Assessing the Welfare Effects of the East African Community Customs Union's Transition Arrangements on Uganda

Abstract

Regional trade arrangements are becoming an increasingly popular vehicle for the promotion of trade and growth. In East Africa the previously defunct East Africa Customs Union has been resurrected to improve trade between Kenya, Tanzania and Uganda. To facilitate the development of the East African Community, transitional arrangements have been put in place to liberalise inter and intra-regional trade. Using a partial equilibrium approach this paper quantifies and evaluates the trade and welfare effects of these arrangements for Uganda, particularly for products classified as sensitive products from the Ugandan perspective. Results vary with the level of product aggregation applied which questions whether transitional arrangements confer any real benefits on the stakeholders. The policy implications that follow suggest that selecting industries for protection should be based on predicted welfare outcomes rather than on pressure from vested interests for the partner countries to benefit from trade liberalisation within the customs union.• JEL Classification: F15, F17, O55•

Regional Economic Integration and Tax Revenue: East African Community

“…Castro, DeRocha and Kraus (2004) in a later study on the trade and revenue impacts of the EACCU using a partial equilibrium model and 2002 data, suggested that the whole region would likely experience modest decline in customs revenue. This was confirmed by Khorana et al (2009), who observed a notable loss of revenue and a lower welfare effect caused by reduction and eventual elimination of tariffs with Kenya. Unfortunately their study is limited to Kenya and Uganda and ignores the other member states, perhaps due to data availability corstraints.…”

Uganda’s Trade and Revenue Effects with the EAC Countries, DRC and Sudan

“…The results obtained in this study are similar to results by [15] and [5]. Both Studies use a SMART-WITS partial equilibrium model to estimate the effect of the EAC customs union on trade and revenue effects on Uganda.…”

“…The model uses Armington assumption of product differentiation which assumes that the source of imports for any given product encourage imperfect substitution. The partial equilibrium model used in this study is similar to the model used by [1] and [5] who estimates the effect of the EAC customs union on trade, revenue and welfare on EAC partner states. In addition to [1] and [5] work, this study investigates trade and revenue effects under the EAC framework and evaluates alternative trade liberalization scenarios with the DRC and Sudan which are both Uganda's key trade partners.…”

“…The partial equilibrium model used in this study is similar to the model used by [1] and [5] who estimates the effect of the EAC customs union on trade, revenue and welfare on EAC partner states. In addition to [1] and [5] work, this study investigates trade and revenue effects under the EAC framework and evaluates alternative trade liberalization scenarios with the DRC and Sudan which are both Uganda's key trade partners. The analysis of the trade diversion, trade creation and tariff revenue effects are driven by the consumer behaviour specified under the model formulation that was adopted by [2].…”

Global and regional effects of the US tariffs on iron, steel and aluminium: A SMART combination of models with a focus on Spain

“…SMART assumes that there is full transmission of price changes when tariff distortions are introduced (eliminated). The exact expressions for this effect are included in Laird and Yeats () and others (Jammes & Olarreaga, 2005; Khorana, Kimbugwe, & Perdikis, ; Sadni Jallab, Lahsen Abdelmalki, & Sandretto , ), which considers the import demand and export supply functions for any given pair of countries for the product subject to the tariff.…”