A worker at Oserian Flower Farm packs a Bouquet of roses for export. Kenya’s annual custom tax collection is expected to drop by Sh16.5 billion ($193.8 million) if tariffs on European products are removed under a proposed economic pact. Photo/FILE
What you need to know:
South Centre, an international policy institution, has said that the direct revenue loss would outstrip the Sh10.4 billion ($121.8 million) that Kenya would realise from increased trade with Europe.
A January 2014 deadline for concluding the decade-old talks was recently extended to January 2016 by the European parliament at the request of the African Union.
Among the least developed countries, Uganda’s private sector has cautiously expressed support for EPAs.
Kenya’s annual custom tax collection is expected to drop by Sh16.5 billion ($193.8 million) if tariffs on European products are removed under a proposed economic pact.
South Centre, an international policy institution, has said that the direct revenue loss would outstrip the Sh10.4 billion ($121.8 million) that Kenya would realise from increased trade with Europe.
(Read: African states should assess economic relations) “The magnitude of loss can be gleaned from current statistics which show that even with current tariffs, imports have been growing at a faster rate than exports,” South Centre’s Trade Policy Advisor Aileen Kwa told the East African Legislative Assembly’s (EALA) committee in charge of international trade.
Ms Kwa said that apart from tax losses, the Economic Partnership Agreement (EPA) that the region is negotiating with European Union would stifle expansion of industries and restrict trade with other partners. The Switzerland-based agency estimates that this adverse impact would cost Sh100 billion.
EALA’s international trade committee is seeking views from member states as the East African Community (EAC) prepares to resume negotiations with the European Commission on contentious EPA provisions.
A January 2014 deadline for concluding the decade-old talks was recently extended to January 2016 by the European parliament at the request of the African Union.
“We are strongly opposed to EPAs because they demand full liberalisation of industries by 2033, the same year we target industrial takeoff under the EAC,” said Rebecca Muna of Tanzania’s Private Sector Foundation.
While Tanzania, Uganda, Rwanda and Burundi, all classified as least developed countries (LDCs), can trade with EU under preferential terms even after the region fails to meet the EPAs deadline, higher tariffs would be levied on Kenya’s exports. The country’s exports to the EU – mainly horticulture and fisheries – brought in hard currency worth Sh134.9 billion last year, against an import bill of Sh255.4 billion.
Kenya has been pushing for conclusion of the trade negotiations saying uncertainty was not healthy for the capital-intensive horticultural sector.
“The EPAs will address the current supply-side constraints since Europe already accounts for 24 per cent of our external market opening,” Kenya’s trade PS Abdulrazaq Ali said at the EALA conference.
However, he added that Kenya would follow the option preferred by EAC as a bloc.
EAC members have taken issue with EPA’s Most Favoured Nation (MFN) clause, which prevents signatories from entering into bilateral pacts with other partners on areas where the EU does not enjoy preferential terms.
The EAC, which has lately shifted its diplomatic and commercial focus eastwards to Asia (mainly India and China), sees the MFN clause as an attempt to control their choice of economic partnerships.
Early this month, EAC signed an expression of interest to build trade and investment relations with the US.
Also controversial is the demand by the EU that developing countries stop levying export taxes on raw materials, threatening revenue from commodities whose main market is Europe.
“We are not comfortable with EPAs text to the extent that they attempt to dictate our regulations and choose friends for us,” said James Ndahiro, an EALA legislator from Rwanda.
For EAC as a region, the South Centre estimates that 68.6 per cent of products that the five countries are able to produce from domestic resources face stiff competition from products of EU’s efficient firms after liberalisation.
Among the least developed countries, Uganda’s private sector has cautiously expressed support for EPAs.
“EPAs must be signed by the time the new deadline lapses to put pressure on governments to invest in boosting the investment climate before full scale competition in 2033,” said Uganda’s Private Sector Foundation’s Economic Policy director, Moses Ogwal.
The South Centre, however, wants EAC countries to reject current EPAs text and demand that each country be allowed to liberalise its sectors according to its level of development.
Alternatively, EAC as a whole should be treated as an LDC custom union, giving non-LDC Kenya an opportunity to trade under Everything-but-Arms without having to sign EPAs.
Kenya is a signatory to 26 out of the 28 international conventions required to qualify for EU’s generalised scheme of preferences (GSP plus).
South Centre recommends signing the two remaining conventions (on ILO and genocide) to qualify for duty-free and quota-free treatment of its goods without committing to EPAs.
“Otherwise, Kenya and other African governments which have shown interest in signing for EPAs have only looked at the cost of not signing without reviewing the risks of joining EPAs,” Yash Tandon, special advisor to the South Centre said as he asked EAC to reject EPAs.
