Kenya and the European Union have finalized a free-trade agreement. It comes as the East African nation turns to countries outside of Africa to boost its economy.
What is the EU-Kenya trade agreement?
Once ratified, the EU-Kenya Economic Partnership Agreement (EPA) will fully open the EU market for Kenyan products, except arms.
The deal guarantees duty-free and quota-free access for goods originating in Kenya to the 27-member bloc, Kenya’s most important export market and second-biggest trading partner.
In 2022, Kenya exported €1.2 billion ($1.31 billion) of mainly agricultural products to the EU, including tea, coffee, cut flowers, peas and beans. More than two-thirds, or 70%, of Kenya’s total flower production is sold in the European market.
As for Kenya, East Africa’s largest economy will gradually and partially open its market to European goods, with the agreement seeing tariffs reduced over a 25-year period. Currently, Kenya mainly imports machinery as well as mineral and chemical products from the EU.
Kenya will be able to protect some so-called “sensitive products,” either by excluding them from tariff cuts or by triggering safeguards in case of a sudden increase in imports from the EU.
The agreement comes as trade between the EU and Kenya is growing, increasing by 27% from 2018 to 2022.
“This will put more money in the pockets of Kenyan traders. It anchors Kenya as a natural hub for EU products to East African states,” Kenyan President William Ruto said at a ceremony marking the official end of negotiations on Monday.
The EPA is the first broad trade deal between the EU and an African nation since the EU signed a similar agreement with Ghana in 2016.
What does the EPA mean for Kenya?
“It’s a good time to have a deal that may help diversify Kenya’s traded products and trading partners within the EU,” said Sherillyn Raga, a research fellow at the ODI, a global think tank.
The Netherlands, Germany and France are currently the leading destinations for EU imports.
The world has experienced multiple economic shocks from the COVID-19 pandemic and the fallout from Russia’s war in Ukraine to climate change.”When your trade structure is very concentrated to a limited number of partners or a limited number of products, then you’re very vulnerable to sharp global price movements,” said Raga, a macroeconomics and trade specialist, adding that because of this, “trade diversification is one way to increase Kenya’s resilience against shocks.”
For Kenya’s exports to the EU, the deal, however, won’t change that much in the short term. Kenya already enjoys duty- and quota-free trade with the EU under a temporary special arrangement, which was put in place in 2014 after an agreement that the EU negotiated with the East Africa Community (EAC) stalled.
What the latest trade agreement does, first and foremost, is formally lock in Kenya’s market access to the European Union, thereby “reducing uncertainty,” said economist Frederik Stender, who works on trade policy and regional economic integration issues at the German Institute of Development and Sustainability.
This, in turn, could attract EU investment and financing in the medium to long term.
Notably, the EU trade agreement isn’t just about trade. It also contains “a development perspective” for Kenya, Stender said. Kenya has agreed to enforce binding commitments related to environmental protection, climate action, fighting gender inequality and strengthening labor rights.
The agreement also includes trade-related development assistance to tackle some factors limiting Kenya’s exports, such as lack of productive capacities, infrastructure, human capital and capacities to comply with EU standards, Stender said.
Such elements will hopefully help Kenyan exporters overcome some of the difficulties they face in trading with the EU and could eventually help Kenya integrate better into EU value chains.
A 2021 study of Kenya’s export possibilities co-authored by Raga found that most of the barriers to entering the EU market are complying with the EU’s labeling requirements, measures needed to control plant diseases and protect plant health, known as phytosanitary control, and rules of origin.
Why has Kenya made the EU deal without the East African Community?
In 2014, East African Community members Kenya, Rwanda, Burundi, Tanzania and Uganda negotiated an Economic Partnership Agreement with the European Union. But only Kenya went on to ratify the deal. Without the signatures of the other EAC members, which now include the Democratic Republic of the Congo and South Sudan, the EU-EAC free-trade agreement couldn’t come into effect.
The other EAC members felt less pressure to ratify the joint agreement because they already enjoy quota-free access to the EU as designated Least Developed Countries. But as a lower middle-income economy, Kenya does not enjoy that provision.
In early 2021, EAC heads of state agreed to let those individual members who wish to implement the EU trade agreement negotiate directly with Brussels.
What about Kenya’s other trade deals?
The slow progress of regional integration in Africa is probably a reason Kenya has negotiated the EU trade deal, and is looking to close others.
The African Continental Free Trade Area entered into force in 2019, and its operational phase began in 2021, but so far only a number of countries, including Kenya, have provisionally started to trade selected goods on a pilot basis.
Against this background, Kenya is seemingly looking for closer integration with other partners outside of Africa.
Kenya signed a similar trade deal with the United Kingdom in December 2020, when Britain exited the EU.
The East African nation is also negotiating a trade deal with the United States, which could be signed next year. Kenya qualifies for duty-free access to the US market until 2025 under the African Growth and Opportunity Act. However, as with the EU, having a formal and permanent deal will likely attract more investment.
Kenya is also in talks with the United Arab Emirates, with the two nations signing in July 2022 an intent to begin negotiations on a comprehensive economic partnership agreement.
If an agreement is finalized, it would be the first bilateral trade deal the oil-rich Arab state has made with an African nation. As one of Kenya’s most significant export partners, the UAE is regarded mainly as key to trade and investment with the Middle East. Kenya’s main imports to the UAE are refined petroleum, tea, sheep and goat meat.
Trade between the two countries is currently marked by a massive trade imbalance favoring the UAE, which exported $1.8 billion to Kenya while only importing $328 million in products from Kenya.
Kenya has said it is keen to boost its non-oil trade with the UAE, such as Kenya’s coconuts and potatoes, among other agricultural products.
“Kenya is doing its best to secure some deals so that it can expand its exports and diversify its export and trading partners,” said Raga, adding that Kenya could set a precedent for other East African countries of what such trade deals could look like.
Source : DW
