US embassy cable - 05DARESSALAAM315

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000315 
 
SIPDIS 
 
STATE PLEASE PASS TO USTR 
USDOC FOR DOC/ITA/TD/OTEXA/FLAATEN 
NAIROBI FOR FCS 
 
SENSITIVE 
 
E.O. 12958:N/A 
TAGS: BEXP, ECON, ETRD, TZ 
SUBJECT: Hike on Used Clothing Duties in Tanzania 
 
REF: A) USDOC 00408    B) 04 DAR ES SALAAM 
 
C)  OWEN-FLAATEN E-MAIL 
 
Sensitive but Unclassified (SBU); Please protect 
accordingly. 
 
1. (SBU) Summary: US exporters and local importers were 
caught by surprise when duties on used clothing imports 
increased on January 1, 2005 as a result of the East African 
Customs Union (EACU).  Duties increased from 25 percent to 
USD 0.75 per kilo or 50 percent, whichever is greater. 
Local dealers, including members of the American Business 
Association in Tanzania, have raised the issue with the 
Tanzanian government and with the US Embassy.   Nearly 250 
containers of used clothing remain at the Dar es Salaam port 
as the dealers appeal to the government for amnesty.  Charge 
d'Affaires and Econoff have met with the Tanzanian Finance 
Minister and the Commissioner of the Revenue Authority to 
discuss the issue, which has been covered extensively by the 
local press.  According to local businesses, the new duties 
will put an end to the used clothing business in Tanzania. 
End Summary. 
 
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New Rate Implemented without Notice 
----------------------------------- 
 
2. (SBU) The Tanzania Revenue Authority (TRA) began to 
charge new duties on used clothing beginning January 1, 
2005.  The previous rate of 25 percent was changed to USD 
0.75 per kilo or 50 percent, whichever is greater. The 
Commissioner General of the TRA told econoff that the new 
rate was required by the East African Customs Union (EACU), 
which lists used clothing as a sensitive product.  He said 
that Kenya had insisted on the higher rate.  In Tanzania, 
the new rate is effectively over five times higher than the 
previous rate of 25 percent.  Used clothing is valued (for 
customs purposes) by weight, at USD 0.55 per kilo.  A tariff 
of USD 0.75 per kilo will always be greater than a tariff of 
50 percent, and represents an effective duty of 136 percent. 
 
3. (SBU) The details of the new EACU duty rates were only 
finalized in late December (see reftel B), days before the 
January 1 implementation date.  In the rush to reach a last- 
minute agreement, the GOT neither consulted nor informed 
local importers of the new duty rates until TRA suddenly 
began to charge the higher rate in January.  Currently, 
nearly 250 forty-foot containers of used clothing remain at 
the Dar es Salaam port as local importers refuse to pay the 
exorbitant new tariff. 
 
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Local Dealers Fight Back 
------------------------ 
 
4. (SBU) In mid-January, the Mitumba Dealers Association 
(mitumba is the Swahili word for used clothing) began an 
organized campaign against the new duty rate.  One member of 
the association (an American citizen and member of the 
American Business Association in Tanzania) contacted econoff 
for assistance.  The Mitumba Dealers Association also 
contacted the press, placed articles in local newspapers, 
and arranged television interviews.  The local dealers 
complained that there was no notice of the change, that the 
duty is arbitrary and does not protect any local interest, 
and that the industry will not survive if the new duty 
continues.  The American Business Association Chairman also 
wrote a letter to the Finance Minister and Trade Minister, 
urging a review of the new policy. 
 
---------------- 
Embassy Advocacy 
---------------- 
 
5. (SBU) Post met with GOT officials to clarify the 
situation regarding the new duty rate.  Charge d'Affaires 
met with Finance Minister Basil Mramba in mid-January and 
brought up the used clothing issue.  Minister Mramba was 
well aware of the situation and mentioned that local 
business people had already been complaining loudly.  He 
said that the duty hike was required by the East African 
Customs Union agreement and made it clear that the GOT was 
not happy with the increase either.  He noted that since 
Tanzania does not have a strong garment industry, the only 
beneficiaries of this increase would presumably be Ugandan 
and Kenyan garment makers.  He added that Kenya and Uganda 
have been pressing for this increase for several years, but 
it was only done now because of the EACU.  Minister Mramba 
also mentioned that the GOT had announced that the change 
should go into effect by March 1, but that the TRA had gone 
ahead with immediate implementation.  The Minister noted 
that there is a provision within the EACU for countries to 
appeal tariff changes that are damaging to their economy; he 
held out the prospect that the GOT might appeal this 
increase at some point, but probably not immediately. 
 
6. (SBU) Econoff met with TRA Commissioner General Harry 
Kitilya in late January to discuss the issue further.  The 
Commissioner General explained that the TRA had been under 
much criticism over the issue, but that TRA was not to 
blame.  He said that TRA had warned the government that the 
rapid implementation of the EACU duties would cause 
problems, but that TRA's obligation is to enforce the law 
(in this case the January 1 implementation date of the 
EACU).  He noted that the Finance Minister had visited with 
him on the subject, asking if waiving the duties until March 
would be possible.  According to Kitilya, he told the 
Minister that he could only waive duties upon agreement of 
the EAC Council of Ministers (i.e., all three Finance 
Ministers).  Kitilya lamented again that the TRA is being 
harshly criticized for doing its job efficiently. 
 
7. (SBU) Note: In fact, the TRA had already gone on the 
offensive by issuing official statements in the Swahili 
press on the issue.  These statements claimed that the 
increased rate was only 50 percent, and that the used 
clothing dealers were misleading the public about the extent 
of the duty hike.  The statements concluded that good 
citizens should stop complaining and pay taxes for the 
development of the country.  End note. 
 
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Used Clothing Industry in Peril 
------------------------------- 
 
8. (SBU) The U.S. exports about USD 10 million worth of used 
clothing to Tanzania, about one-third of Tanzania's total 
used clothing imports.  Canada and Germany are the next 
largest used clothing exporters to Tanzania.  Used clothing 
is the primary source of clothing for most Tanzanians.  The 
local textile industry is small, export-oriented, and could 
not begin to fulfill the needs of the Tanzanian market.  GOT 
officials have said that the agreement was not intended to 
protect local industry, but was only to appease Kenya. 
Local importers have said that the used clothing trade will 
completely stop in Tanzania if the new duty rates continue, 
arguing that local consumers will not be able to afford the 
higher prices.  They argue that only the Kenyan garment 
industry will benefit, while Tanzanian traders and consumers 
suffer. 
 
9. (SBU) Comment:  It appears that in the rush to sign the 
EACU, Tanzania allowed Kenya to use the EACU to increase the 
protection of its garment industry.  Working level trade 
officials seemed as surprised as the importers at the sudden 
change and its impact on the local used clothing industry. 
As public opinion against the EACU grows, the GOT faces a 
dilemma: applying for numerous exceptions to the common 
external tariffs weakens the whole idea of the Customs 
Union, while agreeing to harmonized tariffs that hurt 
Tanzanian business weakens the public's support of the 
Union.  GOT officials are only now realizing that it will be 
very difficult to undo the damage of its rushed approach in 
the EACU negotiations.  End comment. 
 
OWEN