FREE MOVEMENT OF CAPITAL UNDER THE EAST AFRICAN COMMUNITY COMMON MARKET

WHAT YOU NEED TO KNOW

INTRODUCTION: article 24 of the EAC Common Market Protocol provides for the Elimination of Restrictions on the Free Movement of Capital across all Partner States.  The Partner States shall upon the coming into force of the Protocol ensure the following:

a)   Remove restrictions between Partner States, on the movement of capital belonging to persons resident in the Community;

b)   Remove any discrimination based on the nationality or on the place of residence of the persons or on the place where the capital is invested;

c)   Remove any existing restrictions and shall not introduce any new restrictions on the movement of capital and payments connected with such movement and on current payments and transfers, or apply more restrictive regulations; and

d)   Remove restrictions relating to current payments connected with the movement of goods, persons, services or capital between partner States in accordance with the provisions of the Protocol.

NOTE: The implementation of Article 24 is to be progressive and in accordance with the Schedule on the Removal of Restriction on the Free Movement of Capital, specified in Annex VI to the Protocol.

WHAT CONSTITUTES CAPITAL AND RELATED PAYMENTS AND TRANSFERS?

Article 28 of the Common Market Protocol highlights on what constitutes Capital, Related payments and Transfers.  These include the following:

a)   Direct investment;

b)   Equity and portfolio investments;

c)   Bank and credit transactions;

d)   Payment of interest on loans and amortization;

e)   Dividends and other income on investments;

f)    Repatriation of proceeds from the sale of assets; and

g)   Other transfers and payments relating to investment flows.

WHAT ARE THE GENERAL EXCEPTIONS TO THE FREE MOVEMENT OF CAPITAL?

1.   Article 25 of the Common Market Protocol provides that the free movement of capital may be restricted upon justified reasons related to:

a)   Prudential supervision;

b)   Public policy considerations;

c)   Money laundering; and

d)   Financial sanctions agreed to by the Partner States.

2.   Where a Partner State adopts any of the restriction, it shall inform the Secretariat and other Partner States and furnish proof that the action taken was appropriate, reasonable and justified.

WHAT SAFEGUARDS HAVE BEEN PUT IN PLACE TO ENSURE THAT FREE MOVEMENT OF CAPITAL IS NOT ABUSED?

Article 26 of the Common Market Protocol provides Safeguard measures that have been put in place to ensure that the Free Movement of Capital is not adulterated and the measures are:

1.   Where the Movement of capital leads to disturbances in the functioning of the financial markets in a Partner State, the Partner State concerned may take safeguard measures subject to the conditions provided under Article 27 of the Protocol.

2.   Where a competent authority of a Partner State makes an intervention in the foreign exchange market, which seriously distorts the conditions of competition, the other Partner States may take, for a strictly limited period, the necessary measures in order to counter the consequences of the intervention.

3.   A Partner State may take safeguard measures where the Partner State is in difficulties or is seriously threatened with difficulties, as regards its balance of payments.

UNDER WHAT CIRCUMSTANCES DO SAFEGUARD MEASURES ON FREE MOVEMENT OF CAPITAL APPLY?

Article 27 of the Common Market Protocol provides Conditions for application of the Safeguard Measures.  The following conditions must apply:

1.   The Safe Guard measures which may be adopted or maintained pursuant to the provisions of Article 26 of the Protocol shall:

a)   Subject to the provisions of the Protocol, not discriminate among Partner States in favour of third parties;

b)   At all times seek to minimize damage to the commercial, economic or financial interests of other Partner States;

c)   Not exceed the safeguard measures necessary to deal with the circumstances described in Article 26; and

d)   Be temporary and be phased out progressively as the situation described in Article 26 improves.  

2.   In determining the imposition of the safeguard measures provided for in Article 26 of the Protocol, the Partner State concerned may accord priority to activities, which are essential to its economic stability.

3.   Safeguard measures shall not be adopted or maintained for the purpose of protecting a particular sector in contravention of the provisions of the Protocol.

4.   The safeguard measures adopted or maintained pursuant to Article 26 of the Protocol or any changes to the safeguard measures shall be notified to the Secretariat and to the other Partner States.

5.   The Council shall establish procedures for periodic consultations including, where possible and desirable, prior consultations with the objective of making recommendations to the concerned Partner State for the removal of the safeguard measures.