Summary
With the deadline for completion of the EAC EPA ratification once again upon the region, there are growing tensions within the EAC. The government of Tanzania maintains its reluctance to sign the EPA, while the government of Burundi is refusing to sign while EU aid programmes are suspended. The government of Uganda meanwhile seeks to play a mediating role aimed at reducing frictions within the EAC. The Kenyan and Rwandan governments for their part have completed the ratification and notification process. However under EAC rules the trade agreement can’t enter into effect until all members have ratified the agreement.
It remains to be seen what the EC will now do, with Kenya potentially facing a re-imposition of import duties on around ¾ of its exports to the EU, if the EC decides to play tough. Other options are available. Including the option of an EU Ministerial statement committing the EC to the flexible and responsible implementation of EPA commitments in the case of LDCs such as Tanzania, where concerns arises as to their compatibility with national development aspirations.
While Kenya and Rwanda have signed and ratified the EAC-EU EPA, the three other member of the EAC (Tanzania, Uganda and Burundi) have yet to do so. The government of Burundi is refusing to complete the ratification process while its aid from the EU is suspended, while the government of Tanzania continues to have reservations about the impact of the EPA in its present form, on its national industrialisation strategy. (1) The government of Uganda for its part has expressed an unwillingness to ‘proceed with the signing of the EPA until all the East African Community (EAC) partner states are in agreement with the details contained in the deal as well as its repercussions on each of the member’s economy’. In this context the Ugandan government appears to be playing a mediating role in trying to ensure disagreements over the EPA do not spill over and undermine regional integration efforts through the EAC. (2)
Under agreed EAC rules for the conclusion of international trade agreements, agreements such as the EPA cannot enter into force until all EAC member governments have signed and ratified the agreement. An EAC Ministerial meeting schedule for the end of January 2017 to finalise the EPA process was postponed on the basis of inadequate technical preparation of trade data required for a decision to be made. (1) This left Kenyan exporters facing an EC deadline for completion of the EAC-EU EPA ratification process of the 2nd February 2017, with the prospect once again being faced of a re-imposition of GSP duties on Kenyan exports to the EU. (7)
The EC had earlier taken such a hard line on the signing and ratification of the EAC-EU EPA, with, from 1st October 2014, Kenya’s duty free-quota free (DFQF) access to the EU market being suspended and EU standard GSP duties being re-imposed on Kenyan exports to the EU. DFQF access for Kenyan exporters was only restored once the EC determined the Kenyan government had taken ‘the necessary steps towards ratifying the Economic Partnership Agreement concluded with the EU’. (6)
A new deadline of October 1st 2016 was subsequently established for the ratification and entry into force of the EAC-EU EPA, with once again the removal of preferential access to the EU market over-hanging Kenyan exporters. (7) With the deadline in sight on the 28th of September 2016, the Kenyan Parliament completed the ratification of the EAC-EU EPA, with the Kenyan government presenting a copy of the national ratification instrument to the EC in Brussels. (5)
Against this background, with the Kenyan government having taken all the steps within its power to complete ratification, and full ratification now being in the hands of the sovereign governments of other EAC member states, the European Parliament moved to extend the deadline for the completion of the ratification process to 2nd February 2017. (7)
Despite the passing of the new 2 February 2017 deadline, the government of Tanzania continues to decline to complete the ratification of the EPA in its present form. It has requested an in-depth analysis of the likely impact of the EPA in the light of the evolving situation in the EU, notably the pending departure of the UK from the European Union (1).
| The Impact of Re-introduction of GSP Duties on Kenyan Exports to the EU
For Kenya the withdrawal of the transitional trade preferences currently extended by the EU would affect 75.8% of total exports, with re-imposed GSP duties ranging from: · 5% – 8.5% for cut flower exports; · 3.7% to 10.9% for fresh vegetable exports; · 4.5% and 24% for fisheries products; and · 22.1% to 33.6% for certain processed vegetable products, which would also face other CAP related levies. This would undermine the commercial position of Kenyan exporters to the EU at a time when new EU trade agreements with competing suppliers are coming on stream. Uncertainty over the future tariff basis for Kenyan exports is already likely to be having an impact on the commercial negotiating position of Kenyan exporters in their dealings with EU importers. This will reportedly affect products on which 4 million Kenyan jobs depend.(8) Main Kenyan Exports Affected by Loss of (I)EPA Access (re-imposed duty & trade € millions)
Source: EC market access data base: http://madb.europa.eu/madb/datasetPreviewFormATpubli.htm?datacat_id=AT&from=publi |
A report from the financial advisory firm Citi, entitled ‘Is the EAC nearing a crossroads?’, has suggested the divergence of views between the Kenyan and Tanzanian governments is ‘more than a periodic tension’, and reflects a ‘more fundamental difference between members’. According to the Citi report while EAC members will have to liberalise tariffs on 82.6% of imports from the EU, ‘more than half of these imports …(are)… already imported duty free’, while the remaining tariff lines will largely be liberalised over a 15 year period, with some 2.9% of imported products only being liberalised after 25 years. Against this background it is noted the EC argues the long implementation time-frame will minimise any dangers of cheap imports from the EU flooding local markets. (8) However, this analysis ignores the potential trade effects of the implementation of commitments contained in the EPA restricting the use of a range non-tariff trade policy tools, which are currently used by EAC governments.
Against this background the Kenyan government continues to engage with fellow EAC members ‘on sealing the EPA deal’, while asserting the Kenyan government doesn’t ‘want EPA to break the EAC’. (3) Nevertheless there remain concerns that EPA tensions could spill over into the broader functioning of the EAC. The outgoing director general in charge of trade and customs at the East African Community Secretariat, Peter Kiguta has spoken of how ‘the failure to sign the EPA with the EU …has posed a challenge’. He reportedly argues ‘the dilly dallying in the signing of the trade agreement…threatens to undo some of the progress made under the Customs Union implementation’. According to Kiguta ‘countries appear to be more cautious about committing to anything during trade meetings and are taking hard-line positions’. This is seeing ‘suspicions…resurfacing’, and in the past two years a waning of commitment to higher levels of regional integration. (4)
Meanwhile EAC leaders jointly, continue to urge the EU ‘not to punish Kenya’. (7) While suggesting the EC could once again extend the deadline for the completion of the EPA process, press reports have questioned whether this would address the underlying concerns of the Tanzanian authorities. (8) These concerns are such that the government of Tanzania is looking to build an ‘exit’ option into the agreement, should EPA implementation in practice prove inimical to Tanzania’s development interests. (2)
Sources:
(1) The East African, ‘EPA meeting flops as member states fail to provide trade data’, 1 February 2017
http://www.theeastafrican.co.ke/business/East-Africa-EPA-trade-deal-talks/2560-3795696-mkouixz/index.html
(2) Daily Monitor, ‘Is the collapse of the Economic Partnership Agreement looming?’, 1 February 2017
http://www.monitor.co.ug/Business/Prosper/Is-the-collapse-of-the-Economic-Partnership-Agreement-looming-/688616-3794552-u5mrxdz/index.html
(3) IPPmedia, ‘EAC meeting delayed, EU trade deal stand-off continues’,
http://www.ippmedia.com/en/news/eac-meet-delayed-eu-trade-deal-standoff-continues
(4) The East African, ‘Kiguta:zeal to work together as EAC has waned over the past two years’, 6 January 2017
https://www.tralac.org/news/article/11040-kiguta-zeal-to-work-together-as-eac-has-waned-over-the-past-two-years.html
(5) Reuters, ‘Kenya secures deal to keep duty-free access to EU market’, 29 September 2016
http://uk.reuters.com/article/uk-kenya-eu-trade-idUKKCN11Z2D6
(6) EC, Note for Kenyan exporters to the European Union(EU) New trade regime as from 1 October 2014, 1 October 2014
http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_152809.pdf
(7) The East African, ‘Sigh of relief as Europe gives East Africa four months to sign EPA’, September 10 2016
http://www.theeastafrican.co.ke/news/Relief-as-Europe-gives-East-Africa-four-months-to-sign-EPA/2558-3376456-hg8m4t/index.html
(8) East African, ‘Tanzania EPA Stance Dims Kenya’s Bid for Uniform Customs Rules’, 31 January 2017
http://allafrica.com/stories/201702010073.html
| Comment and Analysis While EAC leaders have explored the option of overcoming the on-going threat to continued Kenya DFQF access to the EU market by allowing member states to sign the EPA at different times, this still leaves unresolved the issue of when the implementation of the EAC’s reciprocal commitments contained in the agreement will commence. Once the implementation of the EPA agreement gets underway the danger arises that member states will start operating different trade regimes in ways which undermine efforts to build an effective customs union across the whole of the EAC.This is throwing up a real challenge for the EC in terms of what to do next. There would appear to be two main options open to the EC.The first option would be to quietly do nothing, allowing Kenya to continue to enjoy the current benefits of duty free-quota free (DFQF) access, and patiently await the emergence of a regional consensus on the signing, ratification and implementation of the EAC-EU EPA as concluded. However, with the EAC-EU EPA ratification process and hence implementation of the agreement once again stalled and patience running out, the EC may feel a passive ‘wait and see’ position is politically non-viable, given the growing domestic pressures on the EC to effectively enforce EU trade agreement commitments. This could lead the EC to favour its second option, namely to vigorously follow through on the deadline for completion of the EAC-EU EPA ratification and once more reinstate GSP duties on Kenyan exports to the EU, with a view to pressuring the Kenyan government into more assertive action to bring Tanzania, Uganda and Burundi fully on board in the EPA process. This option of withdrawing DFQF access would only affect Kenya, since all other EAC member countries are classified as least developed countries and hence enjoy DFQF free access to the EU market under the ‘Every but Arms’ initiative established by the EU in favour of all LDCs. Punishing Kenya in this manner, given the importance of the affected products to Kenya’s trade with the EU, could generate considerable tensions within the EAC. This could then precipitate a crisis in the EAC at a time when the regional integration process in East Africa is losing momentum. This would seem to be inconsistent with the EU’s long standing policy commitment to supporting regional economic integration in Africa. However there is potentially a third option, this would involve the EC taking seriously the concerns of the Tanzanian government over the possible adverse implications of EPA implementation for its chosen agricultural and industrial transformation strategies. These concerns are rooted in the very real development constraints faced in Tanzania, which give rise to its classification as a least developed country. Traditionally under WTO trade rules, least developed countries enjoyed the right to non-reciprocal trade preferences. A right which LDC EPA signatories are de facto giving up in their trade with the EU as a result of the conclusion of reciprocal preferential economic partnership agreements. However LDCs retain the right under WTO rules to ‘special and differential treatment’. One course of action open to the EC therefore would be to give concrete expression to this ‘special and differential treatment’ principle in the implementation of EPA commitments by least developed countries. This would need to recognise that while EPA participating LDCs such as Tanzania have given up their right to non-reciprocal trade preferences, they still face the same structural constraints on their development which continues to require ‘special and differential treatment’. In this context if the EU Council of Ministers were to make a commitment to the flexible and responsible implementation of EPA commitments, in the light of the national agricultural and industrial development aspirations of EPA participating LDCs, then this could provide some reassurance to the Government of Tanzania that there long term development aspirations would be respected and supported. Such a commitment however would need to take concrete form. Far greater flexibility will need to be allowed in interpreting and applying EPA commitments, where the Government of Tanzania (and other LDCs) believe over-vigorous implementation would be inconsistent with their national development aspirations and programmes. Given the back loading of tariff reduction commitments this flexibility would, in the first instance, need to be deployed in the interpretation and application of commitments related to the use of non-tariff trade policy tools. Tanzanian non-tariff trade policy measures which could be brought into question under the EPA
For example, article 17 of the EAC-EU EPA commits EAC governments to the elimination ‘upon the entry into force of this Agreement’ of ‘all prohibitions or restrictions on the importation, exportation or sale for exports between the Parties, other than customs duties, taxes, fees and other charges provided for under Article 6, whether made effective through quotas, import or export licenses or other measures’. It also commits EAC governments to not introducing any new such measures in trade between the parties. If vigorously interpreted and applied this article is likely to be the first area in which the EAC-EU EPA makes itself felt in the Tanzanian agro-food sector. According to WTO Trade Policy Reviews of the EAC, the government of Tanzania makes active use of non-tariff trade policy measures ,which could be brought into question under the EPA, in at least 5 major agricultural sector (see table above). This is but one of the EPA provisions dealing with the use of non-tariff trade policy measures which would need to be flexibly and responsibly interpreted and applied. Alongside a general commitment to the flexible and responsible implementation of EPA commitments, providing assurances to the Government of Tanzania that the use of these sorts of non-tariff trade policy measures would not be challenged under the EPA, could go some way towards reducing fears as to the potential adverse consequences of EPA implementation for existing national development efforts. |
| Key words: Tanzania, Uganda, Kenya, Burundi, Rwanda, EAC Area for Posting: Eastern Africa EPA |