Kenyan exporters to lose Sh3.6bn over delay in EU trade deal

Mr Christophe De Vroey of European Union during a meeting on August 21, 2014 with the Kenya Flower Council held in Nakuru to discuss a crisis over Economic Partnership Agreements (EPAs) between EU and the East African Community. PHOTO | CHEBET CAROLINE | NATION MEDIA GROUP

What you need to know:

  • The real benefit from that agreement could take between two to six months to materialise.
  • Kenya Flower Council admitted the industry was “indeed in a crippling crisis” after the two sides failed to agree on time.

(Kenyan exporters will have lost at least Sh3.6 billion in taxes by the time the new economic agreement signed between the East African Community (EAC) and the European Union (EU).

On Wednesday, flower exporters called on the EU to speed up the inclusion of Kenya in the beneficiaries of the Economic Partnership Agreements (EPAs) to save the industry from losses due to taxes on their exports.

The Kenya Flower Council (KFC) applauded the government for reaching a favourable position on EPAs with the EU, but argued the benefits of it will depend on how fast the government localises the deal.

“The immediate impact of the GSP (Generalised System of Preferences) tariff on Kenyan exports to the EU is an increase in cost to the EU importers by the margin of the applicable tariff.

“Exports from Kenya to the EU will suffer import duties of approximately Sh600 million a month under the regime,” KFC Chief Executive Jane Ngige.

“The Kenya Flower Council will continue to urge the concerned EU parties to fast-track the process and shorten the period during which GSP duties will be applied.”

ELEVENTH-HOUR AGREEMENT

On Tuesday, the East African Community (EAC) and the European Union reached an eleventh-hour agreement in a bid to save EAC’s exports to the EU from incurring taxes.

According to the Ministry of Foreign Affairs and International Trade, the two sides signed an agreement following two-day negotiations over three key issues of taxes, subsidies and previous agreements affecting trade between the two blocs.

“The successful conclusion of the negotiations will enable Kenya to continue enjoying duty free/quarter free access to the European market,” said a statement from the ministry.

EPAs mean Kenya stands to enjoy duty-free exports of fresh vegetables and flowers to the EU markets. KFC admitted the industry was “indeed in a crippling crisis” after the two sides failed to agree on time.

SIX MONTHS TO MATERIALISE

However, the real benefit from that agreement could take between two to six months to materialise.

The two sides agreed on export taxes, subsidies and the controversial issue of governance, but it will require the EU to amend the Market Access Regulation (MAR) to include Kenya.

Since October 1, Kenyan exports to the EU fell under a category called the GSP, away from MAR, which had been in existence since January 2008.

Under the new system, Kenyan flower exporters, for instance, must attach a form indicating the origin of the flowers to benefit from duties that go as high as 8.5 per cent. Only carnations exported to the EU from Kenya do not attract duty under the GSP.

The change of regime to GSP meant this privilege of duty-free flower exports is a reserve for countries that have ratified EPAs concluded with the EU.

In the meantime, most Kenyan agricultural goods, including cut flowers, will now be subject to various EU GSP tariffs until the EPAs are fully implemented. These products include vegetables, beans, sweet corn and processed juice.

There has been no clarification on whether Kenya will be refunded taxes already charged on exports to the EU once the agreement is ratified. The Ministry of Foreign Affairs is expected to address a press conference on the matter.