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Kenya-US trade deal up in the air as Biden lays down the marker in DC

FINANCIAL STANDARD
By Frankline Sunday | January 26th 2021
US President Joe Biden.

As US President Joseph Biden’s new team settles in in Washington, Kenya’s bilateral trade pact with the Western superpower hangs in the balance.

This with only months to the lapse of free trade regulatory deadline. 

The Free Trade Agreement (FTA), which was officially launched in July last year after immediate former President Trump met with his Kenyan counterpart Uhuru Kenyatta at the White House, has faced mounting criticism, and the change of guard in the US could be the final straw.

Since taking over last week, Biden has signed several executive orders reversing Trump’s foreign policies, including one that will see the US rejoin the Paris Climate Accord and the World Health Organisation.  

This came as the Kenyan government sought to assure investors and traders that it would be business as usual with the Biden administration.

Kenya Private Sector Alliance (Kepsa) Chairman and Head of the East African Business Nicholas Nesbitt said the change in administration in Washington is an opportunity for local companies to create more jobs by accessing one of the largest consumer markets in the world.         

“We hope and pray that President Biden will push and encourage the free trade agreement, and we should revive the discussions around the EAC (East African Community)-US trade and investment partnership,” said Mr Nesbitt.

President Uhuru Kenyatta and US Ambassador to Kenya Kyle McCarter. [PSCU]

President Uhuru expressed the same optimism while bidding farewell to the outgoing US Ambassador to Kenya Kyle McCarter. 

“We appreciate what has been achieved through the African Growth and Opportunity Act (Agoa), but it is time we moved to trade agreements that are more mutually beneficial,” said Uhuru.

“We will not lose focus on concluding the FTA.” 

Despite the optimism, several trade lobbies from Kenya, Nigeria, Uganda, Rwanda and Tanzania have written to the Kenyan government, voicing their opposition to the proposed trade deal.

They argue the deal will stifle the growth of local industries and lead to dumping of cheap US imports in the region.

“The agreement portends the danger of crippling sectors such as agriculture and manufacturing and disintegrating of the Kenyan economy,” states the letter signed by 27 lobby groups including the National Association of Nigerian Traders, Econews Africa, West African Institute for Trade and Agricultural Development, Kenya Human Rights Commission, Haki Madini Tanzania and the Centre for Trade Policy and Development.  

According to Edgar Odari, an official at Econews and one of the petitioners, Kenya could face an influx of agriculture products produced cheaply through US government subsidies, pricing local producers out of the market.    

“Farmers in the US for example receive heavy stimulus from their government compared to small scale farmers in Kenya,” explained Mr Odari.

“The likely outcome is that the agreement will negatively impact food security, as the ability of local farmers to produce will be limited by stiff competition from subsidized products from the US market.” 

The FTA will be used as a model for similar deals between America and other African countries.

According to the Ministry of Industrialisation and Trade, the Kenya-US FTA will replace Agoa, which is set to expire in 2025.

Agoa was signed by US President Bill Clinton as a 15-year trade pact allowing exporters from Africa and several other developing countries duty-free access to the US market.

Robert Lighthizer, former head of the US Trade Representative Office and Trump’s appointee in 2019 confirmed to the Congress that the trade pact was a model for similar relations with the African continent. 

“In pursuing negotiations on a trade agreement with Kenya, we are responding to Congress’ supporters expressed in the African Growth and Opportunity Act to negotiate reciprocal and mutually beneficial trade agreements that serve the interests of both the United States and the countries of sub-Saharan Africa,” said Lighthizer in his letter. 

“Our vision is to conclude an agreement with Kenya that can serve as a model for additional agreements in Africa, leading to a network of agreements that contribute to Africa’s regional integration objectives,” he added.  

According to the summary of US-Kenya Negotiating Objectives released late last year, the US proposes several conditions that are in sharp contrast to the country’s local regulations.

One condition asks the Kenyan government to “include state-of-the-art commitments to ensure that Kenya refrains from imposing measures in the financial services sector that restrict cross-border data flows or that require the use or installation of local computing facilities.”

This is contrary to Section 50 of Kenya’s Data Protection Act 2019 that gives the ICT Cabinet Secretary the power to compel external firms to store data generated by Kenyans on local servers. 

Another condition asks Kenyan officials to “secure comprehensive market access for US agricultural goods to Kenya by reducing or eliminating tariffs.” 

This, coupled with conditions to explore trade in biotechnology agricultural goods has raised concern that farmers in the region will be unable to compete with cheap imports produced by farmers largely subsidised by the US government.  

While the US is the second-largest destination of Kenyan exports, taking up Sh51.9 billion worth of exports in 2019, the country ranks 108th in the list of US largest trading partners, underlining fears of a trade deal skewed in favour of the latter.     

Economists further argue that the successful conclusion of the trade pact relies largely on the change in administration in Washington and achieving regional consensus. 

“At this point, the political commitment to the negotiations of both leaders is of paramount importance,” said economists Witney Schneidman and Brionne Dawson in a report for the Brookings Institute. 

“President Uhuru Kenyatta is one of the few African leaders to have established a positive rapport with President Trump and is the only African leader to have made two visits to the White House,” read the report in part.

The two economists also noted that the protracted nature of trade negotiations mean tight deadlines, lengthy delays and disruptions such as a transition in government could unravel years’ of progress. 

“As we saw in the transition from the Obama to the Trump administrations, trade negotiations can be scuttled,” said the two in the report authored mid-last year.

At the same time, Kenya’s commitments in regional trade deals mean East Africa’s largest economy might find it difficult to gain support for the trade pact. 

The African Continental Free Trade Agreement (AfCFTA) came into force on January 1, 2021, and Kenya is among the countries that are pushing for the fast-tracking of its implementation. 

While previous efforts to grow intra-African trade have yielded little fruit, the country’s business community says the prevailing conditions give AfCTFA a higher chance of success.

“We are in a different time,” explained Kepsa’s Nesbitt.

“You are seeing a lot of nationalism growing as opposed to globalism, and former president Trump was the biggest proponent of unwinding globalisation.” 

He said governments in Africa will need to remove the layers of bureaucracy that undermine innovation ecosystems to build internal capacity and cut reliance on external actors. 

“The sentiment I hear a lot across Africa from and the new political and business leaders is that we must have home-grown solutions to home-generated problems,” said Nesbitt. 

“We now have a framework for trade across Africa, and many of the changes that need to happen have to be ratified by the respective parliaments, and we are pushing for these changes in policy to be made,” he said. 

Nesbitt further said countries across Africa are further setting up physical and digital infrastructure to expand linkages between member states in the AfCFTA

“We are seeing road and rail infrastructure projects happening in countries like Kenya, Zambia, Tanzania,” he explained.

“There is also a big conversation about open skies across Africa and we are building ports.” 

Nesbitt says that this, coupled with the undersea fibre projects linking countries to high-speed Internet indicates that Africa’s governments and private sector is setting up the foundation for the success of AfCTFA.   

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