Kenya now at the mercy of EU on trade deal

Two weeks ago, in impeccable Swahili that reminds one of the long forgotten poet Shaban Robert, Tanzania Parliamentarians rose to eloquently, with a near unanimous vote, block their country from signing the Economic Partnership Agreement (EPA). This means without Tanzania, the deal between the European Union and East African Community (EAC) member States is technically dead.

Like the Victorian novelist Charles Dickens would have put it, for Tanzanians, the die on the EPA deal is cast, and now the tree must fall. They have made it clear, through their National Assembly, that they want nothing to do with the deal.

Tanzanians are not the only ones who have decided to bolt out of this seemingly burning stable. In September this year, when Kenya rushed to beat the deadline flanked by Rwanda in order to sign the deal, Uganda also stayed at bay. Uganda has indicated that it is not going to sign until the entire EAC bloc has reached a common position on all issues.

In September, Cabinet Secretary for Ministry of Industry, Trade and Cooperatives Adan Mohamed gleefully appended his signature in Brussels in order to save the country from an estimated Sh100 million a month tariff cost that the EU had threatened to impose on Kenyan exports.

But now neighbours Uganda and Tanzania are throwing a spanner into the works and threatening Kenya’s duty-free access to the European market. Last year alone, the EU absorbed 32 per cent of the Sh581 billion that Kenya exported.

When Business Beat approached the Permanent Secretary for Trade Dr Chris Kiptoo, for a clarification on Kenya’s future as far as EPA is concerned, he was uncategorical: “The future of Kenya as far as EPA is concerned is now in the EU’s hands. The initial stand was that the deal could only sail through if it was signed as a bloc composed of all the East African Community (EAC) countries, since it is them that form the customs union. For Kenya to sign the deal individually with the EU, it is for the EU to decide.”

On his part, the EU Delegation Commercial Counselor in Kenya Alessandro Tonoli, said: “Kenya has already signed and ratified the EU-EAC EPA. The EPA provisions, however, require that all EAC members sign and ratify for its entry into force to take place. This was decided by the EAC as the best and most appropriate approach to respect its customs union. Should the other EAC countries (Tanzania, Burundi and Uganda) further postpone EPA signature, the EPA could not enter into force and no country could enjoy its benefits.”

Under the EPA deal, the EU will keep its market open for the region in exchange for gradual liberalisation of 82.6 per cent of the signatories’ market over a period of 25 years. And that is what a country like Tanzania is opposed to.

The political and economic history of Tanzania is very much hinged with the country’s decision to reject this deal. The nexus of it comes with manufacturing.

Tanzania’s dalliance with the failed Ujamaa brand of Socialism till the 1980s, meant that a lot of its industries remained underdeveloped. Now, as it struggles to rise again with new-found capitalism, the country’s Chinese-powered industrilisation plans have no room for European plans. Tanzania thinks EPAs is just a way for Europe to use Africa as a source of raw materials like it happened in the 19th Century scrabble for Africa.

 “Under the Common External Tariff of the EAC, when you sell raw material you charge zero percent levy, while intermediate products attract 10 percent and finished products are charged 25 per cent while under...all these will not be there under the EPAs; we have to discuss this and see how we can lose under these agreements,” Susan Kolimba, Tanzanian Deputy Minister for Foreign Affairs, East African, Regional and International Co-operation was quoted saying while giving reasons for rejecting the deal.

Ugandan President Yoweri Museveni, in his usual trademark maverick style said he rejected the deal because at first he “thought it was as small deal that could be handled by ministers, but now he sees it’s a big thing that should be handled by presidents who should be given more time”. Well, the EAC has been given an extension till January. But will they sign?

Rwanda, which has been tagged as Kenya’s foremost ally in the region has no qualms signing the deal at all. The country has expressed a fervent eagerness in signing the EPA deal as the country seeks to expand its exports and tap into the EU development funds and boost foreign investments.

Rwanda’s exports have been falling over years, and to cushion the economy from further stress on foreign reserves, the country has embarked on an export diversification plan targeting Europe as one of the markets. Burundi, which is another signatory country has no problem signing the deal, but the country currently is embroiled in a bloodletting political turmoil, and is being accused of human rights abuses by the EU.

The political turmoil and the accusations have created a huge and insuperable wall of virulence between Burundi and the EU, such that signing the EPA deal is no longer a matter of priority between the two.

All said and done, if the EPA deal flops, it is Kenya that stands to lose the most than its regional friends. Failure to see other East African countries sign the deal will see Kenya, which is the only country in the region classified as middle income, others falling under the category of least developed nations, lose preferential treatment for its exports in the European market. The country will be hit with a Sh10 billion annual tax by the EU.

This will make its hitherto valuable exports like fruits, coffee, tea, flowers and vegetables lose their competitive edge in the European market with major repercussions for the economy. The rest of the East African markets have alternative access to EU given their least-developed-nations status.

And finally the EPA question, and Kenya’s interest in the European market, will only be answered by Tanzania’s Burundi’s and Rwanda’s signatures. Lack of which, EPA, and again Kenya’s interest, will be as good as dead and buried.