Which way for Kenya in EPA?

Financial Standard

By JOHN NJIRAINI

Are the Economic Partnership Agreements (EPAs) good or bad for Kenya?

This is a question that repeatedly continues to pound in the minds of many as the standoff over the new regime that is supposed to define trade between the European Union (EU) and the Africa, Caribbean and Pacific (ACP) nations persist.

In Kenya, the controversy and divisions generated by EPAs has been intense and passionate.

Over the past seven years, the Government has found itself in a tight corner trying to negotiate what it calls "favourable EPAs" amidst stiff opposition from various civil society groupings that argue EPAs will deepen dependency on Europe instead of solving the development challenges facing the country.

Last week, the warring parties were at it again. The Kenya Human Rights Commission (KHCR), the face of civil society opposition campaign, launched a report titled ‘Trading our lives with Europe’ and demanded that the country should discard the EPAs and seek for alternatives trade agreements. "We need to realise that EPAs pose serious threats to Kenya’s development agenda," said Muthoni Wanyeki, KHRC Executive Director.

propaganda campaign

But according to Simon Chacha, the External Trade Secretary at the Ministry of Trade, the civil society has been engaging in a propaganda campaign because EPAs are beneficial to Kenya.

"The civil society position is that EPAs are not beneficial but the Government position is that they are beneficial," he said. He added that Kenya should realise the EU market will never be free, and instead of engaging in a tag of war, all parties should seek a common ground and focus on the substance of EPAs that will be profitable to Kenya.

But why have the EPAs, which are supposed to replace the Cotonou Partnership Agreement that allows exports from Kenya and other ACP countries to access the EU market duty free, generated such opposition?

And why is Kenya, which is negotiating on the platform of East Africa Community (EAC), stuck in a protracted standoff while countries Ghana, Mozambique, Botswana, Lesotho, Swaziland and Cote d’Ivoire have signed interim EPAs with the EU?

Besides, is Kenya engaging in a wild goose chase while aware of the fact that eventually it will succumb and sign the EPAs?

Granted, it is important to understand that trade is the single most important catalyst for integration and development. It is also one of the most divisive and a major threat to development. This explains why the Doha Rounds of World Trade Organisation (WTO) trade talks have largely hit a deadlock as various countries seek to protect their interests and protectionism mechanisms are on the rise.

In light of this, it is critical to note the new trade regime envisaged under EPAs would completely alter the trade relationship between Kenya and the EU besides impacting on the development of the country.

Currently, statistics by the ministry of trade show the EU is a key destination market for Kenyan exports accounting for 26.4 per cent of total exports. This makes the EU the second largest market for Kenyan products after the Comesa region.

protect turf

The country, for instance, raked in Sh71.6 billion from horticulture exports to the EU, Sh40 billion from cut flower exports and Sh6 billion from fish.

Going by the importance of the EU market to Kenyan products, all agree that it is crucial for Kenya not only to protect the EU market but also explore ways to expand it.

But with the entry of the EPAs, which demand that Kenya should reciprocate and allow EU products to enter Kenya duty free albeit in phases, the civil society argues this could be catastrophic for the country’s infant industries and could spell a death knell for the agricultural sector.

They have a point. To start with, the EU is a highly developed trade bloc with a high human development index compared to a struggling Kenya and the EAC region in general. Consequently the civil society contends that if Kenya signs the EPAs, all nascent industries would be wiped out by influx of cheap products from the EU. The ripple effect would be lack of employment opportunities and subjecting more Kenyans to a life of abject poverty. More importantly, signing the EPAs will devastate the agricultural sector that currently account for a quarter of Kenya’s GDP and provide over 75 per cent of the population with a means of livelihood.

Such an eventuality, argues the civil society, would impact on the country’s already bad food security situation, annihilate the rural economy, deny the Government revenue and in the long run transform Kenya to a begging nation.

"EPAs negotiations should be stopped since EPAs deepen dependency on Europe instead of solving the development challenges facing developing nations," states KHRC.

But what is the alternative considering the WTO has disputed the validity of the Cotonou Agreement that it says is not compatible with its rules? According to the KHRC, the ideal trade agreement that Kenya should go for is the Generalised System of Preferences Plus (GSP Plus). This is because the GSP Plus is compatible to the WTO rules but most important because it provides for free market access. "Though this is a unilateral mechanism, it is non-reciprocal and thus does not require commitment on the part of developing nations on the issues like government procurement, competition policy and investment," observes the KHRC. Considering the wide development gap between ACP countries and the EU, this would definitely be the best route to take.

Yet, according to the Kenyan Government, this would amount to gambling. GSP Plus, reckons Chacha, is not contractual and is prone to amendments.

"Demanding we forget about EPAs and go for GSP Plus is like going from the known to the unknown," he said. Besides, it is important to be cautious of the fact that though Kenya and other ACP countries might opt for GSP Plus, the EU can refuse to tag along.

It is also instructive to note that the EU is desperately looking for markets for her products considering its domestic market is saturated. In deed European companies are aggressively seeking for new growth opportunities in emerging and green markets mainly the ACP countries. Effectively, this means the EU is determined to push ahead with the EPAs and force ACP countries to open up their markets.

Ghana and Cote d’Ivoire, probably after realising there is zero option away from the EPAs, decided to sign what was referred to as interim EPA-light eliminating tariffs on virtually all of the country’s exports to Europe and on 80 per cent of imports from Europe over 15 years.

So what is the way out for Kenya and EAC states? While the civil societies are determined to assertively oppose the EPAs, the Government seems aware it is a matter of time before it puts pen to paper. A study carried out by the Ministry of Trade in 2006 found out that its only by negotiating and signing EPAs favourable to Kenya that the country would be able to sustain market preferences, avoid macroeconomic instability and disruption of economic activities especially in the agricultural sector. Besides, only through EPAs will Kenya be able to increase trade with the EU in accordance with the aspirations of Vision 2030. Kenya targets to increase exports to the EU by 20 per cent by 2030. "We are not in hurry to sign, that is why we are pushing for the best deal for EAC," said Chacha. He added the EAC negotiating team, the Council of Ministers on Trade, Industry, Finance and Investment, is pushing for safeguards that will ensure the EPAs are a growth catalyst rather than destructive.

To mitigate the risks raised by the civil societies, the EAC is pushing for limited opening for EU products over a period of 18 years and exclusion of sensitive products particularly in the agricultural sector.

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