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EPA: To sign or not to sign? That is the question for EAC partners

Saturday May 20 2017
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A variety of rose flowers during the 2016 Naivasha Horticultural Trade Fair. Failure to sign and ratify the European Union EPA as an East African bloc threatens Kenyan fresh produce exporters’ hopes of remaining on its preferential list on certain taxes. PHOTO | FILE

The European Union has conceded that removal of duties and taxes on goods traded with East African countries under the Economic Partnership Agreement will lead to loss of revenue. But it says these would be recovered through increased East African exports to Europe.

A report by the EU on the impact of the EPA on the EAC dated February 2017, cautions that signing the contentious trade agreement by individual member states rather than as a bloc would undermine regional integration.

Similar sentiments have been shared in a study commissioned by the EAC secretariat.

The EU study shows that tariff revenues accruing from EU imports would fall by $169 million. It remains unclear how the findings of these two studies could influence the decisions by Tanzania and Burundi, who have refused to sign the trade agreement on the grounds that the pact has failed to take care of their interests.

READ: EU woos Tanzania to sign trade deal

Kenyan horticulture, which accounts for around 20 per cent  of the country’s exports (bringing in almost $1 billion), is the sector most likely to be hard hit if the EPA is not signed.

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According to the two studies, EAC’s total exports to the world would increase by 1.1 per cent and imports by 0.9 per cent if the EAC-EU pact is implemented.

It is argued that EAC countries would import more from Europe (imports would grow by 13 per cent) and less from other countries such as China and India.

Currently, Europe is East Africa’s largest export destination, but in terms of imports, the EU ranks third after China and India.

The studies however differ on the level of economic activities and welfare gains to be realised from the trade agreement.

According to the EU, the gross domestic product of all EAC countries would grow by an average 0.3 per cent and welfare by 0.2 per cent.

Kenya biggest loser

But the EAC study done by the United Nations Economic Commission for Africa shows that welfare in the EAC would reduce with most of the losses occurring in Kenya ($45 million) while the EU will register a welfare gain of $212 million.

According to the EAC study implementation of the EPA would put the EAC at the risk of losing trading opportunities with other partners and only trade with the EU would benefit from the arrangement.

“The lack of value addition in manufacturing compounds  losses to the EAC  with local industries being unable to withstand competitive pressures from EU firms, and the region getting locked even more firmly in the role of a low value-added commodity exporter,” according to EAC study.

READ: UN body warns region against signing trade deal with EU

Other concerns raised by the EAC study include the fact that the EU is still heavily supporting its agriculture by providing subsidies worth nearly hundred times the level of spending on the sector by the EAC governments.

Kenya and Rwanda appended their signatures to the trade pact in Brussels last year while Uganda said it is keen on signing the agreement given that the partner states have a five-year window to review the contentious areas.

Economic interests

Tanzania and Burundi maintain their unwillingness to sign the contentious pact.

Tanzania said it would not sign until it has done an in-depth analysis taking into account the prevailing circumstances, particularly with regard to issues such as Brexit.

Tanzania had demanded that the EAC Secretariat conduct a study on the effects of the EPA on the Community as this would bring about regional perspectives on the concerns they have raised with Burundi.

In November last year, Tanzania’s parliament voted for the country not to sign the EPA  arguing that competition from duty-free imports from the EU would  kill her  nascent  industries  while Burundi maintained that they would not sign the pact  given that  her economic interests  are not taken into account.

Burundi faces soiled trade relations with the EU after her exports were banned in Europe.

READ: Respect rights to unlock aid, EU tells Burundi

Kenya has signed and ratified the agreement while Rwanda has only signed.

Burundi has indicated that it is not in a position to sign it because the EU has suspended relations with the government, but has maintained co-operation with the private sector and civil society.

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