ARE ECONOMIC PARTNERSHIP AGREEMENTS (EPAs) BENEFICIAL FOR KENYA AND THE EAST AFRICAN COMMUNITY (EAC) AND KENYA?

By Elizabeth Sisenda

Negotitation of Trade Agreements

Economic Partnership Agreements or EPAs are trade agreements which are currently being negotiated between the European Union and African, Caribbean and Pacific countries (ACP). These agreements replace the obligations under the Lome convention which governed trade relations between ACP countries and the European Union (EU), in which ACP countries were granted non-reciprocal trade preferences and unlimited entry into EU countries in order to promote their economic and social development.

EPA s are mainly offering the EAC duty free and quota free (DFQF) market access in Europe in exchange for the liberalization of EU imports by 82% over a period of 25 years within the EAC.

On 27^th November 2007 the EAC agreed on a region-region interim EPA with the EU. The interim agreement mainly covers trade in goods and fisheries, and is the foundation towards a full EPA. A commitment was taken by both parties to continue negotiations on services, investment, agriculture, rules of origin, sanitary and phyto-sanitary standards (SPS), technical barriers to trade (TBT), customs and trade facilitation, and other trade-related rules in order to conclude a full EPA.

Under the EPA, the EAC commits to open its market to goods from the EU in three phases over a period of 25 years. In the first phase (2008-2010), the EAC will liberalize 64% of imports from the EU; while in the second phase (2015-2023), 16% of imports will be liberalized. In the last phase (2020-2033), the EAC will liberalize a further 2%, making the total imports from the EC being liberalized 82%.

As a temporary measure, 18% of the EAC’s trade with the EU, which covers sensitive products, is supposed to be excluded from market liberalization requirements. These products are: agricultural products, wines and spirits, chemicals, plastics, wood based paper, textiles and clothing, footwear, ceramic products, glassware, articles of base metal and vehicles. But civil society groups assert that the provision is contradicted by the ‘standstill’ clause whereby the EAC has agreed not to increase the applied duties on all their products. This implies that should the East African states decide to raise tariffs in sensitive agricultural areas such as dairy products, they will be unable to do so.

The EU in the interim EPA (IEPA) acknowledges that EPAs will influence the scope and content of future agreements made between the EAC states, other trading partners and the regions stance in negotiations. It also acknowledges that EAC states have indicated that they wish to renegotiate a number of issues included in the IEPA. Paragraph J of the IEPA avers that the liberation schedules do not require a country to start removing any positive barriers until 2015 and that the EAC partner states have 24 years to complete the IEPA liberalization process. Paragraph N provides that a full EPA should not impair the capacity of the EAC partner states to promote access to medicines. The EU acknowledges that the agreements between the EU and eastern and southern Africa region should not contradict each other or impede regional integration in this wider region.

Article 13 acknowledges the establishment of transitional periods within the IEPA for SMEs, in order to enable them adapt to the changes put in place by the agreement, and urges the authorities of the EAC partner states to continue supporting SMEs in their negotiations towards a comprehensive EPA.

Despite all the undertakings by the EC, the EPAs between EU and EAC have received sharp criticisms from various quarters for a number of reasons: To begin with, EPAs are unnecessary for Least Developed Countries (LDCs) which already enjoy the benefits promised by the agreements. Recently, MPs from Uganda, a member state of the EAC and the current chair of the community, have expressed great dissatisfaction with the agreement terming it as unnecessary. Despite EU’s offer of DFQF market access for all products originating from the EAC, Uganda, Burundi, Rwanda and Tanzania (which are termed as Least Developed Countries) need not sign an EPA in order to gain preferential market access to the EU. LDCs have access to an arrangement called ‘Everything But Arms’ which allows preferential access to the EU without reciprocity – it is as easy as writing this on the export packaging. Kenya is the only country within the EAC that does not enjoy such preferential market access because it is no longer classified as an LDC.

    

Further, the EPA deal being proposed will seriously undermine East Africa’s development due to the unfair competition between EU farmers and manufacturers and East African ones that will arise from the implementation of the agreements. This is because key sensitive products that are important to the region’s producers were not protected under the agreement contrary to popular belief. They were not included in the list by the negotiators. For example, frozen chicken and other meats (sheep, processed beef and pork) are not protected from European competition. This will lead to a surge in imports of cheap poultry/meat from the EU as has been the case in West Africa, where imports of low quality poultry/meat consisting of the least demanded poultry cuts in the European market have undermined the local industry because they are as cheap as half the price of local cuts. These imports are threatening the entire local meat production industry. It will increase the domination of European firms, goods and services in the regional market. This will result in worse unemployment, food insecurity and social inequality.

Moreover, the EPA agreements will remove taxes on imports from EU goods, leading to a significant loss in government revenues that may end up being compensated for through further taxation of the population in these areas, such as VAT. Each year the EAC member states will lose revenue from imports on EU goods. The EAC as a whole will lose an estimated US$ 162.5 million annually. This will aggravate donor dependence.

EPAs will also lead to a decline in regional trade between partners within the EAC and even COMESA. This will undermine regional integration rather than harnessing it. For instance, regional trade from Kenya especially with EAC members like Tanzania and Uganda, and with other COMESA and African countries is currently increasing (20% in 1991 – 49% in 2005), while trade with Europe has been decreasing (42% in 1991 to 25% in 2005). Kenya is becoming less reliant on the EU as an export market, and instead is developing her regional market. EPAs could undermine this trend, leading to an estimated 15% reduction in regional trade due to an increase of EU manufactured goods entering into the region. 

The regional market for value added/processed goods is much more important to countries like Kenya than the EU. For instance, 67% of manufactured exports (excluding agro-processed products) like chocolates, soap and plastics went to the COMESA market, with only 9% going to the EU. At the moment Uganda is Kenya’s most important trading partner, consuming 14% of the value of exports. Kenya and the other EAC partners stand to lose this advantage to the EU.

The EPAs also contradict what has been envisaged under the World Trade Organization (WTO) policy for Least Developed Countries (LDCs) who were not obliged to make any commitments, and for Developing Countries (DCs), who were only obliged to reduce tariffs that are higher than the prevailing rates. Acceding to the EPAs undermines the policy space and flexibility that DCs and LDCs negotiated at the WTO. This will place the majority partners of the EAC at a vulnerable position by waiving their preferential treatment under the WTO rules. 

Further, once the EAC are bound by the Free Trade Agreements (FTA) introduced by the EPA, there is nothing that will stop other developed countries such as USA and China from adopting the same policy towards them. The EAC will lose the opportunity to apply tariffs selectively to develop existing and future local or regional industries, and to manage their own economic policy. 

The EPAs between the EU and the EAC will largely undermine regional integration in the region under the EAC, COMESA and SADC, as these economic blocks are yet to establish elaborate trade polices between themselves. The EPA will have a negative impact on their ability to integrate their trade policies. Ugandan legislators have expressed a strong intention to pull out of the EAC EPA because they stand to lose under the agreement. This in itself will undermine regional integration, as the other member states of EAC may pull out too since they are in a similar position as Uganda (LDCs). 

Oxfam, which is one of the petitioners for renegotiation of EPAs, claims that the current agreement will fracture regional integration, increase poverty and make it harder for ACP countries to break away from commodity dependence. It says that the countries will be trapped in a vicious cycle of selling products of low value while buying products of high value.

Furthermore, opening up of the regional market fully will attract dumping, which destroys the local market and undermines local/regional producers.

In light of these important concerns, it would be advisable for the EAC to reconsider entering into EPAs with the EU or renegotiating the same because East Africa ultimately stands to lose the chance to exploit its economic potential permanently under the EPAs.