On tariffs, do what the EU did and not what it says

The East African Standard, Nairobi

Opinion: On Tariffs, Do What the EU Did And Not What It Says

By Eric Mgendi, Nairobi

23 March 2007

It has been argued that Kenya and other African Caribbean and Pacific (ACP) countries should sign Economic Partnership Agreements to safeguard revenue and jobs and promote growth and development.

But the implications are shallowly discussed without sufficient engagement with citizens. Trade regimes must benefit maize, tea, coffee, horticulture, dairy and sugar cane farmers and pastoralists. For example, the Common Agriculture Policy (CAP) applied by European Union member states has protected farmers through tight regulation of agriculture trade regimes and direct support.

Similarly, the United States supports farmers through subsidies even when they threaten discussions and the existence of the World Trade Organisation. Mr Joseph Stiglitz, a former World Bank economist and Nobel Economics laureate, has said: "Developing countries should do as the developed nations did and not as they say."

EU protected and subsidised its farmers to develop agriculture. EU may be comfortable revising CAP now because most of its citizens are no longer farmers. But Africa is different. Have we done enough to create a conducive, productive and rewarding environment for farmers? Citizens’ needs and interests should take priority in bilateral and international agreements.

Under what conditions do we give oil exploration ventures to China, for example? Under what conditions do we get aid from the US and EU? We must guard against aid that is dangled, but helps push outsiders’ agenda at the expense of the majority. Under the Cotonou Agreement, Kenya and 76 other ACP countries enjoy duty-free quotas at special prices in the EU market without requiring that they provide duty free access to products from the union - a principle referred to as non-reciprocal.

EPA is the new trade arrangement expected to replace the Cotonou partnership when it expires in December. It is meant to be reciprocal - countries will eliminate tariffs on goods and services as a result of trade deals with the EU. ACP countries have only been given two choices: To sign EPAs or lose all benefits they get under Cotonou.

Analysts say horticulture will be a key beneficiary. The sector directly and indirectly employs more than two million people and has been used as the basis for wholesomely entering into EPAs to guard against revenue and job losses. The figures at the Kenya Institute of Public Policy Research Analysis shows that horticulture generated Sh66.3 billion - Sh28.8 billion in foreign exchange and Sh37.5 billion in internal trade from about 4.35 million tonnes.

Of the produce, nine per cent (400,000 tonnes) was sold as raw materials to the agro-industrial processing sector and 88 per cent (3.82 million tonnes) in the local fresh market. Only three per cent (133,000 tonnes) was exported. Large-scale farmers dominate the export market, comprising mainly cut flowers (51 per cent) and vegetables (38 per cent). Many local suppliers are small-scale farmers who account for 70 per cent of horticulture production.

Of the total export value, vegetables generated 10.4 billion, fruits 1.9 billion and cut flowers 16.5 billion. More than 50 per cent of vegetables and fruits were consumed locally. Kenya’s biggest market for flowers is for export, accounting for 98 per cent of flowers produced. Three to five companies dominate floriculture. In 1997, small-scale growers supplied 70 per cent of export earnings from high value agriculture. By 2000, this had fallen to 30 per cent.

The point is this - in the absence of Government commitment to support farmers, any deal on agriculture export will not have any impact on poverty. Kenya could benefit more from tea and coffee, but high tariffs and lack of value addition are the drawbacks. Similarly, Kenya cannot exploit the EU cotton market because of capacity issues. It cannot even fully exploit the US market through the Africa Growth and Opportunity Act.

Kenya’s fish industry is another important sub-sector. It employs more than one million people and generates more than Sh4 billion a year. While the EU has granted Kenya duty-free market access for fish exports, stringent safety and hygiene standards act as non-tariff barriers. Rules of trade should be predictable and not ad hoc.

Signing EPAs will not guarantee access to the EU market. We have to overcome challenges of stringent hygiene and safety standards. Recently, UK’s largest supermarket, Tesco, raised the issue of ’food miles’ and environmental concerns arising from products transported over long distances. Independent studies have, however, shown that the effect of emissions on food produced in Africa is lower than in the EU.

Tourism is also a sensitive sector. The EU accounts for 60 per cent of tourists who visit Kenya annually. Removing tariffs would deny us revenue, and local companies would not compete effectively with their EU counterparts. It is unlikely that the principle of reciprocity will apply if we waive visa fees for EU visitors. Will EU also provide unrestricted access to their countries?

EPAs serve EU interests. It is a major exporter and processor of subsidised sugar, wheat, rice and dairy products. We risk destroying sub-sectors that support 12 million Kenyans.

The writer is the Africa communications coordinator for ActionAid International