Personal Finance

Brexit calls for Kenya to renegotiate EPA terms

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Delegates follow proceedings during a trade conference in Nairobi. PHOTO | SALATON NJAU

The European Union finalised negotiations of an Economic Partnership Agreement (EPA) with East Africa Community sometime in 2014.

An EPA is a pact negotiated between the European bloc and various regions with a view to promote trade and development. It is supposed to present a win-win situation between the European Union (EU) by liberalising trade between the EAC and the EU.

Despite the negotiations being concluded, only Kenya and Rwanda have so far signed the EPA. The agreement has been met with uncertainty by the rest of the EAC countries with Tanzania commissioning a study that advised against the signing for various reasons.

The main argument dissuading Tanzania from signing the EPA was the so called negative effects the agreement would have on the region especially on the trade balance. The study argued it would expose the region’s industry to unfair competition from EU imports and lead to closure of such industries.

Good examples include the closure of EAC textile factories due to inability to compete with second hand imports of clothes (mitumba).

Burundi refused to sign due to political reasons. Uganda on the other hand maintained that it would sign the EPA only if there was a consensus with the remaining East African states.

Kenya had a motivation to sign the EPA as it is the only EAC country that is not classified as a least developing country (LDC). That fact meant that it had to sign the EPA so as to retain unlimited duty free access to the EU, which at that time was only available to LDCs.

The United Kingdom (UK) was firmly a member of the EU when the EPA negotiations were taking place. The UK is the EAC biggest trading partner and in fact one of the largest trading partners with exports from Kenya exceeding I billion pounds.

The UK voted to exit the EU in a 2016 referendum and has already invoked the withdrawal clause for an exit date of March 2019. This means that come 2019, the UK position will immensely change.

Given the Brexit, as the exit is popularly know, and the fact that Kenya’s largest trading partner in the EU was and still is the UK, the question remains as to whether Kenya should proceed with the EPA as it is, or should it renegotiate.

It has been argued by experts including a global trading institution that the EPA will likely have some negative impacts.

Other than exposing the domestic industries to a lot of competition there is the argument that the region will lose tariff revenues. In my view it is still too early to tell the impact of the EPA on the region.

However, the Brexit presents Kenya an opportunity to call for a renegotiation of the EPA for two reasons.

One, the Brexit itself is a material change under the Vienna Convention. At the time of signing the EPA the UK was a member of the EU. Kenya could argue that the Brexit is a material change of circumstances and on this strength opt for a renegotiation.

The EU is a major trading partner for Kenya, however, with Kenya’s main EU trading partner out, then it might be prudent for her to weigh the terms of the EPA to derive maximum benefits from it.