Export Promotion Schemes

Stephen Otieno

Export Promotion Schemes

Export promotion schemes are schemes designed to promote production of goods for export.
Partner States have agreed in the protocol for the establishment of customs union to engage in some of the export promotion schemes with a motive to promote trade.
Some of the schemes are
- Manufacturing Under bond,
- Export processing zones,
- Duty remission,
- Duty drawback Inward/Outward Processing and free ports.

Manufacturing Under Bond

Manufacturing under Bond (MUB) is a facility extended to manufacturers to import plant, machinery, equipment and raw materials tax free, for exclusive use in the manufacture of goods for export.
The EACCMA empowers the Commissioner of Customs to license any person who wishes to manufacture goods under bond subject to condition he/she may impose.
The following are the conditions for licensing an MUB:
1. Application for a licence to be made in a prescribed form (C18) specifying the purpose for which each building, room, place or item of plant is to be used.
2. A security to be furnished as the Commissioner may think appropriate.
3. Suitable office accommodation to be provided to Customs officer.
4. Premises for manufacturing process must be approved by commissioner as to suitability and safety. A prescribed annual licensing fee to be paid.

MUB license is issued in form C19, and cannot be transferred from one person to another.
Once the premise is approved and licensed, no alterations should be made on the premises without prior permission of the Commissioner.
Application for alterations must be accompanied by copies of drawings and plans.
A MUB facility is distinguished by a unique number and words “Customs Bonded Factory” clearly marked at the principal entrance to the factory, or in any other place approved by the proper officer

MUB - Responsibilities of a Bonded Factory Licensee

Make an entry, prior to commencement of manufacturing under bond, in the prescribed form specifying the purpose for which each building, room, place or item of plant is to be used.
Provide office accommodation and scales, measures and other facilities materials or just weights, for examining and taking account of goods and for securing them as the proper officer may reasonably require;
Keep a record of all types of plant, machinery and equipment, raw materials and goods manufactured in the factory and keep that record at all times available for examination by the proper officer;
Provide all necessary labour and materials for the storing, examining, packing, marking, coopering, weighing and taking stock of the goods in the factory whenever the proper officer so requires.
Non-compliance with set conditions may result into suspension, revocation or refusal to issue a license by the Commissioner

Export Processing Zones

Export Processing Zones (EPZs) are designated Customs areas where imported goods are offered duty free treatment for purposes of processing or manufacturing for export under given conditions.
For operational purposes, export processing zones are considered to be foreign territories.
The removal of goods from port to an EPZ enterprise must be covered by a bond.
Any goods leaving an EPZ into a Partner State must be considered as imports and are therefore subject to importation procedures and additional duty (surcharge).
Local goods supplied to an EPZ enterprise are considered as exports and must comply with all export procedures.
EPZ owners usually enjoy tax holidays with respect to payment of income taxes.

The Objectives of EPZs include:

To attract export led industrialization for diversification and enhancement of competitiveness.
To earn more foreign currencies.
To increase employment and develop the capacity of skilled labour.
To benefit from technology transfer and
To process more local materials for export.

EPZ investors have the following obligations:

1. To produce for Export markets.
2. To provide details of all raw materials received at the site of manufacturing during the previous quarter of the year.
3. To produce semi-finished or finished products including by products exported or off-loaded in the Customs territory.
4. To provide details of waste-products and how they are disposed.
5. To provide accurate records of losses through evaporation, spillage, leakage or other causes.
6. To produce balances of raw materials and semi-finished products including stocks of by products at the premises of manufacture and transit.
7. To facilitate inspections and examination by the Customs.
8. To take all measures to reduce the fears of task cheating in a way that concerned agencies cannot provide.

Duty Remission

Section 140(1) of EACCMA, 2004 provides that the Council may grant remission of duty on goods imported for the manufacture of goods in a Partner State.
The Council may prescribe regulations on the general administration of the duty remission under this section.
The manufacturer, and the approved quantity, of the goods with respect to which remission is granted under this section shall be published by the Council in the Gazette.

Section 141 of EACCMA, 2004 provides that where any goods are lost or destroyed by accident either on board any aircraft or vessel; or in removing, loading, unloading, or receiving them into, or delivering them from, any Customs area or warehouse; or in any Customs area or warehouse, before the goods are delivered out of Customs control to the owner, then, if the Commissioner is satisfied that such goods have not been and will not be consumed in a Partner State, the Commissioner may remit the duty payable in respect of the goods.

Duty Draw Back

Drawback is defined as, “refund of all or parts of any import duty paid in respect of goods exported or used in a manner or for a purpose prescribed as condition for granting duty drawback”.
Drawback provides relief from duties and taxes for the manufacture of exported goods, thus it is extensively used.
This procedure grants repayment of import duties and taxes paid on:
- Goods used in the processing or manufacture of exported products,
- Materials contained in the goods or consumed in the manufacture of the exported products, or
- Imported goods re-exported in the same state.

Under Section 138(2) of the EACCMA, 2004, the owner of any goods who claims or proposes to claim drawback in respect of goods shall:

1. Enter such goods in the prescribed form and in the prescribed manner and produce such goods for examination by the proper officer before the exportation of the goods.
2. Make and subscribe a declaration on the prescribed from to the effect that the conditions under which drawback may be allowed have been fulfilled.
3. Present his/her claim or drawback within or period of 12 months from the date of the exportation of the goods or performance of the conditions on which drawback may be allowed.

Drawback shall not be allowed in respect of any goods:

1. Where the value of such goods for home consumption is less than the amount of duty drawback; and
2. Where the import duty on the goods was less than one hundred dollars;
3. Unless such goods were exported unused in the original packages in which they were imported, or unless the contents were unpacked and repacked in other packages by authority and under supervision of the proper officer;
4. Unless the proper officer is satisfied that the particulars of goods are identical with the particulars contained in the entries, invoices, and other documents relating to the goods which were damaged or spoilt before exportation.

The following is a summary of economic benefits of duty drawback:

1. The use of domestic labour and processing or manufacturing of goods add value to the finished goods for export;
2. The repayment of duties and taxes paid on the imported goods enables domestic industries to offer the goods at competitive prices on international markets;
3. Countries wishing to encourage trade through free zones in their territory may also apply the drawback procedure to goods that are re-exported into these zones;
4. Promotes domestic economic activities through forward and backward linkages;
5. Provides for revenue protection on imported goods released into the Customs territory, and
6. Offers options to interested persons when other procedures such as temporary admission cannot be applied to the goods.

Implementation of duty drawback scheme in a Partner State may be confronted with the following challenges:

1. In many developing countries, refunds can only be made from a specially approved annual budget. Inadequate budget allocations lead to delays in refunds. This may negatively affect the competitive pricing of export goods.
2. In the absence of effective controls, significant abuses may occur.
3. The drawback system is often restricted to products included in an exhaustive list. This is usually an economic consideration and is designed to encourage the use of equivalents of imported goods which are produced within the country by domestic industry.
4. Drawback refunds may delay due to the refund process that requires post import audits, among other requirements.

Inward Processing

Inward processing means the Customs procedure under which certain goods can be brought in a partner state conditionally exempted from duty on the basis that such goods are intended for manufacturing, processing or repair and subsequent exportation.
The operator shall apply for authorization to the commissioner in a prescribed form to carry out the inward processing operations.
The application detailing the intended inward processing shall be made in advance prior to importation of the goods subject to the process.

Conditions for granting an authorization
- The applicant offers the necessary guarantee for the proper conduct of the operation
- The administrative arrangements and supervision of the process are not disproportionate to the economic needs of the applicant.
- The applicant is established in the community except where imports of non-commercial nature are involved
- The imported goods can be identified in the processed products
- The applicant has provided Customs security
Goods imported for inward processing shall be entered in Customs prescribed form on production of:
- Original inward processing authorization
- Original invoices and other supporting documents

General Provisions of the Agreement

The proper officer shall examine such goods at the port of entry or at the owners premises before release for inward processing.
The person authorized shall keep all records of the inward processing activities and the records shall indicate:
1. The description of quantity of goods entered for the procedure.
2. Date of importation.
3. Details of processing.
4. Correct amount of duty and taxes payable.
5. Disposal of goods and waste or scrap or by-products.
6. Compensating products obtained.

Inward processing procedure shall be terminated upon:

1. Re-exportation of the compensating product in one or more consignments within a period of one year.
2. Re-exportation of the goods in the same state as imported immediately.
3. Release of processed products to circulation under duty relief.
4. Placing the goods in free zones.
5. Entered for home consumption

Outward Processing

Outward processing means the Customs procedures under which goods which are in free circulation in a partner state may be temporarily exported for manufacturing, processing or repair outside the partner state and then re-imported.
The Commissioner shall only authorize goods to be exported temporarily from the partner state when:
- The exporter confirms that the compensating product shall result from the processing operation
- The outward processing procedure does not affect the interest of the partner state
- The compensating products shall be re-imported within a period of one year from the date of export.

During re-importation, the compensating products may be re-imported through a Customs office other than the Customs office through which the goods were exported either in full or in partial consignment under separate entries. Goods may also be re-imported in an un-altered state.

The imported compensating products or unaltered goods may be granted total or partial relief from payment of duty when they are cleared for home consumption in the name of
1. An authorized person
2. Any person with the consent of the authorized person
3. Where the re-imported goods were repaired and such repair could not have been undertaken in the Partner State
4. Equipment or other goods were added to the exported goods that could not be added within the partner state.

Free Ports

The establishment of free zones is part of an economic policy that encourages the flow of investment into a Customs territory and other commercial activities.
The main purpose of free zones is
- to promote external trade and international commerce by granting relief from duties and taxes on goods imported to the territory.
- the creation of employment and the development of associated trade activities.
Free zones are established on seaports, river ports, airports and places with similar geographic and economic advantages.
A good example of a free port in the EAC region is the Lamu port.

Learning Activities

Suppose you are a Customs Agent and you have been contacted by PQR Limited to advise them on the Customs procedures for clearance of their tea export consignment from a farm in Rwanda to India, through the port of Mombasa.

Required:

Describe the step by step Customs procedure for the exportation of tea through Mombasa port.

Suppose that three truck heads are being temporarily imported into Burundi based company, XYZ Limited, from DRC Congo for specialized fitting of petroleum tanks.

Required

Describe the export promotion scheme that XYZ Limited can take advantage of, to grow in its industry.
Explain the Customs formalities and procedures for exporting the three truck heads already fitted with petroleum tanks.

Assignment

Discuss the Customs controls inherent in the export clearance procedures in your country.
Distinguish between Export Processing Zones and Manufacture Under Bond.
Discuss the economic benefits of free ports to the host country.