are usually granted, no matter if the criteria are fulfilled. and the Secretariat balance the involvement of the private Nonetheless, in some cases, regional considerations tri- sector in the negotiations between lack of interest and umphed over the protection of national interests. This is true lobby capture. Appendix List of Interviewees. Location of Date of No. Name Institution Position interview interview 1 Alexander, Ally & EAC Secretariat Customs Officer/Customs Arusha, Tanzania 25.1.2016 Tindamanyire, Donald Officer 2 Bagabo, Paul Freelance Researcher, consultant on EAC Kampala, Uganda 15.1.2016 trade affairs 3 Bitegeko, Janet Agricultural Council of Executive Director Dar es Salaam, 20.1.2016 Tanzania Tanzania 4 Felician, Goodfrey Tanzania Revenue Authority Tariff Officer Dar es Salaam, 20.1.2016 Tanzania 5 Ekadu, Francis & Auku, Transparency International Programme Coordinator/ Kampala, Uganda 15.1.2016 Gerald Uganda Programme Officer 6 Kafanabo, Buberwa BEST-Dialogue Project Officer, Agri Sector Dar es Salaam, 19.1.2016 Tanzania 7 Kapkirwok, Jason & Trade Mark East Africa Senior Director/Country Nairobi, Kenya 11.1.2016 Torrero, Eugene Director, South Sudan 8 Kidulele, Gloria Tanzania Ministry of Industry Trade Officer Dar es Salaam, 21.1.2016 and Trade Tanzania 9 Kiguta, Peter EAC Secretariat Director General Customs and Arusha, Tanzania 27.1.2016 Trade 10 Kimeu, Samuel Transparency International Country Director Nairobi, Kenya 5.1.2016 Kenya 11 Kolou, Francis Uganda Ministry of Trade and Principal Commercial Officer Kampala, Uganda 13.1.2016 Industry 12 Kyunene, Martin Roofings Group Finance and Economic Advisor Kampala, Uganda 15.1.2016 13 Mwambia, Wanyambura Kenya National Treasury Director Economic Affairs Nairobi, Kenya 8.1.2016 14 Myenyelwa, Akida Confederation of Tanzanian Policy & Advocacy Specialist Dar es Salaam, 20.1.2016 Industries Tanzania (continued) 12 SAGE Open Appendix (continued) Location of Date of No. Name Institution Position interview interview 15 Ndunge, Wambui Kenya Association of Executive Officer, Policy Nairobi, Kenya 12.1.2016 Manufacturers Research and Advocacy 16 Njenju, Adrian East African Business Council Trade Economist Arusha, Tanzania 26.1.2016 17 Ochola, Kenneth Kenya Revenue Authority Deputy Commissioner , Nairobi, Kenya 6.1.2016 Customs Services 18 Ogwapus, Annet Uganda Revenue Authority Supervisor International Affairs Kampala, Uganda 13.1.2016 19 Shah, Dhirendra Biodeal Laboratories ltd Chairman Nairobi, Kenya 6.1.2016 20 Ssekalo, Edward Freelance Journalist (EAC affairs, business) Kampala, Uganda 14.1.2016 21 Weru, Anthony & Kenya Private Sector Senior Program Nairobi, Kenya 11.1.2016 Kikuu, Kiili Association/Corporate and Officer/Managing Regulatory Solutions Director 22 Anonymous Tanzania Ministry of Industry Representative of Department Dar es Salaam, 20.1.2016 and Trade of Industry Tanzania 23 Anonymous European Union Representative from the EPA Via Skype 14.12.2016 negotiation team 24 Anonymous Kenya Ministry of Foreign Trade Officer Nairobi, Kenya 8.1.2016 Affairs and Trade 25 Anonymous East African Business Council NA Arusha, Tanzania 22.1.2016 Note. The transcripts of the interviews can be requested from the author. EAC = East African Community; EPA = Economic Partnership Agreement. Author’s Note Emerging trends in the social and behavioral sciences: An interdisciplinary, searchable, and linkable resource. An extended version of this article was produced as the author’s Chichester, England: John Wiley. Retrieved from http:// dissertation for the Master of Public Policy at the Hertie School of onlinelibrary.wiley.com/book/10.1002/9781118900772 Governance Berlin, Germany. The author is now employed at the Bagabo, P. (2012). Commitment to the East African Community Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) Customs Union protocol, 2004-2009 (Doctoral thesis, GmbH. University of Birmingham, UK). Retrieved from http://etheses. bham.ac.uk/3731/2/Bagabo12PhD.pdf Declaration of Conflicting Interests Baldwin, R. (1989). The political economy of trade policy. 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How Common Is the East African Community’s Common External Tariff Really? The Influence of Interest Groups on the EAC’s Tariff Negotiations:

Bünder, Tobias
SAGE Open , Volume 8 (1): 1 – Jan 20, 2018
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Abstract

Kenya, Tanzania, and Uganda founded a Customs Union in 2004 and apply a Common External Tariff (CET) on imports to the region. However, the CET has been increasingly destabilized by countries using unilateral exemptions on a wide range of strongly traded goods. This instability undermines progress in regional integration and creates an uneven playing field for business. The article discusses evidence for the influence of interest groups on the observed instability. This study takes a political economy perspective and tracks lobbying behavior from the domestic to the regional level. It looks at the influence of business membership organizations and other interest groups on CET negotiations. The article applies an exploratory, qualitative approach predominantly drawing on data gathered by the author in 25 interviews with experts in Kenya, Tanzania, and Uganda in January 2016. Keywords East African Community, Customs Union, Common External Tariff, interest groups, business membership organizations Clearly, CUs provide interesting case studies for the field of Introduction international political economy (IPE) to study the forces In 2004, Kenya, Tanzania, and Uganda agreed to form a behind trade policy-making. However, the relatively small Customs Union (CU) including the introduction of a number of existing CUs has limited the number of case stud- Common External Tariff (CET). Ten years later, countries ies thus far. Especially, little attention has been paid to the have to ask themselves how common their external tariff advances on the African continent. This article will address really is. In 2014, countries applied unilateral exemptions on the East African Community’s (EAC) CU in particular, as it more than a hundred tariff lines, among which were highly has often been referred to as the most advanced regional eco- traded goods such as vehicles, rice, and cement. The Union’s nomic community (African Development Bank, 2014) and Director General for Customs and Trade, Peter Kiguta, com- may serve as a model for other CUs on the continent. plains about this practice in an interview with the author This article will study the political economy of the EAC’s (Interview 9 ): “If the tariff keeps changing, this year it is CET after its establishment from 2005 to 2015. It focuses on like this, this year this country asks for that, then this instabil- discussing how interest group behavior has contributed to ity brings unpredictability for investors and trade.” This phe- the instability of the CET in this period. Since 2005, coun- nomenon is part of a larger issue in trade policy. Trade tries have made increasing use of CET exemption schemes. policy-making is rarely driven by considerations of welfare, Guided by domestic interests, they often unilaterally applied but is a popular tool for redistribution among different inter- a different tariff rate from the CET and avoided the task of est groups (Rodrik, 1995). consensus-formation on regional CET levels. However, when a country enters a CU, a level is added to Both the changes of essential tariff lines in the CET and the process of negotiating tariff levels. Tariff levels towards the wide use of exemption schemes indicate that the CET nonmember states are now determined in negotiations among the member states of the CU. Interest groups that were influ- Hertie School of Governance, Berlin, Germany ential in one state might not be in another while other groups Corresponding Author: might be able to align their positions across countries. Tobias Bünder, Hertie School of Governance, Pettenkoferstraße 7, Similarly, interstate bargaining and the CU’s institutional 10247 Berlin, Germany. rules and structures will shape the way that tariffs are set. Email: tobias.bunder@gmail.com Creative Commons CC BY: This article is distributed under the terms of the Creative Commons Attribution 4.0 License (http://www.creativecommons.org/licenses/by/4.0/) which permits any use, reproduction and distribution of the work without further permission provided the original work is attributed as specified on the SAGE and Open Access pages (https://us.sagepub.com/en-us/nam/open-access-at-sage). 2 SAGE Open plays an important role in protecting certain interests. The The major challenge to the Stolper–Samuelson theorem article will ask how the instability in the CET can be explained comes from the Ricardo-Viner model. Due to the immobility and why member states tend to fall back into national exemp- of capital and labor, all actors’ preferences for trade policy tion schemes for some industries, but agree on regional CET depend on the industry in which they are situated. Thus, con- changes for others. The article shows that domestic interest flict is not along class lines or production factors, but along groups are effective in proactively influencing member states sectors. In a study of industrialized economies, Hiscox in their stance on external tariffs. The EAC’s institutional (2002) finds that trade conflicts have moved from class lines structure enables states to make use of exemption schemes to sectors with decreasing factor mobility since the mid-20th and to put national over regional interests in CET negotia- century. Mayda and Rodrik (2005) also present evidence for tions. A regional approach to tariff-setting is only taken if the Ricardo-Viner model. Conflicts also often occur within a domestic interests overlap or transnational industries put sector between manufacturers and traders at different stages pressure on governments to stick to harmonized CET levels. of the value-chain, which the article will also discuss in the In its analysis, the article will track lobbying behavior case of the EAC. Underlying all models is the assumption from the domestic to the regional level. The article will apply that interests are defined by economic gain. However, other a qualitative approach predominantly drawing on data gath- drivers for trade preferences of individuals exist like the ered by the author in 25 key informant interviews. To start, degree of nationalist sentiments (Mansfield & Mutz, 2009) the article will give an overview of the relevant literature. or a population’s education levels (Hainmueller & Hiscox, Subsequently, the article will explain the framework of anal- 2006). Likewise, other interest groups like civil society orga- ysis and its methodology. Diving into the case study, the nizations or international donors in a developing country set- article will provide background information on the EAC CU ting are often overlooked. and its CET. As a next step, the article will turn toward the analysis of the application of the CET from 2005 to 2015, Interest Groups in Trade-Policy Processes discussing interest groups in the founding Member States of Kenya, Tanzania, and Uganda, and then turn to the dynamics The extent to which interest groups may influence trade of CET negotiations on the regional level. policy outcomes depends on how they are organized and integrated into policy-making. Grossman and Helpman (1994, 2001) show that policy outcomes depend on a com- Literature Review petition between lobbying activities of different groups. Traditionally, the study of international institutions and This might include legitimate behavior (e.g., researching agreements looked at the level of interstate bargaining (Lake, on effects of trade policy options), as well as illegal aspects 2009). However, literature shows that multiple factors of (e.g., bribing ministers to protect special interests). The lat- domestic politics shape the national position in the interna- ter may be especially strong where institutions are weak tional arena (Aklin, Arias, Deniz, & Rosendorff, 2015). (Campos & Giovanni, 2008). Among them, interest group politics plays an important role. The main focus of trade policy analysis on this level has This literature review will discuss the underlying structures been on firms and industries. The organizational strength of of interest group competition in trade policy-making and consumers is limited by the free-rider problem and the wide- interest group involvement in political processes, and present spread of potential welfare gains (Baldwin, 1989). Consumers some insights on interest group politics on the regional level. may only exert an influence on trade policy through their voting behavior. In contrast, firms are often well-organized entities that have resources and channels to engage in policy Foundations of Interest Group Competition discussions and are directly affected by policies. The strength To understand the dynamics of interest groups within trade of industry lobbies depends on the motivation of the largest policy debates, one has to outline how losses and gains from firm (Bombardini, 2008) as well as industry characteristics trade policy are distributed. Trade theories can give a first like a large capital stock, an inelastic demand function, a hint. The Heckscher–Ohlin model predicts that trade patterns small number of capital owners, and that the industry is geo- depend on the factor endowments of an economy. Building on graphically concentrated. The immobile factors in the manu- these insights, the Stolper–Samuelson theorem suggests that facturing sector seem to be more concentrated in developing trade liberalization will benefit the owners of the relatively countries (Hung & Quyen, 2007) than the mobile factor. abundant factor and leave the owners of the relatively scarce Hence, capital and land are often better organized in devel- factors worse off. Resulting from this theory is a class-based oping countries than labor or small-scale farmers. In devel- division of policy preferences where owners of capital would oping countries, firm heterogeneity determines their mostly clash with labor over liberalizing or restricting trade involvement in policy-making: Factors like employment (Rogowski, 1990). This seems to have been a reasonable size, government ownership, age, or participation in business assumption in many industrialized countries like the United associations matter for lobbying influence (Hall & Deardorff, States (Leamer, 1984; Persson & Tabellini, 2000). 2006; Weymouth, 2012). Bünder 3 Domestic political institutions will affect trade policy- actors and processes in the background. Unlike confirmatory making by aggregating the preferences of interest groups and research, it cannot test hypotheses, but helps to form assump- determining if and how these groups can turn their interests tions and ideas (Stebbins, 2001). Thus, this article will limit into policy. Here, political systems matter with some evi- itself to setting out bold assertions (Emmel, 2013) for its dence pointing to stronger business influence in democracies analysis. It will then present and discuss evidence for and than autocracies (Keefer, 2007; Weymouth, 2012). On top of against those assertions gathered with exploratory methods. that, the type of representative framework plays a role. The research is built around 25 semistructured expert Lobbying tends to target different institutions depending on interviews that the author conducted in Kenya, Tanzania, and whether the country follows a majoritarian or proportional Uganda. The existing literature on the EAC CU is limited and representation system parties (Grossman & Helpman, 2001; focuses mainly on trade and welfare effects of the CU (Buigut, Persson & Tabellini, 2002). Yet, the structure of domestic 2012; Busse & Shams, 2003, etc.). Thus, for information on institutions in the EAC only partially reflects the political negotiation dynamics and industry-specific details, the author realities including issues like ethnic voting, corruption, or needed to collect new data. Expert interviews are considered overly dominant political leaders. Thus, the article will not an effective tool in exploratory research, as they provide fast go deeper into this issue when analyzing interest group poli- access to an unknown field and provide a high insight in tics in trade policy-making. aggregated and specific knowledge (Bogner, Littig, & Menz, 2009). Experts according to Meuser and Nagel (1991) are persons who have privileged access to information about Interest Groups on a Regional Level groups of persons or decision processes at stake. Moving up from the domestic level, the article will also In exploratory research, the selection of cases or inter- study the influence of regionally organized interest groups viewees cannot be random, but rather follows a purposeful on the CET negotiations. The European Union (EU) provides sampling strategy, as one wants to analyze the richest and an advanced case study of the impact of interest group influ- most telling cases (Emmel, 2013; Reiter, 2013) available. In ence in a regional integration context. Moravscik (1998) sees the case of this article, the author talked to representatives of domestic interest groups as the main driver of EU integra- ministries responsible for trade, revenue authorities, and pri- tion. Transnationally organized lobby groups often helped to vate sector stakeholders and selected other experts on the build bargaining agreements (Moravscik, 1993). With regard topic in all three countries. In addition, interviews were held to trade policy-making, Dür (2008) finds that EU trade pol- with key officers at the EAC Secretariat as well as with the icy strongly reflects the preferences of economic interest East African Business Council. While some key informants groups. Business groups that are active on multiple levels of were selected based on their positions within organizations, EU policy-making and target domestic as well as regional others followed by a snowballing method (Bogner et al., processes are the most successful in getting their voices 2009) meaning that already interviewed experts allowed heard (Eising, 2004). Resource-rich groups are the most access to additional interviewees. effective lobbying groups in the EU context. Likewise, busi- Interviewing experts as a layperson, as often the case in ness associations tend to be more active on the regional level exploratory interviewing, involves an asymmetry in knowledge, than civil society or other nonbusiness groups (Dür & Mateo, which makes it difficult for the interviewer to follow a struc- 2012). Michalowitz (2007) shows that interest groups were tured set of questions (Bogner & Menz, 2009). Thus, the author mainly successful in targeting technical aspects of policy used a basic set of interview themes tailored to the organization rather than more fundamental political directions. Yet, over- and position of the interviewees. It is important to understand all there is no clear tendency in the literature if integration that such exploratory interviews cannot generate completely has given interest groups better or worse access to political objective data. Hence, the article relies on anecdotal evidence processes (Eising, 2008). This article may contribute to the derived directly from the expert interviews, which the author overall discussion by discussing evidence from both the directly cites from the transcripts. To mitigate this pitfall of domestic and regional level in the EAC. exploratory research, the author triangulated interview state- ments by asking for confirmation from other interviewees or finding supportive information in the literature. Thoughts on Research Method and The author asked all interview partners for their consent to Model be interviewed, recorded, and quoted in this article with their The article will connect the instability in the CET to the poli- name. Those who did not want to be named are referred to as tics of interest groups discussed above. Given the very lim- an anonymous representative of their organization. The ited number of studies on interest group politics and the EAC appendix provides an overview of all interviews conducted. CET available, the article will adopt an exploratory approach Finally, for reasons of scope, resources, and political instabil- to research (George & Bennett, 2005; Stebbins, 2001). ity, the author did not manage to visit Rwanda and Burundi. Exploratory research can be a helpful approach to gain Due to their small economic size and their presence in transi- insights into previously unstudied fields and understand tion schemes, their omission should not distort results. 4 SAGE Open In the next section, the article will first outline the phe- commodities produced in the region. Agricultural goods nomenon it seeks to explain: the instability in the EAC’s attract a simple average tariff of 20.2%, while nonagricul- CET (composed of unilateral exemptions and CET changes). tural goods lie at 12.7% only (WTO, 2012). In addition, there Subsequently, it will explore evidence on how interest group is a list of sensitive products that included 58 tariff lines at behavior contributes to the observed CET instability both on the beginning, but has shrunk since (EAC, 2004b, 2012). The domestic and on regional level. Looking at the domestic list contains mostly agricultural goods as well as a selection level, the research will be guided by the following bold of locally manufactured items. The list’s items were widely assertion: produced in the region and should hence receive special pro- tection from imports. •• If domestic interest groups are strongly organized and The CU Protocol included one exemption to the CET, the lobby on tariff policy, government is more likely to duty-remission scheme (DRS): For the purpose of export pro- look out for special interests in tariff-setting leading to motion, countries can annually announce a selection of com- more CET instability. panies that may import specific products duty-free as input for manufacturing. In some cases (e.g., sugar for industrial Next, the article will explore why states use unilateral exemp- use), industries were chosen jointly as a region. Moreover, tions in some cases and regional solutions in others. Thus, countries apply for so-called “stays of application.” Originally, the article will look at both regional CET negotiation struc- those were meant to smooth the implementation of the CET tures and the role of regional interest groups following two and stay at some pre-CET levels for a transition period. Yet, it bold assertions: became accepted practice to use the channel to derogate from CET for other reasons. Theoretically, states have to prove that •• If tariff-setting is intergovernmental, domestic interest they cannot source enough of a product regionally to be groups will have a higher impact on tariff negotiations. allowed to apply a lower tariff rate or convince the other •• If regional interest groups are actively lobbying, countries that their industry needs special protection for a countries are more likely to prioritize regional solu- limited time. In practice, derogations are rarely based on evi- tions leading to less CET instability. dence. EAC stakeholders see this third channel as especially problematic and open for abuse (Interview 9). Any change of CET or a unilateral derogation of the CET The EAC CU and the CET has to be approved by the Council of Ministers, the main executive body of the EAC. Member states prepare their Design of the CU and the CET positions on the annual tariff negotiations in consultation The EAC dates back to colonial times when the British colo- with domestic stakeholders. Regional negotiations begin nial administration treated the region as one, building rail- among technical staff. However, the political level regularly way lines and establishing a CU in 1919 between what is makes amendments to their recommendations. Political now Kenya, Uganda, and Tanzania (Reith & Boltz, 2011). In vetoes are powerful as the EAC works with consensus-based 1967, the newly independent countries formed the first EAC. decision-making. The EAC Secretariat has no supranational After only 10 years, the community collapsed in 1977 due to power in trade and serves predominantly as a facilitator for structural and ideological conflicts (Kibua & Tostensen, the negotiations and gives advice on what would be benefi- 2005; Maasdorp, 1999; McKay, Milner, & Morrissey, 1998). cial for the Community. After Uganda settled internal conflicts and Tanzania moved Finally, countries have kept several national support away from socialism in the 1990s, the three EAC states schemes that are not regulated on regional level. Governments restarted cooperation efforts culminating in the formation of do not have to notify Partner States which industries receive the CU in 2005. rebates. Especially Kenya’s “Tax Remission for Exports It is governed by the Customs Union Protocol (EAC, Office (TREO)” has been named as causing distortions of the 2004a) as well as the 2004 Customs Management Act (EAC, regional market. Yet, this article will focus only on the dero- 2004b). Countries eliminated tariffs on intraregional trade gation channels that are accounted for in the CU. The lack of and have introduced a CET. All EAC states are members of regional oversight makes it hard to analyze schemes like World Trade Organization (WTO), but had large room to set TREO. tariff levels, as their bound tariffs lay far above the applied rates. Nonetheless, negotiating the specifications of the CET, Instabilities in the CET the countries had signed up to the idea of open regionalism aiming at a trade-friendly CET (Interview 9). This section will give an overview of the instability in the The EAC CET has three tariff bands: 0%, 10%, and 25%. CET stemming from both unilateral exemptions and CET As an orientation, the first category incorporates raw materi- changes between 2005 and 2015. Representatives of the als and capital goods and the second intermediate products. Secretariat (Interview 1) argue that only a fraction of tariff The third band includes most final goods and agricultural lines have been unstable since the beginning of the CU. Bünder 5 Uganda unilaterally increased tariffs on additional products for which no regional consensus could be reached. Cement used to be initially on the list of sensitive items, but was removed temporarily in 2008 and permanently in 2014. When asked to name sectors with regionally active interest groups, interviewees regularly came back to paper, cement, and iron and steel products. Accordingly, the subsequent dis- cussions in this article will often refer back to these indus- tries and discuss connections between these product lines and interest group behavior. Overall, each derogation and CET change appears very selective and industry- or even product-specific rather than being part of a greater trade policy agenda. This indicates that tariffs have increasingly been used to cater for domestic Figure 1. Data: EAC gazettes. or regional interest groups. The subsequent analysis will take Note. EAC = East African Community; CET = Common External Tariff. a closer look at this relationship. However, the changes incorporate many of the most impor- Analysis tant tariff lines for local industry and traders like steel, cement, transport equipment, and even some agricultural Domestic Level commodities. Private sector representatives also complain This section will discuss several explanatory factors for the that the CET is being undermined by exemptions and changes instability of the CET within domestic politics of tariff nego- (Interview 15; Interview 16). It is difficult to plan for the tiations before moving on to study the regional negotiation long term if tariffs can change every year. The Secretariat’s dynamics. It looks at evidence around the first bold assertion Director General for Trade, Peter Kiguta, worries, “For me presented earlier: If domestic interest groups are strongly as DG, I like to see stability in the CET. That it is predictable. organized and lobby on tariff policy, government is more That would let EAC have a better environment for trade and likely to look out for special interests in tariff-setting leading investors” (Interview 9). to more CET instability. The article will first give an overview Looking at Figure 1, one can see that the total instability of major interest groups and their preferences on tariffs in the has increased since the founding of the CU. For further anal- three countries. Thereafter, it will analyze how interest groups ysis, it is also interesting to focus on which industries have are organized domestically and to which degree that has been in the center of the fluctuations and in which countries helped them to realize their preferences in tariff negotiations. national approaches occur especially frequently. In Table 1, one can see that unilateral derogations from Mapping domestic interest groups and their tariff preferences. To the CET have strongly increased from only about 15 to 20 understand the landscape of interest groups, one has to estab- tariff lines in the first 5 years to 56, 107, and 73 in 2013- lish how the interests in tariff levels are distributed among 2015, respectively. Similarly, changes to the regional CET stakeholders. For this, we look at the manufacturing sector, have also been made more frequently. the agricultural sector, and government interests. Most man- Looking at the type of goods featured in Table 1, one can ufacturing industries favor higher tariffs on goods similar to identify several categories that appear prominently. First, the their production profiles, as they struggle to compete on agricultural commodities of wheat, barley, rice, and sugar price with imports. A competition between interests in manu- can be found in the unilateral derogations as well as in the facturing arises between vertically integrated companies and DRS. However, industrial goods make up the major share of processing companies. A product of Producer A might be an derogations. Three product categories appear to be especially input for Producer B. Producer A is interested in higher tar- interesting to single out for analysis: paper and paper prod- iffs to protect it from imports. Producer B, however, prefers ucts, cement, and iron and steel products. Paper has been in to import the same product cheaply and would like to see the DRS of all countries to provide their processing indus- lower tariffs. Kiguta (Interview 9) states that this was the tries with cheap inputs. In 2014, 36 tariff lines of paper prod- major line of conflict in the negotiations for the CET. Several ucts were reclassified from final to intermediate goods. Yet, industries identified in the section “Interest Groups on a Kenya as well as Tanzania immediately applied unilateral Regional Level” as having a highly unstable CET experience exemptions. Iron and steel products saw a similar develop- this upstream versus downstream conflict. ment. After a short period of unilateral import protection in This was, for example, the case for the regional paper the Kenya, Tanzania, and Uganda, the CET was increased on industry. A small number of paper producers in Tanzania and 17 tariff lines. Though, countries also made further unilateral Kenya managed to secure high tariffs on imports of raw changes to iron and steel tariff lines. Kenya, Tanzania, and 6 Table 1. Overview of CET Instabilities, Composed by Author, Data: EAC (2007-2015) Gazettes. 2007 2008 2009 2010 2011 2012 2013 2014 2015 Unilateral stay of application (increase compared with CET) Total 9 9 1 4 89 54 Kenya 1: tariff line 1: towers and masts 3: welding electrodes, 61: Iron and steel 34: paper products; changes overall: plastic tubes; towers products; engine electronic circuits; epoxide resins and masts filters; prefabricated iron and steel buildings; paper products; nets; engine products filters; smart cards; prefabricated buildings Tanzania 9 lines change overall: 8: pharmaceuticals; 20: iron and steel bars 15: paper; iron and steel pharmaceuticals; palm oil bars palm oil Uganda 1: olive oil 8: iron and steel 5: iron and steel products products Unilateral stay of application (decrease compared with CET) Total 10 7 16 15 21 25 52 28 19 Kenya 4: rice 6: wheat; rice 4: rice 4: rice 6: wheat; rice 30: rice; paper; wheat; 7: rice; wheat; glucose 5: rice; aluminum sheets glucose Tanzania 3: wheat; buses 4: Barley; hoes; 6: wheat; buses; 5: buses; tractors; 7: sugar, tractors, 4: wheat; buses 5: wheat; LABSA 8: Buses; wheat; 5: buses; sugar; LABSA buses trucks trucks wheat, trucks, LABSA; cash buses registers; electrodes Uganda 3: wheat; buses 3: palm stearin; 4: wheat; trucks 6: iron and steel 10: tractors; 15: trucks; wheat; 17: trucks; buses; 13: trucks; buses; 9: trucks; buses; LABSA; sodium sulfate; products; wire; trucks; wheat; hoes; iron and wheat; barley; wheat; barley; sodium sulfate hoes trucks; tractors hoes; rails; steel products; polymers; LABSA; polymers; LABSA wires wires; packaging; packaging; seed barley; buses coating Total unilateral 19 tariff lines 16 16 15 21 26 56 107 73 derogations CET changes 9: telephones; paper 10: palm stearin; 4: yoghurt; stove 16: paper inputs; 1: galvanized wire 10: copper alloys; 1: grindstones; railway 50: insecticide; paper; 21: plastic tubes; gas inputs; grinders; cement; oils; parts; clothing iron and steel wire; electrical equipment olive oil; welding containers; iron and screws sulfates; iron and products; paint energy electrodes; towers steel products ; rice; steel products; inputs; clothing and masts; crown sugar cement corks; bags; flour; cheese; matches; cement Note. CET = Common External Tariff; LABSA = Linear Alkyl Benzene Sulfonic Acid. Bünder 7 paper, while paper converters had to resort to make use of the An expert from the EU who was involved in the negotia- DRS or lobby for unilateral derogation of the CET (Interview tions on the EAC-EU Economic Partnership Agreement 15). In the iron and steel industries, a similar development (Interview 23) suggested that vested interests of govern- took place. The steel value-chain has four major production ments are a decisive factor in EAC trade policy-making. It is steps (Interview 12): Most of the smaller producers in the difficult to pinpoint where these interests are located exactly, three countries are active in processing intermediate steel but it is possible to highlight some sectors in each country products into construction material like roofing sheets or that are prone to private investments by government offi- wire mesh. Yet, a few larger companies are engaging in the cials. Transparency International’s Country Director for production of such intermediates from raw iron and steel. Kenya, Samuel Kimeu (Interview 10), argues that Kenyan These manufacturers have long been lobbying for protective policy-makers often use trade policy to protect their own tariffs, but politicians kept tariffs at 10%, mostly for the ben- business investments. Top statesmen in government and efit of downstream processors, the construction industry and opposition are often family members of business leaders. their electorate, which tends to be particularly price-sensitive Kimeu further argues, “In any conversation about trade there in low-income countries. is an uncle that will be missed” (Interview 10). Kenyan poli- For the agricultural producers, the interests are more ticians often come from Kenya’s richest families that have homogeneous. While there are larger producers in wheat or invested in agriculture, as well as into certain areas of manu- sugar, most farms are small scale. However, all groups facturing (Interview 10; New World Wealth, 2014). Kenyan depend on protection through tariffs. Lower tariffs on the president, Uhuru Kenyatta, in office since 2013, and his fam- import of staple produce such as beans or maize would ily dominate the regional dairy market, for example. Jensen, threaten the livelihood of many. In this sense, food is more Strycharz, and Keyser (2010) argue that vested interests are sensitive than manufactured products, as the majority of pop- particularly visible in this area. Dairy received stable protec- ulation works in agriculture in all three countries (ILO, tion in the CET with yoghurt and cheese as the only products 2012). Competition between interest groups enters via the to be added to the sensitive list since 2015. food-processing industries, which are interested in cheap In Tanzania and Uganda, politicians are less invested in imports of wheat, sugar, and barley. To give producers cheap productive industries (Interview 20). Political stability in access to these inputs without opening the door for consumer Kenya brought about elite networks in which business and imports, all countries use the DRS for these goods in most political power are often combined in a family or single per- years. In addition, Kenya has been derogating from the CET son (Spooner & Ngunyi, 2006), while politicians in Uganda nearly every year since its existence by applying lower tariffs and Tanzania have acquired wealth more recently. That also on rice and wheat, while Tanzania and Uganda did the same affects in which sectors politicians have become economi- for wheat alone. This could be linked to urban consumers’ cally active. In Uganda, the civil war of the 1980s has stopped interests in lower food prices which can be enabled by reduc- politicians from moving into long-term manufacturing ing import tariffs on selected staple food. investments. They are rather interested in real estate, tour- Thinking about different interest groups among produc- ism, or the transport sector (Interview 20; Interview 2). In ers and consumers, one has to take into account the particu- Tanzania, socialism made it difficult for politicians to lar interests of governments regarding tariffs, too. Two become players in business for a long time. Nowadays, poli- aspects could be especially relevant in this regard: consid- ticians’ personal interests can be found in construction, trans- erations of public revenue and private interests of govern- port and mining, as well as in former state-owned companies, ment officials. Revenue aspects were at the center of the especially in cash crops like sugar, for example (Cooksey & discussions of the CU, but ended up not being highly influ- Kelsall, 2011). In comparison, the degree of proximity ential. Since the existence of the CU, the shares of customs between private and public sector in Kenya is unique. and other import duties of total government revenue have Bagabo’s (Interview 2) opinion gives you a glance into this decreased in all three countries. Yet, there was consensus relationship: “When you are negotiating [with Kenya] you during the initial negotiations that revenue aspects should don’t know if you are talking to the government or the pri- not motivate CET decisions and undermine the policy of vate sector.” Their closeness may allow private sector play- open regionalism (Interview 9). The countries accepted that ers a better access to the negotiation table than in Tanzania or they had to look for alternatives to replace revenue losses Uganda. from lower tariffs (Interview 17). While certain tariffs, for This section has given an overview of different stakehold- instance, on vehicles (Interview 18), are still important er’s preferences in tariff-setting, showing that manufacturing from a revenue perspective, the influence of these consider- interests are less homogeneous than in agriculture and that ations has fallen. For example, cement used to be on the revenue interests have lost importance for governments, sensitive list with a rate of 55% and produced much reve- while their members’ private business interests may affect nue due to high consumption. Yet, its tariff rate has been tariff levels substantially. Based on this landscape of interest gradually reduced, as the affordability of construction proj- groups, the article will continue to study how the level of ects increased in importance. organization of these groups contributed to CET instability. 8 SAGE Open Organization of interest groups. In this section, the article will The main representative for the manufacturing sector is the analyze how the interest groups discussed above are orga- Confederation of Tanzanian Industries (CTI). Yet, compared nized and how that corresponds to the extent to which they with KAM, the organization has been less successful in unit- benefit from tariff-setting. ing the manufacturing sector. A source at CTI (Interview 14) In Kenya, unilateral tariff increases imply higher protec- stated that they compete with the Chamber of Commerce, tion from imports for a wide array of manufacturing indus- Industry and Agriculture (TCCIA) and the Tanzanian Private tries including iron and steel processors, paper manufacturers, Sector Foundation (TPSF) over which organization speaks or fishing net producers. The number of unilateral tariff dero- on the industry’s behalf on tariff issues. As a result, CTI gations has been higher than in the other two countries com- struggles with membership. Only about 300 of ca. 2000 bined (see Table 1). Even though its manufacturing sector is industrial companies with more than 10 employees are part the biggest in the EAC, with 12% of value-added to national of CTI. This creates free-rider problems and prevents a har- GDP and 7% of overall employment, it still makes up only a monized lobbying approach. Moreover, government is seen small share of the economy. Thus, the sector receives a dis- as less reliable and proactive in engaging with private sector proportional amount of import protection. Part of the reason organizations on tariff matters. For instance, CTI complained may be that the Kenyan manufacturers are strongly orga- about the government agreeing to a CET increase on iron nized and are highly engaged in the negotiations of the CET. products that were inputs for most local processors without The Kenya Association of Manufacturers (KAM) is the sole consulting CTI on such a proposal. According to CTI, some representative for the manufacturing sector, and almost all firms thus prefer to lobby via their private connections with companies channel their lobbying efforts through the asso- political decision-makers (Interview 14). In these cases, it ciation (Interview 19; Interview 15). KAM is described as might be easier for the government to protect cronies with politically well connected, having strong technical capaci- nontariff measures that also shield companies against Kenyan ties, and usually being the first private sector actor for the competition. CTI sees Tanzania’s local content clause on government to consult (Interview 24; Interview 2; Interview tobacco for cigarette manufacturing as an example for that 17). Kenyan public sector representatives have unanimously practice (Interview 14). stated that KAM is the most influential domestic negotiation Like in Kenya, agricultural interest groups are not as partner on tariff issues (Interview 13; Interview 17). All involved in discussions about tariffs, but tariff levels have major CET changes favoring Kenyan industry can be traced remained consistently high with some exceptions: Wheat back to KAM lobbying efforts. Thus, the organizational and sugar for industrial production were repeatedly imported strength of manufacturers in Kenya helps to explain CET at a below-CET rate. Moreover, the government issued zero- changes to manufacturing’s favor. duty import licenses for rice and sugar in 2011 and 2012 Agricultural tariffs have experienced less instability. without gazetting at the EAC to decrease consumer prices Kenya unilaterally decreased tariffs on wheat and rice in much to the disarray of local farmers (Cooksey, 2016). Yet, many years and allowed companies to import cheap sugar for most stakeholders are small-scale farmers and have limited industrial processing. Generally though, the tariffs remained capacity to organize (Interview 6). Their political interest is quite high. Yet, the Kenya National Farmers’ Federation mainly represented through associations of producers of (KENAFF) is less engaged in tariff negotiations compared export-oriented cash crops like horticulture, tobacco, or cof- with KAM. The Kenya Private Sector Alliance (KEPSA) fee (Interview 2), as well as in the case of small-scale farm- represents agricultural interests on the CET, but in KEPSA, ers working in outgrowing schemes for politically better agriculture is just one among many sectors (Interview 21). connected food-processing industries like sugar, for exam- The stable high tariff protection for farmers is more likely to ple. Nonetheless, given that 73% of Tanzanians work in agri- be connected to the political importance of agriculture in culture, there is a political motivation for keeping agricultural Kenya. With 59% of the working population in agriculture, tariffs high even without organized pressure. Thus, for farmers are a decisive electoral block that needs to be satis- Tanzania, the role of organized interest groups in tariff-set- fied. The voice of consumer groups is completely missing in ting is less clear. Special interests find their way into the tariff negotiations in Kenya, but politicians have an interest negotiations, but rather via more informal networks. For in keeping essential goods affordable to appeal to voters. instance, Bagabo (2012) states that the unilateral tariff reduc- This could help to explain the constant application of a tions on heavy-duty vehicles were mainly due to pressure below-CET rate on rice which is cheaper to import from Asia from powerful importers with direct links to government. than from EAC partners (Interview 17). Finally, in Uganda, unilateral tariff increases were rare In the case of Tanzania, the number of unilateral deroga- besides protection for some iron and steel products. However, tions was much smaller. In 2007 and 2008 pharmaceutical Uganda has had the highest number of unilateral decreases manufacturers and in 2014 and 2015 paper manufacturers as every year making imports cheaper. With the background of well as iron and steel processors received some tariff protec- Uganda being landlocked and dependent on imports, the tion. This corresponds to the observation that no interest association of traders, Kampala City Traders’ Associations group involved in the tariff negotiations is well organized. (KACITA), was observed to be influential in negotiations Bünder 9 lobbying for lower tariffs (Interview 9; Interview 11). The intergovernmental character of tariff negotiations allowed Uganda Manufacturers’ Association (UMA) is also involved for the CET instability to evolve, as it strongly facilitates in the tariff discussions, but faces capacity constraints. For influence of lobbying on the domestic level. instance, a board member of Roofings, the largest Ugandan All decision-making in the EAC remains completely manufacturer of steel products, told the author that he had intergovernmental: The full authority for trade issues lies personally to sponsor UMA delegations to be able to join with the EAC Council of Ministers (EAC, 2004b). While the regional tariff discussions. In the end, the only national excep- tariff negotiations are conducted on the level of technical tions achieved in the negotiations protected several products experts, the ultimate decision is taken by the national of Roofings. Due to the weakness of associations, large com- Ministers or even Heads of States. This creates a bottleneck panies are also more prone directly to approach government. prone to the influence of special interest groups which are Paul Bagabo, a local trade policy analyst, argues in an inter- well connected with high-level decision-makers. Moreover, view: “The firms no longer see the apex body as important. If all countries have to agree to any small amendment of the you have an issue, you go directly. President Museveni will CET: Every change of individual tariff lines needs full con- handle it at that level . . . Most of the powerful private sector sent from all member states. Thus, CET negotiations are people have access to him” (Interview 2). characterized by a quid pro quo of national exemptions. Agricultural groups appear also as less strongly orga- There are several examples for this practice. In 2014, the nized. A notable exception here is the sugar sector which is CET on paper was decreased from 25% to 10% for 36 tariff well-connected in Uganda (Interview 25). In general, similar lines making inputs cheaper for converters across the region. to Kenya and Tanzania, the political importance of agricul- In 2015, the tariff on 17 iron and steel tariff lines increased ture helps to keep agricultural tariffs high (Interview 11). from 10% to 25% protecting local manufacturers of these To conclude this section, let’s revisit the bold statement products. While these were steps toward more regional solu- from the beginning: If domestic interest groups are strongly tions, countries immediately undermined the agreements. organized and lobby on tariff policy, government is more Kenya and Tanzania continued to apply high tariffs on paper likely to look out for special interests in tariff-setting leading to protect politically well-connected paper manufacturers. to more CET instability. The analysis has found some evi- On iron and steel, all countries unilaterally derogated depend- dence in its favor: In Kenya, where manufacturing was well ing on the production profiles of their own companies organized, CET derogations to the group’s benefit occurred (Interview 12; Interview 16) leading to the spike in overall frequently. In Uganda, organized traders coincide with a derogations notable in Figure 1. Hence, derogations and large number of import-easing derogations. However, the exemption are used to build consensus. Tanzania could agree article also showed that tariff levels have been very favorable to CET reductions without ceasing to protect its politically to other interest groups that did not show high organizational important paper manufacturer. Similarly, countries could capacity: In agriculture, high tariffs are politically important settle for the lowest common denominator like in the iron due to the large share of rural voters in all countries. and steel case, as they have the security of falling back to the Moreover, a large share of fluctuations in the CET seems too exemption schemes. specific to be a result of organized group lobbying and might While derogation and the use of the DRS are a tool to be better explained by informal relationships between indi- build consensus, countries need consent to use them. For vidual companies and political decision-makers. Finally, instance, in the case of paper, Tanzania could not simply special interests of government individuals are harder to decide to continue to apply higher tariffs, but needed the con- detect, but highly influential in the negotiations nonetheless. sensus of all other states. Theoretically, that would give the Council of Ministers the opportunity to allow derogations only in rare and extreme scenarios, as specified in the Regional Level Protocol. According to the EAC Secretariat (Interview 1; In the previous section, the article showed that tariff prefer- Interview 9), countries have to prove that they cannot source ences in all EAC countries are heavily influenced by domes- enough of a product at an acceptable quality and price in the tic interest groups. All countries have strong domestic region before applying a lower tariff. However, in practice, a interests on their mind when entering the annual CET nego- form of logrolling takes place in the Council with respect to tiations. Subsequently, the author will demonstrate how the CET decisions (Interview 2): Countries will rarely veto the institutional structures of the EAC enable countries to stick request for an exemption, as each country has several similar to these national positions and how regionally active interest demands every year. The practice of mutually accepting uni- groups affect negotiations. lateral CET derogations goes back to the negotiations of the CU when Kenya and Tanzania gave into a last minute Institutional structure and derogations. The article will turn to demand by Uganda’s president Museveni even before the its second bold assertion: If tariff-setting is intergovern- Protocol had been signed (Interview 2). Since then, it became mental, domestic interest groups will have a higher impact virtually impossible to argue against national derogations. As on tariff negotiations. This section will show how the there is no supranational authority on tariff-setting, the 10 SAGE Open existing decision-making structures and accepted practices Regional lobbying uses two approaches: On one hand, enable the pursuit of national interests and give room to national associations have harmonized their proposals on tar- interest groups to affect CET policies by lobbying their iff levels to their respective domestic ministries. On the other national representatives on the domestic level only. Anthony hand, the regional association works through the umbrella Weru (Interview 21), of the KEPSA, suggests that lobbyists lobby, the East African Business Council (EABC), which have understood that there is no need to lobby regionally can also submit official proposals on the CET to the negotia- when national decision-makers have means to achieve tors. All in all, every important debate about wider CET almost all their objectives: amendments can be connected to the effort of a regional industry lobby. This finding supports what the article already Of course, EAC is intergovernmental when it comes to saw on domestic level: Private sector groups can actively discussions. Decisions are made by government officials, so you influence CET levels. Yet, most industries may find it easier get them at the domestic level. By the time they will be moving or less costly to lobby domestically. The existence of the to Arusha, even the ministry will be interested in protecting its exemption regime makes this option more likely to succeed. private sector. Industries that managed to organize regionally tend to be characterized by larger companies that have invested in mul- Regional lobbying and mutual interests. The previous section tiple EAC countries and a concentrated number of investors has outlined reasons why EAC Partner States manage to (Interview 1; Interview 16). Especially, Kenyan companies push for their national preferences and use exemption have established subsidiaries in Tanzania and Uganda. schemes. Nevertheless, harmonized CET changes have hap- Roofings, Uganda’s largest iron and steel company, stated pened in several cases. As unilateral derogations could be that they used to focus on domestic lobbying, but started to connected to domestic lobbying, regional solutions might be cooperate with regional players after they started to invest in linked to the pressure of regional interest groups. Accord- neighboring countries (Interview 12). In cement, several ingly, this section discusses the final bold assertion: If investors have shares in companies across the region. For regional interest groups are actively lobbying, countries are example, the French company Lafarge owns shares in all more likely to prioritize regional solutions leading to less three countries (Lafarge, 2016). Thus, being active in multi- CET instability. ple countries facilitates regional organization, but also means Most of the CET changes observed have affected manu- that a distorted CET through derogations makes it harder to factured goods like iron and steel products, paper, or cement. operate across countries. Hence, a regional presence Manufacturing is still in its infancy in East Africa, but some increases a firm’s preference for a stable CET and against of the larger industries have reached enough capacity to national exemptions. organize on regional level. Interviewees listed the iron and In agriculture, regional lobby groups also exist but are steel manufacturers, paper converters, sugar refineries, and overall less involved in CET negotiations. Nonetheless, there cement producers as being especially active on the regional are fewer cases of unilateral derogations by states than in level (Interview 1; Interview 16). In 2014, the EAC decreased manufacturing. While in manufacturing production profiles the CET on raw paper products, which was popular with differ more strongly and national interests diverge, farmers paper converters. In 2015, the EAC increased the CET on a across the region grow similar crops facilitating govern- wide range of iron and steel products. Those were the first ments’ agreement on protective tariffs. two incidences of a comprehensive use of CET to support regional instead of national industry interests. Representatives of the EAC Secretariat argue that this can mainly be contrib- Conclusion uted to the regional approach of the industries: Since its introduction in 2005, the EAC’s CET has been increasingly destabilized by unilateral derogations from the You would not believe it, but all the [iron and steel] associations CET in a wide range of strongly traded tariff lines. This in Partner States had the regional approach. They all told us the instability in the CET worries private sector and EAC repre- same things. Even when they are not manufacturing a product sentatives alike. The article has discussed how the influence they say there is a potential and you should protect. (Interview 1) of domestic interest groups may affect tariff negotiations and In the case of cement, the outcome is less obvious, as the the resulting CET instability. CET did not change to the industries’ favor. However, the Countries enter tariff negotiations with a strong domestic industries’ regional lobbying efforts lead to regional debates focus. Governments look out for organized business groups about CET levels on their products. The level of cement tar- and other vested interests. Institutions are susceptible to spe- iffs was one of the most contentious debates in the CET cial interests, and personal networks play an important role negotiations in 2014 and 2015 after a regionally organized for the outcome of policies. Kenya especially has a well- lobby effort of the industry (Interview 16). The EAC even organized manufacturing sector that manages to align its conducted a study that proposed an increase in cement tar- interests with decision-makers in government. Yet, the pref- iffs, but Partner States ultimately decided against it. erences of large and well-connected industries are accounted Bünder 11 for in the tariff negotiation positions of all countries. for most of the agricultural tariffs, where domestic interests Likewise, all governments seem to be interested to keep overlap and countries agree that the CET should remain high average agricultural tariffs high to protect a large rural elec- and stable to protect farmers and serve as an incentive to torate despite repeated derogations for particular sectors like invest in the sector. In manufacturing, a harmonized approach rice or sugar. Vested interests of government representatives to tariff levels mostly occurred where industry has managed also reflect in tariff fluctuations. to organize regionally and prefers a harmonized tariff over The strong influence of domestic interest groups projects national protectionist schemes. itself to the regional level. Discussing CET levels, govern- Finally, future research on the EAC CET could also take ments focus on securing protection for their specific local into account other explanatory factors. Interviewees raised industries rather than considering what is best for the regional issues like the impact of ideology, international market economy. Countries are willing to destabilize the CET to prices, or international trade negotiations on CET dynam- secure national tariff preferences by using exemption ics. Yet, the results of the paper already offer an interesting schemes to an extent that was never foreseen in the CU insight into the deeper integration dynamics. While lack- Protocol. Unilateral derogations from the CET have become ing ownership of the private sector was one of the key rea- an accepted tool to reach consensus in tariff negotiations. As sons for failure of the first EAC, it now actively shapes there is consensus-based decision-making in the EAC, each EAC politics. Behind all major changes in CET (e.g., country has the power to block decisions if it does not get its paper, steel), the article detected evidence for proactive will. Accordingly, countries have developed a practice of lobbying of private sector groups. The future success of logrolling from the start. Requests for derogations from the the EAC CU will depend on how well the member states CET are usually granted, no matter if the criteria are fulfilled. and the Secretariat balance the involvement of the private Nonetheless, in some cases, regional considerations tri- sector in the negotiations between lack of interest and umphed over the protection of national interests. This is true lobby capture. Appendix List of Interviewees. Location of Date of No. Name Institution Position interview interview 1 Alexander, Ally & EAC Secretariat Customs Officer/Customs Arusha, Tanzania 25.1.2016 Tindamanyire, Donald Officer 2 Bagabo, Paul Freelance Researcher, consultant on EAC Kampala, Uganda 15.1.2016 trade affairs 3 Bitegeko, Janet Agricultural Council of Executive Director Dar es Salaam, 20.1.2016 Tanzania Tanzania 4 Felician, Goodfrey Tanzania Revenue Authority Tariff Officer Dar es Salaam, 20.1.2016 Tanzania 5 Ekadu, Francis & Auku, Transparency International Programme Coordinator/ Kampala, Uganda 15.1.2016 Gerald Uganda Programme Officer 6 Kafanabo, Buberwa BEST-Dialogue Project Officer, Agri Sector Dar es Salaam, 19.1.2016 Tanzania 7 Kapkirwok, Jason & Trade Mark East Africa Senior Director/Country Nairobi, Kenya 11.1.2016 Torrero, Eugene Director, South Sudan 8 Kidulele, Gloria Tanzania Ministry of Industry Trade Officer Dar es Salaam, 21.1.2016 and Trade Tanzania 9 Kiguta, Peter EAC Secretariat Director General Customs and Arusha, Tanzania 27.1.2016 Trade 10 Kimeu, Samuel Transparency International Country Director Nairobi, Kenya 5.1.2016 Kenya 11 Kolou, Francis Uganda Ministry of Trade and Principal Commercial Officer Kampala, Uganda 13.1.2016 Industry 12 Kyunene, Martin Roofings Group Finance and Economic Advisor Kampala, Uganda 15.1.2016 13 Mwambia, Wanyambura Kenya National Treasury Director Economic Affairs Nairobi, Kenya 8.1.2016 14 Myenyelwa, Akida Confederation of Tanzanian Policy & Advocacy Specialist Dar es Salaam, 20.1.2016 Industries Tanzania (continued) 12 SAGE Open Appendix (continued) Location of Date of No. Name Institution Position interview interview 15 Ndunge, Wambui Kenya Association of Executive Officer, Policy Nairobi, Kenya 12.1.2016 Manufacturers Research and Advocacy 16 Njenju, Adrian East African Business Council Trade Economist Arusha, Tanzania 26.1.2016 17 Ochola, Kenneth Kenya Revenue Authority Deputy Commissioner , Nairobi, Kenya 6.1.2016 Customs Services 18 Ogwapus, Annet Uganda Revenue Authority Supervisor International Affairs Kampala, Uganda 13.1.2016 19 Shah, Dhirendra Biodeal Laboratories ltd Chairman Nairobi, Kenya 6.1.2016 20 Ssekalo, Edward Freelance Journalist (EAC affairs, business) Kampala, Uganda 14.1.2016 21 Weru, Anthony & Kenya Private Sector Senior Program Nairobi, Kenya 11.1.2016 Kikuu, Kiili Association/Corporate and Officer/Managing Regulatory Solutions Director 22 Anonymous Tanzania Ministry of Industry Representative of Department Dar es Salaam, 20.1.2016 and Trade of Industry Tanzania 23 Anonymous European Union Representative from the EPA Via Skype 14.12.2016 negotiation team 24 Anonymous Kenya Ministry of Foreign Trade Officer Nairobi, Kenya 8.1.2016 Affairs and Trade 25 Anonymous East African Business Council NA Arusha, Tanzania 22.1.2016 Note. The transcripts of the interviews can be requested from the author. EAC = East African Community; EPA = Economic Partnership Agreement. Author’s Note Emerging trends in the social and behavioral sciences: An interdisciplinary, searchable, and linkable resource. An extended version of this article was produced as the author’s Chichester, England: John Wiley. Retrieved from http:// dissertation for the Master of Public Policy at the Hertie School of onlinelibrary.wiley.com/book/10.1002/9781118900772 Governance Berlin, Germany. The author is now employed at the Bagabo, P. (2012). Commitment to the East African Community Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) Customs Union protocol, 2004-2009 (Doctoral thesis, GmbH. University of Birmingham, UK). Retrieved from http://etheses. bham.ac.uk/3731/2/Bagabo12PhD.pdf Declaration of Conflicting Interests Baldwin, R. (1989). The political economy of trade policy. The The author(s) declared no potential conflicts of interest with respect Journal of Economic Perspectives, 3, 119-135. to the research, authorship, and/or publication of this article. Bogner, A., Littig, B., & Menz, W. (2009). Introduction: Expert interviews—An introduction to a new methodological debate. In A. Bogner, B. Littig, & W. Menz (Eds.), Interviewing Funding experts (pp. 1-13). London, England: Palgrave Macmillan. The author(s) disclosed receipt of the following financial support Bogner, A., & Menz, W. (2009). The theory-generating expert for the research, authorship, and/or publication of this article: This interview: Epistemological interest, forms of knowledge, inter- research was in part supported by a grant from the German National action. In A. Bogner, B. Littig, & W. Menz (Eds.), Interviewing Academic Foundation. experts (pp. 43-80). London, England: Palgrave Macmillan. Bombardini, M. (2008). Firm heterogeneity and lobby participa- Notes tion. 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Business and Politics, 14, to medicines in the EAC and other regions. 1-26.

Journal

SAGE Open – SAGE

Published: Jan 20, 2018

Keywords: East African Community; Customs Union; Common External Tariff; interest groups; business membership organizations

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