BY BETTY MAINA
I am saddened as I write this. October 1 2014 is here and with it the end of a long standing trade arrangement between Kenya and Europe which has lasted more than 30 years where exports from Kenya were not subject to customs duties in Europe. The only country in Africa to suffer this fate!
This duty free entry was made possible under trade arrangements extended to Kenya in the context of the preferential trade arrangement that the EU extended to the African Caribbean Countries (ACP) first under four successive Lome Conventions (Lome I to IV – 1975 to 1999) and lastly under the Cotonou Agreement trade regime (2000 – 2007). Kenya, along with other EAC countries secured continuation of duty free market access to the European Union (EU) after initialling the Framework for Establishment of Economic Partnership Agreement (FEPA) on November 26, 2007.
Kenya was included in the EU Market Access Regulation (MAR) 1528/2007 among other ACP countries that signed or initialled the interim Economic Partnership Agreements (EPAs). This new arrangement was premised on the understanding that the ongoing negotiations of the EPAs will be concluded as envisaged in the FEPA. The reality of the delay in signing of EPAs is here to bite industries.
Kenyan products to the European Union will begin to attract General System of Preference (GSP) tariff rates. With effect from today, products to the EU market will start attracting export duty of between 4 percent and 24 percent. Do not hold your breath – competitiveness of local products to the EU market is at risk.
A total of 67 percent of the exports to Europe from Kenya are affected. Kenya is in danger of letting an opportunity of €24.7 billion, which was revenue from the European market, slip through our hands. Goods to Europe will now be subject to customs duties of approximately Sh7.64 billion annually in taxes or about Sh637 million per month.
We applaud all in Government led by The President and his predecessors for opening and maintaining this market over the last 30 years and those who have been working tirelessly to have the agreement signed with no luck. I am sure they share our deep disappointment at this time.
It has been a long running battle to get EPAs, which should have been signed in 2007, ratified, an avenue which could see local exports soar and somewhat reduce the trade deficit. Negotiating the EPAs has taken a long time as negotiations started in 2004. It was unfortunate that we have had to do this in a context where not all partner states in EAC had the same incentives which would have informed the pace and positions adopted on various provisions.
Currently thousands of jobs are under threat mainly in the horticulture and floriculture industry. A company that exports fish in Mombasa which had revived operations four months ago and is manufacturing under bond is facing a gloomy future for its operations because of pricing issues under the GSP. Leading exporters of processed vegetables and fruits have radically reduced operations as customers were unwilling to bear higher prices due to duty increase. There are many small fresh produce exporters who will be unable to find alternative consumers.
There were, in industry’s view, imaginary fears that signing EPAs will negatively impact food security in the country. The main concerns being that signing EPAs will hurt domestic industrialization and turn us into a dumping ground for cheap goods.
Even though EPAs should be signed by the EAC trade bloc, Kenya’s position is particularly precarious since the other EAC states are classified as least developed countries and will continue to enjoy duty free and quota free exports to Europe. That is not the case for Kenya. Kenya is considered a developing country.
By March this year all outstanding issues were resolved with exception of five issues; Export taxes, Relations with the Cotonou Agreement, Agriculture Export Subsidies, Good Governance in the Tax Area and Consequences from Customs Agreements concluded with the EU. Hopes are now pinned on the joint EAC/EU meeting proposed to take place in October 2014 to finalize the negotiation.
While EPAs may appear to be an issue that solely concerns cut flowers, 24 per cent of all our exports are at stake because they are destined for European markets. 95 percent of Kenya’s horticultural exports go to the same market. Cut flowers will suddenly be subjected to tariffs of 8.5 percent, fish will attract 6 percent import tariffs, pineapple juice and other fruit juices from Kenya will cost 11.7 percent more for European clients.
Processed vegetables and fruits will attract more than 15 percent duty. In a nutshell, the competitiveness of our goods in European markets will be eroded by around 5 percent to 20 percent. As will tobacco products from Kenya as well as textile products. Last year exports to Europe under this preference regime earned the country more than Sh67 billion.
Needless to say this means jobs are threatened. Over two million people are employed or are in some way dependent on the exports to Europe.
While some may say industries should look for alternative markets for Kenyan goods, it is not as easy as just knocking on the next door. Industry has so much respect for the country’s foreign policy which promotes more intra Africa trade but while we appreciate the efforts towards opening new markets but we should also reclaim the existing markets we have already. We also urge the EU to be flexible in the negotiation.
There is need for Government to work with the EAC partners to expedite conclusion of EPAs as soon as possible and hopefully in the month of October. There will be need for the negotiators on both sides EAC and Europe to show utmost flexibility to conclude this agreement and upon conclusion take all the necessary legal steps to ensure resumption of duty free access. We understand that upon initialisation the process takes eight to twelve weeks.
In the meantime the Kenya Government is called upon to provide the necessary cushions to safeguard continued market opening. It would be particularly critical for Government to absorb the duties levied on our products estimated at Sh637 million per month. In addition as this sector is in a VAT Refund position since September 2013, Treasury should immediately release all pending VAT refunds and expeditiously for the next few month. Other partners in the private sector such as airlines and logistics providers. Banks are also urged to exercise utmost flexibility to ensure that as a country we minimise losses.
(The writer is the chief executive of Kenya Association of Manufacturers and can be reached on firstname.lastname@example.org)