Summary
A Kenya-UK trade agreement has been concluded which preserves duty free access for Kenyan exports to the UK market beyond 31st December 2020. However, this agreement fails to avoid potential disruptions of all current supply routes for tariff free access to the UK market. This is a result of the failure to address future trade issues along triangular supply chains, which serve the UK market via initial landing in the EU. This issue is of considerable importance to the East African region, given the current routes used in serving the UK market in major export sectors (e.g. cut flowers). In the context of a no-deal UK departure, issues will also arise for other major ACP triangular supply chains where some repackaging or simple processing takes place in the EU prior to onward shipment to the UK. These triangular supply chain issues need to be urgently addressed. While the relaxation of UK phytosanitary controls could facilitate an expansion of Kenyan exports to the UK, this is highly unlikely in the livestock sector. Rules of origin improvements could prove relevant in other ACP-UK EPA contexts and should be studied closely. Finally, the 7-year moratorium on tariff reductions defers any immediate conflicts between the implementation of the UK-Kenya agreement and the maintenance of a common external tariff for the East African Customs Union
On 8th December 2020, the UK-Kenya EPA, which had been initialled on 3rd November 2020 (1), was signed in London (2). According to the UK governments’ official press release the agreement ensures duty free access to the UK market Kenyan exports will continue after 31st December 2020. It is maintained the agreement will ‘avoid possible disruption to UK businesses such as florists’, through securing continued ‘tariff-free supply routes for Kenya’s high-quality flowers’ (2).
The UK government press release highlights how the UK market ‘accounts for 43% of total exports of vegetables from Kenya as well as at least 9% of cut flowers.’ Direct Kenyan vegetable exports to the UK in 2019 were valued at ‘£79 million and live trees and plants, mostly flowers (£54 million)’, while imports of Kenyan tea, coffee and spices (which would attract zero import duties under all UK trade arrangements) were valued at £121 million (2).
It is maintained the agreement benefits ‘many of the approximately 2,500 UK businesses exporting goods to Kenya each year’, in sectors such as machinery, electronics and technical equipment (2).
The implication that these benefits are derived from the duty free access concluded under the rolled over UK-Kanya agreement is somewhat misleading, since no tariff reductions have so far been implemented under the pre-existing EU-EAC EPA, given the lack of consensus within the East African Customs Union on this agreement and hence the delays faced in its ratification.
In regard to the regional complications which have held up the preferred option of a UK-EAC trade agreement, the UK government maintains the agreement concluded with Kenya is ‘open for other members of the East African Community to join’, with it being seen as ‘a first step towards a regional agreement with the East African Community’ (2).
The UK Minister for Africa in the Department for International Trade, James Duddridge maintained the ‘agreement will provide the strongest possible platform for the United Kingdom, Kenya and, ultimately, the whole EAC, to expand our trade relationship in future’ (2).
The UK press release notes how the agreement is ‘a translation of the terms previously agreed between the EU and the East African Community (EAC)’ and will ‘take effect from 1 January 2021 or as soon as possible thereafter’ (2).
Press analysis in Kenya provides more details of the agreement from an East African perspective and the complications faced in concluding the agreement.
It highlights how Kenya is the only member of the EAC customs union which is not classified as a least developed country (although Tanzania will be graduated out of LDC status by 2023) (see details of UK arrangements for LDCs see companion epamonitoring.net article, ‘UK government commits to extending EBA access for LDCs post Brexit’, 30 June 2017).
In the absence of a unilateral UK measures similar to the Transitional Protection Mechanism which the UK proposed in October 2019 for Kenya, Ghana, Cameroon and Cote d’Ivoire(see companion epamonityoring.net article, ‘Continued Duty Free Quota Free Access to UK Market Secured but the MFN Issue Looms’, 28 October 2019), Kenya would have been the only member of the EAC whose duty free access to the UK market would have been undermined by the lapsing of the market access arrangements established on the basis of the EU-EAC interim-EPA.
It was on this basis the government of Kenya felt compelled to push ahead with a UK-only trade agreement, despite the desire of other EAC governments to conduct negotiations in 2021 after elections in Tanzania and Uganda had taken place and once the pressures of the Covid-19 pandemic had eased.
According to local press reports the UK-Kenya agreement is nominally based on the principle of ‘geometric asymmetry, which allows ready partners to negotiate while leaving room for others to join later.’ The Kenyan Trade Cabinet Secretary Betty Maina highlighted the experience of the EAC-EU EPA which to date has ‘not come into force due to reluctance by the other EAC Partner States to sign and ratify.’ The Government of Kenya maintains the ‘EAC Customs Union Protocol has provisions allowing members to negotiate a trade deal with an outside entity as long as it does not violate the protocol’ (2).
Significantly, the UK-Kenya agreement has a five-year review mechanism and includes a Kenyan commitment to reduce import tariffs on UK goods over 25 years, but with a 7-year moratorium on tariff reductions (2).
Press report also suggest the Kenya-UK EPA has ‘simplified Rules of Origin, making it easier for Kenya to export to UK processed items whose raw materials may have been sourced from other developing countries as long as there is proof the items were produced in Kenya’. This, it is held, goes beyond the existing provisions of the EU-EAC agreement, which while allowing cumulation under the rules of origin applies complex requirements for the activation of cumulation provisions, which means such provisions are of little value in the day to day sourcing decisions of Kenyan enterprises (2).
Against this background the government of Kenya insists the agreement concluded with the UK is consistent with its wider policy of expanding Kenya’s supply capacity so as to ‘increase its exports of goods and services to global markets.’ The agreement with the UK is seen as part of wider efforts to ‘increase investments, expand the range of exports, increase job opportunities for our people, and create shared prosperity’. The Kenyan government hopes the agreement with the UK will ‘help drive growth in value additions in agricultural, manufacturing, fisheries, and livestock sectors’ (2).
| Comment and Analysis
– Unaddressed Triangular Supply Chain Issues Could Still Mean Disruptions While the DIT press release claimed the agreement will ‘avoid possible disruption to UK businesses such as florists’ this is not entirely the case. While Kenyan exports to UK supermarkets of cut flowers tend to be flown directly to the UK, UK florists tend to buy cut flowers from Kenya as part of larger orders made to Dutch flower traders. These Dutch flower traders account for ‘about 80% of the flowers sold in the UK’. These imports form the Netherlands consist of locally grown blooms and cut flowers imported from across the world (3). A no deal UK departure from the EU could greatly complicate this trade from a rules of origin perspective. What is more the introduction of UK only phytosanitary controls on 3rd country products entering via the EU from 1st April 2021 will seriously undermine current “groupage” practices which greatly reduce the costs of onward shipment to the UK. This needs to be seen against the background of the likely escalation of the current road haulage disruptions which are being experienced along short sailing cross channel roll-on/roll off (‘RoRo’) road haulage shipping routes (4). It should be noted these triangularly traded cut flowers are likely to account for as large a volume of Kenya’s export trade to the UK market as those directly exported to the UK (see companion epamonitoring.net article, ‘No-Deal Brexit Challenges in Cut Flower Sector Highlight Problems for ACP Triangular Supply Chains’, 1 March 2019). This issue of the disruption of the functioning of triangular supply chains, despite the nominal rolling over of duty-free tariff preferences by the UK government, will be even more acutely felt by Kenya’s smaller EAC least developed country neighbours. In the cut flowers sector, these countries have an even higher dependence on serving the UK market via the Netherlands than Kenya. Virtually all Uganda and Rwanda cut flower exports enter the EU28 market via the Netherlands, while 92.1% of Tanzanian exports of cut flowers enter the EU28 market via the Netherlands and Belgium, compared to only 88.4% of total Kenyan cut flower exports to the EU28 (for more details of the scale of disruptions see companion epamonitoring.net article, ‘Cut Flowers Sector Concerns Over Proposed UK Border Controls Highlighted’, 23 September 2020). For smaller EAC exporters these triangular supply chain issues are also likely to arise for fruit and vegetable exports, given the dominant role Dutch distributors play in the EU import/export trade in these sectors. These triangular supply chain issue will need to be constructively addressed in the coming months in the interests not only of Kenyan exporters but also in the interest of making accession to the UK-Kenya EPA an attractive proposition to the least developed country members of the EAC. Main EAC Cut Flower Exporters to the EU28, Netherlands, Belgium (tonnes and % share) – 2019
Source: EC, Market Access Data Base, It should be noted these triangular supply chain issues are not only relevant to the credibility of UK claims that ‘rolled over’ trade arrangements preserve current duty-free access to the UK market in an East African context. Similar triangular supply chain issues also arise across a wide cross section of existing and proposed ‘rolled over’ UK trade arrangements. Serious questions arise as to whether full duty-free access will continue to be enjoyed for all existing ACP supply chains serving the UK market. This includes, for example, the future UK tariff treatment of products as diverse as Caribbean ‘bulk rum’ which is bottled in the EU27 for onward sale to UK and Pacific exports of tuna loins canned in the EU prior to onward shipment to the UK. In addition the question arises: would value added cocoa products produced in the EU27 from cocoa beans exported under duty free access arrangements (which are applicable for exports to both the EU and UK markets) under negotiated or pending agreements still enjoy duty free access to the UK after the 1st January 2021 in the event of a no-deal UK departure? If no such duty free access would be enjoyed for these value added products, the questions then arise: as to what impact this would have on ACP cocoa supply chains and who within the supply chain will carry the burden of the new UK MFN tariffs which would be imposed under a no-deal UK departure from the EU customs union? Based on the ongoing uncertainties arising from the absence of an EU/UK trade deal at this late stage and the negative effects this would have on the functioning of major ACP triangular supply chains which serve the UK market via the EU, a strong case can be made for transitional arrangements which allow continued duty free access for processed products derived from ACP source materials, until such times as existing supply chains can be adjusted. This would be consistent with commitments made by both the UK and the EU to minimising the adverse effects of the Brexit process on developing country partners, and the underlying intention of rolled over UK trade arrangements. From a development policy perspective, addressing the multifaceted complications which the Brexit process will give rise to for ACP triangular supply chains can be seen as one of the most important unaddressed issues. This needs to be seen in a context where decades of marketing and export development efforts could be undermined by a few weeks and months of supply chain disruptions. The rather laissez faire approach to this issue to date is a matter of considerable long-term concern, particularly in the context of the existing Covid-19 traded disruptions, which have most severely impacted on smaller scale ACP exporters. – Qualifications on Expectations of a Boost in Kenyan Exports Many of the expectations of the agreement being able to drive value addition in sectors such as livestock, are based on the false premise that future UK SPS controls will allow an opening up of the UK market to Kenyan livestock products. This is based on a throw away comment by Prime Minister Johnson on the fringes of the UK-Africa investment summit in January 2020. However, given the state of animal disease controls in Kenya any such move in the foreseeable future to open up the UK market to Kenyan livestock exports would be likely to lead to the virtual global isolation of the UK livestock sector on SPS grounds and would certainly lead to an immediate closure of the EU market to UK livestock product exports. However, in a range of other product areas, a relaxation of UK phytosanitary controls based on the specific agri-climatic conditions prevailing in the UK (rather than pan-EU agri-climatic conditions) could see a relaxation of phytosanitary import controls on trade with the UK This could open up new market opportunities in the UK in the face of increasingly strict EU phytosanitary import control requirements and the pending disruption to EU/UK horticultural product supply chains . Already the UK government has announced a number of areas where the UK will no longer require phytosanitary certificates (and hence phytosanitary import controls) once it has left the EU single market. This divergence of phytosanitary import control requirements may increase in the coming year, based on a review of import control requirements based solely on UK agri-climatic considerations.
– Rules of Origin Issues The issue of the simplified rules of origin, which press reports suggest have been included in the UK-Kenya agreement would appear relevant in the Cameroon-UK negotiation context, where it is understood regional cumulation is reported to be an issue of contention. Similarly, the granting of simplified rules of origin which allowed cumulation on a pan African basis, would go a long way towards addressing Ghanaian concerns as to the consistency of a proposed Ghana-UK EPA with Ghanaian regional and pan-African trade integration commitments. However, a careful reading of the rules of origin cumulation provisions included in the Kenya-UK EPA will be required to determined how relevant these changes will prove to be in practice. – The Consistency of Kenyan Commitments with EAC Obligations The fact the Kenya tariff reduction offer includes a 7-year moratorium on tariff reductions, means the UK-Kenya EPA will not pose any immediate challenge to the integrity of the EAC Common External Tariff. By the time such an issue arises, the position of Tanzanian will be somewhat different since its eligibility for least developed country treatment will have lapsed. The Government of Tanzania will then need an alternative basis for its continued duty-free access to the UK market (and for that matter the EU market). At this point the critical issue will be the efficacy of the safeguard measures allowed under the concluded trade agreement in allowing the policy space for the pursuit of national agri-food sector development strategies involving the active use of trade policy measures (for more details on this issue see the companion epamonitoring.net article, ‘Appointment of Chief Trade Enforcement Officer Could Signal a Push More Rigorous Enforcement of EPA Commitments Made by ACP Governments’, 11 December 2020). |
Sources:
(1) The East African, ‘Kenya and UK sign trade deal’, 8 December 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/kenya-and-uk-sign-trade-deal
(2) gov.uk, ‘UK and Kenya sign trade agreement’, 8 December 2020
https://www.gov.uk/government/news/uk-and-kenya-sign-trade-agreement?utm_source=6f355855-44b9-4e3b-8206-6524a10159e9&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate
(3) The Observer, ‘Fresh blooms could become preserve of the rich in no-deal Brexit’, 16 February 2019
https://www.theguardian.com/uk-news/2019/feb/16/brexit-florists-cambridge-prices-border-delays
(4) Guardian, ‘Brexit stockpiling causing 10-mile tailbacks in Calais’, 12 Dec 2020
https://www.theguardian.com/politics/2020/dec/12/brexit-stockpiling-causing-10-mile-tailbacks-calais