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Kenya-UK trade deal in limbo as Parliament blocks ratification

BUSINESS
By Frankline Sunday | March 7th 2021
Trade and Enterprise Development CS Betty Maina with UK's International Trade Minister Ranil Jayawardena during the signing of the new Kenya-UK trade deal in London, United Kingdom.

The fate of the multi-billion shilling economic partnership agreement (EPA) between Kenya and the United Kingdom (UK) hangs in the balance, with just a day to its ratification deadline.

The deal, signed between Kenya’s Cabinet Secretary for Trade Betty Maina and her UK counterpart Ranil Jayawardena on December 8, 2020, was welcomed with optimism by the business communities in both countries.

However, last week, Parliament refused to ratify it.

This followed questions from legislators about the trade deal’s fine print, raising a storm that could derail Britain’s first post-Brexit bilateral trade deal with an African country.

“The EPA as presented is copied from the economic partnership agreement that the East African Community (EAC) and the European Union (EU) are negotiating on. So, is it in order for Kenya to ratify this deal without other partner states,” asked Dagoretti MP John Kiarie during a sitting meant to ratify the deal.

Parliament also queried the treaty’s public participation, citing clauses that have raised concerns from some stakeholders. According to the State, the trade deal is important because the UK takes up a third of all Kenyan exports to the EU.

“Analysis of the UK market potential for products that have been earmarked for driving Kenya’s national export agenda reveals great opportunity that can only be exploited through assured market access arrangement that is now provided by the East African Community (EAC)/Kenya-UK EPA,” said Ms Maina, in a memorandum to Parliament explaining the deal.

“The market potential that awaits Kenya’s exploitation is estimated at Sh20 trillion against Kenya’s current level of exports, which stands at 0.2 per cent of the total UK market size.”

According to Maina, Kenya is aiming to push the country’s exports to the UK to Sh1.1 trillion by 2025, 28 times above the current Sh39 billion.

Rules of origin

Aside from allowing duty-free access of Kenyan goods to the UK market, Maina said simplified rules of origin would allow local traders a diversified export portfolio, helping fast-track the development of local industries.

Kenya’s private sector has also welcomed the trade pact with the UK, stating that the deal provides an opportunity for investment and growth of local industries, particularly in the wake of the Covid-19 pandemic.

“We are cognisant of the fact that the bulk of trade between the UK and Kenya is in horticulture or agriculture-based and that the agriculture sector is the mainstay of Kenya’s economy,” said Kenya Private Sector Society chief executive Carole Kariuki in a letter to Parliament. “We remain hopeful that the agreement will be ratified as soon as possible to enable businesses to start enjoying the benefits of the economic partnership between the two countries.”

Agricultural exporters under the Fresh Produce Exporters Association of Kenya, Fresh produce Consortium of Kenya and the Kenya Flower Council have similarly backed the deal, citing Sh151 billion in horticultural exports to London last year.

“The UK remains among the most important destinations for Kenya’s fresh produce as it accounts for over 30 per cent of all fresh produce exports from Kenya,” said the lobbies in a statement. “On average, the UK imports about 21,000 tonnes of flowers, 8,000 tonnes of fruits and 35,000 tonnes of vegetables from Kenya annually.”

Opposition to the deal is also mounting within the government and the business community.

The Parliamentary Caucus on Economy and Business chaired by Kiambu MP Jude Njomo last week raised issues that ought to be clarified before the deal is ratified. The Caucus, made up of 35 MPs, said the UK-Kenya EPA was drafted without the State undertaking an economic impact assessment as required in such treaties.

“The data that has been used by the State as the basis of negotiating the agreement is old data, dating back to 2005,” said the Caucus in a letter to Parliament. “Why are we using old EU data to conclude a far-reaching agreement with the UK when Brexit comes with new issues?”

Njomo noted that while Trade CS insists on a gradual opening of tariffs on products, some product lines will cut taxes immediately due to the EAC Common External Tariff. “While these products enjoy high tariffs under the EAC CET, they would have to lower tariffs (taxes) immediately the agreement starts,” stated the letter.

This means that by Kenya signing the deal, it would open up the regional market to an influx of UK imports to the EAC at lower tariffs, eroding member States of much-needed revenue.

However, other economists argue that Kenya is well within means of negotiating the EPA with the UK.

“Kenya finds itself in an interesting situation currently compared to her neighbours in the EAC,” said KenInvest boss and former boss of the Kenya Institute of Public Policy Research Moses Ikiara.

“Kenya is the only developing economy in the EAC while the rest are least developed economies which already enjoy duty-free access to the EU and UK markets under the everything but arms protocol.”

This puts pressure on Kenya to pursue its duty-free access to the UK since member States have failed to gain consensus despite two decades of negotiations on the EAC-EPA.

“While the UK-Kenya EPAs has been taken from the EAC-EU EPAs, the document went through exhaustive stakeholder consultations. With the UK as Kenya’s major trading partner in the 28-member bloc, it is prudent to seek out a bilateral trade deal with them.”

Dr Ikiara down-played the fears of the UK dumping its goods to the region and the lack of urgency on the part of Kenya to modify the terms of the treaty once it is ratified.

“The balance of trade between Kenya and the UK is actually in favour of Kenya which is a good thing and the treaty allows the other EAC countries to enjoin at a later stage,” he said.

“The people negotiating these deals understand trade law, are equipped with the latest statistics so they are aware of the differences in economic capacity between the two countries.”

Ikiara said dispute resolution mechanisms such as those provided by the World Trade Organisation will arbitrate disagreements that will arise.

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