Rwanda signs deal to back Kenya’s quest for free EU market entry

Friday, September 2, 2016

by Business Council for Africa

By Gerald Andae | Business Daily, Kenya

Kenya yesterday intensified its fight to retain free access to the European market after it rallied Rwanda to sign a trade pact with Europe that its East African Community (EAC) partners have recently declined to endorse.

Industrialisation secretary Adan Mohamed said Kenya’s products are unlikely to face export taxes at the start of next month after he led his Rwandan trade counterpart, Francis Kanimba, in signing the Economic Partnership Agreement (EPA) with Europe in Brussels.

Mr Mohamed and Mr Kanimba had earlier made a technical appearance at the EU parliament when Kenya’s case came up for review on Wednesday but no conclusive decision was made on the matter.

Mr Mohamed said his delegation had convinced Europe to suspend the vote as they await the signing of the agreement by other EAC member states.

“We convinced the EU parliament not to lock us out of the preferential terms and they agreed to our request as we wait for the remaining member countries to come on board to enable us sign the EPA as a bloc,” Mr Mohamed told the Business Daily on the telephone.

It, however, remains to be seen what Kenya will do to convince reluctant Uganda, Burundi, South Sudan and Tanzania to append their signatures to the agreements by end of this month.

Failure to sign the EPA by September 30 means Kenyan goods entering Europe will be charged tariffs of between four and 24 per cent from October 1.
In Brussuels, Mr Mohamed was allowed to argue Kenya’s case before the EU Parliament’s International Trade Committee (INTA).

The minister affirmed the EAC’s commitment to signing the EPA and backed his case by signing it at a ceremony witnessed by Slovakia’s ambassador to EU, Peter Javorcik, and the European Commission’s Sandra Galina.

“The signing of the EPA sends strong signals to the EU on the EAC partner states’ commitment to the EPA,” he said.
However, Tanzania, Uganda, Burundi and South Sudan must sign the pact by end of this month to shield Kenyan from paying export taxes for goods entering the EU.

Guarantee EAC Traders Duty

Tanzania, Uganda and Burundi have been reluctant to sign the deal, arguing that it risks killing their young and weak manufacturing sectors.

The EPA is intended to guarantee EAC traders duty- and quota-free access to the EU market in exchange for a gradual opening of up to 80 per cent of the East African market to European products.

Kenya’s top exports to Europe include tea and horticulture, which rode on the free market access terms to generate nearly Sh300 billion in hard currency last year.

The country’s exports are expected to attract more than Sh100 million in taxes every week if it fails to secure the duty- and quota-free status by end of the month.

The rest of the members have alternative access to EU as they are all classified as least developed countries — a status that allows them to export everything but arms to Europe on tariff- and quota-free terms.

Mr Mohamed, however, expressed optimism that a deal will be reached during next week’s summit in Tanzania.

EAC members have been negotiating the EPA since 2007.

Kenya is estimated to have investments worth over €2 billion in more than 200 companies that are exporting to Europe.

Nearly four million people, most of whom are women and youth in rural areas, currently derive their livelihoods directly or indirectly from enterprises that are exporting to the EU.

The investments are mainly in floriculture, horticulture, agro-processing and fisheries

Higher taxes will make Kenyan goods more expensive to EU citizens, negatively impacting sale volumes and in turn reducing foreign exchange inflows to the country. Kenyan exports to the EU have since January 1, 2008 enjoyed preferential, duty-free access to European markets.

Kenya and other EAC countries have been using a special clearance form known as Euro 1 (EUR1) to access European markets. Presently the EUR1 is issued for goods originating from all Africa Caribbean and Pacific (ACP) countries (under a preferential trade arrangement) destined for the EU market.

In April, the EAC council of ministers agreed to sign EPAs as a bloc to safeguard the future of Kenya’s free trade arrangement with Europe. Three months later, Tanzania shocked the region when its officials took a U-turn and demanded further discussion on the EPAs.

Tanzania has argued that opening up to 80 per cent of the East African market to European firms will stifle industrialisation and accelerate poverty in the region.