Trade

Kenya – EU Trade relations
1. Kenya Basic Statistics

• Surface Area: 580.4  1000sq km

• Population: 40.9 Millions of inhabitants - 2011

• Current GDP: 25.0 Billions of euros - 2011

• GDP per capita: 611.0 Euros - 2011

• Exports-to-GDP ratio: 17.0 % (2011)

• Imports-to-GDP ratio: 48.8 % (2011)

• Trade-to-GDP ratio: 65.8 % (2011)

2008200920102011
Real GDP (%)1.52.65.65.0
Inflation Rate (%)15.110.64.114.0

Current Account Balance

(% of GDP )

-7.4-5.7-6.5-11.8


2. Bilateral Trade Relations


The European Union (EU) is a single market - comprising 27 member States - of 500 million consumers.

Kenya is East Africa's regional hub thanks to good location, skilled labour force and vibrant business community.

The EU is Kenya's major trading partner. According to data from Eurostat published in January 2013, trade with the EU represents 17.2% of Kenya's overall trade (second is China with 11.7%). In 2011, EU27 exports to Kenya amounted to 14.2% of Kenya's total imports (China = 15.4%), and 26% of Kenya's total exports went to the EU (China = 1%).

EU27 exports to Kenya amount to 1.81bn EUR in 2011 (14.2% of total Kenyan's imports)

EU27 imports from Kenya amount to 1.16bn EUR in 2011 (26% of total Kenyan's exports).

In 2011, 88.4% of Kenya's exports to the EU were agricultural products (incl. fish). Main export commodities are tea, coffee, cut flowers, peas and beans.
According to the Kenya National Bureau of Statistics, out of the 1,095,945 tourists' arrivals in Kenya in 2010, 46% were from EU member States.
 

Kenya's trade with main partners 2011, % of total imports vs. total exports

 Kenya's Trade with Main Partners 2011, % of Total Imports vs. Total exports

Tourism, tea and cut flower exports alone are not enough, Kenya must diversify into value-added manufactured goods (e.g. textiles). For this, investments are key. Despite various reforms, investors are reluctant to invest in Kenya because of high taxes, rising energy costs and heavy bureaucracy in business procedures. Kenya sank three positions in the World Bank Doing Business 2012 report (from 106 down to 109 out of 183 economies).

 

3. Economic Partnership Agreement


3.1. FEPA and MAR


Kenya current trade relations with the European Union are based on the "interim" Framework Economic Partnership Agreement (FEPA) which was initialled by the member states of the East African Community (EAC) and the European Commission in November 2007. This Agreement is a stepping stone towards a comprehensive Economic Partnership Agreement, for which negotiations are on-going.


The FEPA provides the EAC member states duty free, quota free access to the EU market as of 1 January 2008. Indeed, the EU had previously adopted the Market Access Regulation (MAR) to allow ACP countries, who had/would initial iEPAs to continue to benefit from free access to the EU market, and thus prevent trade disruption. The MAR was intended as a special bridging solution between the EPAs and the previous Cotonou trade regime: A temporary measure until after full signature and ratification of "comprehensive" EPAs.


The FEPA is a World Trade Organisation (WTO) compliant agreement and hence is based on principle of reciprocity. The issue of "market access for goods" has been reciprocally agreed in the FEPA: While the EU opens its markets to EAC products in full from the start (apart from transitional periods for sugar and rice), the EAC liberalises 82.5% of current trade over a period of 25 years. In fact, already 65.4% of this trade is already entering into the EAC at zero duty given the EAC Common External Tariff is set at 0% for raw materials and capital goods. Thus, effective liberalisation is on products that account for 17.2% of current total trade with the EU. Further, 15.2% of these products are intermediated products. The advantage in liberalisation of these products is that reduction in cost of obtaining intermediate products due to gradual phasing down of the current 10% tariff to zero, will enhance the agricultural and industrial competitiveness of the EAC countries.


Up to 17.2% of current EU import trade to Kenya (1400 tariff lines) is excluded from any liberalisation and hence these sensitive sectors will remain sheltered from EU competition. Among the products on sensitive list are: meat, fish, dairy, vegetables, fruits, cereals, coffee, tea, juices, jams, canned fruit & vegetables, ham, cheese, wines & spirits, chemicals, plastics, car parts, wood, textiles & clothing, footwear.

3.2. EPA


At an EAC-EU EPA Ministerial meeting in June 2010, EAC Ministers informed the EU (Trade Commissioner De Gucht) that they could not sign the iEPA initialled in 2007 and that they preferred to negotiate a comprehensive EPA.


Contrarily to unilateral measures (see GSP below) EPAs offer a contractually secure and predictable trade regime: full market access (duty free quota free) to the EU for all products. EPAs however cover more than market access for goods; they embrace a much larger legal framework (comprehensive provisions on rules of origin, agriculture, development cooperation, customs cooperation, intellectual property, …).


For more than one year the negotiations were at a stalemate: The first Technical and Senior Official meeting took place in September 2011 in Zanzibar. Zanzibar was an opportunity to take stock of the progress made and to establish a "roadmap" in order to prepare final steps towards conclusion.


Since then, various rounds of negotiations have taken place, the last of which being the Senior Official meeting in Mombasa (February 2013) and substantial progress was achieved on different  issues, i.e. Economic and Development Chapter and the Agricultural Chapter (except for "domestic support" and "export subsidies"), Rules of Origin Protocol. The issues re. Export taxes and Most Favoured Nation-clause (MFN) remain the most tricky ones in the negotiation process and will most probably have to be solved on political level.


2013 is a crucial year for EPAs: interim agreements are getting ratified (see ESA-region) and regional negotiations run at a brisk pace. The two movements are reinforcing each other and the renewed momentum in the negotiations is finally creating a real perspective for concluding the process.


Time is of the essence. We must provide certainty and predictability to operators and to potential investors. It is time for ACP Governments - including Kenya - to decide about their future regime with the EU. Economically, ambiguity kills investment and in turn growth. Politically, negotiations cannot be sustained indefinitely, ten years after they were launched.


3.3. GSP

GSP stands for "Generalized System of Preferences". It is the system of unilateral preferences for developing countries. The EU GSP was put in place in 1971 and ensures that exporters from developing countries pay lower duties than the normal duty applicable (the so-called Most Favored Nation or MFN-duty).


The EU distinguishes three sorts of unilateral preferences under its GSP, (i) "Everything but Arms" for Least-Developed Countries (LDCs), offers an access to the EU market similar to EPAs, (ii) the standard "Generalised System of Preferences" (GSP), for those developing countries without LDC-status, offers a less generous market access than an EPA, and (iii) GSP-plus, provides a more generous regime than the standard GSP for those non-LDC developing countries that have ratified a number of international conventions on labour rights and environment (at this point of time, Kenya does not conform the requirements).

In other words, unilateral preferences provided for by the EU GSP can be an alternative to EPAs for LDCs, because they would enjoy virtually the same market access. However, non-LDCs, (such as Kenya in the EAC region) would fall under the standard GSP and would have to pay duties for a number of export products.

The EU institutions recently adopted a revised GSP scheme, to come into force on 1st January 2014. Its objectives are to focus help on those truly in need; to strengthen GSP+ as an incentive to good governance and sustainable development; and to make the system more transparent, stable and predictable. One of the main features of the EC proposal is to reduce GSP to fewer beneficiaries (countries which have achieved a high or upper middle income per capita will be excluded from the system).


3.4. MAR review

Under the MAR (see above) the EU offered advance provisional application of the EPA market access (and rules of origin) provisions. This was based on the understanding that the ACP countries would honour their commitment and proceed to ratification of the agreements.


While some regions and countries have ratified or taken steps towards ratification (e.g. Cariforum, Mauritius, …), others have not even signed their agreement (such as EAC). This situation is not sustainable, from the legal point of view, and is unfair; especially to other ACP countries that have seen through their EPA commitment.


The EC proposal foresees to removing by 1 January 2014 those countries that will not have taken steps towards ratification of an EPA from the list of the MAR beneficiary countries. With the MAR review, the EC expresses its political will to bring these negotiations to a successful close.


Only if the country concerned opts out of the EPA process altogether and fails to move towards ratification of an EPA will it suffer consequences. In this case, certain exports of one or more of the MAR beneficiaries to the EU market may be adversely affected.


If the country or region "opts-out" it will fall under the unilateral system of EU preferences GSP. If it is an LDC it will benefit of the same market access (DFQF) as provided for by Everything But Arms. If it is a non-LDC (such as Kenya) it will benefit of the (less favourable) standard GSP system. If it is a non-LDC which high or middle income per capita (such as Namibia) it will be totally kicked-out of the GSP system.

3.5. What is at stake for Kenya?


Kenya being the only non-LDC of the EAC region stands to lose much if an EPA is not signed by the end of 2013.

The economic impact of withdrawing the EPA preferences would be important.

 

 

Average Value of

Exports to the EU

(2007-2010)

EPA TarrifMFN TarrifGSP Tarrif

Roses and

Carnations

264 mio €0 %12%8.5%
French Beans103 mio €0%10.4%6.9%
Peas39 mio €0 %8 %4.5%
Avocadoes18 mio €0 %5.1 %1.6 %

Roasted Coffee

4 mio €0 %7.5%2.6%

Coffee/Tea

247 mio €0 %0 - 3.2 %0 %
Nile Perch (fresh/frozen)18 mio €0 %9 %5.5%
Tuna ( Frozen Fillets )3 mio €0 %18.5%14.5%

 

4. Export Helpdesk


The Export Helpdesk is an online service, provided by the European Commission, to facilitate market access in particular for developing countries to the European Union. This free and user friendly service for exporters, importers, trade associations and governments, provides the following online:
• Information on EU and Member States' import requirements as well as internal taxes applicable to products;
• Information on import tariffs and other import measures;
• Information on EU preferential import regimes benefiting developing countries;
• Trade data for the EU and its individual Member States.

 

5. Aid for Trade


Aid for trade is financial assistance for developing countries specifically targeted at helping them develop their capacity to trade. It can include help in building new infrastructure, improving ports or customs facilities and assistance in helping factories meet European health and safety standards for imports. Helping developing countries develop the means to benefit from open global markets is an important part of a long-term strategy for global poverty reduction, alongside debt relief and general development aid. The EU is the leading global advocate of aid for trade and the world's biggest source of aid for trade. In December 2005 the EU made an overall commitment to increase its collective annual spending on trade-related assistance (one component of the overall Aid for Trade budget) to €2 billion every year (€1 billion of this is to come from the European Commission and another €1 billion from EU Member States).