China and Uganda signed an Authorized Economic Operator (AEO) mutual recognition agreement on May 25 in a bid to expand trade between the two countries. The signing took place during the fifth World Customs Organization (WCO) Global AEO Conference held in Dubai, the United Arab Emirates, in May. This is the first such agreement signed between China and an African country, according to China's General Administration of Customs. Under the agreement, AEO licensees, especially businesses, will benefit from simplified customs procedures such as reduced security and safety controls and priority processing of AEO customs clearance.

The mutual recognition of AEOs is a mechanism to secure the international supply chain and to increase the benefits for international trade operators holding an AEO status. Under this arrangement, two customs administrations agree on reciprocal recognition of AEO authorizations issued under their respective programs.

The signing of the agreement will encourage companies to better comply with the legal systems of the two countries and encourage other African countries to sign such agreements with China to further promote Sino-African cooperation in trade and investment, said Liu Qinghai, Director of the African Economy Research Institute at Zhejiang Normal University.

Facilitating investments

In recent years, bilateral trade between China and Uganda has grown rapidly. China has become Uganda's second-largest source of imports after India and the largest source of foreign investment. Faced with the imbalance in trade between China and Uganda, the Ugandan Government has pledged to attract Chinese investors to help industrialize the country, according to officials from the Ugandan Ministry of Finance.

Adam Mugume, Executive Director at the Bank of Uganda, said most of the infrastructure projects were engineered by Chinese companies and financed by China, which has increased imports of Chinese products especially construction-related machinery and equipment to Uganda. About 70 percent of the road construction has been done by Chinese companies.

"The AEO mutual recognition agreement will support such exports in the future," said Liu. Her view was echoed by Dicksons Kateshumbwa, Commissioner of Customs at the Uganda Revenue Authority. The more trade facilitation increases, the more the African continent will attract local and foreign direct investment leading to more (tax) collections, he said.

For Chinese companies investing in Uganda, obtaining the AEO certification issued by Uganda will greatly reduce the time and cost needed to import raw materials and spare parts, which will greatly improve their competitiveness, thus increasing investment, Liu told ChinAfrica.

However, she said that for companies whose raw materials are mainly purchased in the Ugandan market, such as some ceramic tile producers, the impact in terms of the investment may not be obvious since they tend not to import large quantities. But the new AEO requirements may result in a substantial reduction of import cost of similar products. For Chinese producers in Uganda, they could then face increased competitive pressure from Chinese exporters, which can lead to a drop in investment in Uganda. Therefore, the impact of the AEO mutual recognition agreement will depend on specific sectors and circumstances. "In general, the trend will mostly be toward increased investment," says Liu confidently.

In trade, holding an AEO authorization provides a real competitive advantage. Chinese exports to Uganda are mainly made of electrical machinery, medical equipment, household appliances, footwear, pharmaceuticals and textiles. "Uganda is located on the main eastern sea route for South Sudan, the Democratic Republic of Congo, Rwanda and Burundi, and is an important distribution point for goods entering these countries. As a member of the East African Community and the Common Market for Eastern and Southern Africa, Uganda can also cover the east to Kenya, Tanzania and other Southeast African countries. Therefore, the mutual recognition of AEOs will also significantly reduce the transportation time and trade costs of Chinese AEO companies within these countries," she continued.

Promoting exports to China

Uganda attaches great importance to its exports to China. According to Chinese customs data, China-Uganda import and export volume increased from $640 million to $783 million between 2015 and 2019. The bilateral trade volume was $745.84 million from January to November 2020, up 6.4 percent year on year.

The AEO mutual recognition agreement between Chinese and Ugandan customs will allow Ugandan companies to enjoy the same preferential measures in China. According to Patrick Mukiibi, Acting Commissioner General of the Uganda Revenue Authority, recognition of Ugandan economic operators by other global customs authorities will help speed up clearing processes and cut costs for companies in the country. "Mutual recognition will give our authorized operators the same benefits as are accrued to them here. This means that they can do their own tax assessments, which then saves time and also earns them preferential treatment by other customs organizations across the world," he said.

Ugandan agricultural products are popular in the Chinese market. As early as 2015, China had started exempting 97 percent of Ugandan products from duties, including oilseeds, coffee, tea, spices, aquaculture and fishery products. These agricultural products must meet a number of requirements such as compliance with Chinese plant quarantine laws and regulations and submission of a phytosanitary certificate. "Ugandan exporters of such agricultural products are also eligible for AEO certification," Liu said.

According to the General Administration of Customs, China had launched an AEO program in early 2008 and has already signed agreements with 46 countries and regions, ranking the country first in the world in terms of the number of agreements. Currently, China aims to establish cooperation in mutual recognition of AEOs with South Africa, Egypt and other African countries.

(Print Edition Title: Removing Barriers to Trade)

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