By Orla Ryan In Kampala, Uganda

The countries argue about how to classify different products

The planned signing of the East African Customs Union protocol by Uganda, Tanzania and Kenya has been postponed for the second time in three months.

The protocol had been due to be signed on 16 February by presidents of the three countries.

No reason has been given for the delay, and a new date has yet to be set.

The postponement came amid frantic lobbying to delay implementation from Ugandan businesses worried about competition from their mightier Kenyan counterparts.

Imports

Look on any supermarket shelf in Uganda and many products will be from Kenya.

"We still get sugar from Kenya, we still get pens, we get plastic products," said Mr Hilary Obonyo, the executive director of Uganda Manufacturers' Association.

"Uganda is the largest market for Kenya's manufactured goods."

For the people who buy these goods, the formation of the customs union should would have been good news as falling tax rates and free movement of goods should have meant lower prices.

Under the proposed agreement, Kenyan goods would face a 10% import tax that would gradually be reduced to zero per cent over the next five years while Ugandan and Tanzanian businesses adjust.

Tanzanian and Ugandan goods would be sold in the three countries without incurring import taxes.

The protocol should give businesses in the region access to a market of 90 million people.

The larger size of the market should also make the region more attractive to foreign investors.

Slow down

And yet, many business officials are relieved that the signing has been postponed, insisting they need more time to get used to a non-protected market.

East African Business Council's Mulwana wants slow progress

The current timetable is for implementation to take place in July, four months after the signing.

"Our concern is the date of implementation," said James Mulwana, chairman of the East African Business Council, who wants implementation to be delayed for three to five years.

"It is going to create a very big shock to the business community."

Mr Mulwana warned against East Africa rushing to achieve something that has taken developed countries in Europe several years to achieve.

"The word protection is not in my vocabulary [but] if you have been used to it, you have got to get out gradually. [Businesses] have to be given a chance either to become efficient or to exit," he said.

New regime

Another brawl is over a three-band tariff structure agreed last June that stipulates a zero per cent import tariff on raw materials, 15% on intermediate products and 25% on finished products imported from outside these three countries.

Stationary maker Mubiru believes the customs union would be bad for business

At the heart of the conflict are the three countries' different development policies and tariff regimes.

In the past, Uganda has not levied a charge on raw materials, and its definition of raw materials has been wide, while the other two countries have chosen more narrow definitions.

Uganda's hope had been that cheap raw materials would encourage local manufacturing. while Tanzania and Kenya favoured higher import tax regimes to protect their industries.

Among those who feel the pinch is the Ugandan stationary maker Picfare which for 15 years has enjoyed a zero per cent tariff on its paper imports which it defines as raw materials.

"People have invested heavily in stationary conversion in Uganda, based on the duty regime that they had," said Picfare's Richard Mubiru.

Now Kenyan paper mill Webuye, which competes with paper makers from outside the three countries, has questioned the classification of paper.

Webuye insists paper is a finished product that should face a 25% import tariff - a move that would make it easier to compete with foreign competitors.

"Our perspective is that the union is a threat to the survival of the paper sector in Uganda," said Mr Mubiru.

Winners and losers

It is a complicated issue that touches several industries.

Take steel.

Ugandan Importers of galvanised steel consider it a raw material which they use to produce other goods.

But Uganda Baati which has invested $5m in a galvanising line sees steel as the raw material while galvanised steel would be a finished product .

As such, it should face the 25% tariff to protect local producers of galvanised steel, the company insists.

In Uganda, those who stand to gain from reclassifications of goods from raw materials into finished products appear to be a minority, however.

Businessmen who started out on the assumption that a certain raw material should be tax-free should not be penalised now, Uganda Manufacturers Association's Hilary Obonyo said.

A team of experts is visiting these 'sensitive' sectors in the three countries to assess the way forward.

Second delay

Some business people now fear that arguments over details poses the danger that business could lose sight of the bigger picture.

"It is not that Uganda will be [a] loser," said Mr S.P. Datta, executive director at Uganda Baati who would like to consider East Africa as one united country.

"Uganda will gain somewhere, Uganda will lose somewhere."

Under the East African Community Treaty of 1999, Kenya, Tanzania and Uganda were to work towards a customs union within four years of the treaty signing.