Kenya exports to EU face taxation in trade agreement stalemate
A worker with roses for export at Maridadi Flowers Limited in Naivasha: Kenya risks taxation on its exports to Europe. REUTERS
Europe has issued a fresh warning of possible revenue losses for Kenya should the East African Community (EAC) fail to reach a trade deal soon.
Kenya risks taxation on its exports to Europe by virtue of economic strength if the trade talks stall, Mr Bernard Rey, head of the European Delegation told players in the horticulture sector last week.
“EAC should realise the risks of the current situation of uncertainty. Burundi, Rwanda, Tanzania and Uganda, all are least-developed countries, will enjoy duty-free quota access to the EU markets even if the EPA (economic partnership agreement) is not signed,” Mr Rey said.
“But Kenya will risk seeing tariffs imposed on a good number of exports to Europe including horticulture products,” he said. An EPA is the only recognisable trade instrument through which East Africa will safeguard its preferential relations with Europe in the future as the world shifts from the previous non-reciprocal trade deals.
The government has set the official growth target at six per cent this year, up from last year’s five per cent, making Kenya’s economy by far the largest in the East African region. This raises fears that only its produce faces tariffs and export quotas in Europe, since the rest of the members are least developed countries (LDCs).
Under the pact’s legal framework, EU has offered 100 per cent duty free market access with exception to ammunition and transitional arrangement for sugar and rice in exchange for 82.6 per cent liberalisation of trade with EAC subject to an exclusion list accounting to 17.4 per cent to the trade.
Trade pact
The EU said it was concerned that negotiators from the East African team are yet to respond to its latest move to relax their position over the terms that need to be met for a new trade pact with East Africa to be concluded, frustrating the talks.
“We have decided to focus on a limited number of open issues and postpone discussions in areas like services since this approach appears to be the only chance to conclude the EPA in a reasonable time frame. However, the EU has not received any feedback on this proposal,” Mr Rey said.
Kenya exported a total of Sh100.3 billion worth of goods to Europe under preferential terms last year, and imposing the tariff before the talks are finalised will expose the country to huge losses in foreign exchange.
The region —under the EAC bloc— has been negotiating the contents of EPAs with European Commission since 2007 — the deadline that World Trade Organisation gave its members to scrap all the non-reciprocal preferential trade agreements such as the ones Europe used to extend to its former colonies.
For Kenyan exporters, this legal void has created a lot of uncertainty. They cannot tell for how long the European Commission will continue to extend the preferential trade relations.
And even as those preferential terms last, exporters are well aware of the enormous risk they are exposing themselves to since there is no treaty to turn to in case of a dispute.
“Growers are looking to the EU being an important destination for the Kenyan products to hasten the negotiations and provide assurance that whatever happens, Kenya, under special circumstances, will not be worse off,” said Kenya Flower Council in a statement.
Close to 80 per cent of the Sh70 billion worth of horticultural produce that Kenya exports every year is purchased in Europe.
