East Africa is making last-ditch efforts to save Kenyan exporters from incurring losses of more than $140 million a year following failure to broker a trade deal that would have allowed continued free access to the European Union market.
East African Community (EAC) ministers who met in Arusha, Tanzania, on September 20 agreed to push for a meeting with their EU counterparts, possibly before the September 30 deadline, to discuss the latter’s new proposals.
Top on the agenda is to convince the EU to prepare a legal instrument to enable a smooth transition of Kenya’s exports from the duty-free regime of the Market Access Regulation (MAR) to the Generalised System of Preferences (GSP) regime.
“We want the EU to prepare paper work to enable us go to the GSP. We must lobby for Kenya to be put in that GSP category. This is because it is not practical for the two teams to ratify EPA (Economic Partnership Agreement) by Tuesday (September 30). So we need a document that will enable us to be included in the GSP category so that business continues smoothly,” said Kenya’s Principal Secretary Karanja Kibicho, who is EAC’s negotiation team leader.
Although Kenya’s exports to the EU will no longer enjoy duty-free, quota-free access to the EU market until the EPA is ratified by the two trade blocs, products under the EU-GSP tariff are subjected to lower taxation than those under the normal EU tariff.
Fresh roses and cut flowers, for instance, would attract import duty of between 8.5 and 12 per cent under the normal EU tariff and between 5 and 8.5 per cent under GSP. Roasted coffee would attract 2.6 per cent duty under GSP.
“We expect to meet with our EU counterparts probably on Monday (September 29) to discuss the issues and pave the way for further engagements and eventually the signing of the final document,” Dr Kibicho added.
However, the two teams still have some work to do before a final deal is reached.
Though the EU Mission in Kenya confirmed that the EAC indeed forwarded their new document to the EU on September 22, it said no meeting had been agreed on.
“We understand that these texts were agreed among EAC members at the EAC Council meeting in Arusha. EU Trade Commissioner De Gucht extensively replied to the proposals on September 23,” Christophe De Vroey, the Trade and Communication Counsellor at the EU Mission in Kenya said.
Mr De Vroey reiterated there was no deal yet, saying a senior officials’ meeting was not held on September 24. He added that there would be no ministerial meeting between the two teams on September 29.
On the legal instrument requested by the EAC, the Trade and Communication Counsellor said there was no such provision under the EU law.
“EU law likewise does not authorise the reimbursement or other compensation mechanisms for import duties paid,” Mr De Vroey added.
The partnership agreements between EU and African countries are expected to come into force on Wednesday, October 1, after the lapse of the period set aside for negotiations and ratification of the agreement. The EAC is the only trade bloc in Africa that is yet to sign an EPA agreement with the EU.
The EPAs are trade and development agreements negotiated between EU and African, Caribbean and Pacific regions, aimed at strengthening integration.
The change of trade regime will see Kenyan exporters lose millions of dollars in foreign exchange as their products, mainly flowers and fresh vegetables, will become more expensive than those of their competitors from Tanzania, Ethiopia and Colombia, among other countries.
Kenya exports flowers to the EU worth Ksh46.3 billion ($537 million) and vegetables worth more than Ksh26.5 billion ($307 million) annually. The EU takes about 40 per cent of Kenya’s fresh produce exports.
Negotiation for the EPA between EAC and EU started in 2007 with the initialling the framework on November 27, of that year. Unfortunately, the two blocs have failed to agree, prompting the postponement of the deadline several times.
Mr Kibicho said if the two teams had agreed on a document by May this year, the EAC trade bloc would have met the September 30 deadline, and continued enjoying duty-free quota-free access to the EU market.
The final document signed in Arusha, which stipulates the EAC’s common stand, proposed that “EU to prepare a legal instrument for purposes of avoiding disruption to preferential market access.”
Dr Kibicho said this was important to enable exporters from Kenya to continue selling their products duty-free to the EU.
“If EAC fails to reach an agreement with the EU, Kenya will lose about Ksh12 billion ($140 million) per year. The figure could rise to Ksh18 billion ($209.3 million) if you factor in processed products entering the EU,” said Jane Ngige, the Kenya Flower Council chief executive.
Only Kenyan exports would be taxed because other EAC countries are categorised as least developed countries, meaning they will continue enjoying duty free access to the EU market, so long as they observe the rules of origin requirement.
Mr De Vroey said the EU was concerned about the lack of awareness by Kenyan producers and exporters of the change in the trading regime.
“The EU calls upon the Kenyan Government to notify appropriately its constituency of the new trade regime with the EU,” Mr De Vroey added.
He, however, said the EU remains confident that a deal is reachable and was looking forward to a continued constructive dialogue with the EAC.
Even as the EAC hurried to finalise the negotiations, the Executive, Head of Economic Transformation and Trade Programme, at the European Centre for Development Policy Management, San Bilal, urged member states not to sign the agreement in haste, lest they came to regret later.
In an e-mail message, Mr Bilal said EAC should preserve its unity and refrain from concluding a bad EPA “simply for the sake of preserving the free access to the EU market for Kenyan cut flowers and some vegetables.”
“My guess is that there are almost there, and are likely to conclude a satisfactory deal for both sides. But if not, better not conclude an EPA that EAC members would not find good for their long term development,” he added.
Dr Kibicho has expressed similar sentiments, saying the unity and integration of EAC had to be maintained even though Kenya would be the biggest loser in the delay in signing the agreement.
“There is no deadline for negotiation, we can continue well into 2015. However, the earlier such deal is sealed, the shorter will be the gap GSP tariffs will be applied,” Mr De Vroey said.
On the contentious issues, the Council of Ministers took the position that duties and taxes on export should be enforced on a limited number of products for a limited period of time and be reviewed by the EPA Council with a view to renew after 48 months.
By Christabel Ligami, Jeff Otieno and Yvonne Kawira