With fanfare and ceremony, Kenya last month signed the long-awaited Economic Partnership Agreement (Epa) with the European Union, effectively cementing a quota-free, duty-free access to the European market by local exporters.
But, in spite of the much-touted benefits, the deal awaiting endorsement by the European parliament will not change much, at least not in the short term, because Kenya already enjoys duty- and quota-free trade with the EU under a temporary special arrangement in place since 2014 after East Africa Community (EAC) partner states abandoned Nairobi in pushing the agreement.
Experts say the signing of the pact in State House Nairobi on June 19 affords Kenya the certainty it required to attract investors from Europe.
The private sector in the region has also come in support of the deal, noting that it will create more opportunities for business.
“Most of what we have heard about the Epa is linked to climate change and environmental conservation, which is good, but it should take squarely into account the development of Kenyan businesses that benefit the majority.
And, in that vein, because of our EAC aspirations, it should benefit all East Africans,” said Simon Kaheru, vice-chair of the East African Business Council.
He urged all EAC partner states to take interest in the agreement, “so we pay more attention to erasing borders when it comes to production and trade and all other economic activities.”
“This particular Epa already recognises that the EAC and will be a success for the Community if Kenya signs it as our arrow head,” Mr Kaheru said.
The Epa remains open to accession of the EAC Partner States despite opposition from a section of civil society.
“The Epa is bound to provide opportunities for value-chain integration across the EAC and the EU, which will enable businesses in the region to engage in value addition rather than exporting products in their raw form, resulting to higher returns for businesses in the region,” said Maurice Mwaniki, associate director of Indirect Taxes at PwC Kenya.
The pact includes a dedicated trade and sustainable development chapter that covers aspects such a commitment to implement the Paris Agreement on Climate Change.
“With the implementation of the African Continental Free Trade Area it is important the EAC region seizes this opportunity to make the region a natural manufacturing choice for European businesses seeking markets in the Comesa, SADC and the wider continent,” said Mr Mwaniki.
“It terms of next steps the EU-Kenya Epa will now go through legal revision, followed by submission to the EU Council for signing and subsequently transmitted to the European Parliament for consent. Thereafter the EU Member States and Kenya will ratify it.”
Economist Frederik Stender, who works on trade policy and regional economic integration issues at the German Institute of Development and Sustainability, told DW that the EPA is not just about trade; it also contains "a development perspective" for Kenya.
Kenya has agreed to enforce binding commitments related to environmental protection, climate action, fighting gender inequality and strengthening labour rights.
It also includes trade-related development assistance to tackle some factors limiting Kenya’s exports, such as lack of productive capacities, infrastructure, human capital and capacities to comply with EU standards, Mr Stender said.
President William Ruto pushed the deal despite criticism from Kenya’s EAC partners that it will, in the long-term, impact the region’s Common Market.
More delays in concluding the deal would have locked the country out of the EU market.
Kenya is also eyeing EU development funds, which it desperately needs to turn around an economy suffering from internal and external shocks, dwindling forex reserves and a battered shilling.
While witnessing the signing of the deal President Ruto said that despite exporting mainly horticultural produce to the EU, the agreement would, in the long term, benefit the country in expanding its portfolio of exports to the 27 EU member states.
“The agreement will grant Kenyan products immediate duty-free, quota-free entry into the EU from the day it comes into effect. And, in recognition of our varied stage of progress along the development journey, products from the European Union will progressively receive duty reductions over a period of 25 years,” the President said.
“Beyond trade, the agreement is also designed to stimulate investment and manufacturing. Consequently, Kenya is prepared to strengthen its manufacturing sector in order to enhance our exports to the EU globally.”
Kenya mainly exports vegetables, fruits and flowers to the EU valued at $1.3 billion, while importing mineral and chemical products, as well as machinery worth $2.2 billion.
While the trade is skewed in favour of the EU, the EAC is the biggest market for Kenya’s value-added products such as cement, palm oil, coated flat-rolled iron, soap and machinery.
In 2021, Kenyan exports with EAC partners were valued at $2.05 billion, with imports of $837 million.
Dr Ruto argued that although the EU is already Kenya’s largest export destination, accounting for 21.1 percent of total exports, the EPA provides significant opportunities.
“It assures a stable market for industrialists, mostly in the European Union, that deal in machinery and mechanical appliances, pharmaceutical products, chemicals, electrical machinery, beverages and other processed products,” he said. “It signals our long-term commitment to ensure that farmers — including those in the flower, coffee, tea, fish, peas, and the edible fruits and nuts sectors — are assured of a predictable market.”
The EPA was initially meant for the EAC. The negotiations began in 2002 and were concluded on October 16, 2014.
EAC-EU agreement was scheduled to be signed on July 18, 2016, but Tanzania threw a spanner in the works, when it refused to sign it, saying it would have far-reaching implications on it industrialisation agenda and the region at large.
Dodoma argued that for the EAC, the African market would the primary market for its manufactured exports.
“In contrast, 91 per cent of its current trade with the EU is made up of primary commodity exports (agricultural products such as coffee, tea, spices, fruit and vegetables, fish, tobacco, hides and skins). Only a minuscule 6 per cent or about $200,000 of EAC exports to the EU is composed of manufactured goods.
In contrast, of the total EAC exports to Africa, almost 50 per cent is made up of manufactured exports – about $2.5 billion,” said former head of state Benjamin Mkapa.
“These figures tell two stories. One, the importance of the African market for the EAC’s aspirations to industrialise. In contrast, the EU market plays almost no role in this.
Two, the EAC internal market makes up 60 per cent of its manufactured exports to Africa. Thus, the EAC regional market is extremely valuable in supporting the Community’s industrialisation efforts.”
Burundi could not sign it because at that time it was still under EU sanctions.
Rwanda and Kenya signed the agreement on September 1, 2016, with Nairobi ratifying it on September 20, 2016.
Uganda has been non-committal.
Indeed, in his meeting with the then European Union Commission president Jean-Claude Juncker on September 28, 2017, President Yoweri Museveni, who was then the EAC chairperson, said that key among the concerns by the EAC on the Epa was the question of strategic industrial development.
And now, a Uganda-based NGO that works to promote pro-development trade in the EAC has come out to oppose the Kenya-EU Epa, citing a probable breach of the EAC Customs and Common Market requirements on liberalisation of trade.
It says it will petition the East African Court of Justice to stop the deal.
The Southern and Eastern Africa Trade Information and Negotiations Institute (Seatini) Uganda says that the EAC Secretariat should undertake a cost-benefit analysis of the impact of the Epa on the economies.
“This will enable EAC partner states to rationalise the decision on whether to sign/ratify or not from an informed point of view. This had earlier been requested by the Government of Tanzania in 2017,” said Jane Nalunga, Seatini Uganda executive director.
“There were contentious issues that were never resolved. Further, there are new chapters, such as the sustainability chapter, which we haven’t negotiated. So, for EAC to agree to append a signature on an agreement they haven’t negotiated will be very unfortunate. We are going to petition this Epa at the EACJ.”
Rangarirai Machemedze, coordinator of Seatini Southern Africa, raised an issue with the way the deal was designed — “without providing incentives that had been agreed on in the early negotiations.”
“Africa is a 1.2 billion people market, and that is what Kenya should be focusing on, and not the EU. We are in a position to dictate the terms to EU and not the other way round,” he said.
Richard Okot Okello, assistant commissioner in Uganda’s Trade Department, said the EPA had been overtaken by events.
“We cannot go back to signing the EAC-EU Epa. It has to be reviewed and renegotiated so that new issues that have emerged and evolved over time can be incorporated in the revised agreement,” he said.
Okello cites the entry of South Sudan and DR Congo into the EAC after the negotiations were concluded, and whose interests have to be included in the agreement.
Mr Okello, however, believes that an EAC-EU Epa would create certainty in trade with Europe, unlike the “Everything But Arms” arrangement (Eba), which cannot be renegotiated when removed.
Seatini has always argued that the application of the EAC asymmetry that Kenya and EU are basing on to sign the Epa could be a misapplication by both parties to undermine the EAC Treaty.
The principle of Variable Geometry is provided for in the EAC Treaty and allows for progression in cooperation among groups “within the Community for wider integration schemes in various fields and at different speeds”.
“The proposal to evoke Variable Geometry in the Epa is a misapplication of this principle. There is no doubt that this principle applies to integration within the EAC and does not apply to third parties,” said Ms Nalunga.
“If wrongly evoked, as recently applied by Kenya, it will lead to unintended consequences of fusing the EAC in the EU Free Trade Area.
This is because if Kenya implements the Epa, it will be part of the Free Trade Area with the EU and by default the entire region will be, given the fact that the EAC has a common external tariff.”
The EAC is a predominantly a Least Developed Country (LDC) region, which is already enjoying a duty-free, quota-free market access to the EU, with only one lower middle-income economy, Kenya.
The deal Kenya has initialled was agreed on by the EAC Summit on February 27, 2021.
“The EU-Kenya Agreement will retain potential to evolve as an intrinsic feature, insofar as it shall remain open to accession by EAC partner states, in line with the decision of the Summit, which recognised the need to permit some partner states to move forward and commence engagements with the EU with a view to starting the EU-EAC-Epa implementation under the Principle of Variable Geometry,” President Ruto said.
The principle of Variable Geometry is an approach in regional integration that allows member states flexibility to choose differentiated speed towards integration.
EU’s Executive Vice-President and Commissioner for Trade Valdis Dombrovskis supported Dr Ruto’s sentiments.
“The EPA is an important trade and development tool and its implementation with Kenya would be a building block towards regional economic integration. We encourage other members of the EAC to sign and ratify the Epa,” he said.
The EU is eyeing the larger East African market and Kenya is a perfect entry point, not only to the EAC but to the continental free trade area as well.
“Noted that the EAC is yet to put joint frameworks for some issues, for example, government procurement and intellectual property rights. The contentious issues raised by President Museveni and Tanzania which have led to the dragging on of the EU-EAC-Epa negotiations for more than two decades and are yet to be resolved,” said Ms Nalunga.
These contentious issues are still valid today, given the polycrisis of debt, climate change and economic crises facing the region and given the fact that the EU-EAC Epa is still the same other than the addition of a sustainability, climate and labour issues.
Seatini further argues that the Epa being a free trade agreement, will allow cheap imports into the region, thereby endangering a fragile EAC economy.
“What is more revolutionary is that, for the first time, the EAC, a relatively poor region, is being required, albeit in a phased manner, to enter into a full reciprocal FTA with a much more developed partner, with its attendant negative consequences,” Ms Nalunga argued.
According to the agreement, the region has offered to liberalise 82.6 percent of her imports from the EU over a 25-year period by initially liberalising 65.4 percent on coming into force of the agreement.
“The rationale is that some of these products are currently zero-rated because they are either industrial inputs or capital goods, for instance, machinery and pharmaceuticals,” Nalunga added.
“Only 17.4 percent (1,432 tariff lines) have been excluded from liberalisation to presumably cater for the protection of the sensitive products and infant industries. This liberalisation seems to be taking a static approach to development which does not envisage Uganda and the East African region graduating to producing either industrial inputs or the capital goods.”
Ms Nalunga cited the pharmaceuticals sector as one of those that will be impacted by the Kenya-EU Epa.
“While we may need to zero-rate pharmaceuticals at this stage because we need cheap and affordable medicines, we should be looking forward to producing these pharmaceuticals in future. The zero-rating and the Standstill clause (Article 12) effectively constrain the policy space for the region to achieve this aspiration,” she said.
“The 25 years provided for the completion of liberalisation process may appear long in the life of an individual but it is actually a short period in the life of a nation.”
She further argues that the liberalisation schedule, on the face of it, caters for the protection of infant industries and sensitive products, but a careful examination of the schedules brings out clear contradictions.
“For example, on one hand, the EAC has protected maize flour at a duty rate of 50 percent yet, on the other, maize) starch, which is a by-product of maize flour, has been liberalised. These contradictions equally apply to products like cassava and potatoes,” Ms Nalunga said.
“With such a liberalisation schedule, promoting value addition through agro-processing will be constrained and will also compromise food security given the supportive linkages between agriculture and manufacturing.”
But the Kenyan Trade ministry has defended the deal, saying the EU will rely on the EAC Rules of Origin when making exports and therefore will not harm the EAC agriculture sector.
Additional reporting by Kabona Esiara