Relief for exporters as Kenya signs new trade deal with EU

Kenyan exporters eyeing European markets on Tuesday got relief from a looming tax burden after the government signed a new Economic Partnership Agreement (EPA) with Brussels.

The Ministry of Foreign Affairs and International Trade on Tuesday evening announced that the EAC states had finally signed an agreement with the European Union, two weeks after the initial deadline lapsed.

“The three areas that remained outstanding namely: export taxes, export subsidies and relationship between Cotonou agreement and EPAs were all agreed upon in favour of Kenya,” the ministry said in a statement, adding that successful conclusion of the negotiations would enable Kenya to continue enjoying duty free and quota free access to the European markets.

The EU on October 1 entered goods (including fresh produce and cut flowers) from East African Community (EAC) member states into a higher tax bracket, having failed to agree on a new trade deal with the region after more than a decade of negotiations.

Failure to sign a new trade agreement left Kenya, which recently entered the lower middle income bracket, as the only EAC country that would shoulder the new tax burden – its partners in the region having an alternative tax free terms as low income nations that have unfettered access to the European markets.

Poor countries have tax free access to European markets under the everything but arms clause that operates outside the EPAs regime.

Kenya’s flower industry stood to lose the most under the EU’s new tax regime that kicked during the peak season that starts in October. Other exporters such a juice maker Del Monte expected a steep rise in the cost of accessing the key EU market.

Kenyan exporters were expected to lose Sh100 million every week in taxes paid to access EU markets beginning this month.

The taxes were ultimately expected to make Kenyan goods more expensive, reduce on sales volumes and ultimately cut foreign exchange inflows.

Kenyan exports to the EU have since January 1, 2008 enjoyed preferential, duty free access to European markets under special arrangements.

From October 1, the arrangements were only to be reserved for countries that have concluded negotiating new Economic Partnership Agreements (EPAs) with the EU.

“From October 1, 2014 most Kenyan agricultural exports will be subject to EU GSP tariffs. Some goods will still benefit from a zero per cent tariff-line, such as coffee beans, tea and carnations.

The duties will still be lower than normal EU tariffs on goods from non-GSP countries,” the EU said in a statement on September 22.

Besides the taxes, Kenyan exporters to the EU were to face stringent measures meant to ensure only products originating from the region benefit from the preferential terms.

In addition to the certificate of origin, exporters are also required to submit a commercial invoice, customs value declaration, freight and insurance documents and packing list among others.

“In order to benefit from EU preferential duty rates, Kenyan products must be accompanied by a document proving their origin,” the EU said, adding that the document would have to be presented at the border for customs clearance.

“As of October 1, 2014 the current ‘EUR1’ form for proving origin must be replaced by the certificate- GSP Form A,” the EU said, sending exporters into panic.

Kenya and other EAC countries have been using a special clearance form known as Euro 1 (EUR1) to access European markets.

The form is issued for goods originating from all Africa Caribbean and Pacific (ACP) countries (under a preferential trade arrangement) destined for the EU market.

The five East African Community (EAC) member states signed an interim trade deal with Europe in 2007 guaranteeing duty and quota-free access to EU market. This was upon expiry of the non-reciprocal trading arrangement based on a WTO waiver granted in 2001.

But years later, the member states were yet to agree on a new trade platform breaching several self-set deadlines to conclude the negotiations.

Signing of the EPA deal was partly delayed because East Africa states wanted a provision for special export taxes to protect certain sectors they consider sensitive and to discourage export of raw materials to Europe in favour of value addition by local industries.

Soon after reaching Tuesday’s agreement, Principal Secretary Karanja Kibicho, who was part of the Kenyan government delegation to Belgium, took to Twitter to announce the deal.

“Finally, we have a deal. Readying my pen for the initialing of the EAC-EU EPA agreement,” said Mr Kibichio.

“Thank you fellow Kenyan’s for the patience. Thank you EAC member states for the support.”