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Ideas & Debate

Kenya-US free trade deal won’t come easy

 

Some 38 African countries are eligible for benefits under the African Growth Opportunity Act (Agoa) and the ongoing negotiations for a Free Trade Agreement (FTA) between Kenya and the US should be a concern to all of them, especially the least developed.

The concern is that the model agreement proposed by Washington is a FTA and not a development cooperation agreement such as that signed between the US and the Southern African Customs Union (SACU).

The US’ trade policy towards Africa, is centred on Agoa which expires in 2025, and on the model FTA initiative. This means the US is looking to replace Agoa with a reciprocal, comprehensive and ambitious high standard FTA with Kenya, that can serve as a model, a template for additional agreements across Africa.

Agoa’s greatest success is in creating a new manufacturing sector in Africa, most dramatically the case of textiles and apparel. However, Africa cannot rely on one successful sector to negotiate an ambitious FTA with a super power like the US.

The key to the success of the Agoa apparel programme has been the deal’s generous rules of origin, including in particular the “third-country fabric” rule. It will be important for Kenya to negotiate Agoa Plus rules of origin in labour intensive sectors.

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Africa’s non-apparel sectors have shown limited response to the market opportunities that Agoa offers and are limited to low value agricultural exports and oil. Agricultural products are a promising area for Agoa trade; however, much work needs to be done to assist African countries in meeting US sanitary and phytosanitary standards.

Kenya should learn from the Southern African Customs Union (SACU) countries and negotiate development cooperation agreement along with EAC customs union Partner States. Unfortunately, however, Burundi and South Sudan are currently ineligible for Agoa.

According to reports, the US began negotiating an FTA with SACU- however the talks stalled, largely because of the US’ extreme and inflexible demands towards Africa regarding intellectual property rights, investment and intellectual property, including patents on drugs and seeds — even market access commitments which would have been quite radical for SACU countries.

The US-SACU engagement had more than six full rounds of FTA negotiations, after which the parties agreed to suspend discussions and pursue an alternative, interim development cooperation agreement that could establish building blocks leading the United States and SACU to an FTA in the longer term.

To negotiate with the US, Kenya needs significant development assistance and capacity building such as what was provided by the European Union before and during the EPA negotiations. It will require detailed analysis and impact assessment studies to determine the benefits the US model FTA provides for Africa’s development and for the Africa Continental Free Trade Area.

Furthermore, the US is predominantly a services economy and is looking to negotiate all services and investment sectors. This is significantly more ambitious than the EAC Common Market and should be a cause for apprehension. Services sectors employ over 75 percent of the US workforce and generate three quarters of national economic output.

The US has FTAs in effect with 20 countries but none with Sub Saharan Africa. This should be a cause of concern for Nairobi. These 20 FTAs build on the foundation of the WTO Agreement and WTO negotiations, US laws and the recently revised high standard US-Canada-Mexico Agreement (USCMA).

The US seeks an ambitious agreement that goes beyond WTO negotiations, regional integration agreements and into areas such as digital trade, state trading enterprises and anti-corruption.

The US is also negotiating using a negative list. When using a positive list, a party has to explicitly (“positively”) list those sectors and subsectors in which it undertakes Market Access and National Treatment commitments. When using a negative list however, the party lists all exceptions or conditions to these commitments.

Kenya has taken steps to improve its business environment in recent years, evidenced by its improvement in the World Bank Doing Business 2020 report which ranked Kenya 56th of 190 economies reviewed, up 24 places from 2018.

Kenya however maintains restrictions on foreign investors, including foreign equity limitations, local content requirements, and limitations on the ownership and control of land.

In light of these issues, the US may pursue strong investor protections and a strong investor State dispute settlement mechanism in all sectors based on US practice and the USMCA.

The proposed Kenya-US FTA should not be used to undermine Agoa’ s renewal beyond 2025. US Congress has the authority to renew Agoa and usually does so with little or no opposition.

President Donald Trump will also not be President when AGOA expires in 2025, should he be blocking its renewal.

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