Summary
The Kenyan President has announced trade negotiations with the USA will be delayed given the deferment of the implementation of the AfCFTA in the face of Covid-19 disruptions. This raises issues related to the UK governments approach to trade agreements with African countries such as Kenya. While substantive ‘face to face’ negotiations to resolve outstanding technical issues and regional concerns have not been possible since February the UK government continues to insist Continuity Agreements can be concluded by the end of 2020. While this is perfectly possible for an agreement which solely addresses UK concerns and interests, it is not possible for an agreement which addresses African regional complications and issues and concerns arising from the UK’s departure from the EU customs union. Comprehensively addressing these latter concerns is vital to ensuring continuity in African exports to the UK from 1st January 2021. Against this background the UK government should conclude qualified Continuity Agreements by the end of the year to preserve existing duty-free access for exporters from the concerned African countries, but with the implementation of reciprocal obligations being deferred until outstanding technical issues and regional concerns have been addressed.
On 12th June 2020, the Kenya President announced trade negotiations with the USA would be delayed ‘until a pan-African trade bloc comes into force’. It had been agreed at Presidential level in February 2020, negotiations should be formally launched.
For Kenya securing a trade agreement with the US is seen as important given the lapsing in 2025 of the US AGOA, which provides the basis for Kenya’s duty-free access to the US market. For the USA, the negotiations are seen as important in countering the perceived growth of Chinese influence in the East African region, with the US Trade Representative declaring he hoped the ‘negotiations would begin soon’ (1).
This followed the announcement on 10th May that the start of the implementation of the African Continental Free Trade Agreement (AfCFTA), scheduled for 1st July 2020, would be postponed.
According to AfCFTA Secretary General Wamkele Mene, ‘there is now an urgent need to give governments space to address this unprecedented public health crisis’. Only once the virus is ‘defeated’, will African governments be able to ‘refocus on trade objectives’ (2).
According to press reports the African Union Commission ‘has proposed 1 January 2021 as the new tentative date for the start of trade under AfCFTA’. David Luke of the UNECA has pointed out how due to the Covid-19 pandemic ‘negotiations have been suspended to complete some pending technical elements, such as rules of origin – products made in Africa – for some sensitive sectors, the exchange of tariff concessions on trade in goods and commitments on trade in services’ (2).
In addition, the suspension of implementation of AfCFTA needs to be seen in a context where ‘most of the land and air borders have been closed’, with this effectively inhibiting the development on intra-regional trade (2). While sub-regional initiatives have been launched to continue to provide access throughout the Covid-19 pandemic for land locked states and other neighbouring countries to international export infrastructure, the smouldering nature of the pandemic in the face of different national policy responses, is likely to intensify pressure on intra-regional trade infrastructure arrangements (see companion epamonitring.net article ‘Tanzanian Avocado Exports Show Strong Growth Amidst Growing Competition’, 4 June 2020).
What is more the pandemic had severely disrupted major components of the international trade of a number of African countries, either as a result of the collapse of passenger based air freight services or the disruption of maritime shipping linked to reduced port capacities in the face of the spread of the virus (2) (see companion epamonitoring.net articles ‘What Future Air Passenger Flight Based Cargo Services?’, 16 June 2020, ‘Growing Covid19 Related Concerns Over Fresh Food Supply Chains Could Carry Longer Term Implications’, 23 April 2020, ‘Covid-19 Related Cancellation of Commercial Flights Beginning to Bite for ACP Horticulture Exports’, 7 April 2020 and ‘Size and Market Experience Affects the Impact of Corvid-19 Pandemic Disruptions on African Horticulture Exporters’, 26 March 2020).
All of these factors link back to the urgent need to give governments space to address not only the unprecedented health crisis but also the immediate unprecedented trade crisis which the pandemic has given rise to.
| Comment and Analysis The need to give African governments the space to address the multifaceted Covid-19 induced health, trade and general economic crisis, arises not only in the context of Kenya-US trade negotiations, but also in the context of the ‘rolling over’ of EU reciprocal preferential trade agreements into ‘UK-only’ Continuity Agreements. This issue is outstanding in East Africa, West Africa, and Central Africa, where the incomplete nature of the EU’s regional EPAs complicates the process of ‘rolling over’ such agreements into UK only trade arrangements. While the UK government took the view outstanding technical issues and regional concerns could be addressed in the course of 2020, in time for ‘UK-only’ Continuity Agreements to take effect from 1st January 2021, there have been no substantive ‘face to face’ negotiations to deal with technical issues between the UK and concerned African governments since February 2020. These technical issues are quite complex and inter-connected. For example, while the UK wants African signatory governments to simply ‘roll-over’ existing rules of origin which would allow UK firms to continue to use, on an unlimited basis, EU27 sourced inputs, the EU itself has rejected such a ‘rolling over’ arrangement for rules of origin and has advised EU producers to re-orientate their input sourcing away from UK companies, so as to avoid possible rules of origin complications under EU trade agreements with third countries (3). While the UK has secured such a rolling over of rules of origin under other Continuity Agreements concluded with ACP countries, in an East African context this issue cannot be divorced from concerns over the impact of the departure of the UK from the EU customs union on the functioning of triangular supply chains. This is particularly acute in the cut flower sector, where in addition to the logistical challenges the UK’s withdrawal from the EU customs union is likely to give rise to, clarification is needed on rules of origin issues. Kenyan cut flowers largely enter the customs territory of the EU via the Dutch flower auctions. These imported consignments are then broken up and forwarded to different destinations across Europe, including to the UK. In this context the question arises: what mechanisms need to be set in place to ensure Kenyan cut flowers (or any East African cut flower) traded through the Dutch flower auctions do not lose the originating status which allows them to claim duty-free access to the UK market? In terms of ensuring the continued functioning of triangular supply chain this ‘rules of origin’ issue is but one dimension of the challenge faced. Issues related to the ‘UK-only’ sanitary and phytosanitary import control arrangements to be applied on this ‘re-export’ trade also need to be addressed. The issue of how to ensure the continued smooth functioning of triangular supply chains in a context where duty free access if enjoyed to both the UK and EU market, yet border controls are to be introduced on goods crossing EU/UK border also need to be addressed. These issues are particularly important for short shelf life products, which dominate Kenya’s export trade to the UK. From the perspective of Kenyan exporters, addressing these issues will be an essential part of ensuring ‘continuity’ in Kenya-UK trade relations Meanwhile in a West and Central African context this rules of origin issue cannot be divorced from the existing shortcomings in regional cumulation arrangements under the existing EU agreements. These existing provisions greatly complicate and inhibit the use of regionally sourced inputs in processing for export on a duty-free basis to the EU. Under any UK ‘Continuity Agreement’ regional cumulation for African sourced inputs needs to be made as simple as the UK is proposing for the continued use of EU sourced inputs by UK manufacturers. To put this in context, on average only 40% of the inputs used in a vehicle produced in the UK for export to Africa are sourced in the UK, with the bulk of inputs coming from EU27 member states. If existing rules of origin under which UK manufacturers produce and export as members of the EU are not reproduced, it is likely the bulk of UK exports of goods to African countries would no longer be eligible for duty free access under any trade agreements the UK may conclude. Rules of origin issues which have not yet been fully resolved are thus central to both parties to ‘UK only’ Continuity Agreements, with this requiring time to resolve before the implementation of reciprocal commitments on imports from the UK are activated. More broadly of course if the UK wants rules of origin under its Continuity Agreements which permit continued unlimited use of EU inputs in UK goods exported to African countries under the preferential terms set out under these agreements, then it would appear logical for the UK to grant full pan-African automatic regional cumulation in the context of efforts to promote pan-African regional trade integration. Such complex rules of origin issues will take time and ‘face to face’ negotiations to resolve. These rules of origin issues are only one dimension of the issues which will need to be addressed if ‘continuity’ in African exports to the UK are to be resolved. These range from the scope of future ‘UK-only’ phytosanitary import control requirements to the rolling out of ‘UK-only’ trade documentation systems, with the future functioning of triangular supply chains bringing many of these issues together in a concentrated form. In addition, the issue of the regional complications which have held up the conclusion of EU regional EPAs in East, West and Central Africa remain. These complications are particularly acute in East Africa where the existence of the East African Community Customs Union, requires a common external tariff to be agreed and implemented. The Covid-19 pandemic has not only disrupted EAC meetings and consultation processes but has also required the diversion of all available political and administrative capacity to addressing immediate crisis needs. It is this crisis situation which has seen the implementation of the AfCFTA deferred. Against this background and in the context of the different trajectories for the Covid-19 pandemic in the UK and Africa, it would appear appropriate to conclude only conditional or qualified ‘UK-only’ Continuity Agreements. Such a qualified or conditional Continuity Agreements, while setting out the broad parameters of the agreements modelled on the EU EPAs, would defer the implementation of reciprocal obligations by the African signatory governments until outstanding technical issues can be comprehensively addressed, regional concerns have been accommodated and the implementation of a trade agreement with a major OECD trade partner can be properly sequenced with the implementation of African regional trade integration initiatives. |
Sources
(1) Reuters.com, ‘Kenya s president says talks on trade deal with US delayed’, 18 June 2020
https://www.reuters.com/article/us-kenya-usa-trade-idUSKBN23P2VR
(2) atalayar.com ‘Coronavirus delays implementation of major African free trade agreement, 10th May 2020
https://atalayar.com/en/content/coronavirus-delays-implementation-major-african-free-trade-agreement
(3) EC, ‘Notice to Stakeholders: Withdrawal of the United Kingdom and EU rules in the field of customs and external trade – Preferential Origin of Goods, 4 June 2018
https://ec.europa.eu/taxation_customs/sites/taxation/files/notice-to-stakeholders-brexit-preferential-origin-final_en.pdf