The Standard | 20 October 2014
Kenya: Why we got a raw deal in EPA
By Oduor Ong’wen
In sports, some countries specialise in winning while others, like our Harambee Stars, specialise in losing. So it is with trade. The announcement of a "breakthrough" in the negotiations of the Economic Partnership Agreement (EPA) between the East African Community (EAC) Partner States and the European Commission (EC) on behalf of the European Union (EU) has been hailed as a win-win outcome. It is not.
The potential impacts of the agreement have remained a subject of heated debate during the negotiations. The EC and defenders of the agreements aver that the following benefits will accrue from EPAs: EPAs will open taps for the flow of European direct investments to ACP countries, there will be a ’locking-in’ of the trade liberalisation process in these countries - which is good for competition and employment and the restructuring of EAC economies, by combining a modification of the framework of incentives for economic agents (propelling them towards a more efficient use of resources) with financial and technical support of the EU.
However, in both EAC countries and in Europe, many analysts have pointed out to imbalances and inequalities inherent in the EPAs. These include pushing Kenya and EAC countries to liberalise their trade regimes at a ’sub-optimal’ rate as compared to what they would do unilaterally - increasing the profit margins of European exporters, rather than lowering the prices to consumers and EAC importers; loss of revenue to EAC country governments, thereby undermining their efforts to provide basic social services, as a result of elimination of tariffs as advocated by the EU. According to the Institute for Economic Affairs, Kenya stands to lose revenue to the tune of US$ 143 million (12.5 billion) annually.
The issues that had remained in contention by last week are critical for Kenya and EAC’s future development. These issues include, export taxes, domestic support and export subsidies; and the Most Favoured Nation (MFN) clause.
Export taxes are an indispensable development tool that can be used in promoting industrialisation and employment creation, and in creating incentives to add value to local products rather than exporting them in their raw form. The elimination of the export taxes, coupled with the very extensive elimination of import tariffs (82 per cent) will not only affect the economy but will also affect revenue collection in the region as import tariffs contribute a substantial amount to partner states’ government revenue. Kenya has maintained the fact that while flower exports to the EU is a critical component to her revenue, negotiations should not lose sight of what this Article means in terms of giving the government policy space to promote industrial growth in other vital sectors.
Regarding Agriculture, the EC had rejected the discussion of its subsidies in the EPAs on grounds that this is a WTO issue. Yet developed countries including the EU have failed to live up to what was agreed on in the 2005 WTO Hong Kong Ministerial to eliminate export and trade distorting subsidies by 2013. There is also ample evidence to show that agricultural subsidies in the EU have led to the dumping of agricultural products with far-reaching negative implications on Kenya’s agricultural production, productivity and agro-processing.
Kenya’s situation could be further worsened by continued provision of domestic support to the competing products such as dairy, wheat and beef under the EU’s Common Agricultural Policy (CAP). Though Kenya and the EAC have excluded products that are heavily subsidised under the CAP from liberalisation commitments in order to protect these sectors from adverse competition, there has been serious oversight in certain instances such as in the case of frozen cuts of chicken.
MFN clause was another prickly issue in the EPA negotiations. Under this Article, the EAC is obliged to extend to the EU any more favourable treatment resulting from a preferential trade agreement with a major trading economy/country. This provision will undermine the prospects of South-South trade which the EAC is aspiring to promote. In addition, the clause is contrary to the spirit of the WTO’s Enabling Clause that promotes Special and Differential Treatment for developing countries and South-South cooperation.
During EU-Africa Summit held in Brussels last April, the two parties pledged their commitment to pursue policies that will create decent jobs and stimulate environmentally sound, inclusive, sustainable and long-term growth on both continents. In Africa, such policies are expected to promote structural transformation based on agriculture, green growth, industrialisation and value addition and decent employment. These aspirations are also reflected in the post 2015 Sustainable Development Goals debate. However, these aspirations will not materialise given the contents of the EPA.
Issues related to food safety and the implementations of SPS barriers are becoming increasingly significant in trade between the EU and EAC member states. SPS issues are particularly important to the region because of the nature of exports from the region, which are principally agricultural. There is need for dialogue on the application of various EU standards in order to ensure that food and environmental safety objectives are attained in ways consistent with local production and constraints of human and institutional capacity. Cases abound where SPS measures have been used to constrain market access for EAC products into the European market.
The EC wanted market access to EAC and got it early. We backloaded our matters and were pushed to brick wall with ultimatums and deadlines. At gun point, we capitulated.