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EAC Waives Tax on Textile Imports to Boost Local Production

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Looking to boost help their domestic industries, the six nations that comprise the East African Community–Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda–have agreed to a three-year tax waiver of import duties and value added taxes on textile raw materials, fabrics and accessories that are not available locally, according to African media reports.

The EAC will now shift to a four-band tariff structure for cotton, textiles and apparel to promote cotton yarn and fabric production. While imported raw materials not available in the region would be duty free, intermediate inputs would be taxed at 10 percent, fabrics at 25 percent and apparel at 40 percent, or $5 per kilogram. Intermediate inputs of an industry are the goods and services that are used in the production process to produce other goods or services rather than for final consumption.

The EAC partner countries have also agreed to adopt a three-year strategy beginning this year for a gradual phaseout of used clothing and shoe imports. This will be done through increased tax on these products, compliance with EAC Standards licensing of importers and categorization of products per bale of imports, African media reports said.

The importation of used clothes and shoes in Africa reportedly accounts for about 40 percent of the decline in production and 50 percent of the decline in employment.

The action follows a directive by the EAC heads of state last year for a study to be conducted on the modalities for the promotion of textiles and leather industries in the region, as well as mechanisms for stopping the importation of used clothes, shoes and other leather products from outside the region.

To implement the two directives, the Secretariat conducted two separate studies on cotton, textile and apparels value chains; and on leather and footwear value chain. The study found that the potential for trade in cotton is enormous but remains untapped.

“The EAC region has the potential to become a major player in the regional production and trade in cotton, textiles and apparels products,” the study said. “The regional textile industry will have a potential trade valued at $3 billion by 2025, compared with a total of $34 million in apparel exports from the region in 2013.”

According to the U.S. Trade Representative’s Office, the U.S. had $2 billion in two-way goods trade with the EAC during 2015. Exports totaled $1.2 billion, while imports were $788 million.

EAC countries combined would have been the U.S.’s 80th largest goods import supplier in 2015, with woven and knit apparel combining for about $400 million. U.S. foreign direct investment in the EAC was $1 billion in 2015, up 42.2% from 2014.

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