Accusations mar failed bid to reach a deal on the Economic Partnership Agreement

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The EU’s insistence on the EPA Council having a major role in the imposition of export taxes and review “basicallt takes away the sovereignty of EAC members,” Trade Secretary Amina said.

The Standard | 14 October 2014

Accusations mar failed bid to reach a deal on the Economic Partnership Agreement

BY FRANKLINE SUNDAY AND NICHOLAS WAITATHU

Nairobi; Kenya: The Government’s failure to reach a deal on the Economic Partnership Agreement ( EPA) has placed Kenya’s foreign policy in the spotlight, raising questions about the country’s ability to adequately represent its trade interests globally.

This comes as resources at the Foreign Affairs office appear directed towards the criminal cases facing President Uhuru Kenyatta and his deputy William Ruto at the International Criminal Court (ICC), leaving Kenya economically exposed.

The move has also exposed the country’s economy to billions of shillings in losses and hundreds of thousands of job cuts as exporters are left reeling under heavy taxation from the European Union (EU), putting Kenya’s key foreign exchange earnings on line.

Trade talks

Now, analysts want the Government to consider re-organising and perhaps splitting the highly complex Ministry of Foreign Affairs and International Trade. This comes as the EPA trade talks between the East African Community (EAC) and the European Union (EU) stall, having missed their ratification deadline two weeks ago.

“The problem with the stalling of the EPA is that the Foreign Affairs office was really caught up in the ICC cases and failed to give enough attention to the EPA talks,” explained an economist at the Kenya Institute for Public Policy Research and Analysis (Kippra), who asked not to be named due to the sensitive nature of the topic.

“By the time we realised as a country that the deadline was here and the other East African countries had abandoned us, it was too late and now we have to go through the expensive lobbying process of having Kenya included on the list of beneficiaries of the market access regulation.”

Negotiations for the new EPA structure have been underway for more than 10 years, and are meant to replace the Cotonou Agreement signed in 2000, after the expiry of the Lomé Convention of 1975 which granted non-reciprocal trade preferences to the African Caribbean and Pacific Group of States (ACP) partners.

Last month, the EAC Council of Ministers met and developed a proposal on key negotiation areas, in which Kenya was mandated under the leadership of Foreign Affairs Principal Secretary Karanja Kibicho to present to the EU.

But the Trade Counsellor at the EU mission in Nairobi Christophe De Vroey said the EU rejected the proposals and advised the EAC accordingly. “EU rejected the text and wrote back to the EAC secretariat,” said Christophe last week. Mr Christophe however denied that the EU has been the stumbling block during the talks and instead blames the EAC countries for delaying to agree among themselves.

“After the very successful March meeting in Nairobi, the EU suggested to meet again well before end of June so as to finalise the outstanding issues and to guarantee duty free access. Would we have finalised before July (as the other regions did), then we would have met the October 1 deadline to re-instate Kenya as a beneficiary of the market regulation on time,” said Christophe.

Christophe observed that the EAC region took almost four months to propose Kigali for the July meeting. Not only was the opportunity missed to meet the October 1, 2014 timeline, but also things did not go smoothly in Kigali.

Key complaints

The EAC Council of Ministers however, argue that the EU declined to attend the Arusha meeting, and failed to give reasons for its refusal. The EU is also accused of declining a request for a meeting by the EAC Secretary General to clear the outstanding issues last month. Kenya’s Foreign Affairs and International Trade ministry complained that despite several calls to the EU to organise for a meeting, it has remained silent.

Kenya has been negotiating the trade talks under the EAC regional bloc despite being the only country not to enjoy duty free market access.

Kenya, however failed to convince her neighbours on the urgency of ratifying the agreement before the deadline despite the fact that the country was leading the talks and currently holds the chairmanship of the EAC. Until Kenya is allowed to enjoy market access, local farmers exporting to the EU will incur between Sh600 million and Sh1 billion every month in duty payable to the EU market.

Kenya Flower Council Chief Executive Jane Ngige says the interests of the local economy have to be safeguarded as the EU continues to pressurise Kenya to conclude the trade talks. “Kenya, as a growing economy has been fast-tracking all initiatives geared towards improving the lives of citizens. Trade partnerships between the two blocs requires no dictatorial approach,” said Ms Ngige.

The European Union and the EAC are currently holding a two-day meeting in Brussels which concludes today, aimed at resolving the contentious issues that led to the stalemate. The Government and the EU have both confirmed the meeting and expressed optimism that the situation will be resolved for the mutual benefit of the two blocks.

However, the political undercurrent continues to simmer on both sides and it appears that the ego contest between the two blocs is set to play out. Foreign Affairs and International Trade Cabinet Secretary Amina Mohamed affirmed Kenya’s willingness to conclude the talks to enable traders avoid further losses, but was quick to add that the country will “protect its interests”.

Trade negotiators say the point of divergence between the two blocs is the language used on the contentious issues. For example, the EAC is requesting that export taxes be applied on a limited number of products for a limited period of time, reviewable by the EPA Council within 48 months.

But the EU insists on the EPA Council having a major role in the imposition of export taxes and review. “This basically takes away the sovereignty of EAC members,” Amina said. The EU position seems to jeopardise the EAC efforts to enhance value addition in various sectors of the economy. For example, two years ago, Kenya introduced export duty of 40 per cent on hides and skins and last year increased the same to 80 per cent.

Industrialisation and Enterprise Development Cabinet Secretary Adan Mohamed insisted that the export duty would not be removed with a view to enhancing value addition on hides and skins. The Government is currently enforcing a law banning exportation of macadamia nuts in unpackaged form.

The EAC also wants subsidised agricultural produce from the EU not to be imported into the EAC as this will render local produce uncompetitive, but the EU says it will grant export refunds for all agricultural products exported to EAC countries, as soon as the EPA comes into force.

The EAC disagrees that with that position, saying that the EU is keen on extending only one form of subsidy – export refunds – whereas all other forms are left out. The EAC says this contradicts a commitment the EU gave to phase out all export subsidies by 2013.

The EU committed itself to the same during the World Trade Organisation meeting in 2005. The EAC further opines that enforcing the same will subject our agricultural sector to more challenges. The EAC wants specific reference to the Cotonou Agreement, and particularly its expiry date of 2020 but the EU has rejected this because they want a specific reference without the limitations of an expiry period.

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source: The Standard