Now that Kenya and Rwanda have gone ahead and signed the EAC-EU Economic Partnership Agreement (on Thursday, September 1), putting an end to a torturous nail-biting wait by Kenya’s exporters specifically.
The trade agreement, negotiated over 12 years, was concluded in October 2014. It was set to be signed on July 18 this year. However, some partner states indicated they were not ready to sign then. The reasons Tanzania gave for unwillingness to sign received great publicity.
On July 30, in an opinion piece in The EastAfrican, former Tanzanian president Benjamin Mkapa wrote a critique of the negotiated EPA, urging Tanzania and the EAC in general not to sign it. He argued that the EPA would set back industrialisation in East Africa and reduce government revenue from Customs tariffs due to liberalisation.
The essence of the argument is that the EU should offer market access to developing countries on a duty-free, quota-free basis without expecting these countries to liberalise their own markets regardless of their levels of development.
They present EPAs as arrangements forced upon partners by the European Union that are harmful to industrialisation and a threat to regional and continental integration.
I would like to respond to this critique.
Firstly, the EPAs are not a unilateral decision by the European Union unlike its predecessor – the Lome Convention or the other much touted alternatives available – Everything But Arms (EBA) for Least Developed Countries and the generalised System of Preference (GSP) and GSP+.
The EAC-EU EPA has been negotiated and agreed to by the EAC’s best trade negotiators over a period of 14 years! The negotiations were arduous and thorough. The EAC partner states, following a decision of the Heads of State Summit in 2007, have been negotiating the EPA as one bloc, in order to safeguard the Customs Union.
As negotiations progressed, the technical teams paid close attentions to concerns raised by stakeholders including local industry and smallholder farmers.
So, what has the EAC negotiated for itself?
First, limited additional market opening. The European Union has opened up 100 per cent of its market to EAC partners duty-free and quota-free. The EAC has opened up 82.6 per cent of its total trade – where duties will be reduced to 0 per cent over 25 years.
It must be remembered that by the time market access offers were exchanged, the EAC was already a Customs Union within a liberal framework. It had assigned 0 per cent duty to industrial inputs not manufactured in the region. So the market access offer was based on the duties in the Common External Tariff.
It is therefore incorrect to present the liberalisation as specific to Europe. These goods can be imported from anywhere in the world. Since no duties are paid on them, the argument of loss of revenue is greatly overstated.
Therefore, additional market opening is only about 13 per cent – consisting of mostly intermediate goods, which attract a duty of 10 per cent in the CET phased out over 15 years. Only 2.5 per cent are finished goods at 25 per cent duty.
Most critical, the EAC has not liberalised its market for agricultural goods and goods where it has a comparative advantage. This constitutes 17.4 per cent of its trade.
In addition, the negotiators extracted an agreement that similar European goods that benefit from subsidies will not be sold in the EAC.
The argument that EPAs threaten EAC’s smallholder farmers and agricultural sector is, therefore, not supported by the agreement negotiated.
Second, the EPA provides for flexible and asymmetrical rules of origin, guided by the industrial development levels of the EAC states.
Third, the EAC negotiators secured uniform market access for all the East African partners. The other market arrangements available to the partner states – EBA, GSP and GSP+, while offering duty-free, quota-free market access, are unilateral, are subject to rigid rules of origin and more importantly are “disciplined” by European rules should the exports grow to significant volumes. In effect, these are affirmative action arrangements that expire with the growth of the countries’ economies!
The EAC negotiators opted to provide for a growing bloc. All EAC countries have enjoyed positive growth rates over the past 10 years. Kenya is already a lower middle-income country while Tanzania, Uganda and Rwanda are not far behind and expected to cross the threshold over the next 5-10 years.
The unilateral market offers of EBA and GSP will not apply forever. It was important to secure an arrangement that would signal predictability to investors.
The European market is a significant one for the EAC states – for most it is the second largest after the bloc itself. For Kenya, at $ 1.5 billion, it represented 32 per cent of its exports in 2015.
For Tanzania, its EU-bound exports of $800 million represented 23 per cent of the total. These are not markets that can be easily replaced and represent critical investors in our nations’ economies.
Kenya and Rwanda’s signing of the EPA is a strong signal that the two countries consider the negotiated framework superior to other unilateral market offers available to those who wish to trade with Europe. It is hoped that the other EAC partner states will also conclude internal consultations and sign the EPA so all can benefit from the provisions of the agreement.
Betty Maina is Principal Secretary in Kenya’s State Department of East African Community Integration.