Inside Biden’s toughening stance in trade talks with Ruto administration
US Trade Representative Katherine Tai addressing journalists at Serena Hotel, Nairobi on July 19, 2023.
What you need to know:
- The US has pointed out policy and regulatory issues stifling American investment in Kenya.
- Washington wants Nairobi to enhance the credibility and effectiveness of the judicial system.
The United States of America is pushing Kenya to enhance transparency and integrity in licensing and regulatory regimes in ongoing talks for a landmark trade and investment deal between Washington and Nairobi.
America has listed a raft of tariff and non-tariff barriers it wants the Ruto administration to flatten in a bid to level the field for American firms to fairly compete for trade, investment, and financing deals with investors from other advanced countries, including China.
The two countries are locked in negotiations under the US-Kenya Strategic Trade and Investment Partnership (STIP) whose terms Kenya and the US started stitching together in July 2022 before the end of retired President Uhuru Kenyatta’s term in office.
The world’s largest economy has, however, singled out a myriad of policy and regulatory issues that span various sectors, including sensitive ones such as Agriculture, which it feels are stifling investment by American companies in Kenya.
Washington wants Nairobi to enhance the credibility and effectiveness of the judicial system whose ruling it alleges is sometimes influenced by bribes, extortion, and political considerations.
The vices, it claims, have made legal procedures lengthy and costly, with the highest bidder likely to get favourable determination.
“US firms continue to report challenges competing against foreign firms that are willing to ignore legal standards or engage in bribery and other forms of corruption,” US Trade Representative Katherine Tai writes in the 2024 National Trade Estimate Report on Foreign Trade Barriers (NTE).
Apart from deeply-rooted corruption allegations which cut across many sectors, the US has also cited sector-specific hurdles it wants addressed to enhance trade, investment, and financing flows into Nairobi.
In the agriculture sector, the US is keenly following the pending determination of a case which is challenging the planting and production of genetically engineered products following the lifting of a 10-year ban by the Ruto administration, barely a month after taking power.
Washington sees commercialisation of the GE products as an opportunity for American firms to cultivate and import GE food and feed into Kenya, the largest economy in East and Central Africa, as part of the strategy to boost food security in the region.
“On October 2023, the Environmental and Land Court dismissed one case against the release and planting of GE products,” Ms Tai wrote in the report. “However, the lifting of the ban [on GE products] is on hold pending the outcome of one remaining domestic legal challenge before Kenya’s High Court.”
The US trade officials have, however, taken issue with Kenya’s Director of Veterinary Services (DVS) over barriers that have made it difficult for American firms to export bovine (cattle) embryos to Kenya despite a deal struck with the US Department of Agriculture Animal and Plant Health Inspection Service in January 2020.
They further argue that American firms have found it tough to sell meat, dairy, and poultry products in Kenya because of “complex, nontransparent and costly requirements.”
Exports of corn to Kenya are also not competitive due to a lower total aflatoxin limit of 10 parts per billion and a 13.5 per cent maximum moisture content in Kenya than the US, the trade authorities add.
“Kenya imposes standards that are overly restrictive for bovine semen imports, precluding actual market access for most US bovine semen for dairy cattle and leaving the largest share of the market to the domestic producers who do not meet the same criteria,” Ms Tai says.
“For US corn exports that are permitted under special circumstances, the costs associated with the additional processing requirements make US corn exports largely uncompetitive.”
Besides, the US has cited foreign ownership limitations in various sectors such as mining, private security, and derivatives exchanges as barriers to American investments in Kenya.
Kenyan laws require large-scale mining firms to sell a minimum of 20 per cent of shares to locals through the Nairobi Securities Exchange within three years of operation, while foreign private security firms are required to surrender at least 25 per cent stake to local investors.
Pressure from US tech giants saw the Ruto administration drop a 30 per cent domestic ownership rule ICT sector in August 2023.
“This position is untenable and has made it impossible for large corporations to invest in Kenya. We will review this position and remove this requirement to facilitate greater investment in our ICT sector,” President Ruto had told a regional business summit for US investors in Nairobi on March 30, 2023, ahead of the policy shift from his predecessor last August.
“Additionally, our data protection law is aligned to support robust growth in data storage.”
The US has also claimed that the inspection and certification of imports conducted by the Kenya Bureau of Standards (Kebs) and its agents abroad under the Pre-Export Verification of Conformity (PVoC) programme do not address health, environmental and security concerns to levels required under international standards.
The demands for Kenya to improve transparency and fairness of processes for licensing American companies were raised during the first negotiating round of the proposed US-Kenya trade deal held in Nairobi between April 17 and 20, 2023.
“The aim of the proposed text is to ensure that service suppliers are treated fairly and in a transparent manner when they apply for permission to operate in a given sector, and that there is a smooth flow of information between the applicant for a license and the regulator,” Ms Tai’s office wrote in the summary of the US proposals during the talks last year.
“The proposed text does not interfere with the ability of regulators to apply domestic standards to protect important interests such as safety, health, and the environment, or to ensure worker and consumer welfare.”
The US proposal to Kenya is in line with the World Trade Organisation’s Joint Statement Initiative on Services Domestic Regulation which was signed by 70 countries in December 2021.
“On trade, access to US markets for Kenyan exports will need to be negotiated for a win-win outcome. US agricultural sector which is highly subsidised, corporatised, and industrialised, [and] creates tariff and non-tariff barriers to imports. Kenya will run into many of these barriers,” Prof David Monda, who teaches public policy at the City University of New York, told this publication in an earlier engagement.
“Kenya will also struggle to negotiate around anti-dumping measures, especially in the poultry sector where big US agro-industry is heavily subsidised, can flood Kenya with cheap poultry products, crippling the domestic market.”
