EPAs: Kenya in a tight spot over protocol

Kenya has no option but to sign an Economic Partnership Agreement (EPA) by October 1, to keep enjoying duty-free access for its products in the European Union market.

Although the EU delegation led by Mr Lodewijk Briet that was in the country last week was diplomatic enough to say the October date was not “a must-beat deadline”, local products will attract higher taxes if there is no new trade agreement.

“While October 1 has been designated as end of the Market Access Regulation that came into force with the signing of the interim EPA, that date should not be construed as deadline for finalising the EPA negotiations. It is rather time-line for new tariffs to be applicable. Negotiations may continue after the date,” says a document of EU delegation seen by the Sunday Nation.

The European Union is the main export market for all the East Africa Community member states, particularly Kenya whose 23 per cent of total exports in 2012 went to that market.

Kenya exports 70 per cent of its flowers to EU and the sector will be most disadvantaged if the new trade arrangement deal is not signed. The flowers will attract an import duty of 8.5 per cent which will undermine their competitiveness as their prices will increase. The tax rate for other fresh produce will be higher, up to 20 per cent.

The other major exporter of flowers to the EU is Colombia, which would benefit from Kenya’s misfortune. (READ: Kenya fails to finalise trade pact with EU)

TOP FOREIGN EXCHANGE EARNER

The flower industry earned the economy Sh110 billion last year, making it the top foreign exchange earner, rivalled only by remittances from Kenyans living abroad. “If a region decides to opt out of EPA process or fails to reach agreement by October 1, certain exports of one or more of the market access regulation beneficiaries to the EU market may be adversely affected,” the document says.

Negotiations between EU and EAC started in 2002, culminating in the two trading blocs signing an interim EPA in 2007 that ensured duty-free, quota-free access for its products under the Market Access Regulation that will end in October.

There are concerns from trade experts that if Kenya, which is particularly under pressure to sign EPAs, decides to go it alone, it could upset the East Africa common market protocol and customs union.

Kenya is in a different trade band from its counterparts in the trade bloc as it is considered a developing country while others are ranked in the least-developed countries category.

The country’s current trade with EU is carried out under the Generalised System of Preferences agreements that restricts some items while the other countries operate under the Everything-But-Arms tier that enables them export all that meets EU market standards.

West Africa states, under their Ecowas trade bloc, have already signed EPAs, but EAC and Southern Africa Development Association (SADC) are yet to adopt the new arrangement that will see more EU goods enter their markets at lower taxes.

“We are now seeing stronger political impetus to conclude the talks which have, unfortunately, been beset in the past by slowness on the part of EAC leadership,” Mr Briet said.

Experts say the 3 per cent of the issues remaining Most Favoured Nation (MFN) provision, export taxes and non-execution clause are dependent on the political goodwill of countries.

If the deal is signed, EU will open up its market of 500 million consumers to all goods from EAC countries, while EAC member states will cut tariffs on most imports from Europe.

They will however retain tariffs on around 17 per cent of the goods, mostly agricultural goods, which they consider “sensitive”, to protect local producers.