EAC states cautious on Kenya, EU deal

As Kenya, this month, finally signed the Economic Partnership Agreement (EPA) with the European Union, which will see Kenyan goods allowed entry duty-free in Europe, the rest of the East African Community remained cautious.

The EU-Kenya EPA aims to implement the provisions of the EU-EAC deal concluded in 2014.

The deal signed on December 18 at State House, Nairobi, and witnessed by President William Ruto and EU president Ursula von der Leyen, has been described as one of the most ambitious trade pacts ever signed by Europe with a developing country, with new chapters not initially in the2014 document. 

Read: The A-Z of Kenya's trade pact with EU

Rebecca Miano, Kenyan Trade Cabinet secretary, told The EastAfrican that the agreement heralds a new era where Kenyan goods gain immediate and permanent duty and quota-free access to the EU market.

“Over time, European goods will also gain preferential access to the Kenyan market,” she said.

“Our trading relationship has seen shoes, fruits, vegetables, coffee, apparel, medical equipment, chemicals, pharmaceutical products and many more cross oceans for use by our respective markets.”

The EU’s imports from Kenya are mainly vegetables, fruits and flowers. The bloc’s exports to Kenya are mainly mineral and chemical products and machinery. Total trade between the EU and Kenya reached €3.3 billion ($3.6 billion) in 2022, with an increase of 27 percent, compared with 2018. Trade between the EU and Kenya is slightly tilted, with a €768 million ($844 million) surplus in the EU’s favour.

In practical terms, the deal means that the EU fully liberalises access to its market upon application of the EPA, and all goods from Kenya (except arms) can enter the bloc without tariffs or quotas.

Kenya has committed to liberalising the equivalent of 82.6 percent of imports from the EU by value.

Under Kenya’s current tariff regime, more than half of these imports are already duty-free, not only from the EU but from the entire world. The remainder will be progressively liberalised in 15 years. Kenya decided to exclude from liberalisation agricultural products, wines and spirits, chemicals, plastics, wood-based paper, textiles and clothing, footwear, ceramic products, glassware, articles of base metal and vehicles.

But the liberalisation could see the region flooded with imports as some goods like powdered milk were not excluded from the list. 

Read: EPA a threat to region's industrialisation

Jane Nalunga, Executive Director of the Southern and Eastern Africa Trade Information and Negotiations Institute – Uganda, has questioned the 82 percent import liberalisation, terming it very high.

“The exclusion is just about three percent. There is also the issue of massive subsidies, which the EU is giving. Kenya is really going to be flooded with powdered milk because they are subsidising heavily,” Ms Nalunga warned.

But minister Miano said Kenya was careful in liberalisation of products.

“As for the dairy sector, this is largely to remain a protected industry under the terms of the Epa. Several products derived from milk remain closed for further liberalisation. This includes powdered milk, yogurt, cheeses, butter, dairy spreads and several other products,” said Ms Miano.

The East African Business Council has also cautioned that the deal should observe and implement the EAC Rules of Origin (RoO) and the external common tariff (CET), as any deviation could stall the region’s industrialisation.

“At the AfCFTA we have selected 10 value chains. So make sure that like in agro-processing, the EPA should enhance our capacity to add value to our agricultural products such as milk,” said John Kalisa, chief executive of EABC.

“We also need to take precaution as the EPA is likely to dilute the CET -- that is why is equally important to look at the instruments that have been negotiated. For instance the region has sufficient capacity to reproduce dairy products. When you liberalize it, it means that the regional producers are likely to be clouded out. “

He warned that if the region is not careful, the EPAs could lead to de-industrialization meaning it can wipe out the local industries.

“We need to be careful in that we liberalize goods that cannot be sourced within the EU. On Rules of Origin, the essence of RoO is to prevent transshipment so the EPAs should not dilute our own Rules of Origin which are to protect our regional and continental value chains,” explained Kalisa.

Burundi, Tanzania and Burundi did not sign the initial EPAs for factors that are still relevant to date.

In Uganda, President Yoweri Museveni was first opposed to the EPAs reiterating that key among the concerns by the EAC on the EPA was the question of strategic industrial development, development agenda, the Rendezvous clause and domestic support.

However, Uganda’s Minister of Trade, Industry and cooperatives Francis Mwebesa said Kampalawould wish to review its position given the current happenings, where it no longer enjoys the African Growth and Opportunities Act as well as sanctions from the US over its stand on gay rights.

“If Kenya has signed then Uganda might sign. If Kenya has taken the lead to sign, let’s see what happens to these other countries,” said Mwebesa.

There are also concerns over the implication of the rendezvous clause which Kenya is supposed to conclude and negotiate warning it could have far reaching consequences to the EAC’s investment plans and industrial roadmap.

“Under the Rendezvous Clause (Article 3) Kenya is supposed to conclude the negotiations in areas of services, investment, government procurement, trade and sustainable development, intellectual property rights and competition policy within five years upon entry into force of the EPAs,” said Nalunga.

“That is going to really become complicated. Because for example, EAC we are looking at one single investment destination; it can’t work. It should be noted that the EAC is yet to put joint frameworks for some of these issues.”

The new clauses on climate, labour rights and gender could pose challenges in implementation as the EU’s standards would be applied in the EAC region. But Miano does not think so.

“Kenya seeks to be a world-class producer of goods and services, and adopting standards for ethical and sustainable production is in our interest. In any case, the principles of environmental conservation, gender equality and respect for labor are principles that we have agreed to adopt as Kenyans in our laws without reference to an external trade agreement,” said Miano.

“These are standards we already have enshrined in our domestic labor and gender standards in any case. What we are doing by committing to these principles in the EPA is simply sending out a signal to the world, that Kenya is the place to do business, ethical and sustainable business.”