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Kenyan Exporters To Suffer From Lack Of EU EPA

by Lorys Charalambous, Tax-News.com, Cyprus

06 October 2014


The inability of the East African Community (EAC) member countries to conclude the proposed Economic Partnership Agreement (EPA) with the European Union (EU) by October 1, 2014, has led to the withdrawal of free market access provided to Kenyan exports.

The lack of an EPA will have no effect on EU trade terms for the other four EAC members Burundi, Rwanda, Tanzania, and Uganda, because they will be able to continue to benefit from the EU's Everything But Arms duty-free, quota-free scheme for least-developed countries (LDCs). However, Kenya is not included within that group, and its exports, therefore, began to suffer EU import duties from the beginning of this month.

Kenya is not classified as an LDC because of the existence of a relatively large manufacturing sector. The Kenyan Government's policy of continued development in that value-added sector also appears to be a major reason why the EPA has yet to be agreed, as it has sought to ensure that its nascent manufacturing industry is adequately protected from EU competition for an extended period.

EU negotiators believe the terms of the EAC tariff cuts contained in the EPA – in particular for machinery, vehicles, and chemicals – provide a sufficiently long transitional period for EPA members. However, Kenya has insisted that those provisions, which are the same across each EAC country, could be improved to encourage East African countries to move away from exporting only commodities and natural resources, toward engaging in more domestic processing activities.

The importance of the EPA for Kenya is evident from trade statistics that show that the EU acquired 20 percent of Kenyan exports last year, worth EUR1bn (USD1.2bn). However, Kenya's main exports to the EU continue to be staple commodities, such as coffee and tea, which will now suffer minimal tariffs.

It is Kenya's flower and vegetable producers, whose growth has been supported by EU duty-free access, that are particularly at risk. As their exports are nearly all to the EU, producers have warned that they are at risk of closure and job losses as their goods are now subject to an 8.5 percent tariff.

TAGS: tax | tariffs | trade treaty | agreements | manufacturing | tax rates | Kenya | Rwanda | Uganda | import duty | trade | European Union (EU) | Burundi | Tanzania | Europe | Africa

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