9. June 2010

East Africa, EU trade talks suffer fresh setback

East Africa’s long running negotiations with Europe over the signing of a new trading agreement appeared headed for the rocks after the parties returned to Dar es Salaam with the old arguments that have stalled the talks for nearly two years.
Hopes that the talks that opened in Tanzania on Monday, June 7, might break the stalemate withered yesterday with the EU expressing fears that the regional assembly’s position on the interim Economic Partnership Agreement (EPAs) may have muddied the waters.
Eric van der Linden, the head of the EU delegation in Kenya, remained cautious over the possibility of landing a new deal citing “negative opinion” from the political class.
“My short answer is no. I note the negative opinion from the East African Legislative Assembly (EALA). While this opinion is perhaps not legally binding, it will no doubt influence politicians,” he said on Tuesday when asked about the prospects of signing an agreement.
Last week, EALA urged EAC member states not to sign the EPAs until all outstanding issues are resolved. Top on the list of sticking points is investment and government procurement as well as the terms of trade that the EU is offering but East Africans see as tilted in favour of Europe.
Enthusiasm was equally lacking from East Africa’s key negotiators. David Nalo, the permanent secretary in Kenya’s Ministry of East African Community, said attempts were being made to reach convergence but nothing had been achieved by close of business on Tuesday.
East Africa is currently trading with Europe on preferential terms but without legal backing after the World Trade Organisation rejected the non-reciprocal trade terms that Europe had offered its former colonies in Africa and the Caribbean since the early 1960s.
The EPA framework that is being negotiated is meant to offer a new road map on how Europe should engage East Africa on matters of trade, and economic development without breaching the WTO rules. It is expected to last another six months pending the signing of a comprehensive EPA by end of year.
Signing of the interim agreement should end two years of brinkmanship that have seen EC officials dangle the stick of EAC losing the concessionary trading terms altogether in the event of failure to meet the set negotiation deadlines. “The situation, as it stands now, is not sustainable,” said Timothy Clarke, the Head of the European Union Delegation in Tanzania in February. “In fact, the current situation is contrary to both EU law and World Trade Organisation rules.” EU is East Africa’s single largest market but Kenya is seen as the biggest possible loser should the talks collapse because it lacks alternative means to trade with Europe upon closure of the preferential window.
Because of its standing as a non-member of the Highly Indebted Poor Country (HIPC), collapse of the talks will force Kenya to trade with the EU on the less generous General System of Preferences (GSP) platform. That means the country’s exports that currently enter the European market on zero tariffs will start attracting duty of between 8.5 per cent and 15.7 per cent. The Trade ministry estimates that loss of tariff preferences with the shift to GSP would cost Kenya investments worth US$700 million and thousands of jobs in the horticulture sector.
Tanzania, Uganda, Rwanda and Burundi are members of the HIPC club and have the option of trading with Europe under the concessionary Everything-But-Arms (EBA) clause of the WTO rules.
These differences are behind Kenya’s deep interest in striking an EPAs deal in the face of the laid-back stance of its EAC partners. “Prolonged impasse on contentious issues in EPAs has created uncertainty among the business community, especially in Kenya,” said Agatha Nderitu, the East African Business Council’s acting executive director in a past interview.
Under the EAC custom union management Act, all the five EAC countries must jointly discuss trade terms with external parties.
But in the EU-EAC EPAs talks, Kenya has been seen as walking a lone path in her push for speedy conclusion of the talks.
Among the sticking points has been a demand by EAC states for an enhanced development budget to compensate them for revenue losses expected to result from removal of tariffs on EU imports. The EC has argued that it already channels a lot of money in development support to the region and will not make additional commitment.
EAC governments maintain that they need additional funding in compensation because a huge influx of EU goods is likely to stifle industrialisation, causing mass joblessness.
Last year, Kenya exported goods worth Sh100.3 billion to Europe against an import worth Sh171.8 billion. Horticulture is the single largest export item to Europe, earning the country more than Sh70 billion per year. “In the horticultural industry, we can’t think of any other option to EPAs because we will be required to pay an external tariff of eight per cent to access European markets under the generalised systems of preferences (GSP) terms,” said Dr Mbithi, CEO of the Fresh Produce Association of Kenya. Kenya’s Trade minister Amos Kimunya reckons that trade with EU has helped the country create more than 1.5 million jobs and Sh70 billion worth of investments in the horticulture and fisheries sectors.
The Dar es Salaam meeting comes nearly six months after the EPAs meeting held in Brussels early this year in which the European Commission is said to have approved the EAC’s development matrix and asked the region’s negotiators to work on the list of projects for funding.
Last week, both the EALA and civil society groups came out to protest the proposed signing of the FEPA, saying the six months it envisages for concluding the full EPAs is not sufficient to tackle all the outstanding issues. “We call upon our governments to guard against being stampeded into far-reaching and irreversible commitments by the promise of funds,” the civil society groups said in a joint statement on Sunday. The group also wants regional negotiators to wait until the impacts of the custom union - which comes into effect next month, become clear and are taken into consideration before signing economic pacts with other regions.
EPAs targets 100 per cent of EU tariff lines and 74 per cent of EAC tariff lines and envisages 100 per cent liberalisation of the EU market with transition periods for rice and sugar. It also proposes an 82 per cent liberalisation of EAC market (64 per cent in two years, 80 per cent in 15 years, and the remainder in 25 years). “One good thing about FEPAs is that they do not include importation of products that the region can produce locally meaning all our sensitive industries like agriculture are protected,” said Dr Mbithi. (Business Daily (Nairobi)


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