East Africa

Kenya-UK economic partnership agreement betrays the East African Community

By ALP Advocate
Hanningtone Amol
on
July 5, 2021

The fact that Kenya maintains an unhealthy trade balance with the UK where the UK imports into Kenya far outmuscle Kenya’s exports to the UK is a major concern on elimination of customs on UK imports and implementation of the agreement. It is surprising, however, that the impact of the agreement on the East African Community remains largely undebated unlike the preceding Kenya -USA Free Trade Agreement that has been critically examined against the EAC’s Customs Union Protocol and the Common Market Protocol. It is time that the stakeholders in the EAC integration process highlighted the imminent dangers posed by the Kenya-UK EPA on the EAC integration.

On 9th March 2021, deep into the night, Kenya’s National Assembly – one of the two chambers of her national Parliament – approved the ratification of an Economic Partnership Agreement with the United Kingdom of Great Britain and Northern Ireland.

The approval had been preceded by a brief debate focused on form rather than the substance of the agreement. While there had been credible opposition and criticism to the agreement by the civil society, trade organizations, farmers’ forums and other stakeholders, the attitude of the legislators and the bureaucrats involved in the process was that the agreement had to be ratified at all cost.

That Kenya left it until a few hours to the deadline for ratification before rolling out public sensitization exercises was another indicator that the government was keen to limit debate on the agreement pre-ratification.
The critics of the agreement have raised credible concerns around the impact of its provisions, once implemented, on Kenya’s economy.

The fact that Kenya maintains an unhealthy trade balance with the UK where the UK imports into Kenya far outmuscle Kenya’s exports to the UK is a major concern on elimination of customs on UK imports and implementation of the agreement.

It is surprising, however, that the impact of the agreement on the East African Community remains largely undebated unlike the preceding Kenya -USA Free Trade Agreement that has been critically examined against the EAC’s Customs Union Protocol and the Common Market Protocol.

It is time that the stakeholders in the EAC integration process highlighted the imminent dangers posed by the Kenya-UK EPA on the EAC integration.

The EAC Treaty provides elaborate principles that Partner States are bound by. These include the principle of cooperation towards approaching a common target like a foreign state seeking to trade on preferential terms with the regional economic block or a Partner State. The mechanisms of negotiating an external trade agreement by the EAC or by a Partner State have been spelt out in Article 37 of the EAC Customs Union Protocol.

At the foundation of the cooperation is the understanding that all matters of external cooperation shall be treated as a common agenda and approached as a block using the EAC mechanisms as opposed to a national approach. A Partner State seeking to enter an agreement with another country outside EAC is required to promptly inform the Secretary General of her intention.

The Secretary General circulates the relevant information to the other Partner States and invites them to submit their comments which are then subjected to a discussion at the EAC Council of Ministers’ meeting.

That meeting decides whether the other Partner States are interested in joining the negotiations or not. Where no common approach is agreed on, a Partner State is permitted to go it alone taking into account her obligations under the EAC Treaty.

Kenya, sadly, did not take any of these steps before the fact.

While the Kenya-UK EPA consistently makes reference to the EAC and even purports that its is signed on behalf of Kenya and the EAC, it fails terribly when examined against the above requirements of mutual cooperation.

The purpose of cooperation in negotiating such external trade relations is to facilitate harmonious trade free of the mutual suspicion that has characterized the EAC integration.

The EAC Common External Tariff is a product of cooperation of the Partner States, and presupposes that goods coming from outside the EAC into any Partner State are subjected to a harmonized and common tariff regardless of the port of entry. By negotiating singly with the UK, Kenya ignored the role of the EAC Common External Tariff and threw further into confusion the huge gains made towards achieving a Common External Tariff, a milestone in realizing the Customs Union.

The other Partner States will be excused if they grew suspicious that some goods originating from Kenya into the rest of the EAC are actually imports from the UK that do not obey the EAC’s Rules of Origin.

Under the EAC Customs Union, goods originating from within the EAC are accorded preferential tax treatment when exported to another Partner State within the block while goods originating from outside the block are generally not accorded similar treatment.

Should unscrupulous traders repackage goods imported from the UK into Kenya as ‘made in Kenya’ there is inherent risk that other innocent goods originating from Kenya will be treated with suspicion.

The spiraling effects of such suspicion will undermine further the delicate trade relations with the EAC.

Kenya’s reliance on variable geometry as her reason for going it alone with both the UK and USA economic partnerships is illogical, at the very least, but generally insincere.

The variable geometry principle, itself recognized in the EAC Treaty, appreciates that Partner States are at differing levels of development and do not each have equal capacities to realize the EAC aspirations at the same time.

Granting each Partner State an opportunity to implement the aspirations at a suitable pace is the foundation of the principle of variable geometry.

The principle is applied only where the EAC has made a decision to implement a particular matter, and a Partner State is ready to roll out implementation earlier than the rest. Variable geometry is not intended to grant a Partner State authority to negotiate on behalf of the other Partner States, and is certainly not designed to circumvent the need for mutual cooperation in negotiating external trade relations.

Kenya’s nationalistic approach in the case of economic partnership with the UK is therefore counterproductive and a betrayal of the ideals of the EAC founders.

EDITOR’S NOTE: The British High Commission Nairobi has raised issues with some of the opinions shared on the story and requested a right of reply.

From the article: The fact that Kenya maintains an unhealthy trade balance with the UK where the UK imports into Kenya far outmuscle Kenya’s exports to the UK is a major concern on elimination of customs on UK imports and implementation of the agreement.

BHC Nairobi response: The UK and Kenya enjoy a balanced trading relationship, and this has been the case for many years. Last year, the International Trade Centre statistics report that Kenya exported $419,985 worth of goods to the UK. In turn the iTC reports that the UK exported $337,721 worth of goods to Kenya. We expect the EPA to support jobs and economic development in Kenya by providing continuity in trading arrangements with the UK, including long-term tariff-free access to UK markets.

From the article: It is surprising, however, that the impact of the agreement on the East African Community remains largely undebated unlike the preceding Kenya -USA Free Trade Agreement that has been critically examined against the EAC’s Customs Union Protocol and the Common Market Protocol.

BHC Nairobi response: We have been in dialogue with EAC Partner States about this agreement throughout the process. For now, we have taken the important first step to provide crucial stability and certainty for businesses and people involved in trade between the UK and Kenya. However, we have agreed that ultimately we all want to achieve a comprehensive regional deal between the UK and the whole of the EAC in future, and we have ensured that this agreement is open to all EAC states to join when they are ready to do so.

Our lines on trade liberalisation/trade balance:

  • The liberalisation on UK exports resulting from the EPA is deliberately designed to be manageable and spread over a long period of time. Many products which are to be liberalised do not see any tariff reductions until 2028 or 2032, and it is fully 25 years until liberalisation would be complete – as far away as 2046. On the positive aspect of liberalisation to UK exports, Kenyan businesses would, through lower tariffs, face lower prices where they want to import inputs from the UK, helping to lower production costs and aiming to support their growth and competitiveness.
  • In addition, as many as 1,432 different product lines are completely excluded from any requirement to lower tariffs to UK exports, including many clothing and footwear and agricultural products. Annex II(d) of the EPA provides the detailed list. This includes some chicken products. In addition, the agricultural products excluded includes many meat, fish,  dairy, fruit and vegetable products such as maize, milk, butter, yogurt, hams, trout, beans, peas, tomatoes, onions, potatoes, oranges, roses, carnations. And even then, the EPA also provides Kenya with the ability to apply protective safeguard measures in the extensive Article 50 of the agreement. These safeguards allow for increases in tariffs or applications of quotas for a number of reasons to help protect Kenya’s domestic industry.

Disclaimer

No information contained in this article should be construed as legal advice from ALP East Africa or ALP Advocates or the individual authors, nor is it intended to be a substitute for legal counsel on any subject matter.

For additional information in relation to this alert, please contact the following:

  • Hanningtone Amol

         Managing Partner

        hamol@alp-ea.com