Blow for flower exporters as Dar stabs Kenya where it hurts most
Tanzania has back-stabbed Kenya by chickening out of a trade pact that would have given Kenya’s exports unfettered access to the European Union.
The decision by Dar to bolt out of the comprehensive Economic Partnership Agreement (EPA) between East African Community (EAC) and the EU leaves Kenya’s exports exposed to heavy taxes. These taxes have been estimated to range from eight to 12 per cent of the value.
Kenya exports tea, coffee and flowers to the 28-member market which has lately been pushed into a fire-fighting mode after citizens of one of its members, Britain, voted to leave the union.
The decision which has come as a shocker to other members of the EAC might also spell doom to more than 600,000 workers mainly in the flower farms and fresh foods producers.
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Friday, Tanzania’s Permanent Secretary for foreign Affairs Dr Aziz Mlima said his country would not sign the EAC-EU EPA citing ‘turmoil’ in the EU occasioned by the impending exit of the United Kingdom.
Apart from Kenya, the other four EAC member States - Tanzania, Rwanda, Burundi and Uganda- which are still classified as least developed countries (LDCs) will not be affected by this development as their low economic status allows them to access the EU market tax-free.
“Tanzania has been proving difficult and slow in firming up the new deal, which if not actualised by end of September, it will have serious implications,” said a senior government official, who asked not to be named. He added, “Tanzania’s decision is not surprising, going by her behaviour lately.”
President Uhuru Kenyatta informed the African, Caribbean and Pacific (ACP) ambassadors in Brussels, Belgium recently that the negotiations with the EU were concluded and the EAC member States had set a date for signing.
Currently, Kenya’s exports to the EU are categorised under the latter’s Generalised System of Preferences (GSP), which applies tariffs on Kenyan exports and thereby is less favourable than the duty-free-quota-free (DFQF) scheme.
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Meanwhile, the LDC members of the EAC continue to benefit from DFQF access to the EU under the Everything But Arms regime (EBA). It will be harder for Kenya’s flower exporters who have been hoping for an extension of the pact. Kenya’s horticulture risks losing about Sh4 billion a month should the levies take effect.
Kenya Flowers Council Chief Executive Officer Jane Ngige recently said that failure to sign the pact will put Kenya in an awkward position as the country needs to continue accessing the European market. “Failure to pass the deal would mean exports into Europe would be taxed to access the lucrative 28-member-State union,” said Mrs Ngige in a past interview with The Standard.
“Should Kenya miss out on signing the EPAs, trade between it and Europe would be reverted to the less generous market access terms under the General System of Preference (GSP),” she added.
Working day and night
Flower exporters will be waiting to see whether a government that promised to have the pact signed and ratified before the deadline can pull a rabbit out of a hat. The agreement is due for signing and ratification by October 1.
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The Government assured flower exporters that the deal would be signed by August 1. Principal Secretary State Department of Trade at the Ministry of Industry, Trade and Cooperatives Dr Chris Kiptoo said during the Kenya Flowers Council 20th year anniversary that negotiations were ongoing. “We want to assure you that we are working day and night to ensure that we sign the EPA by August 1, 2016 then implement it so that we meet the official deadline of September 30 and enjoy the benefits that comes with it,” said Dr Kiptoo.
According to Industrialisation and Trade Cabinet Secretary Adan Mohamed the talks on the new agreement were concluded and what remains is the respective nations to append their signatures. “Kenya is not negotiating as a country. We are negotiating as EAC. It is a block agreement. If we fail to meet the deadline, there will be far reaching consequences,” the CS warned.
He explained, “This deal if signed will give us leverage in the global market. We will have the opening to explore trade opportunities in the EU market, as Kenya is known for flower export and fresh production among other products. EU is a major trade partner.”
“What will delay us once we have the agreement is that it has to go through the Cabinet and Parliaments of all the EAC members for approval. Some countries have different timetables, others have just finished their elections, others going into,” he noted.
President Kenyatta also confirmed last month in Brussels Belgium, EU’s headquarters, that negotiations were complete. The agreement was first ratified in October 2014 after 10 long years of negotiations.
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When the pact was signed, the four EAC countries agreed to gradually open up their market to EU imports. In exchange, all EAC’s exports would benefit from “duty-free quota-free access to the EU market.” The (DFQF) provision was particularly vital for Kenya which has since been upgraded into a developing country status.
Tanzania, which has been accused of rocking the EAC boat, has had some spats with Kenya in recent times with some observers noting that relations between the two EAC economic giants was headed to the rock-bottom.
The country also won the battle for Uganda’s crude oil pipeline after Kampala snubbed the Kenyan route citing insecurity and grid-locked land compensation system.
Flex its muscles
Also, Rwanda decided to reroute its standard gauge railway from Kenya to Tanzania in what was seen by some as a blow the Sh327 billion project. Before it was finally ratified, Kenya was reluctant on signing the deal fearing for the erosion of its infant industries.
There were fears that giving EU’s imports unrestricted access into the country will out-compete the home-grown products and thus loss of jobs. Indeed, Kenya had refused to sign the EPA, only for the EU to flex its muscles by imposing duties of between eight and a half and 30 percent on Kenyan cut flowers, coffee, tea and tinned pineapple.
Dissenting voices against trade have grown louder as the deadline approaches with some activists asking the five members of the EAC to reject the pact. “We must critically analyse what this agreement means for the EAC, it is dangerous for our trade,” said Nathan Irumba, the executive director of the Southern and Eastern Africa Trade Information and Negotiations Institute (Seatini).