The EU-Kenya EPA Is Toxic for East Africa: The agreement signed last month sounds a death knell for regional economic integration

The EU-Kenya EPA Is Toxic for East Africa: The agreement signed last month sounds a death knell for regional economic integration

The EU-Kenya EPA Is Toxic for East Africa: The agreement signed last month sounds a death knell for regional economic integration

On 19 June, the Kenyan government concluded and signed the EU-Kenya Economic Partnership Agreement (EPA) following a series of unsuccessful attempts to persuade the rest of the East African Community (EAC) to sign onto an EPA between the EU and the EAC as a whole. This comes two years after Kenya decided to pursue the EU-EAC EPA on its own and made a request at the EAC Heads of State Summit for an exemption to implement the EPA, arguing that the EU Market Access Regulation, which shielded Kenya in the interim period before the other EAC members signed the EPA, expired, and hence the country would have to sign an agreement with the EU to secure its export market.

Ultimately, the decision to sign the EPA appears to cast aside critical EAC strategic interests in the interest of exporting a narrow basket of goods comprising of fruits, vegetables, and flowers. What is not being discussed, however, is the fact that Kenya actually violated EAC law with its decision to ratify the EPA. In fact, the mandate granted by the EAC Heads of State Summit on 27 February 2021 only extended to the implementation of the negotiated agreement. Paragraph 9 of the final communique was specific, as the summit recognized that not all partner states were in a position to implement the EPA, while at the same time acknowledging that it was important for some partner states to move forward.

The Summit concluded, “Partner states who wish to do so should be able to commence engagements with the EU with a view to starting the EAC/EU EPA implementation under the principle of variable geometry.” The mandate therefore extended to implementing the negotiated agreement — not opening up new negotiations. Kenya’s decision to open up negotiations under Article 3 of the EPA, the so-called “rendezvous clause”, violates EAC law under article 37.d of the Customs Union Protocol, which also applies to the Common Market Protocol.

Undermining Development

Beyond the legal semantics, however, the decision also carries bigger implications for the region. Since the conclusion of the Customs Union Protocol in 2005, the EAC has pursued an ambitious agenda for regional integration. The EAC is currently implementing the Common Market Protocol and conducting conversations about deepening cooperation beyond these instruments. In that sense, the EU-Kenya EPA dismantles the dream of greater regional integration between EAC countries.

Perhaps the biggest challenge to the region will be how to treat goods from the EU once they have crossed Kenya’s borders. If East Africa is indeed a common market, then goods entering one country must be treated as if they have entered the region as well. This means that a product from the EU could go all the way to Burundi. However, given that Burundi is not a signatory to the EPA, this free circulation poses a number of challenges to the country in terms of regulating its market.

The other critical issue relates to industrialization in the region and the impact of discrepancies between tariffs under the EPA as compared to the EAC’s Common External Tariff (CET). For some strange reason, the tariff rates on some key products are lower under the EPA than under the CET. This means that products entering Kenya from the EU under these tariffs will be much cheaper than those produced by local manufacturers, effectively sounding a death knell for local industries currently protected by the buffer offered by the CET.

The situation is further worsened by the inclusion of a so-called standstill clause in the EPA, which prevents Kenya and the region from ever increasing tariffs on products scheduled for liberalization, including during the 25-year implementation period. Such restrictions are not required by the World Trade Organization. The inclusion of this clause limits the remit of policy space and may hinder the region’s ability to further its development.

Safeguards and Policy Restrictions

The threats to the region from the EPA keep multiplying. Another has to do with the question of safeguards. The EU regularly uses a special and easy-to-invoke safeguard, the Special Safeguard Provision (SSG), in the WTO’s Agreement on Agriculture. The SSG is also mentioned in the EPA. The EU has indicated it would not use the multilateral safeguards, including the SSG, against EAC imports for five years, but has left open the possibility of using them at a later point.
The SSG instrument is not available to Kenya and EAC countries in the WTO and thus the EPA. This leaves the region without an adequate mechanism to address import surges as a result of increased importation of products from the EU. In the case of agriculture, the 25-year liberalization period will leave East Africa at the mercy of imports from the EU and compromise the region’s already fragile food security situation.

In terms of procedure, the experience of most developing countries in utilizing its normal Safeguard Agreement in the WTO has been the difficulty in supplying complete and accurate information, as they often do not have comprehensive and timely data. The procedural requirements in the EPA committing Kenya and the EAC parties to supply the Committee of Senior Officials “with all relevant information required for a thorough examination of the situation, with a view to seeking a solution acceptable to the Parties concerned” are beyond the region’s capabilities, and therefore should not have been included.

The gravest attack on the region’s industrialization prospects has to be the removal of export taxes on raw materials. Developing countries in the WTO (including African countries) have consistently rejected any suggestion of establishing rules for the elimination of export taxes, as these are regarded as a useful development tool which the developed world used to industrialize. Historically, such taxes incentivize local suppliers to move into processing and diversification. The EPA disallows new export taxes and makes the introduction of any new export taxes difficult. This policy limitation is incompatible with the flexibilities carefully retained at WTO level, making the EPA a tool that directly undermines industrialization in Kenya and EAC as a whole.

Cutting Off an Arm to Save the Finger

The extent to which the EPA will undermine regional integration cannot be overstated. The opening of EAC markets to EU products will lead to the displacement of regional trade. Trade statistics show that a significant portion of manufactured exports from the EAC are directed intra-regionally and to other African countries. This will change once the EAC market is liberalized under the EPA.
The opportunities for EAC producers to access a bigger internal market, especially given the developments happening at the continental level under the Africa Continental Free Trade Area (AfCFTA), would be lost, as they will now have to compete with EU exports in their own regional market. Studies have shown that EAC countries stand to benefit immensely from full implementation of the AfCFTA, an opportunity that will obviously be diminished with the implementation of the EPA.

Given that the EU-Kenya EPA has locked-in commitments that constitute the “floor” of what the other EAC member-states can commit to should they choose to negotiate an agreement with the EU (either out of compulsion or free will), the agreement has put them in a difficult spot. The EPA between the EU and Kenya will mean that the EAC’s regional integration goals will definitely not be met.
In the final analysis, Kenya shall go on record as the country that undermined regional integration in East Africa in the interests of exporting a narrow basket of products to the EU — the proverbial cutting off of an arm to save a finger. Is it worth it?

Written by: Edgar Odari, Executive Director, EcoNews Africa