Personal Finance

Kenya, China trade banks on diplomacy


Kenya threatened to impose some sanctions over fish imported from China due to rising competition with the local industry. FILE PHOTO | NMG

Recently, China threatened to withdraw funding for the Standard Gauge Railway (SGR) project alleging hostility by the Kenyan government.

Kenya threatened to impose some sanctions over fish imported from China due to rising competition with the local industry.

This looming dispute may have negative impact not only due to the threatened withdrawal of funding, but it may affect Kenyan-Chinese relations which have been largely good.

There have generally been a lot of complaints in the market about unfair trade practices by a section of unscrupulous Chinese traders. Some allegations include racism, exploitation of workers, sub-standard goods, infringement, counterfeiting and infringement. It is not clear if these allegations have been verified however if true, they only serve to weaken the relationship.

My opinion on the Chinese threats to withdraw funding is that it was an overreaction and a bit reflective of an intimidating approach. A number of scholars have decried Chinese breaches of some World Trade Organisation(WTO) provisions as being unfair in a world that is increasingly resorting to liberalisation. The argument has been that Chinese resort to severe protectionist measures when it comes to their domestic industries and skewed trade balances in their favour.

The looming US-China trade war is an example of this approach where in fact the US threatened to sue China at the WTO due to frequent WTO breaches.

Kenya may resort to protectionist tactics in order to protect its local industries. Under the General Agreement on Tariffs and Trade (GATT) provisions, dumping is not illegal. Dumping occurs when there is an influx of imports whose price is cheaper than the products available in the domestic market.

The effect of dumping is that severe competition from the imports may adversely affect the domestic industry. Protectionism occurs where a country uses the law and trade tariffs to correct the situation.

Kenya is allowed under WTO and GATT rules to protect its local fishing industry from competition by the imported fish from China. Some of the tactics could be using taxes and tariffs to raise the price of the commodity in the local market. It is essential for Kenya to protect its fishing industry and any other sector that may be threatened by dumping.

A collapse of the fishing industry would affect many livelihoods and even have an effect on the economy. It is not illegal for Kenya to resort to protectionism.

On the other hand, China may opt to have retaliatory protectionism instead of resorting to threats and intimidation.

While the dispute may not be necessarily a trade war, it is important for it to be managed using diplomacy and negotiations from both sides. A trade war with Kenya would have repercussions on both countries.

Currently diplomacy seems to be working. Kenya is in the process of negotiating a bigger market access for exports to China, for some specific sectors. The trade balance between Kenya and China is a whopping 95 per cent in favour of China.