The fate of the region’s long running search for a binding preferential trade pact with Europe hangs in the balance after the East African Community refrained from providing direction on crucial trade pacts last week.
Lack of feedback from the regional body by the end of this month could leave traders open to higher tax levies and lock them out of established markets.
The economic partnership agreements (EPAs) are seen as the only recognisable trade instruments through which the region will safeguard its preferential relations with Europe in the years to come as the world shifts away from non-reciprocal trade pacts of yesteryears.
In Kenya , where a total of Sh100.3 billion worth of goods was exported to Europe under preferential terms last year, reality is fast dawning on traders that it can only take a miracle for the EAC countries to agree and sign a binding pact with Europe by the end of this month as earlier scheduled.
For Kenyan exporters, this legal void has created a lot of uncertainty in their operations. They cannot tell for how long the European Commission will continue to extend the preferential trade relations.
And even as those preferential terms last, exporters are well aware of the enormous risk they are exposing themselves to since there is no treaty to turn to in case of a dispute.
Their main fear is that should the EAC’s lose the preferential trade terms because of failure to reach consensus at Arusha, only the Kenyan produce face tariffs and export quotas in Europe, since the rest of the members are least developed countries (LDCs)
“When EU governments begin to levy import taxes on Kenya’s horticultural produce, we will lose a big pie of our market because the final prices to consumers will be much higher than those offered by many competitors who have since come up even within Europe itself,” Jane Ngige, the Kenya Flower Council’s CEO told the Business Daily in an earlier interview.
Close to 80 per cent of the Sh70 billion worth of horticultural produce that Kenya exports every year is purchased in Europe.
The region —under the EAC configuration — has been negotiating the contents of EPAs with European Commission since 2007 — the deadline that World Trade Organisation gave its members to scrap all the non reciprocal preferential trade agreements such as the ones Europe used to extend to its former colonies.
Under the pact’s legal framework, EU has offered 100 per cent duty free market access with exception of ammunition and transitional arrangement for sugar and rice in exchange for 82.6 per cent liberalisation of trade with EAC subject to an exclusion list accounting to 17.4 per cent to the trade.
Early this month, EAC secretary- general Juma Mwapachu blamed the delay on electoral politics that has engulfed the region for most part of the year, beginning which saw general elections conducted in Burundi, Rwanda and Tanzania this year. Kenya and Zanzibar also conducted referendum in August this year.
Mr Mwapachu said the region was now ready to restart the negotiations on EPAs after getting funds from donors, a view that has been faulted by some partner states.
“Based on the pace at which things are moving in the region, it is quite safe to predict that the region will not be ready sign EPAs in the next two years,” said a senior government official who cannot be named because of direct involvement in the negotiations.
“If Tanzania suspended her participation in trade negotiations this year because of national elections, we expect similar interruptions from Uganda which is holding her elections next year and Kenya whose election comes in 2012,” said an official who requested not to be named.
Even if the negotiators were to finally to meet and agree on the legal text on EPAs, the process is likely to be prolonged by the many differing voices that have emerged in recent times.
Both the civil society organisations in the region and members of the East African Legislative Assembly (EALA) have vowed to reject any pact that is not equitable and economically beneficial to the region’s citizens.
Gervase Akhaabi, a Nairobi advocate and Kenya’s EALA MP, said even if the region was to be granted 100 per cent access to the European market, local firms still lack the capacity to produce goods that meet the EU’s stringent Rules of Origin.
“EPAs as currently crafted only captures the interest of European countries but totally ignores the economic circumstances of poor African nations,” said
But as uncertainty over the future of preferential trade terms with Europe drives Kenyan exporters into searching for alternative markets to EU, trouble is brewing among the LDCs over what they see as exploitative trade terms with developed nations.
Unlike EPAs, the WTO allows LDCs —which include all EAC member countries except Kenya — to enjoy non reciprocal preferential trade relations with developed nations under the “Everything but Arms” instrument.
The instrument evolved from the Hong Kong Ministerial meeting in 2005 which came up with a declaration that developed countries shall grant duty free, quota free market access to LDCs on 97 per cent of tariff lines.
The meeting also urged the emerging developing countries to grant similar preferences to LDCs to do so. While the call has seen emerging economies such as Brazil, India and China extend quota and duty free status to goods from LDCs, NGOs from Africa are still worried that composition of such exports are mainly primary commodities.
“The 97 per cent tariff lines that is extended to LDCs is made up mainly of natural resources and agricultural commodities which are exported in primary forms while the excluded three per cent include value addition and other sectors that are strategic to the region’s development agenda,” argues Victor Ogalo, programmes officer at CUTS International’s Nairobi resource Centre.
At a meeting held in Arusha early this month, civil society organisations from across Africa drew the battle lines, vowing to press for the change in trade engagement with LDCs when World leaders meet to review the progress of the preferential trade terms next year. Africa is the continent with the highest concentration of LDCs in the world.
In a statement — dubbed the Arusha declaration — released after the meeting, the NGOs said any future preferential trade pacts must recognise trade as a key avenue through which LDCs could achieve significant poverty reduction and development
“LDCs need these preferential schemes to increase exports, create jobs, and attract investment. However, past and present tariff preference schemes remain restrictive and complex, especially in their rules of origin and lack coordination across countries, leading to their suboptimal utilisation,” said the statement that targets the forthcoming United Nations LDC-IV forum in Istanbul.
Nicholas Rudaheranwa, a Ugandan national working at the Economic Affairs Division of the Commonwealth Secretariat said the skewed pacts that poor countries have signed with their developed counterparts have only encouraged export of primary commodities. “Primary commodities have dominated the trade with dominant extractive activities such as fuel and minerals accounting for up to 60 per cent of all LDCs exports in 2009,” said Mr Rudaheranwa.
Despite a general decline of 28 per cent in global merchandise export in 2009, official data indicates that the annual growth rate in merchandise exports from LDCs has grown by 14 per cent between 2000 and 2009 compared to the global average of eight per cent over the same period.
The figures indicate that even in areas where LDCs have tried to diversify into manufacturing, the range of exports was limited to a few labour intensive industries, mostly textile.
The civil society organisations argue that since the African countries lack the capacity to exploit its own natural resources, the pacts signed for preferential trade only end up benefiting foreign investors. “The tax we are deferring to promote mineral export is a massive loss compared to the value of mineral exports,” said Ms Jovita Mayi, an official of the Tanzania-based Sasa Foundation.
African countries want developed countries in EU, US, Canada and Japan to follow their duty free and quota free (DFQF) trade arrangement with friendlier rules of origin to ease access to their markets.
They have also called for development support to diversify their production and export base as well as technical assistance, capacity-building and 100 per cent DFQF support for their value addition efforts.
“Our intention is to make it clear development and trading partners that LDC countries are at different stages of development and that any trade pact must be made flexible to suit this diversity,” said Mr Clement Onyango, Director of the Nairobi-based CUTS Africa Resource centre.