Kenya now finds itself in a tricky diplomatic situation following refusal by Tanzania to sign the comprehensive Economic Partnership Agreement (EPA) between East African Community (EAC) and the European Union.
This means the country faces the prospect of paying heavily for exports to Europe if EAC fails to beat the October 1 deadline. Exporters to Europe are now staring at higher tariffs that could attract more than Sh100 million in tax weekly, similar to what the country went through in 2014.
Although members of the European Parliament attending the recently concluded Unctad meeting in Nairobi gave hope of an extension of the October deadline to sign EPA, the conflict in Burundi, a member of the EAC, now adds to the mix of headaches for Kenya.
The MPs said since Burundi is on the verge of being sanctioned by the European Union over political instability, Kenya will find it hard to clinch the deal that provides relief from heavy taxes for the country’s exports to Europe.
EU chair of joint delegation of Trade and Development Committee Bernd Lange said Kenya would be the biggest casualty should the two scenarios persist and the EPA is not signed.
“Our first proposal is to have the October 1st deadline extended to allow for more time and see whether Tanzania will agree to sign or if Burundi will improve her democratic situation and evade sanctions from the European Union,” Mr Lange said.
“If none of these happen, then I expect that Kenya will apply for the GSP plus and when it is received then we can begin the market access regulations and save Kenya.”
The Generalised System of Preferences (GSP) Plus status will allow Kenya to continue exporting at the current preference terms even if the two countries fail to sort their issues but the terms are not as lucrative as the EPA.
Foreign Affairs Cabinet Secretary Amina Mohammed said Kenya will focus on having the EPA signed and will not rush to negotiate for the GSP although the October deadline is fast approaching while the barriers persist.
The scenario now leaves Kenya with a huge headache of dealing with political squabbles of one neighbour while seeking to convince another to sign an agreement.
Risk losing the preferential treatment
Kenya is the only country among EAC partners which does not enjoy the Least Developed Country (LDC) status hence has to depend on the agreement or risk losing the preferential treatment in the lucrative EU market.
European Parliamentary Member Marie Arena said the countries need to reach a deal soon having structured the agreement in way that does not leave any of them out.
“The question now is not even the details of the agreement but the timeliness and the countries really need to do that this August because as EU Parliament, we have no control on sanctions to Burundi or convincing Tanzania to sign the agreement. Kenya and other members can do that better so that we have a smooth sail in signing this agreement,” Ms Arena said.
Under the trade deal, EU would grant unlimited market access to Kenya for the next two and a half decades. The East African economic giant will also enjoy the exemption from the eight to 12 per cent taxes while selling goods to the EU market.
Should the deal flop, these taxes will hurt Kenyan exports by making them uncompetitive, forcing exporters to offer Sh600 million every month in cumulative discounts to buyers to be at par with other sellers.
Failure will also hurt agriculture, one of Kenya’s engines of economic growth. Close to 90 per cent of the country’s exports to EU are agricultural, agro-processed and manufactured products.
The scenario might also spell doom to more than 600,000 workers mainly in the flower farms and fresh food producers.