Summary
Press reports indicate the Government of Kenya is to conclude a bilateral trade agreement with the UK, with other EAC members joining later. This is seen as being based on the concept of ‘variable geometry’, an approach which had been endorsed by the EAC Heads of State in both February 2018 and February 2019.. However, the concept of ‘variable geometry’ has never been utilised in regard to the application of different tariffs within a customs union, since a customs union by definition is based on the application of a Common External Tariff by all members of the customs union. The only way for a Kenya-UK trade agreement to be concluded without undermining the integrity of the EAC customs union Common External Tariff would be if the implementation of reciprocal commitments were deferred until all EAC members agreed to come on board with a common programme of tariff reduction. This would be consistent with the current application of the EU-EAC EPA, where the implementation of reciprocal tariff reduction commitments has not yet been activated, given the reluctance of certain EAC members to come on board. An additional option available to avert a loss of Kenya’s duty-free access to the UK market would be the reactivation of the Transitional Protection Mechanism initially proposed in October 2019, but which was overtaken by events before the need for its’ implementation arose. On this basis, it needs to be recognised any loss of duty-free access for Kenyan exports would be a political choice of the UK government and not an unexpected by-product of the Brexit process.
While it was hoped the EAC would have signed a draft Continuity Agreement with the UK by the end of September, this has not happened, with recent EAC level negotiations having been downgraded to ‘consultative talks’ (1). The Government of Tanzania is concerned to ensure any agreement protects locally made goods, while the Government of Uganda would like time until the end of the year to conclude negotiations. The Government of Rwanda for its part, is reported to favour the negotiation of a bilateral deal, which allows EAC partners to join later. This approach, it is held would constitute a form of ‘variable geometry’ (1).
The use of the ‘variable geometry’ concept as the basis for the conclusion of trade negotiation processes was endorsed in the context of the ongoing EAC-EU EPA process by EAC Heads of State at the 19th Summit in February 2018, where it was declared ‘in the event that an acceptable way forward is not reached the Community shall explore the use of variable geometry in the implementation of EPAs’ (2). This was further elaborated in the heads of State Communique from the 20th EAC Summit on 1st February 2019, which stated it has been decided the EAC should engage the EU on the EPA process in the next four month ‘to get more clarification on the pertinent issues of concern. Thereafter partner states who wish to, may or may not sign the EPA’ (3).
It is on this basis the EAC has decided to extend this ‘variable geometry approach to the trade negotiations with the UK. This is not seen as problematical since the UK agreement would not go beyond the reciprocal commitments entered into in the EU-EAC EPA
This development needs to be seen in a context where for the Government of Kenya the issue is now getting critical. Kenya unlike all other EAC members, is a middle-income country and is not eligible for the UK’s rolled over EBA style preference scheme, established in favour of least developed countries. As such it is only Kenya which would lose its current duty free-quota free access to the UK market, as a result of a failure to conclude an EAC-UK Continuity Agreement (4).
Against this background the Government of Kenya has reportedly been losing patience with the UK-EAC negotiation process and has been showing a preference for activating discussions with the UK government on the basis of the ‘variable geometry’ approach endorsed by the EAC heads of state for dealings with the EU. This would allow the Government of Kenya to pursue bilateral Kenya-UK negotiations in the framework of the strategic partnership concluded by the Governments of the UK and Kenya at the end of January 2020 (4).
The UK governments position is somewhat ambiguous for while UK officials continue discussions bilaterally with the Kenyan government, officials at the UK High Commission in Nairobi have reportedly indicating ‘Britain will negotiate with the EAC as a bloc.’ The UK is equally firm that any future UK-EAC agreement cannot ‘deviate substantially’ from the concluded EU-EAC EPA since this ‘would require a new mandate and could take many years’ to negotiate (4).
An editorial in the Kenyan Business Daily has indicated the Government of Kenya has decided to ‘forge on with negotiating a new trade deal with the UK’, since it would face serious loses in the horticulture sector if existing duty free access to the UK market were to be lost from 1st January 2021. The editorial called on Government of Kenya to intensify its regional lobbying to bring its EAC partners on board the ‘UK-only’ reciprocal preferential trade arrangement (5).
A report carried by The Citizen (Tanzania) at the end of September indicated it has been accepted in the EAC that the Government of Kenya pursues negotiations with the UK in the context of the ‘variable geometry’ approach, with other EAC members joining in later. This is in recognition of the fact it is only Kenya which would be disadvantaged by the failure to conclude an agreement (6).
According to Trade Cabinet Secretary Maina ‘The United Kingdom and Kenya will not stand still and are working at pace to secure an agreement before the end of the United Kingdom’s transition period with the European Union at the end of the year’, with any agreement concluded providing ‘a transition mechanism for Kenya and enable other EAC partner states to join when they are ready to do so’. Any such agreement would allow negotiations with the EAC to continue (6).
The debate on the future EAC-UK trade arrangement cannot be divorced from the impact of the Covid-19 pandemic on exports, which in the second quarter of the year shook up existing horticulture sector export flows and is threatening further disruptions if a second wave of the pandemic sees new lockdown restrictions introduced, alongside restrictions on access to EU airspace (7) (for more details see ‘Kenyan Horticultural Exports Values Hold Up Well But Covid Clouds Still Loom Over the Sector’, 20th October 2020).
| Comment and Analysis While the concept of ‘variable geometry’ advanced as the basis for the Government of Kenya signing a reciprocal trade agreement with the UK independently of other East African Community Customs Union member states has been endorsed by EAC Heads of State, it would appear a fragile basis for such actionThe concept of ‘variable geometry’ was developed in the EU to allow a limited number of EU member states to pursue more ambitious integration initiatives, from which some EU member states wished to stand aside. The two most prominent are the Schengen Agreement, on border control free travel and the Euro monetary union. The UK and a number of other EU governments took full advantage of this ‘variable geometry’ concept to abstain from these deeper processes of integration.However, the concept of ‘variable geometry’ was never intended to be applied to the operation of a customs union in a manner which would undermine the sanctity of the common external tariff applied by all customs union members.A customs union, such as the East African Community Customs Union, by definition needs to apply a common external tariff. It is not possible to still have a common external tariff if one member implements a process of phasing down tariffs, while other members maintain the “common external tariff”. This is particularly the case when the country moving away from the “common external tariff” is the principal entry point for goods moving to land locked members of the customs union. Any bilateral UK-Kenya agreement, if implemented without the consent of other customs union members to undertake similar tariff reductions, would inevitably undermine the integrity of the “common external tariff” jointly agreed by EAC members. Thus while such unilateral Kenyan action can be seen as falling within the commitment to ‘variable geometry’ endorsed by EAC Heads of State, it would sit uneasily with other Summit commitments, such as the commitment contained in paragraph 6 of the 23 February 2019 Heads of state Joint Communique ‘to fully implement the single customs territory by rolling out all products and all customs regimes’ and which directed ‘partner states to expedite the amendment of their national policies, laws and regulations to comply with the common market protocol’ (3). It is against this background that any implementation of the reciprocal tariff phase down commitments , entered into under either the EAC-EU EPA or a bilateral deal with the UK would effectively mean the East African Community Customs Union had ceased to function as a customs union. Such a development could well see the introduction of controls on intra-regional trade within the EAC. The only way the UK can conclude a reciprocal preferential trade agreement bilaterally with Kenya, without undermining the integrity of the common external tariff jointly agreed by EAC members, would be if the implementation of the reciprocal tariff reduction obligations entered into by the Government of Kenya were deferred until all EAC members had agreed collectively to such tariff reduction measures. Such a course of action would not be such a radical deviation from the current practice under the EU-EAC EPA, where the existing EAC tariff reduction commitments have not so far been implemented, due to the unwillingness of certain EAC member states to sign on to the agreement in its current form. The UK could thus simply conclude a reciprocal preferential trade agreement on the basis of the EU-EAC EPA, but with the addition of an annex to the article dealing with ‘Customs duties on products originating in the EC Party’, which set out special provisions on the implementation of Kenya’s reciprocal tariff reduction commitments, with this being linked to other EAC member governments signing on to the reciprocal tariff reduction commitments within the same timeframe as that agreed by the Government of Kenya under its rolled over agreement with the UK. This would allow UK officials to announce the conclusion of a new Continuity Agreement which would preserve Kenya’s existing duty free-quota free access to the UK market, while at the same time preserving the integrity of the East African Community Common External Tariff and avoiding undermining a regional trade integration initiatives which in recent years had faced increasing challenges. It would also allow UK trade negotiators to turn their attention to other urgent trade negotiation processes. This would not be a radical deviation from the existing format of the EU-EAC EPA since the agreed reciprocal tariff reduction commitments under the EU-EAC EPA have never been implemented and hence also de facto also need revision. Alternatively, it could just be informally accepted that negotiated reciprocal tariff phase down commitments would not be activated until all EAC customs union members came on board. Since it is envisaged the UK commitments would be dealt with in the same way as commitments contained in the EAC-EU EPA, this would pose no danger of the competitive position of UK exporters being undermined vis a vis EU exporters by a failure to secure tariff preferences negotiated with the EU. In both cases agreed reciprocal tariff preferences would not enter into force until all EAC customs union member states had signed on to the negotiated agreements. There would be a certain virtue in adopting such a course of action, for while the UK government asserts any new ‘UK-only’ agreement with the EAC cannot ‘deviate substantially’ from the provisions of the existing EU-EAC EPA, the reality created by the emerging basis for the UK’s departure from the EU customs union and single market, generates a number of problems for Kenya’s exports to the UK which require detailed negotiations and the elaboration of appropriate modifications to accommodate the changed trading realities. While this primarily affects the export of Kenyan goods to the UK via EU27 member states, in certain areas it also impacts on direct Kenyan exports to the UK (e.g. recognition of authorisations and certifications, and the phytosanitary import controls and rules of origin to be applied). Addressing these technical issues in the absence of a clear basis for future EU/UK trade would have been challenging enough under normal circumstances. However, given the Covid-19 linked disruptions to air freight services on which Kenya depends for much of its high value export trade to the EU and UK, meeting these challenges without special accommodation being made under any rolled over trade agreement with the UK would be virtually impossible and would be likely to result in a disruption rather than continuity in certain Kenyan export flows to the UK market. While rushing into a long-term reciprocal trade agreement which does not fully accommodate the evolving economic and trade realities would appear to be unwise, it would be even more unwise to allow Kenyan duty free access to the UK market to lapse in the current difficult economic circumstances. The only way to square this circle would be to either accept deferred implementation of reciprocal commitments contained in any UK deal or for the UK government to unilaterally establish a ‘transition mechanism’, which allows continued duty free-quota free access for Kenyan exports to the UK market until such time as the EAC can collectively move ahead with the implementation of reciprocal tariff reduction commitments. The basis for a unilateral UK action already exists in the Transitional Protection Mechanism, initially proposed in October 2019 but which was overtaken by events before the need for its’ implementation arose. It is in the context of these various options that any withdrawal of duty free access for Kenyan exports would be the result of a conscious policy choice by the UK government and not an unexpected by-product of a combination of a trouble Brexit process and an ongoing global Covid-19 pandemic. |
Source:
(1) venturesafrica.com , ‘EAC in race against time for post-Brexit deal with UK’, 29 August 2020
http://venturesafrica.com/blog/2020/08/29/eac-race-time-post-brexit-deal-uk/
(2) EAC, ‘Joint Communiqué: 19th Ordinary Summit of heads of State of the East African Community’, 23 February 2018, Pa.21
https://www.eac.int/communique/1001-joint-communiqu%C3%A9-19th-ordinary-summit-of-heads-of-state-of-the-east-african-community
(3) EAC, ‘20th Ordinary Summit of heads of State of the East African Community: Joint Communique’, 1 February 2019 Pa. 13
https://www.eac.int/communique/1343-joint-communiqu%C3%A9-20th-ordinary-summit-of-heads-of-state-of-the-east-african-community
(4) The East African, ‘Deadline looms for signing of UK-EAC Brexit trade pact’, 25 August 2020
https://www.bilaterals.org/?deadline-looms-for-signing-of-uk
(5) Business Daily, ‘Kenya justified to pursue new trade deal with UK’, 24 September 2020
https://www.businessdailyafrica.com/bd/opinion-analysis/editorials/kenya-justified-to-pursue-new-trade-deal-with-uk-2370452
(6) The Citizen (Tanzania), ‘Kenya to open trade discussions with Britain, independent of EAC members’, 29 September 2020
https://furtherafrica.com/2020/09/29/kenya-to-open-trade-discussions-with-britain-independent-of-eac-members/
(7) Businessdailyafrica.com, ‘Covid resurgence in Europe worries Kenyan horti traders’, 23 September 2020
https://www.freshplaza.com/article/9252426/covid-resurgence-in-europe-worries-kenyan-horti-traders/