The United Kingdom (UK) has opened a window for Kenyan goods such as apparel and agricultural products to enjoy lower or zero tariffs despite being a lower middle-income economy.
The UK this week listed Kenya’s neighbours among them Uganda, Ethiopia, Rwanda and South Sudan including other 65 developing countries as beneficiaries of a new bilateral trade deal that cuts import taxes on hundreds of products from some of the world's developing countries to boost trade links. But it left out Kenya since it was upgraded from the group of the least developed countries.
But the new pact under the Developing Countries Trading Scheme (DCTS) has allowed the three countries including Uganda which is Kenya’s regional top trading partner, to import goods from Kenya and re-export them duty-free into the UK.
Under the deal, Kenya’s neighbours which are classified as least developed countries or LDCs will be able to buy goods in Kenya and export the finished goods to the UK.
“This means that LDCs are able to participate in value chains involving materials from 95 countries and still export their final products to the UK duty-free,” said the UK.
“For example, an Ethiopian exporter to the UK will be able to use materials from Kenya (an EPA country) and treat those materials as originating in Ethiopia provided that they are duty-free in the EPA between the UK and Kenya and meet the EPA PSRs.”
According to a policy paper issued by the State Secretary for the UK's Department of International Trade, Anne-Marie Trevelyan, the scheme will offer lower tariffs and simpler rules of origin requirements for products exported to the UK.
The deal is seen as a fresh effort to cushion the UK economy with its trading partners after Brexit.
Kenya is classified as lower-middle income by the World Bank, which the new British scheme does not apply to. The scheme also does not apply to low and lower-middle-income countries with a free trade agreement with the UK.
Kenya two years ago signed a trade agreement with Britain to ensure the uninterrupted flow of goods between the two nations after Britain transitioned out of European Union trading arrangements.
“The (new scheme) does not apply to countries classified by the World Bank as upper-middle income for 3 consecutive years, or to LICs and LMICs with a free trade agreement (FTA) with the UK,” says the report.
East Africa’s largest economy joined the league of the world’s lower middle-income nations in 2014, having crossed the United Nations’ $1,045 gross domestic product (GDP) per capita threshold after rebasing its economy.
The 2020 Kenya UK deal granted Kenyan goods duty-free and quota-free access for Kenyan exports to the UK.
Brexit was the withdrawal of the United Kingdom from the European Union on 31 January 2020.
Britain is one of Kenya’s most important trading partners, absorbing most of its tea, cut flowers and fresh vegetables exports.
The UK market accounts for 43 percent of total exports of vegetables from Kenya as well as at least 9 percent of cut flowers.
Top goods imports to the UK from Kenya in 2020 were tea, coffee and spices (Sh18 billion), vegetables (Sh11.7 billion), and cut flowers (Sh8 billion). In return, it supplies machinery, cars, pharmaceuticals and electronics.
The latest pact comes at a time British corporate giants such as British luxury carmaker Land Rover, Standard Chartered Bank, British American Tobacco (BAT), and Unilever — which once straddled the Kenyan consumer goods market like a colossus — are struggling to fend off a stiff challenge from the more aggressive and flexible rivals.
Kenya’s preference for countries in the Far East for business and development financing under retired President Mwai Kibaki’s reign and later President Uhuru Kenyatta has dislodged European power-houses including the UK from long-held positions as the leading sources of foreign direct investment (FDI).
This change in FDI pecking order has deepened in the past couple of years as the majority of developed countries — under the shock waves of debt crises — cut back on foreign investment while emerging economies search for opportunities in frontier markets.
Until the end of the Brexit transition period, Kenya enjoyed duty-free, quota-free access to the UK’s markets through the EU’s MAR (Market Abuse Regulation).
As the UK did not replicate the MAR at the end of the transition period, Kenya would have faced an increase in tariffs without a trade agreement or other measures in place.